Registration No.33-37511
As filed with the Securities and Exchange Commission on April 29, 1996
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No.8 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 9 X
(Check appropriate box or boxes)
TEMPLETON AMERICAN TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (813) 823-8712
Thomas M. Mistele
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
X on MAY 1, 1996 pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a)(1) of Rule 485
on pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on pursuant to paragraph (a)(2) of Rule 485
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
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The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and filed its Rule 24f-2 Notice for the fiscal
year ended December 31, 1995 on February 28, 1996.
TEMPLETON AMERICAN TRUST, INC.
CROSS-REFERENCE SHEET
Part A
Item No. Caption
1 Cover Page
2 Expense Table
3 Financial Highlights
4 General Description;
Investment Techniques
5 Management of the Fund
5A See Annual Report to Shareholders
6 General Information
7 How to Buy Shares of the Fund
8 How to Sell Shares of the Fund
9 Not Applicable
Part B
10 Cover Page
11 Table of Contents
12 General Information and
History
13 Investment Objective and
Policies
14 Management of the Fund
15 Principal Shareholders
16 Investment Management and
Other Services
17 Brokerage Allocation
18 Description of Shares; Part A
19 Purchase, Redemption and
Pricing of Shares
20 Tax Status
21 Principal Underwriter
22 Performance Information
23 Financial Statements
TEMPLETON
AMERICAN TRUST, INC. PROSPECTUS -- MAY 1, 1996
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INVESTMENT Templeton American Trust, Inc. (the "Fund") seeks long-term
OBJECTIVE AND total return through a flexible policy of investing primarily
POLICIES in stocks and debt obligations of U.S. companies. THE FUND
MAY, HOWEVER, INVEST UP TO 35% OF ITS ASSETS IN SECURITIES IN
ANY FOREIGN COUNTRY, DEVELOPED OR DEVELOPING. THE FUND MAY
BORROW MONEY FOR INVESTMENT PURPOSES (LEVERAGING), WHICH MAY
INVOLVE GREATER RISK AND ADDITIONAL COSTS TO THE FUND. SEE
"INVESTMENT TECHNIQUES -- BORROWING." IN ADDITION, THE FUND
MAY INVEST UP TO 10% OF ITS ASSETS IN RESTRICTED SECURITIES,
WHICH MAY INVOLVE GREATER RISK AND INCREASED FUND EXPENSES.
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PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Shareholder Services Department. The Fund offers two classes
to its investors: Templeton American Trust --Class I ("Class
I") and Templeton American Trust--Class II ("Class II").
Investors can choose between Class I Shares, which generally
bear a higher front-end sales charge and lower ongoing Rule
12b-1 distribution fees ("Rule 12b-1 fees"), and Class II
Shares, which generally have a lower front-end sales charge
and higher ongoing Rule 12b-1 fees. Investors should consider
the differences between the two classes, including the impact
of sales charges and distribution fees, in choosing the more
suitable class given their anticipated investment amount and
time horizon. See "How to Buy Shares of the Fund--Differences
Between Class I and Class II." The minimum initial investment
is $100 ($25 minimum for subsequent investments).
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PROSPECTUS This Prospectus sets forth concisely information about the
INFORMATION Fund that a prospective investor ought to know before
investing. Investors are advised to read and retain this
Prospectus for future reference. A Statement of Additional
Information ("SAI") dated May 1, 1996 has been filed with the
Securities and Exchange Commission (the "SEC") and is
incorporated in its entirety by reference in and made a part
of this Prospectus. This SAI is available without charge upon
request to Franklin Templeton Distributors, Inc., P.O. Box
33030, St. Petersburg, Florida 33733-8030 or by calling the
Fund Information Department.
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FUND INFORMATION DEPARTMENT -- 1-800/DIAL BEN_____________________________
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TELEFACTS(R)--Franklin Templeton's automated customer service system (24
hours, seven days a week access to current prices, shareholder account
balances/values, and last transaction)--1-800-247-1753 ACCESS CODES: 100
(CLASS I), 200 (CLASS II)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE TABLE........ 2
FINANCIAL HIGHLIGHTS. 3
GENERAL DESCRIPTION.. 5
Investment Objective
and Policies........ 5
INVESTMENT
TECHNIQUES.......... 6
Debt Securities...... 6
Borrowing............ 6
Loans of Portfolio
Securities.......... 6
Options on Securities
or Indices.......... 7
Forward Foreign
Currency Contracts
and Options on
Foreign Currencies.. 7
Futures Contracts.... 7
Repurchase
Agreements.......... 7
RISK FACTORS......... 8
HOW TO BUY SHARES OF
THE FUND............ 10
Differences Between
Class I and Class
II.................. 10
Deciding Which Class
to Purchase......... 11
Offering Price--Class
I................... 11
Offering Price--Class
II.................. 13
Net Asset Value
Purchases
(Both Classes)...... 13
Description of
Special Net Asset
Value Purchases..... 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Dealer
Compensation (Both
Classes)............ 15
Purchasing Class I
and Class II Shares. 16
Automatic Investment
Plan................ 16
Institutional
Accounts............ 16
Account Statements... 16
TeleFACTS(R) System.. 16
Retirement Plans..... 17
Net Asset Value...... 17
EXCHANGE PRIVILEGE... 17
Exchanges of Class I
Shares.............. 18
Exchanges of Class II
Shares.............. 18
Transfers............ 19
Conversion Rights.... 19
Exchanges by Timing
Accounts............ 19
HOW TO SELL SHARES OF
THE FUND............ 20
Reinstatement
Privilege........... 22
Systematic Withdrawal
Plan................ 22
Redemptions by
Telephone........... 23
Contingent Deferred
Sales Charge........ 23
TELEPHONE
TRANSACTIONS........ 24
Verification
Procedures.......... 24
Restricted Accounts.. 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General.............. 25
MANAGEMENT OF THE
FUND................ 25
Investment Manager... 25
Business Manager..... 26
Transfer Agent....... 26
Custodian............ 26
Plans of
Distribution........ 26
Expenses............. 27
Brokerage
Commissions......... 27
GENERAL INFORMATION.. 27
Description of
Shares/Share
Certificates........ 27
Voting Rights........ 28
Meetings of
Shareholders........ 28
Dividends and
Distributions....... 28
Federal Tax
Information......... 28
Inquiries............ 29
Performance
Information......... 29
Statements and
Reports............. 29
WITHHOLDING
INFORMATION......... 30
CORPORATE RESOLUTION. 31
AUTHORIZATION
AGREEMENT........... 32
THE FRANKLIN
TEMPLETON GROUP..... 33
</TABLE>
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF CAPITAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a Shareholder will bear directly or indirectly
in connection with an investment in the Fund. The figures are estimates of the
Fund's expenses for the current fiscal year, restated to reflect current sales
charges and Rule 12b-1 fees for each class.
<TABLE>
<CAPTION>
CLASS CLASS
I II
----- -----
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price)............................................. 5.75% 1.00%/1/
Deferred Sales Charge........................................ None/2/ 1.00%/3/
Exchange Fee (per transaction)............................... $5.00/4/ $5.00/4/
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fees.............................................. .70% .70%
Rule 12b-1 Fees/5/........................................... .35% 1.00%
Other Expenses (audit, legal, business management, transfer
agent and custodian)........................................ .70% .70%
Total Fund Operating Expenses................................ 1.75% 2.40%
</TABLE>
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/1/ Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fees for Class II may cause Shareholders to pay more
for Class II Shares than for Class I Shares. Given the maximum front-end
sales charge and the rate of Rule 12b-1 fees for each class, it is estimated
that this would take less than six years for Shareholders who maintain total
Shares valued at less than $50,000 in the Franklin Templeton Funds.
Shareholders with larger investments in the Franklin Templeton Funds will
reach the cross-over point more quickly. (See "How to Buy Shares of the
Fund.")
/2/ Class I investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How to Sell Shares of the
Fund--Contingent Deferred Sales Charge."
/3/ Class II Shares redeemed within a "contingency period" of 18 months of the
calendar month of such investments are subject to a 1% contingent deferred
sales charge. See "How to Sell Shares of the Fund--Contingent Deferred Sales
Charge."
/4/ $5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
/5/ Annual Rule 12b-1 fees may not exceed 0.35% of the Fund's average net assets
attributable to Class I Shares and 1% of the Fund's average net assets
attributable to Class II Shares. Consistent with the National Association of
Securities Dealers, Inc.'s rules, it is possible that the combination of
front-end sales charges and Rule 12b-1 fees could cause long-term
Shareholders to pay more than the economic equivalent of the maximum front-
end sales charges permitted under those same rules.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. The information in this table does not reflect the charge of up to
$15 per transaction if a Shareholder requests that redemption proceeds be sent
by express mail or wired to a commercial bank account. For a more detailed
discussion of these matters, investors should refer to the appropriate
sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge and applicable
contingent deferred sales charge, that apply to a $1,000 investment in the
Fund over various time periods assuming (1) a 5% annual rate of return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class I........................ $74 $109 $147 $252
Class II....................... $44 $ 84 $137 $281
You would pay the following ex-
penses on the same investment
in Class II Shares, assuming
no redemption................. $34 $ 84 $137 $281
</TABLE>
For the purpose of this example, it is assumed that a contingent deferred
sales charge will not apply to Class I Shares.
2
THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES, INCLUDING
FEES SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly
by Shareholders as a result of their investment in the Fund. In addition,
federal securities regulations require the example to assume an annual rate of
return of 5%, but the Fund's actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS
The following tables of selected financial information have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, for the
periods indicated in their report which is incorporated by reference and which
appears in the Fund's 1995 Annual Report to Shareholders. These statements
should be read in conjunction with the other financial statements and notes
thereto included in the Fund's 1995 Annual Report to Shareholders, which
contains further information about the Fund's performance, and which is
available to Shareholders upon request and without charge.
<TABLE>
<CAPTION>
CLASS I
-----------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
PER SHARE OPERATING PERFORMANCE DECEMBER 31, 1995
(for a share outstanding throughout the period) -----------------
<S> <C>
Net asset value, beginning of period.......................... $13.37
------
Income from investment operations:
Net investment income....................................... .11
Net realized and unrealized gain............................ 1.21
------
Total from investment operations.......................... 1.32
------
Distributions:
Dividends from net investment income........................ (.20)
Distributions from net realized gains....................... (.26)
------
Total distributions....................................... (.46)
------
Change in net asset value for the period...................... .86
------
Net asset value, end of period................................ $14.23
======
TOTAL RETURN* 9.94%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................. $ 881
Ratio of expenses to average net assets....................... 1.81%**
Ratio of net investment income to average net assets.......... 1.31%**
Portfolio turnover rate....................................... 4.44%
</TABLE>
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* Total return does not reflect sales commissions. Not annualized for periods
of less than one year.
** Annualized.
+ Commencement of sales.
3
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS II
-------------------------------------------------------
FOR THE PERIOD FROM
YEAR ENDED FEBRUARY 7, 1991
PER SHARE OPERATING DECEMBER 31 (COMMENCEMENT
PERFORMANCE ---------------------------------- OF OPERATIONS) TO
(for a share outstanding 1995 1994 1993 1992 DECEMBER 31, 1991
throughout the period) ------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.49 $ 13.39 $ 11.77 $ 11.20 $ 10.00
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income. .14 .04 .04 .10 .08
Net realized and
unrealized gain...... 2.04 .17 1.82 .83 1.22
------- ------- ------- ------- -------
Total from
investment
operations......... 2.18 .21 1.86 .93 1.30
------- ------- ------- ------- -------
Distributions:
Dividends from net
investment income.... (.14) (.05) (.03) (.11) (.08)
Distributions from net
realized gains....... (.28) (1.06) (.21) (.09) (.02)
Distributions in
excess of realized
gains................ -- -- -- (.16) --
------- ------- ------- ------- -------
Total distributions. (.42) (1.11) (.24) (.36) (.10)
------- ------- ------- ------- -------
Change in net asset
value for the period... (1.76) (.90) 1.62 .57 1.20
------- ------- ------- ------- -------
Net asset value, end of
period................. $ 14.25 $ 12.49 $ 13.39 $ 11.77 $ 11.20
======= ======= ======= ======= =======
TOTAL RETURN* 17.55% 1.63% 15.82% 8.33% 13.05%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $44,183 $37,959 $34,418 $27,485 $13,019
Ratio of expenses to
average net assets..... 2.40% 2.47% 2.53% 3.17% 3.94%**
Ratio of expenses, net
of reimbursement, to
average net assets..... 2.40% 2.47% 2.53% 2.25% 2.25%**
Ratio of net investment
income to average net
assets................. .95% 0.34% 0.31% 1.13% 1.64%**
Portfolio turnover rate. 4.44% 31.92% 14.10% 27.91% 9.86%
</TABLE>
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* Total return does not reflect sales charges. Not annualized for periods of
less than one year.
** Annualized.
4
GENERAL DESCRIPTION
Templeton American Trust, Inc. (the "Fund") was incorporated under the laws
of Maryland on October 31, 1990 and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act") as an open-end diversified management
investment company. The Fund offers investors an alternative to direct
investment in stock and debt obligations of U.S. companies, with the benefit
of diversification of portfolio investments, professional portfolio management
of Templeton Investment Counsel, Inc. (the "Investment Manager") and the
relative convenience of investing in and redeeming Fund Shares as opposed to
purchasing and selling individual securities.
The Fund has two classes of Common Shares with a par value of $.01 per
share: Templeton American Trust--Class I and Templeton American Trust--Class
II. All Fund Shares outstanding before May 1, 1995 have been redesignated as
Class II Shares, and will retain their previous rights and privileges, except
for legally required modifications to Shareholder voting procedures, as
discussed in "General Information--Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public Offering Price. The current public
Offering Price of the Class I Shares is equal to the net asset value per Share
(see "How to Buy Shares of the Fund--Net Asset Value"), plus a variable sales
charge not exceeding 5.75% of the Offering Price depending upon the amount
invested. The current public Offering Price of the Class II Shares is equal to
the net asset value per Share, plus a sales charge of 1% of the Offering
Price. (See "How to Buy Shares of the Fund.")
INVESTMENT OBJECTIVE AND POLICIES. The Fund's investment objective is long-
term total return (capital growth and income), which it seeks to achieve
through a flexible policy of investing primarily in stocks and debt
obligations of U.S. companies. As a fundamental policy, the Fund will invest
at least 65% of its total assets in stocks and debt obligations of U.S.
companies (including the U.S. Government and its agencies). The Fund will
invest in common stock, preferred stock and debt obligations (defined as debt
securities, rated or unrated, convertible bonds and bonds selling at a
discount). The Investment Manager will select equity investments for the Fund
on the basis of fundamental company-by-company analysis (rather than broader
analyses of specific industries or sectors of the economy). Although the
Investment Manager will consider historical value measures, such as
price/earnings ratios, operating profit margins and liquidation values, the
primary factor in selecting equity securities will be the company's current
price relative to its long-term earnings potential, as determined by the
Investment Manager. The percentage of the Fund's assets to be invested in
equity and debt securities will vary from time to time, based on the
Investment Manager's assessment of the relative total return potential of
various investment vehicles. There can be no assurance that the Fund's
investment objective will be achieved.
Whenever, in the judgment of the Investment Manager, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limit in money market securities, denominated in U.S. dollars or in
the currency of any foreign country, issued by entities organized in the U.S.
or any foreign country, consisting of: short-term (less than 12 months to
maturity) and medium-term (not greater than five years to maturity)
obligations issued or guaranteed by the U.S. Government or the government of a
foreign country, their agencies or instrumentalities; finance company and
corporate commercial paper, and other short-term corporate obligations, in
each case rated Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1
or better by Standard & Poor's Corporation ("S&P") or, if unrated, of
comparable quality as determined by the Investment Manager; and repurchase
agreements with U.S. banks and broker-dealers with respect to such securities.
In addition, the 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 the Fund will limit its investment in
time deposits for which there is a penalty for early withdrawal to 10% of its
total assets. In the event the Fund adopts a temporary defensive position, the
investment practices described above may not be consistent with the Fund's
stated investment objective.
With respect to 75% of its total assets, the Fund may invest no more than 5%
of its total assets in securities issued by any one company or government,
exclusive of U.S. Government securities. In furtherance of its objective of
long-term total return, the Fund
5
may invest up to 5% of its assets in warrants (excluding warrants acquired in
units or attached to securities). The Fund may not invest more than 15% of its
total assets in securities of foreign issuers which are not listed on a
recognized United States or foreign securities exchange, and may not invest
more than 10% of its total assets in securities which are not publicly traded
or which cannot be readily resold because of legal or contractual
restrictions, or which are not otherwise readily marketable (including
repurchase agreements having more than seven days remaining to maturity), and
over-the-counter options purchased by the Fund. Assets used as cover for over-
the-counter options written by the Fund will be considered not readily
marketable.
The Fund may also lend its portfolio securities and borrow money for
investment purposes (i.e., "leverage" its portfolio). In addition, the Fund
may enter into transactions in options on securities, securities indices and
foreign currencies, forward foreign currency contracts, and futures contracts
and related options, all of which may be classified as derivatives. When
deemed appropriate by the Investment Manager, the Fund may invest cash
balances in repurchase agreements and other money market investments to
maintain liquidity in an amount to meet expenses or for day-to-day operating
purposes. These investment techniques are described below and under the
heading "Investment Objective and Policies" in the SAI.
The Fund does not intend to emphasize short-term trading profits and usually
expects to have a portfolio turnover rate not exceeding 50%.
The Fund's investment objective, as well as certain investment restrictions
described in the SAI, cannot be changed without Shareholder approval. All
other investment policies may be modified by the Fund's Board of Directors.
INVESTMENT TECHNIQUES
The Fund is authorized to use the various investment techniques described
below. 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
Fund in some of the markets in which the Fund may invest and may not be
available for extensive use in the future.
DEBT SECURITIES. The Fund may invest in the debt securities (which may
include structured investments) of companies and governments of any nation.
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 rating upgrades. Additionally, convertible bonds offer the
potential for capital appreciation through the conversion feature, which
enables the holder of the bond to benefit from increases in the market price
of the securities into which they are convertible. See "Investment Objective
and Policies--Debt Securities" as set forth in the SAI.
BORROWING. The Fund may borrow up to one-third (33 1/3%) of the value of its
total assets from banks to increase its holdings of portfolio securities.
Under the 1940 Act, the Fund is required to maintain continuous asset coverage
of 300% with respect to such borrowings and to sell (within three days)
sufficient portfolio holdings to restore such coverage if it should decline to
less than 300% due to market fluctuations or otherwise, even if such
liquidations of the Fund's 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 the Fund's net
asset value, and money borrowed will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances), which may or may not exceed the income received from the
securities purchased with borrowed funds.
LOANS OF PORTFOLIO SECURITIES. The 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.
6
<PAGE>
Government securities or irrevocable letters of credit) in an amount at least
equal (on a daily marked-to-market basis) to the current market value of the
securities loaned. The Fund may terminate the loans at any time and obtain the
return of the securities loaned within five business days. The Fund will
continue to receive any interest or dividends paid on the loaned securities
and will continue to retain any voting rights with respect to the securities.
OPTIONS ON SECURITIES OR INDICES. The Fund may write (i.e., sell) covered
put and call options and purchase put and call options on securities or
securities indices that are traded on United States and foreign exchanges or
in the over-the-counter markets. An option on a security is a contract that
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. The Fund may write a call or put option only if the option is
"covered." This means that so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities subject to the call, or
hold a call at the same exercise price, for the same exercise period, and on
the same securities as the written call. A put is covered if the Fund
maintains liquid assets with a value equal to the exercise price in a
segregated account, or holds a put on the same underlying 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 15% of the total
assets of the Fund. The Fund will not purchase put or call options if the
aggregate premium paid for such options would exceed 5% of its total assets at
the time of purchase.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES. The
Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Fund from adverse changes
in the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. The Fund may enter into a
forward contract, for example, when it enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security. The Fund will not enter into forward
foreign currency contracts if, as a result, the Fund will have more than 20%
of its total assets committed to the consummation of such contracts. The Fund
may also purchase and write put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign
securities to be acquired.
FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell
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 the Fund enters into a futures contract, it must make an initial
deposit, known as "initial margin," as a partial guarantee of its performance
under the contract. As the value of the security, index or currency
fluctuates, either party to the contract is required to make additional margin
payments, known as "variation margin," to cover any additional obligation it
may have under the contract. In addition, when the Fund enters into a futures
contract, it will segregate assets or "cover" its position in accordance with
the 1940 Act. See "Investment Objective and Policies--Futures Contracts" in
the SAI. The Fund may not commit more than 5% of its total assets to initial
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 the Fund.
REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash
management purposes, the Fund may enter into repurchase agreements with U.S.
banks and broker-dealers. Under a repurchase agreement the Fund acquires a
security from a U.S. bank or a registered broker-dealer who simultaneously
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
7
on the underlying security. Under the 1940 Act, repurchase agreements are
considered to be loans collateralized by the underlying security and therefore
will be fully collateralized. However, if the seller should default on its
obligation to repurchase the underlying security, the Fund may experience
delay or difficulty in exercising its rights to realize upon the security and
might incur a loss if the value of the security declines, as well as incur
disposition costs in liquidating the security.
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets. A
decline in the stock market of any country in which the Fund is invested in
equity securities may also be reflected in declines in the price of the Shares
of the Fund. Changes in the prevailing rates of interest in any of the
countries in which the 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 Fund Shares. In
addition, changes in currency valuations will affect the price of the Shares
of the 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 reoccur unpredictably in the future.
Additionally, investment decisions made by the Investment Manager will not
always be profitable or prove to have been correct. The Fund is not intended
as a complete investment program.
The Fund may invest up to 35% of its total assets in securities in any
foreign country, developed or developing, if they are listed on a stock
exchange, and has a limited right to purchase such securities if they are
unlisted. Investors should consider carefully the risks associated with
investing in foreign securities, which are in addition to the usual risks
inherent in domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in the
foreign nation or other taxes imposed with respect to investments in the
foreign nation, 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. Also,
some countries may withhold portions of interest and dividends at the source.
In addition, in many countries there is less publicly available information
about issuers than is available in reports about companies in the United
States. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. The Fund may encounter difficulties or be unable to vote proxies,
exercise shareholder rights, pursue legal remedies, and obtain judgments in
foreign courts.
Brokerage commissions, custodial services, and other costs relating to
investment in foreign countries are generally more expensive than in the
United States. Foreign securities markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. 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 Russian securities market are
discussed more fully in the SAI under the caption "Investment
8
Objectives and Policies--Risk Factors" and investors should read this section
in detail. As a non-fundamental policy, the Fund will limit its investments in
Russian companies to 5% of its total assets.
In many foreign countries there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increased risk,
therefore, of uninsured loss due to lost, stolen, or counterfeit stock
certificates. In addition, the foreign securities markets of any of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. As an
operating policy, the Fund may invest no more than 5% of its assets in Eastern
European countries, which involve special risks that are described under
"Investment Objective and Policies--Risk Factors" in the SAI.
Prior governmental approval of foreign 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 Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade.
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange transactions (to cover service
charges) will be incurred when the Fund converts assets from one currency to
another.
The Fund is authorized to invest in medium quality or high-risk, lower
quality debt securities that are rated between BBB and as low as C by S&P, and
between Baa and as low as C by Moody's or, if unrated, are of equivalent
investment quality as determined by the Investment Manager. As an operating
policy, which may be changed by the Board of Directors without Shareholder
approval, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's. The Board may
consider a change in this operating policy if, in its judgment, economic
conditions change such that a higher level of investment in high-risk, lower
quality debt securities would be consistent with the interests of the Fund and
its Shareholders. See "Investment Objective and Policies--Debt Securities" in
the SAI for descriptions of debt securities rated BBB by S&P and Baa by
Moody's. High-risk, lower quality debt securities, commonly referred to 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 the Investment Manager to insure, to the extent
possible, that the planned investment is sound. The Fund may, from time to
time, purchase defaulted debt securities if, in the opinion of the Investment
Manager, the issuer may resume interest payments in the near future. As a
fundamental policy, the Fund will not invest more than 10% of its total assets
(at the time of purchase) in defaulted debt securities, which may be illiquid.
Leveraging by means of borrowing may exaggerate the effect of any increase
or decrease in the value of portfolio securities on the Fund's net asset
value, and money borrowed will be subject to interest and other costs (which
may include commitment fees and/or the cost of maintaining minimum average
balances) which may or may not exceed the income received from the securities
purchased with borrowed funds.
9
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
the Fund's portfolio. Successful use of futures or options contracts is
further dependent on the Investment Manager's ability to correctly predict
movements in the securities or foreign currency markets and no assurance can
be given that its judgment will be correct. Successful use of options on
securities or stock indices is subject to similar risk considerations.
There are further risk factors, including possible losses through the
holding of securities in domestic and foreign custodian banks and
depositories, described elsewhere in the Prospectus and in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter of the Shares of the Fund, or directly from
FTD, upon receipt by FTD of a completed Shareholder Application and check
payable in U.S. currency. Shares of both classes of the Fund are offered at
their respective public Offering Prices, which are determined by adding the
net asset value per Share plus a front-end sales charge, next computed (i)
after the Shareholder's securities dealer receives the order which is promptly
transmitted to the Fund or (ii) after receipt of an order by mail from the
Shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The minimum
initial investment is $100, and subsequent investments must be $25 or more.
These minimums may be waived when the Shares are being purchased through
retirement plans providing for regular periodic investments, as described
below under "Retirement Plans."
DIFFERENCES BETWEEN CLASS I AND CLASS II. The differences between Class I
and Class II Shares lie primarily in their front-end and contingent deferred
sales charges and Rule 12b-1 fees as described below.
Class I. Voting rights of each class will be the same on matters affecting
the Fund as a whole, but each will vote separately on matters affecting its
class. Class I Shares are generally subject to a variable sales charge upon
purchase and not subject to any sales charge upon redemption. Class I Shares
are subject to Rule 12b-1 fees of up to an annual maximum of 0.35% of average
daily net assets of such Shares. With this multiclass structure, Class I
Shares have higher front-end sales charges than Class II Shares and
comparatively lower Rule 12b-1 fees. Class I Shares may be purchased at
reduced front-end sales charges, or at net asset value, if certain conditions
are met. In most circumstances, contingent deferred sales charges will not be
assessed against redemptions of Class I Shares. See "Management of the Fund"
and "How to Sell Shares of the Fund" for more information.
Class II. All Fund Shares outstanding before the implementation of the
multiclass structure have been redesignated as Class II Shares, and will
retain their previous rights and privileges. The current public Offering Price
of Class II Shares is equal to the net asset value per Share, plus a front-end
sales charge of 1% of the Offering Price. Class II Shares are also subject to
a contingent deferred sales charge of 1% if Shares are redeemed within
18 months of the calendar month of the purchase. This supersedes the
contingent deferred sales charge schedule previously applicable to such
Shares. In addition, Class II Shares are subject to Rule 12b-1 fees of up to a
maximum of 1% per annum of average daily net assets of such Shares. Class II
Shares have lower front-end sales charges than Class I Shares and
comparatively higher Rule 12b-1 fees. See "How to Sell Shares of the Fund--
Contingent Deferred Sales Charge."
Purchases of Class II Shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since that is more beneficial to investors. Such purchases, however,
may be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II Shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares.
10
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which
class of Shares to purchase. Generally, an investor who expects to invest less
than $50,000 in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of investment
should consider purchasing Class II Shares. However, the higher Rule 12b-1
fees on the Class II Shares will result in higher operating expenses, which
will accumulate over time to outweigh the difference in front-end sales
charges, and will lower income dividends for Class II Shares. For this reason,
Class I Shares may be more attractive to long-term investors even if no sales
charge reductions are available to them.
Investors who qualify to purchase Class I Shares at reduced sales charges
definitely should consider purchasing Class I Shares, especially if they
intend to hold their Shares approximately six years or more. Investors who
qualify to purchase Class I Shares at reduced sales charges but who intend to
hold their Shares less than approximately six years should evaluate whether it
is more economical to purchase Class I Shares through a Letter of Intent or
under cumulative quantity discount rather than purchasing Class II Shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED
FROM PURCHASING CLASS II SHARES.
Each class represents the same interest in the investment portfolio of the
Fund and has the same rights, except that each class has a different sales
charge, bears the separate expenses of its Rule 12b-1 distribution plan, and
has exclusive voting rights with respect to such plan. The two classes also
have separate exchange privileges.
Each class also has a separate schedule for compensating securities dealers
for selling Fund Shares. Investors should take all of the factors regarding an
investment in each class into account before deciding which class of Shares to
purchase.
OFFERING PRICE--CLASS I. The sales charge for Class I Shares is a variable
percentage of the Offering Price depending upon the amount of the sale. The
method of calculating net asset value per Share is described below under "Net
Asset Value".
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual together with his or her spouse and, their
children under age 21 and their grandchildren under age 21, or by a single
trust or fiduciary account, is the net asset value per Share plus a sales
charge not exceeding 5.75% of the Offering Price (equivalent to 6.10% of the
net asset value), which is reduced on larger sales as shown below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS/1/,/3/
- ----------------- --------------------- ---------------------- --------------------------
<S> <C> <C> <C>
Less than $50,000....... 5.75% 6.10% 5.00%
$50,000 but less than
$100,000............... 4.50% 4.71% 3.75%
$100,000 but less than
$250,000............... 3.50% 3.63% 2.80%
$250,000 but less than
$500,000............... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000............. 2.00% 2.04% 1.60%
$1,000,000 or more...... none none (see below)/2/
</TABLE>
- -------
/1/ Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
/2/ The following commissions will be paid by FTD to dealers who initiate and
are responsible for purchases of $1 million or more: 1% on sales of up to $2
million, plus 0.80% on sales of $2 million to $3 million, plus 0.50% on
sales of $3 million to $50 million, plus 0.25% on sales of $50 million to
$100 million, plus 0.15% on sales in excess of $100 million.
/3/ At the discretion of FTD, all sales charges may at times be reallowed to the
securities dealer. If 90% or more of the sales commission is reallowed, such
securities dealer may be deemed to be an underwriter as that term is defined
in the Securities Act of 1933.
11
No front-end sales charge applies to investments of $1 million or more, but
a contingent deferred sales charge of 1% is imposed on certain redemptions of
all or a portion of investments of $1 million or more within 12 months of the
calendar month of such investments ("contingency period"). See "How to Sell
Shares of the Fund--Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on
the purchase of Class I Shares is determined by adding the amount of the
Shareholder's current purchase plus the cost or current value (whichever is
higher) of a Shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds(R) and the Templeton Family of Funds. Included for
these aggregation purposes are (i) the mutual funds in the Franklin Group of
Funds(R) except Franklin Valuemark Funds and Franklin Government Securities
Trust (the "Franklin Funds"); (ii) the U.S.-registered mutual funds in the
Templeton Family of Funds except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, and Templeton Variable Products Series Fund
(the "Templeton Funds"). (Franklin Funds and Templeton Funds are collectively
referred to as the "Franklin Templeton Funds.")
Other Payments to Securities Dealers. FTD, or one of its affiliates, may
make payments, from its own resources, of up to 1% of the purchase price to
securities dealers who initiate and are responsible for purchases made at net
asset value by certain designated retirement plans (as defined below)
(excluding IRA and IRA rollovers), certain non-designated plans (as defined
below), certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of
$1 million or more. See definitions under "Description of Special Net Asset
Value Purchases" below and as set forth in the SAI.
Payments by FTD or one of its affiliates to securities dealers of up to 1%
of the purchase price of Class I Shares (purchased at net asset value), may
not be made to the extent such persons are compensated by FTD or one of its
affiliates for administration or recordkeeping costs for retirement plans.
Cumulative Quantity Discount. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (i) the
value (calculated at the applicable Offering Price) or (ii) the purchase price
of Franklin Templeton Funds. The cumulative quantity discount applies to
Franklin Templeton Funds owned at the time of purchase by the purchaser, his
or her spouse, their children under age 21, and their grandchildren under age
21. In addition, the aggregate investments of a trustee or other fiduciary
account (for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is available, even
though there may be a number of beneficiaries of the account. For example, if
the investor held Class I Shares valued at $40,000 (or, if valued at less than
$40,000, had been purchased for $40,000) and purchased an additional $20,000
of the Fund's Class I Shares, the sales charge for the $20,000 purchase would
be at the rate of 4.50%. It is FTD's policy to give investors the best sales
charge rate possible; however, there can be no assurance that an investor will
receive the appropriate discount unless, at the time of placing the purchase
order, the investor or the dealer makes a request for the discount and gives
FTD sufficient information to determine whether the purchase will qualify for
the discount. On telephone orders from dealers for the purchase of Class I
Shares to be registered in "street name," FTD will accept the dealer's
instructions with respect to the applicable sales charge rate to be applied.
The cumulative quantity discount may be amended or terminated at any time.
Letter of Intent. An investor may be eligible for reduced sales charges on
all investments in Class I Shares by means of a Letter of Intent ("LOI") which
expresses the investor's intention to invest a certain amount within a 13-
month period in Class I Shares of the Fund or any other Franklin Templeton
Fund. See the Shareholder Application. Except for certain employee benefit
plans, the minimum initial investment under an LOI is 5% of the total LOI
amount. Except for Shares purchased by certain employee benefit plans, Shares
purchased with the first 5% of such amount will be held in escrow to secure
payment of the higher sales charge applicable to the Shares actually purchased
if the full amount indicated is not purchased, and such escrowed Shares will
be involuntarily redeemed to pay the additional sales charge, if necessary. A
purchase not originally made pursuant to an LOI may be included under a
subsequent LOI executed within 90 days of the purchase. Any redemptions made
by the Shareholder, other than by certain employee benefit plans
12
during the 13-month period will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the LOI have been completed.
For a further description of the Letter of Intent, see "Purchase, Redemption
and Pricing of Shares -- Letter of Intent" in the SAI.
Group Purchases. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Class I Shares and now were
investing $25,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per Share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.
OFFERING PRICE--CLASS II. Unlike Class I Shares, the front-end sales charges
and dealer concessions for Class II Shares do not vary depending on the amount
of purchase. The total sales charges or underwriting commissions and dealer
concessions for Class II Shares are set forth below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-------------------------------
AS A AS A
PERCENTAGE OF PERCENTAGE OF PORTION OF
OFFERING PRICE NET ASSET TOTAL OFFERING
AMOUNT OF SALE OF THE SHARES VALUE OF THE PRICE RETAINED
AT OFFERING PRICE PURCHASED SHARES PURCHASED BY DEALERS*
- ----------------- -------------- ---------------- --------------
<S> <C> <C> <C>
any amount (less than $1
million)....................... 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD, or one of its affiliates, may make additional payments to securities
dealers, from its own resources, of up to 1% of the amount invested. During
the first year following a purchase of Class II Shares for Shares purchased
on or after May 1, 1995, and during the first two years for Shares purchased
before that date, FTD will keep a portion of the Rule 12b-1 fees assessed on
those Shares to partially recoup fees FTD pays to securities dealers.
Class II Shares redeemed within 18 months of their purchase will be assessed
a contingent deferred sales charge of 1% on the lesser of the then-current net
asset value or the net asset value of such Shares at the time of purchase,
unless such charge is waived as described under "How To Sell Shares of the
Fund--Contingent Deferred Sales Charge."
NET ASSET VALUE PURCHASES (BOTH CLASSES). Class I Shares may be purchased
without the imposition of a front-end sales charge ("net asset value") or a
contingent deferred sales charge by: (i) officers, trustees, directors, and
full-time employees of the Fund, any of the Franklin Templeton Funds, or
Franklin Resources, Inc. and it subsidiaries ( the "Franklin Templeton
Group"), and their spouses and family members, including any subsequent
payments made by such parties after cessation of employment; (ii) companies
exchanging Shares with or selling assets pursuant to a merger, acquisition or
exchange offer; (iii) group annuity separate accounts offered to retirement
plans; (iv) accounts managed by the Franklin Templeton Group; (v) certain unit
investment trusts and unit holders
13
of such trusts reinvesting their distributions from the trusts in the Fund;
(vi) registered securities dealers and their affiliates, for their investment
account only; and (vii) registered personnel and employees of securities
dealers and their affiliates, and their spouses and family members, in
accordance with the internal policies and procedures of the employing
securities dealer.
For either Class I or Class II, the same class of Shares of the Fund may be
purchased at net asset value with the proceeds from (i) a redemption of Shares
of the Fund or shares of any other Franklin Templeton Fund, (unless the
redemption proceeds are from Class I shares of a fund with a lower initial
sales charge than that charged by the Fund and have been held in that fund for
less than six months), and except any of the Franklin Templeton money market
funds or (ii) a dividend or distribution paid by any of the Franklin Templeton
Funds or received from a real estate investment trust ("REIT") sponsored or
advised by Franklin Properties, Inc., within 365 days after the date of the
redemption or dividend or distribution. See "How to Sell Shares of the Fund--
Reinstatement Privilege." Class II Shareholders may also invest such
distributions at net asset value in Class I shares of a Franklin Templeton
Fund.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge with the proceeds of an
annuity payment received under either an annuity option or from death benefit
proceeds, provided that the annuity contract offers as one underlying
investment option the Franklin Valuemark Funds, Templeton Variable Annuity
Fund, the Templeton Variable Products Series Fund, or the Franklin Government
Securities Trust. You must return such payment within 365 days of its payment
date. (You should contact your tax advisor for information on any tax
consequences of such purchases.)
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds, which was subject to a front-end sales charge or
a contingent deferred sales charge and which has investment objectives similar
to those of the Fund.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers, on behalf
of their clients, who are participating in a comprehensive fee program. These
programs are sometimes known as wrap fee programs, are sponsored by the
broker-dealer, and are either advised by the broker-dealer or by another
registered investment advisor affiliated with that broker-dealer.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton
Profit Sharing 401(k) plan), to the extent of such distribution. In order to
exercise this privilege, a written order for the purchase of Shares of the
Fund must be received by Franklin Templeton Trust Company ("FTTC"), the Fund,
or Franklin Templeton Investor Services, Inc. (the "Transfer Agent") within
365 days after the plan distribution.
Class I Shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a securities dealer who has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment, out of
its own resources, to such securities dealer in an amount not to exceed 0.25%
of the amount invested. Contact Franklin Templeton Institutional Services for
additional information.
To qualify to buy Shares at net asset value, please specify in writing the
privilege that applies to the purchase and include a written statement with
the purchase order. Neither the Fund nor the Transfer Agent will be
responsible for purchases that are not made at net asset value if this written
statement is not included with the order.
14
To qualify to buy Shares at net asset value, please specify in writing the
privilege that applies to the purchase and include that written statement with
the purchase order. Neither the Fund nor the Transfer Agent will be
responsible for purchases that are not made at net asset value if this written
statement is not included with the order.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES. Class I Shares may also be
purchased at net asset value and without the imposition of a contingent
deferred sales charge by certain designated retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with respect to number
of employees or amount of purchase, which may be established by FTD.
Currently, those criteria require that the employer establishing the plan have
200 or more employees or that the amount invested or to be invested during the
subsequent 13-month period in the Fund or in any of the Franklin Templeton
Funds totals at least $1 million. Employee benefit plans not designated above
or qualified under Section 401 of the Code ("non-designated plans") may be
afforded the same privilege if they meet the above requirements as well as the
uniform criteria for qualified groups previously described under "Group
Purchases," which enable FTD to realize economies of scale in its sales
efforts and sales-related expenses.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13 month period in the Fund or any of the
Franklin Templeton Funds must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check, or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $1 million or more,
without regard to where such assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases
of Class I Shares.
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD, or one of its
affiliates, from its own resources, may also provide additional compensation
to securities dealers in connection with sales of shares of the Franklin
Templeton Funds. Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of the Franklin
Templeton Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Franklin Templeton Funds. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. In addition, FTD or its
affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.
Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares, and 1% of the
average daily net asset value of Class II Shares, registered in the name of
that broker-dealer as nominee or held in a Shareholder account that designates
that broker-dealer as dealer of record. These payments are made in order to
promote selling efforts and to compensate dealers for providing certain
services, including processing purchase and redemption transactions,
15
establishing Shareholder accounts and providing certain information and
assistance with respect to the Fund. For purchases of Class I Shares, the
dealer will receive ongoing payments beginning in the thirteenth month after
the date of purchase. For all purchases of Class II Shares, the dealer will
receive payments representing a service fee (0.25% of average daily net asset
value of the Shares) beginning in the first month after the date of the
purchase, and will receive additional payments representing compensation for
distribution (0.75% of average daily net asset value of the Shares) beginning
in the 13th month after the date of the purchase and beginning May 1, 1997 for
purchases before May 1, 1995.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders,
investors should clearly indicate which class of Shares they intend to
purchase. A purchase order that fails to specify a class will automatically be
invested in Class I Shares. Purchases of $1 million or more in a single
payment will be invested in Class I Shares. There are no conversion features
attached to either class of Shares.
Investors who qualify to purchase Class I Shares at net asset value should
purchase Class I rather than Class II Shares. See the section "Net Asset Value
Purchases (Both Classes)" and "Description of Special Net Asset Value
Purchases" above for a discussion of when Shares may be purchased at net asset
value.
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange ("NYSE")
and transmit it to FTD by 5:00 p.m., New York time, for the investor to
receive that day's Offering Price. Payment for such orders must be by check in
U.S. currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the U.S. and, if over $100,000, may not be deemed to
have been received until the proceeds have been collected unless the check is
certified or issued by such bank. Any subscription may be rejected by FTD or
by the Fund.
The Fund may impose a $10 charge against a Shareholder account in the event
that a check or draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.
Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) order to insure that it has been accurately
recorded in the investor's account.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received at least 10 days prior to the collection date,
or by FTD upon written notice to the investor at least 30 days prior to the
collection date.
INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may be additional methods
of opening accounts, and purchasing, redeeming or exchanging Shares of the
Fund available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.
TELEFACTS(R) SYSTEM. From a touch-tone phone, Templeton and Franklin
shareholders may access an automated system (day or night) which offers the
following features. By calling the TeleFACTS(R) system at 1-800-247-1753,
shareholders may obtain Class I and Class II account information, current
price and, if available, yield or other performance information specific to
the Fund or any Franklin Templeton Fund. The codes for the Fund, which will be
needed to access information, are 100 and 200 for Class I and Class II,
16
Templeton Fund. The codes for the Fund, which will be needed to access
information, are 100 and 200 for Class I and Class II, respectively. In
addition, Class I and Class II shareholders may request duplicate confirmation
or year-end statements and deposit slips. Franklin Class I shareholders also
may process an exchange, within the same class, into an identically registered
Franklin account.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which FTTC or its affiliate
acts as trustee or custodian: IRAs, Simplified Employee Pensions, 403(b)
plans, qualified plans for corporations, self-employed individuals or
partnerships, and 401(k) plans. A plan document must be adopted in order for a
retirement plan to be in existence. For further information about any of the
plans, agreements, applications and annual fees, contact FTD. To determine
which retirement plan is appropriate, an investor should contact his or her
tax adviser.
NET ASSET VALUE. The net asset value per Share of each class of the Fund is
determined as of the scheduled closing time of the NYSE (generally 4:00 p.m.,
New York time) each day that the NYSE is open for trading, by dividing the
value of the Fund's securities plus any cash and other assets (including
accrued interest and dividends receivable) less all liabilities (including
accrued expenses) by the number of Shares outstanding, adjusted to the nearest
whole cent. A security listed or traded on a recognized stock exchange or
NASDAQ is valued at its last sale price on the principal exchange on which the
security is traded. The value of a foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which
it is traded, or as of the scheduled closing time of the NYSE, if that is
earlier, and that value is then converted into its U.S. dollar equivalent at
the foreign exchange rate in effect at noon, New York time, on the day the
value of the foreign security is determined. If no sale is reported at that
time, the mean between the current bid and asked price is used. Occasionally,
events which affect the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of the
NYSE, and will therefore not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at fair value as
determined by the management and approved in good faith by the Board of
Directors. All other securities for which over-the-counter market quotations
are readily available are valued at the mean between the current bid and asked
price. Securities for which market quotations are not readily available and
other assets are valued at fair value as determined by the management and
approved in good faith by the Board of Directors.
Each of the Fund's classes will bear, pro-rata, all of the common expenses
of the Fund. The net asset value of all outstanding Shares of each class of
the Fund will be computed on a pro-rata basis for each outstanding Share based
on the proportionate participation in the Fund represented by the value of
Shares of such classes, except that the Class I and Class II Shares will bear
the Rule 12b-1 expenses payable under their respective plans. Due to the
specific distribution expenses and other costs that will be allocable to each
class, the dividends paid to each class of the Fund may vary.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
Franklin Templeton Funds which are eligible for sale in the Shareholder's
state of residence and in conformity with such funds' stated eligibility
requirements and investment minimums. Some funds, however, may not offer Class
II shares. Class I Shares may be exchanged for Class I shares of any Franklin
Templeton Funds. Class II Shares may be exchanged for Class II shares of any
Franklin Templeton Funds. No exchanges between different classes of shares
will be allowed. A contingent deferred sales charge will not be imposed on
exchanges. If the exchanged Shares were subject to a contingent deferred sales
charge in the original fund purchased, and Shares are subsequently redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date, a contingent deferred sales
charge will be imposed. The period will be tolled (or stopped) for the period
Class I Shares are exchanged into and held in a Franklin Templeton money
market fund. See also "How to Sell Shares of the Fund--Contingent Deferred
Sales Charge."
17
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. Exchanges of the same
class of shares are made on the basis of the net asset values of the class
involved, except as set forth below. Exchanges of shares of a class which were
originally purchased without a sales charge will be charged a sales charge in
accordance with the terms of the prospectus of the fund and the class of
shares being purchased, unless the original investment on which no sales
charge was paid was transferred in from a fund on which the investor paid a
sales charge. Exchanges of shares from the Franklin Templeton money market
funds are subject to applicable sales charges on the funds being purchased,
unless the Franklin Templeton money market fund shares were acquired by an
exchange from a fund having a sales charge, or by reinvestment of dividends or
capital gain distributions. Exchange of Class I Shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. All exchanges are permitted
only after at least 15 days have elapsed from the date of the purchase of the
Shares to be exchanged.
A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or--
if the Shareholder Application indicates that the Shareholder has not declined
the option--by telephoning 1-800-632-2301. Telephone exchange instructions
must be received by FTD by the scheduled closing time of the NYSE (generally
4:00 p.m., New York time). Telephonic exchanges can involve only Shares in
non-certificated form. Shares held in certificate form are not eligible, but
may be returned and qualify for these services. All accounts involved in a
telephonic exchange must have the same registration and dividend option as the
account from which the Shares are being exchanged. The Fund and the Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone
Transactions--Verification Procedures." Forms for declining the telephone
exchange privilege and prospectuses of the other funds in the Franklin
Templeton Group may be obtained from FTD. Exchange redemptions and purchases
are processed simultaneously at the share prices next determined after the
exchange order is received. See "How to Buy Shares of the Fund--Offering
Price." A gain or loss for tax purposes generally will be realized upon the
exchange, depending on the tax basis of the Shares redeemed.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold, and may be modified, limited or terminated
at any time by the Fund upon 60 days' written notice. A Shareholder who wishes
to make an exchange should first obtain and review a current prospectus of the
fund into which he or she wishes to exchange. Broker-dealers who process
exchange orders on behalf of their customers may charge a fee for their
services. Such fee may be avoided by making requests for exchange directly to
the Transfer Agent.
If a substantial portion of the Fund's Shareholders should, within a short
period, elect to redeem their Shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold, and incur the additional costs related to such transactions.
On the other hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the general
policy of the Fund to initially invest this money in short-term, interest-
bearing money market instruments, unless it is felt that attractive investment
opportunities consistent with the Fund's investment objective exist
immediately. Subsequently, this money will be withdrawn from such short-term
money market instruments and invested in portfolio securities in as orderly a
manner as is possible when attractive investment opportunities arise.
EXCHANGES OF CLASS I SHARES. The contingency period of Class I Shares will
be tolled (or stopped) for the period such Shares are exchanged into and held
in a Franklin Templeton Class I money market fund. If a Class I account has
Shares subject to a contingent deferred sales charge, Class I Shares will be
exchanged into the new account on a "first-in, first-out" basis. See also "How
to Sell Shares of the Fund--Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES. When an account is composed of Class II Shares
subject to the contingent deferred sales charge, and Shares that are not, the
Shares will be transferred proportionately into the new fund. Shares received
from reinvestment of dividends and capital gains are referred to as "free
Shares," Shares which were originally subject to a contingent deferred sales
18
charge but to which the contingent deferred sales charge no longer applies are
called "matured Shares," and Shares still subject to the contingent deferred
sales charge are referred to as "CDSC liable Shares." CDSC liable Shares held
for different periods of time are considered different types of CDSC liable
Shares. For instance, if a Shareholder has $1,000 in free Shares, $2,000 in
matured Shares, and $3,000 in CDSC liable Shares, and the Shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from free Shares,
$1,000 from matured Shares, and $1,500 from CDSC liable Shares. Similarly, if
CDSC liable Shares have been purchased at different periods, a proportionate
amount will be taken from Shares held for each period. If, for example, the
Shareholder holds $1,000 in Shares bought three months ago, $1,000 bought six
months ago, and $1,000 bought nine months ago, and the Shareholder exchanges
$1,500 into a new fund, $500 from each of these Shares will be exchanged into
the new fund.
The only money market fund exchange option available to Class II
Shareholders is the Franklin Templeton Money Fund II ("Money Fund II"), a
series of the Franklin Templeton Money Fund Trust. No drafts (checks) may be
written on Money Fund II accounts, nor may Shareholders purchase shares of
Money Fund II directly. Class II Shares exchanged for shares of Money Fund II
will continue to age and a contingent deferred sales charge will be assessed
if CDSC liable Shares are redeemed. No other money market funds are available
for Class II Shareholders for exchange purposes. Class I Shares may be
exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these money market funds as described in their
respective prospectuses.
To the extent Shares are exchanged proportionately, as opposed to another
method, such as "first-in, first-out," or free Shares followed by CDSC liable
Shares, the exchanged Shares may, in some instances, be CDSC liable even
though a redemption of such Shares, as discussed elsewhere herein, may no
longer be subject to a CDSC. The proportional method is believed by management
to more closely meet and reflect the expectations of Class II Shareholders in
the event Shares are redeemed during the contingency period. For federal
income tax purposes, the cost basis of Shares redeemed or exchanged is
determined under the Code without regard to the method of transferring Shares
chosen by the Fund for purposes of exchanging or redeeming Shares.
TRANSFERS. Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable events, and are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Shares of each class will
be transferred on the same basis as described above for exchanges.
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares. A Shareholder may, however, sell Class II
Shares and use the proceeds to purchase Class I Shares, subject to all
applicable sales charges.
EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase Shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.
The Fund reserves the right temporarily or permanently to terminate the
exchange privilege or reject any specific purchase order for any Timing
Account or any person whose transactions seem to follow a timing pattern and
who: (i) makes an exchange request out of the Fund within two weeks of an
earlier exchange request out of the Fund, (ii) makes more than two exchanges
out of the Fund per calendar quarters, or (iii) exchanges Shares equal in
value to at least $5 million, or more than 1% of the Fund's net assets.
Accounts under common ownership or control, including accounts administered so
as to redeem to purchase Shares based upon certain predetermined market
indicators, will be aggregated for purposes of the exchange limits.
In addition, the Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund may
be restricted or
19
refused if the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a pattern of
exchanges that coincides with a "market timing" strategy may be disruptive to
the Fund and therefore may be refused.
Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.
HOW TO SELL SHARES OF THE FUND
Shares will be redeemed on request of the Shareholder in "Proper Order" to
the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO REDEEM MUST MEET
ALL OF THE FOLLOWING REQUIREMENTS:
1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed. The request must be sent to Franklin Templeton
Investor Services, Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including: (a) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (b) national securities
exchanges, registered securities associations and clearing agencies; (c)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (d)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A notarized
signature will not be sufficient for the request to be in Proper Order. If the
Shares are registered in more than one name, the signature of each of the
redeeming Shareholders must be guaranteed. A signature guarantee is not
required for redemptions of $50,000 or less, requested by and payable to all
Shareholders of record, to be sent to the address of record for that account.
However, the Fund reserves the right to require signature guarantees on all
redemptions. A signature guarantee is required in connection with any written
request for transfer of Shares. Also, a signature guarantee is required if the
Fund or the Transfer Agent believes that a signature guarantee would protect
against potential claims based on the transfer instructions, including, for
example, when: (i) the current address of one or more joint owners of an
account cannot be confirmed; (ii) multiple owners have a dispute or give
inconsistent instructions to the Fund; (iii) the Fund has been notified of an
adverse claim; (iv) the instructions received by the Fund are given by an
agent, not the actual registered owner; (v) the Fund determines that joint
owners who are married to each other are separated or may be the subject of
divorce proceedings; or (vi) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder, with signature(s) guaranteed as
described in Item 2 above;
4. Liquidation requests of corporate, partnership, trust and custodial
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
. Corporation--(i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory in the Transfer Agent;
. Partnership--(i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;
. Trust--(i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust
document listing the trustee(s) or a certificate of incumbency if the
trustee(s) are not listed on the account registration;
. Custodial (other than a retirement account)--Signature guaranteed
letter of instruction from the custodian;
20
. Accounts under court jurisdiction--Check court documents and the
applicable state law since these accounts have varying requirements,
depending upon the state of residence; and
5. Redemption of Shares held in a retirement plan for which FTTC or its
affiliate acts as trustee or custodian must conform to the distribution
requirements of the plan and the Fund's redemption requirements above.
Distributions from such plans are subject to additional requirements under the
Code, and certain documents (available from the Transfer Agent) must be
completed before the distribution may be made. For example, distributions from
retirement plans are subject to withholding requirements under the Code, and
the IRS Form W-4P (available from the Transfer Agent) may be required to be
submitted to the Transfer Agent with the distribution request, or the
distribution will be delayed. Franklin Templeton Investor Services, Inc. and
its affiliates assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws and will not be responsible
for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Shareholder Services Department by
calling 1-800-632-2301.
Redemptions will be effected at the net asset value of the Shares next
computed after the redemption request in Proper Order is received by the
Transfer Agent. A gain or loss for tax purposes generally will be realized
upon the redemption, depending on the tax basis of the Shares redeemed.
Redemption proceeds will be reduced by the amount of any applicable contingent
deferred sales charge (see below). Payment of the redemption price ordinarily
will be made by check (or by wire at the sole discretion of the Transfer Agent
if wire transfer is requested, including name and address of the bank and the
Shareholder's account number to which payment of the redemption proceeds is to
be wired) within seven days after receipt of the redemption request in Proper
Order. However, if Shares have been purchased by check, the Fund will make
redemption proceeds available when a Shareholder's check received for the
Shares purchased has been cleared for payment by the Shareholder's bank,
which, depending upon the location of the Shareholder's bank, could take up to
15 days or more. The redemption check will be mailed by first-class mail to
the Shareholder's registered address (or as otherwise directed). Remittance by
wire (to a commercial bank account in the same name(s) as the Shares are
registered) or express mail, if requested, are subject to a handling charge of
up to $15, which will be deducted from the redemption proceeds.
The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the NYSE on that day. Dealers have the responsibility
of submitting such repurchase requests by calling not later than 5:00 p.m.,
New York time, on such day in order to obtain that day's applicable redemption
price. Repurchase proceeds will be reduced by the amount of any applicable
contingent deferred sales charge (see below). Repurchase of Shares is for the
convenience of Shareholders and does not involve a charge by the Fund;
however, securities dealers may impose a charge on the Shareholder for
transmitting the notice of repurchase to the Fund. The Fund reserves the right
to reject any order for repurchase, which right of rejection might adversely
affect Shareholders seeking redemption through the repurchase procedure.
Ordinarily payment will be made to the securities dealer within seven days
after receipt of a repurchase order and Share certificate (if any) in "Proper
Order" as set forth above. The Fund will also accept, from member firms of the
NYSE, orders to repurchase Shares for which no certificates have been issued
by wire or telephone without a redemption request signed by the Shareholder,
provided the member firm indemnifies the Fund and FTD from any liability
resulting from the absence of the Shareholder's signature. Forms for such
indemnity agreement can be obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, except that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number of
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date, and Shares will be
redeemed at the net asset value at the close of business on
21
that date unless sufficient additional Shares are purchased to bring the
aggregate account value up to $100 or more, or unless a certified taxpayer
identification number (or such other information as the Fund has requested)
has been provided, as the case may be. A check for the redemption proceeds
will be mailed to the investor at the address of record.
REINSTATEMENT PRIVILEGE. For either Class I or Class II, the same class of
Shares of the Fund may be purchased at net asset value with the proceeds from
(i) a redemption of Shares of the Fund or shares of any other Franklin
Templeton Fund, except any of the Franklin Templeton money market funds
(unless the redemption proceeds are from Class I shares of a fund with a lower
initial sales charge than that charged by the Fund and have been held in that
fund for less than six months), or (ii) a dividend or distribution paid by any
of the Franklin Templeton Funds, within 365 days after the date of the
redemption or dividend or distribution. Class II Shareholders may also invest
such distributions at net asset value in Class I shares of a Franklin
Templeton Fund. However, if a Shareholder's original investment was in Class I
shares of a fund with a lower sales charge, or no sales charge, the
Shareholder must pay the difference. An investor may reinvest an amount not
exceeding the proceeds of the redemption or the dividend or distribution.
While credit will be given for any contingent deferred sales charge paid on
the Shares redeemed, a new contingency period will begin. Matured Shares will
be reinvested at net asset value and will not be subject to a new contingent
deferred sales charge. Shares of the Fund redeemed in connection with an
exchange into another fund (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this privilege, a written
order for the purchase of Shares of the Fund must be received by the Fund or
the Fund's Transfer Agent within 365 days after the redemption or the payment
date of the distribution. The 365 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the Shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the tax basis of the Shares reinvested, and the amount
of gain or loss resulting from a redemption may be affected by exercise of the
reinstatement privilege if the Shares redeemed were held for 90 days or less,
or if a Shareholder reinvests in the same fund within 30 days. Reinvestment
will be at the next calculated net asset value after receipt.
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive periodic payments from an account
provided that the net asset value of the Shares held in the account is at
least $5,000. There are no service charges for establishing or maintaining a
Plan. The minimum amount which the Shareholder may withdraw is $50 per
withdrawal transaction although this is merely the minimum amount allowed
under the Plan and should not be mistaken for a recommended amount. Retirement
plans subject to mandatory distribution requirements are not subject to the
$50 minimum. The Plan may be established on a monthly, quarterly, semiannual
or annual basis. If the Shareholder establishes a Plan, any capital gain
distributions and income dividends paid by the Fund to the Shareholder's
account must be reinvested for the Shareholder's account in additional Shares
at net asset value. Payments are then made from the liquidation of Shares at
net asset value on the day of the liquidation (which is generally on or about
the 25th of the month) to meet the specified withdrawals. Payments are
generally received three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a Shareholder may
direct the selected withdrawals to another of the Franklin Templeton Funds, to
another person or directly to a checking account. Liquidation of Shares may
reduce or possibly exhaust the Shares in the Shareholder's account, to the
extent withdrawals exceed Shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount
exceeds the total Plan balance, the account will be closed and the remaining
balance will be sent to the Shareholder. As with other redemptions, a
liquidation to make a withdrawal payment is a sale for federal income tax
purposes. Because the amount withdrawn under the Plan may be more than the
Shareholder's actual yield or income, part of such a Plan payment may be a
return of the Shareholder's investment.
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I Shares and Class II Shares may be
subject to a contingent deferred sales charge if the Shares are redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of
22
the original purchase date. The Shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual
withdrawals under the Plan during the time such a Plan is in effect.
With respect to Systematic Withdrawal Plans set up on or after May 1, 1995,
the applicable contingent deferred sales charge is waived for Class I and
Class II Share redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% semiannually, 3% quarterly). For example, if a Class I
account maintained an annual balance of $1,000,000, only $120,000 could be
withdrawn through a once-yearly Systematic Withdrawal Plan free of charge; any
amount over that $120,000 would be assessed a 1% (or applicable) contingent
deferred sales charge. Likewise, if a Class II account maintained an annual
balance of $10,000, only $1,200 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge.
A Plan may be terminated on written notice by the Shareholder or the Fund,
and it will terminate automatically if all Shares are liquidated or withdrawn
from the account, or upon the Fund's receipt of notification of the death or
incapacity of the Shareholder. Shareholders may change the amount (but not
below $50) and schedule of withdrawal payments or suspend one such payment by
giving written notice to the Transfer Agent at least seven business days prior
to the end of the month preceding a scheduled payment. Share certificates may
not be issued while a Plan is in effect.
REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions--Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions--Verification Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. A telephone redemption request received before the scheduled closing
time of the NYSE (generally 4:00 p.m., New York time) on any business day will
be processed that same day. The redemption check will be sent within seven
days, made payable to all the registered owners on the account, and will be
sent only to the address of record. Redemption requests by telephone will not
be accepted within 30 days following an address change by telephone. In that
case, a Shareholder should follow the other redemption procedures set forth in
this Prospectus. Institutional accounts which wish to execute telephone
redemptions in excess of $50,000 must complete an Institutional Telephone
Privileges Agreement which is available from Franklin Templeton Institutional
Services by telephoning 1-800-321-8563.
CONTINGENT DEFERRED SALES CHARGE. In order to recover commissions paid to
securities dealers, Class I investments of $1 million or more, and any Class
II investments, redeemed within the contingency period of 12 months (Class I)
or 18 months (Class II) of the calendar month of their purchase will be
assessed a contingent deferred sales charge, unless one of the exceptions
described below applies. The charge is 1% of the lesser of the net asset value
of the Shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such Shares,
and is retained by FTD. The contingent deferred sales charge is waived in
certain instances. See below.
In determining if a contingent deferred sales charge applies, Shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of Shares representing amounts
attributable to capital appreciation of those Shares held less than the
contingency period (12 months in the case of Class I Shares and 18 months in
the case of Class II Shares); (ii) Shares purchased with reinvested dividends
and capital gain distributions; and (iii) other Shares held longer than the
contingency period, and followed by any Shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds
or an adjustment to the cost basis of the Shares redeemed.
23
The contingent deferred sales charge on each class of Shares is waived, as
applicable, for: exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability, or upon periodic
distributions based on life expectancy; tax-free returns of excess
contributions from employee benefit plans; distributions from employee benefit
plans, including those due to plan termination or plan transfer; for
Systematic Withdrawal Plans set up on or after May 1, 1995, redemptions of up
to 1% monthly of an account's net asset value (3% quarterly, 6% semiannually
or 12% annually); redemptions initiated by the Fund due to a Shareholder's
account falling below the minimum specified account size; and redemptions
following the death of the Shareholder or the beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional Shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of
a SPECIFIC NUMBER of Shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if
any, may be able to execute various transactions by calling Shareholder
Services at 1-800-632-2301.
All Shareholders will be able to: (i) effect a change in address; (ii)
change a dividend option (see "Restricted Accounts" below); (iii) transfer
Fund Shares in one account to another identically registered account in the
Fund; (iv) request the issuance of certificates (to be sent to the address of
record only); and (v) exchange Fund Shares by telephone as described in this
Prospectus. In addition, Shareholders who complete and file an Agreement as
described under "How to Sell Shares of the Fund--Redemptions by Telephone"
will be able to redeem Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. The Fund and the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or the
Transfer Agent is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund, the Transfer Agent, nor their affiliates will be liable for
any losses which may occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are required for any
distribution, redemption, or dividend payment. While the telephone exchange
privilege is extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account Shareholders may call to
speak to a Retirement Plan Specialist at 1-800-527-2020.
24
GENERAL. During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be difficult to
execute because of heavy telephone volume. In such situations, Shareholders
may wish to contact their registered dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction. The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice to
Shareholders.
MANAGEMENT OF THE FUND
The Fund is managed by its Board of Directors and all powers are exercised
by or under authority of the Board. Information relating to the Directors and
Officers is set forth under the heading "Management of the Fund" in the SAI.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the authority
to establish additional classes of Shares. It is the Fund's present intention
to offer only two classes of Shares, but new classes may be offered in the
future.
INVESTMENT MANAGER. Templeton Investment Counsel, Inc., a Florida
corporation located at Broward Financial Centre, Fort Lauderdale, Florida
33394-3091, serves as the Investment Manager of the Fund. The Investment
Manager is an indirect wholly owned subsidiary of Franklin Resources, Inc.
("Franklin"). Through its subsidiaries, Franklin is engaged in various aspects
of the financial services industry. The Investment Manager and its affiliates
serve as advisers for a wide variety of public investment mutual funds and
private clients in many nations. The Templeton organization has been investing
globally over the past 56 years and, with its affiliates, provides investment
management and advisory services to a worldwide client base, including over
4.3 million mutual fund shareholders, foundations, endowments, employee
benefit plans and individuals. The Investment Manager and its affiliates have
approximately 4,100 employees in the United States, Australia, Scotland,
Germany, Hong Kong, Luxembourg, Bahamas, Singapore, Canada, Russia, France,
Poland, Italy, India, Viet Nam, South America, and South Africa.
The Investment Manager uses a disciplined, long-term approach to value-
oriented global and international investing. It has an extensive global
network of investment research sources. Securities are selected for the Fund's
portfolio on the basis of fundamental company-by-company analysis. Many
different selection methods are used for different funds and clients and these
methods are changed and improved by the Investment Manager's research on
superior selection methods.
The Investment Manager performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Investment Manager on
behalf of other funds and accounts. Neither the Investment Manager and its
affiliates, its officers, directors or employees, nor the officers and
Directors of the Fund are prohibited from investing in securities held by the
Fund or other funds and accounts which are managed or administered by the
Investment Manager to the extent such transactions comply with the Fund's Code
of Ethics. Please see "Investment Management and Other Services--Investment
Management Agreement" in the SAI for further information on securities
transactions and a summary of the Fund's Code of Ethics.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee which, during the most recent fiscal year,
represented 0.70% of its average daily net assets.
25
The lead portfolio manager since for the Fund is Gary P. Motyl,
Executive Vice President of the Investment Manager. Mr. Motyl holds a BS
degree in Finance from Lehigh University and an MBA in Finance from Pace
University. He has been a security analyst and portfolio manager with the
Investment Manager since 1981. Prior to joining the Templeton organization,
Mr. Motyl worked from 1974 to 1979 as a security analyst with Standard &
Poor's Corporation. He then worked as a research analyst and portfolio manager
from 1979 to 1981 with Landmark First National Bank. In this capacity he had
responsibility for equity research and managed several pension and profit-
sharing plans. James E. Chaney and William T. Howard, Jr. exercise secondary
portfolio management responsibility with respect to the Fund. Mr. Chaney holds
a BS in Engineering from the University of Massachusetts, an MS in Engineering
from Northeastern University, and an MBA in International Business from
Columbia Business School. He is Senior Vice President of the Investment
Manager. Prior to joining the Templeton organization in 1991, Mr. Chaney spent
six years with GE Investments, where he was vice president of international
equities. In that capacity he had numerous research responsibilities and also
managed several accounts, including a mutual fund. He also has another seven
years' experience as an international consulting engineer and project manager
for Camp, Dresser & McKee, Inc. and American British Consultants. Mr. Howard
holds a BA in International Studies from Rhodes College and an MBA in Finance
from Emory University. He is Vice President of the Investment Manager. Before
joining the Templeton organization in 1993, Mr. Howard was a portfolio manager
and analyst with Tennessee Consolidated Retirement System, in Nashville,
Tennessee, where he was responsible for research and management of the
international equity portfolio and specialized in the Japanese equity market.
Further information concerning the Investment Manager is included under the
heading "Investment Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns, preparation of financial reports, monitoring
compliance with regulatory requirements and monitoring tax-deferred retirement
plans. For its services, the Fund pays the Business Manager a monthly fee
equivalent to 0.15% of its average daily net assets during the year, reduced
to 0.135% of such net assets in excess of $200 million, to 0.10% of such net
assets in excess of $700 million and to 0.075% of such net assets in excess of
$1,200 million. The combined investment management and business management
fees paid by the Fund are higher than those paid by most other investment
companies.
TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLANS OF DISTRIBUTION. A separate Plan of Distribution has been approved and
adopted for each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees
charged to each class will be based solely on the distribution and servicing
fees attributable to that particular class. Any portion of fees remaining from
either Plan after distribution to securities dealers of up to the maximum
amount permitted under each Plan may be used by the class to reimburse FTD for
routine ongoing promotion and distribution expenses incurred with respect to
such class. Such expenses may include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of FTD's overhead
expenses attributable to the distribution of Fund Shares, as well as any
distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, FTD or its
affiliates.
The maximum amount which the Fund may pay to FTD or others under the Class I
Plan for such distribution expenses is 0.35% per annum of Class I's average
daily net assets, payable on a quarterly basis. All expenses of distribution
and marketing in excess of 0.35% per annum will be borne by FTD, or others who
have incurred them, without reimbursement from the Fund. Under the Class I
Plan, costs and expenses not reimbursed in any one given quarter (including
costs and expenses not reimbursed because they exceed the applicable limit of
the Plan) may be reimbursed in subsequent quarters or years, subject to
applicable law.
26
Under the Class II Plan, the maximum amount which the Fund is permitted to
pay to FTD or others for distribution expenses and related expenses is 0.75%
per annum of Class II's average daily net assets, payable quarterly. All
expenses of distribution, marketing and related services over that amount will
be borne by FTD, or others who have incurred them, without reimbursement by
the Fund. In addition, the Class II Plan provides for an additional payment by
the Fund of up to 0.25% per annum of Class II's average daily net assets as a
servicing fee, payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in establishing and
maintaining customer accounts and records; assisting with purchase and
redemption requests; receiving and answering correspondence; monitoring
dividend payments from the Fund on behalf of the customers; or similar
activities related to furnishing personal services and/or maintaining
Shareholder accounts.
During the first year following the purchase of Class II Shares for Shares
purchased on or after May 1, 1995, and until May 1, 1997 for Class II Shares
purchased before May 1, 1995, FTD will retain 0.75% per annum of Class II's
average daily net assets to partially recoup fees FTD pays to securities
dealers. FTD, or its affiliates, may pay, from its own resources, a commission
of up to 1% of the amount invested to securities dealers who initiate and are
responsible for purchases of Class II Shares.
Both Plans also cover any payments to or by the Fund, the Investment
Manager, FTD, or other parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne each class of the Fund. For
more information, including a discussion of the Board's policies with regard
to the amount of each Plan's fees, please see the SAI.
EXPENSES. For the fiscal year ended December 31, 1995, expenses borne by
Class I Shares of the Fund amounted to 1.81% (annualized) of the average net
assets of such class and expenses borne by Class II Shares of the Fund
amounted to 2.40% of the average net assets of such class. See the Expense
Table for information regarding estimated expenses of both classes of Shares
for the current fiscal year.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The Fund's authorized capital
consists of 200,000,000 Common Shares, par value $0.01 per Share of which
100,000,000 Shares are classified as Class I and 100,000,000 Shares are
classified as Class II. Each Share entitles the holder to one vote and to
participate equally in dividends, distributions of capital and net assets of
the Fund on liquidation. For a more detailed description of Fund Shares, see
"Description of Shares" in the SAI.
Shares for an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gain distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. No charge is made for the issuance of one
certificate for all or some of the Shares purchased in a single order. A lost,
stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is generally borne
by the Shareholder, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by the
Shareholder or by the securities dealer.
27
VOTING RIGHTS. Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and preferences
as the other class of the Fund for matters that affect the Fund as a whole.
For matters that only affect a certain class of the Fund's Shares, however,
only Shareholders of that class will be entitled to vote. Therefore, each
class of Shares will vote separately on matters (1) affecting only that class,
(2) expressly required to be voted on separately by state law, or (3) required
to be voted on separately by the 1940 Act or the rules adopted thereunder. For
instance, if a change to the Rule 12b-1 plan relating to Class I Shares
requires Shareholder approval, only Shareholders of Class I may vote on
changes to the Rule 12b-1 plan affecting that class. Similarly, if a change to
the Rule 12b-1 plan relating to Class II Shares requires Shareholder approval,
only Shareholders of Class II may vote on the change to such plan. On the
other hand, if there is a proposed change to the investment objective of the
Fund, this affects all Shareholders, regardless of which class of Shares they
hold, and therefore, each Share has the same voting rights.
MEETINGS OF SHAREHOLDERS. The Fund is not required to hold annual meetings
of Shareholders and may elect not to do so. The Fund will call a special
meeting of Shareholders when requested to do so by Shareholders holding at
least 10% of the Fund's outstanding Shares. In addition, the Fund is required
to assist Shareholder communications in connection with the calling of
Shareholder meetings to consider removal of a Director or Directors.
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay a dividend at least
annually representing substantially all of its net investment income and any
net realized capital gains. According to the requirements of the Code,
dividends and capital gains will be calculated and distributed in the same
manner for Class I and Class II Shares. The per share amount of any income
dividends will generally differ only to the extent that each class is subject
to different Rule 12b-1 fees. Unless otherwise requested, income dividends and
capital gain distributions paid by the 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 at net asset
value as of the ex-dividend date, unless a Shareholder makes a written or
telephonic request for payments in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application, Class
I Shareholders may direct that their dividends and/or capital gain
distributions be reinvested in Class I Shares of the Fund or Class I Shares of
any other Franklin Templeton Fund, and Class II Shareholders may direct that
their dividends and/or capital gains distributions be reinvested in either
Class I or Class II Shares of the Fund or any other Franklin Templeton Fund.
Shareholders may also direct the payment of their dividends or capital gain
distributions to another person. The processing date for the reinvestment of
dividends may vary from time to time, and does not affect the amount or value
of the Shares acquired. Income dividends and capital gain distributions will
be paid in cash on Shares during the time that their owners keep them
registered in the name of a broker-dealer, unless the broker-dealer has made
arrangements with the Transfer Agent for reinvestment.
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to the record date will have the
effect of reducing the per Share net asset value of the Shares by the amount
of the dividend or distribution. All or a portion of such dividend or
distribution, although in effect a return of capital, generally will be
subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested in the Shareholder's account in whole
or fractional Shares at net asset value next computed after the check has been
received by the Transfer Agent. Subsequent distributions automatically will be
reinvested at net asset value as of the ex-dividend date in additional whole
or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. 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 Fund intends to distribute substantially all of its net
investment income and net realized capital gains to Shareholders, which
generally will be taxable dividends or capital gains in their hands,
regardless of whether received in cash or reinvested in additional Shares of
the Fund. Distributions declared in October, November or December to
28
Shareholders of record on a date in such a month and paid during the following
January will be treated as having been received by Shareholders on December 31
in the year such distributions were declared. The Fund will inform
Shareholders each year of the amount and nature of such distributions or
gains. Sales or other dispositions of Fund Shares generally will give rise to
taxable gain or loss. The Fund may be required to withhold federal income tax
at the rate of 31% of all taxable distributions (including redemptions) paid
to Shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications. The preceding
discussion relates only to federal income tax; the consequences under other
tax laws may differ. A more detailed description of tax consequences to
Shareholders is contained in the SAI under the heading "Tax Status."
INQUIRIES. Shareholder inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St.
Petersburg, Florida 33733-8030--telephone 1-800-632-2301. Transcripts of
Shareholder accounts less than three-years old are provided on request without
charge; requests for transcripts going back more than three years from the
date the request is received by the Transfer Agent are subject to a fee of up
to $15 per account.
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of one, five and ten years (or up to the life of the Fund), will
reflect the deduction of the maximum contingent deferred sales charge and
deduction of a proportional share of Fund expenses (on an annual basis), and
will assume that all dividends and distributions are reinvested when paid.
Total return may be expressed in terms of the cumulative value of an
investment in the Fund at the end of a defined period of time. For a
description of the methods used to determine total return for the Fund, see
"Performance Information" in the SAI.
STATEMENTS AND REPORTS. The Fund's fiscal year ends on December 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semiannual
reports (containing unaudited financial statements) are sent to Shareholders
each year. To reduce the volume of mail sent to one household as well as to
reduce Fund expenses, the Transfer Agent will attempt to identify related
shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund
Information Department--telephone 1-800/DIAL BEN. The Fund also sends to each
Shareholder a confirmation statement after every transaction that affects the
Shareholder's account and a year-end historical confirmation statement.
29
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 Internal Revenue Service ("IRS").
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number ("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 TAXPAYER ID # OF
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- ------------------------------------------------------------------------------------------
. Joint Actual owner of . Corporation, Corporation,
Individual account, or if Partnership, or other Partnership, or other
combined funds, the organization organization
first-named
individual
- ------------------------------------------------------------------------------------------
. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
- ------------------------------------------------------------------------------------------
. Sole Owner of business
Proprietor
- ------------------------------------------------------------------------------------------
. Legal Ward, Minor, or
Guardian Incompetent
- ------------------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A financial institution A common trust fund operated by a bank
under section 584(a)
An organization exempt from tax An entity registered at all times
under section 501(a), or an under the Investment Company
individual retirement plan Act of 1940
A registered dealer in securities or
commodities registered in the U.S.
or a U.S. possession
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your Federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the tax payer identification number you have given is correct, and (2) the
IRS has not notified you that you are subject to backup withholding because
you failed to report certain interest or dividend income. You may use Form W-
9, "Payer's Request for Taxpayer Identification Number and Certification," to
make these certifications. If an account is no longer active, you do not have
to notify a Fund/Payer or broker of your change in status unless you also have
another account with the same Fund/Payer that is still active. If you receive
interest from more than one Fund/Payer or have dealings with more than one
broker or barter exchange, file a certificate with each. If you have more than
one account with the same Fund/Payer, the Fund/Payer may require you to file a
separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
1/94
30
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that the Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to the Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
of
- ------------------------------- --------------------------------------------
TITLE CORPORATE NAME
a organized under the laws of the State of
------------------------- ------------
TYPE OF ORGANIZATION STATE
and that the following is a true and correct copy of a resolution adopted by
the Board of Directors at a meeting duly called and held on
--------------------
DATE
RESOLVED, that the of this
---------------------------------------------------
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds (R) or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and
FURTHER RESOLVED,that any of the following officers are authorized
--------
NUMBER
to sign any share assignment on behalf of this Corporation or Association and
to take any other actions as may be necessary to sell or redeem its shares in
the Funds or to sign checks or drafts withdrawing funds from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary.)
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes
--------------------------------------------------------
NAME AND TITLE
CORPORATE SEAL (if appropriate)
31
THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group of Funds (a "Franklin Templeton Fund"
or a "Fund"), now opened or opened at a later date, holding shares registered
as follows:
- -------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT
REGISTRATION ("SHAREHOLDER")
- -------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- -------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- -------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY,
IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions;
(2) the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Templeton Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
FRANKLIN TEMPLETON INVESTOR SERVICES, INC., ATTN.:
TELEPHONE REDEMPTIONS DEPT., 700 CENTRAL AVENUE,
ST. PETERSBURG, FLORIDA 33701-3628.
32
The Franklin Templeton Group
Literature Request -- Call 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.
TEMPLETON
FUNDS
American Trust
American Government Securities Fund
Developing Markets Trust
Foreign Fund
Global Bond Fund
Global Infrastructure Fund
Greater European Fund
Global Opportunities Trust Growth Fund
Global Real Estate Fund
Global Smaller Companies Fund
Growth and Income Fund
Japan Fund
Latin America Fund
Money Fund
World Fund
FRANKLIN FUNDS
SEEKING TAX-FREE INCOME
Federal Intermediate Term
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund***
Puerto Rico Tax-Free Income Fund
FRANKLIN STATE-SPECIFIC FUNDS
SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan***
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
FRANKLIN FUNDS
SEEKING CAPITAL GROWTH
California Growth fund
DynaTech Fund
Equity Fund
Global Health Care Fund
Gold Fund
Growth Fund
International Equity Fund
Pacific Growth Fund
Real Estate Securities Fund
Small Cap Growth Fund
FRANKLIN FUNDS SEEKING
GROWTH AND INCOME
Balance Sheet Investment Fund
Convertible Securities Fund
Equity Income Fund
Global Utilities Fund
Income Fund
Premier Return Fund
Rising Dividends Fund
Strategic Income Fund
Utilities Fund
FRANKLIN FUNDS SEEKING
HIGH CURRENT INCOME
AGE High Income Fund
German Government Bond Fund
Global Government Income Fund
Investment Grade Income Fund
U.S. Government Securities Fund
FRANKLIN FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF PRINCIPAL
Adjustable Rate Securities Fund
Adjustable U.S. Government Securities Fund
Short-Intermediate U.S. Government Securities Fund
FRANKLIN FUNDS FOR NON-U.S. INVESTORS
Tax-Advantaged High Yield Securities Fund
Tax-Advantaged International Bond Fund
Tax-Advantaged U.S. Government Securities Fund
FRANKLIN TEMPLETON INTERNATIONAL
CURRENCY FUNDS
Global Currency Fund
Hard Currency Fund
High Income Currency Fund
FRANKLIN MONEY MARKET FUNDS
California Tax-Exempt Money Fund
Federal Money Fund
IFT U.S. Treasury Money Market Portfolio
Money Fund
New York Tax-Exempt Money Fund
Tax-Exempt Money Fund
FRANKLIN FUND FOR CORPORATIONS
Corporate Qualified Dividend Fund
FRANKLIN TEMPLETON VARIABLE ANNUITIES
Franklin Valuemark
Franklin Templeton Valuemark Income
Plus (an immediate annuity)
Toll-free 1-800/DIAL BEN (1-800/342-5236)
* Two or more fund options available: Long-term portfolio, intermediate-term
portfolio, a portfolio of municipal securities, and a high yield portfolio
(CA).
** 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.
33
<PAGE>
NOTES
-----
34
NOTES
-----
35
NOTES
-----
36
- --------------------------
TEMPLETON AMERICAN
TRUST, INC.
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800/DIAL BEN
Institutional Services
1-800-321-8563
Dealer Services
1-800-524-4040
Retirement Plan Services
1-800-527-2020
This Prospectus is not
an offering of the
securities herein
described in any state
in which the offering
is not authorized. No
sales representative,
dealer, or other person
is authorized to give
any information or make
any representations
other than those
contained in this
Prospectus. Further
information may be
obtained from the
Principal Underwriter.
- --------------------------
[RECYLE LOGO APPEARS HERE] TL100 5/96
TEMPLETON
AMERICAN
TRUST, INC.
Prospectus
May 1, 1996
[FRANKLIN TEMPLETON LOGO APPEARS HERE]
[LOGO APPEARS HERE]
Franklin Templeton
FRANKLIN TEMPLETON
P.O. Box 33031 St. Petersburg, Florida 33733-8031 (800) 393-3001
PLEASE DO NOT USE THIS FORM FOR ANY RETIREMENT PLAN FOR WHICH FRANKLIN TEMPLETON
TRUST COMPANY SERVES AS CUSTODIAN OR TRUSTEE, OR FOR TEMPLETON MONEY FUND,
TEMPLETON INSTITUTIONAL FUNDS OR TEMPLETON CAPITAL ACCUMULATOR FUND. REQUEST
SEPARATE APPLICATIONS AND/OR PROSPECTUSES.
- --------------------------------------------------------------------------------
SHAREHOLDER APPLICATION OR REVISION [ ] PLEASE CHECK THE BOX IF THIS IS A
REVISION AND SEE SECTION 8
- --------------------------------------------------------------------------------
PLEASE CHECK CLASS I OR CLASS II, if applicable, next to your Fund selection.
Class I and Class II shares have different sales charges and operating expenses,
among other differences, as described in each Fund's prospectus.
DATE __________________
CLASS
I II TEMPLETON
[ ] [ ] $______ AMERICAN TRUST
[ ] ______ AMERICAS GOVERNMENT SECURITIES FUND
[ ] [ ] ______ DEVELOPING MARKETS TRUST
[ ] [ ] ______ FOREIGN FUND
[ ] [ ] _______ GLOBAL BOND FUND
CLASS
I II TEMPLETON
[ ] [ ] $______ GLOBAL INFRASTRUCTURE FUND
[ ] [ ] ______ GLOBAL OPPORTUNITIES TRUST
[ ] [ ] ______ GLOBAL REAL ESTATE FUND
[ ] [ ] ______ GLOBAL SMALLER COMPANIES FUND
[ ] [ ] ______ GREATER EUROPEAN FUND
CLASS
I II TEMPLETON
[ ] [ ] $______ GROWTH FUND
[ ] [ ] ______ GROWTH AND INCOME
[ ] ______ JAPAN FUND
[ ] [ ] ______ LATIN AMERICA FUND
[ ] [ ] ______ WORLD FUND
CLASS
I II
[ ] [ ] OTHER: $______
(except for Class II Money Fund)
________________________________
________________________________
________________________________
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION (PLEASE PRINT)
- --------------------------------------------------------------------------------
[ ] INDIVIDUAL OR JOINT ACCOUNT
- -
___________________________________________________ ____________________________
First Name Middle Initial Last Name Social Security Number (SSN)
- -
___________________________________________________ ____________________________
Joint Owner(s) Social Security Number (SSN)
(Joint ownership means "Joint Tenants With Rights
of Survivorship" unless otherwise specified)
All owners must sign Section 4.
- --------------------------------------------------------------------------------
[ ] GIFT/TRANSFER TO A MINOR
______________________________ As Custodian For _______________________________
Name of Custodian (ONE ONLY) Minor's Name (one only)
____________________ Uniform Gifts/Transfers to Minors Act ____________________
State of Residence Minor's Social
Security Number
Please Note: Custodian's Signature, not Minor's, is required in Section 4.
- --------------------------------------------------------------------------------
[ ] TRUST, CORPORATION, PARTNERSHIP, RETIREMENT PLAN, OR OTHER ENTITY
__________________________________________ ____________________________________
Name Taxpayer Identification Number (TIN)
__________________________________________ ____________________________________
Name of Beneficiary Date of Trust Document
(if to be included in the Registration) (must be completed for registration)
________________________________________________________________________________
Name of Each Trustee
(if to be included in the Registration)
- --------------------------------------------------------------------------------
2 ADDRESS
- --------------------------------------------------------------------------------
_________________________________________ Daytime Phone(_______)_____________
Street Address Area Code
_________________________________________ Evening Phone(_______)_____________
City State Zip Code Area Code
I am a Citizen of: [ ] U.S. or [ ]_________________________
Country of Residence
- --------------------------------------------------------------------------------
3 INITIAL INVESTMENT ($100 MINIMUM INITIAL INVESTMENT)
- --------------------------------------------------------------------------------
Check(s) enclosed for $______________. (Payable to the Fund(s) indicated above.)
- --------------------------------------------------------------------------------
4 SIGNATURE AND TAX CERTIFICATIONS (ALL REGISTERED OWNERS MUST SIGN
APPLICATION)
- --------------------------------------------------------------------------------
See "Important Notice Regarding Taxpayer IRS Certifications" in back of
prospectus. The Fund reserves the right to refuse to open an account without
either a certified Taxpayer Identification Number ("TIN") or a certification of
foreign status. Failure to provide tax certifications in this section may result
in backup withholding on payments relating to your account and/or in your
inability to qualify for treaty withholding rates.
I am(We are) not subject to backup withholding because I(we) have not been
notified by the IRS that I am(we are) subject to backup withholding as a result
of a failure to report all interest or dividends or because the IRS has notified
me(us) that I am(we are) no longer subject to backup withholding. (If you are
currently subject to backup withholding as a result of a failure to report all
interest or dividends, please cross out the preceding statement.)
[ ] The number shown above is my(our) correct TIN, or that of the Minor named in
Section 1.
[ ] AWAITING TIN. I am(We are) waiting for a number to be issued to me(us).
I(We) understand that if I(we) do not provide a TIN to the Fund within 60
days, the Fund is required to commence 31% backup withholding until I(we)
provide a certified TIN.
[ ] EXEMPT RECIPIENT. Individuals cannot be exempt. Check this box only after
reading the instructions to see whether you qualify as an exempt recipient.
(You should still provide a TIN.)
[ ] EXEMPT FOREIGN PERSON. Check this box only if the following statement
applies: "I am(we are) neither a citizen nor a resident of the United
States. I(we) certify to the best of my(our) knowledge and belief, I(we)
qualify as an exempt foreign person and/or entity as described in the
instructions."
Permanent address for
tax purposes:___________________________________________________________________
Street Address City State Country Postal Code
PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint
accounts, it is preferred that the primary account owner (or person listed first
on the account) list his/her number as requested above.
CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I(WE) CERTIFY THAT (1) THE
INFORMATION PROVIDED ON THIS APPLICATION IS TRUE, CORRECT AND COMPLETE, (2)
I(WE) HAVE READ THE PROSPECTUS(ES) FOR THE FUND(S) IN WHICH I AM(WE ARE)
INVESTING AND AGREE TO THE TERMS THEREOF, AND (3) I AM(WE ARE) OF LEGAL AGE OR
AN EMANCIPATED MINOR.
I (WE) ACKNOWLEDGE THAT SHARES OF THE FUND(S) ARE NOT INSURED OR GUARANTEED BY
ANY AGENCY OR INSTITUTION AND THAT AN INVESTMENT IN THE SHARES INVOLVES RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
X_____________________________________ X_____________________________________
Signature Signature
X_____________________________________ X_____________________________________
Signature Signature
Please make a photocopy of this application for your records.
- --------------------------------------------------------------------------------
5 BROKER/DEALER USE ONLY (PLEASE PRINT)
- --------------------------------------------------------------------------------
We hereby submit this application for the purchase of shares of the Fund
indicated above in accordance with the terms of our selling agreement with
Franklin Templeton Distributors, Inc. ("FTD"), and with the Prospectus for the
Fund. We agree to notify FTD of any purchases of Class I shares which may be
eligible for reduced or eliminated sales charges.
- --------------------------------------------------------------------------------
WIRE ORDER ONLY: The attached check for $__________ should be applied
against Wire Order
Confirmation Number_____________ Dated________________
For_____________________________ Shares
- --------------------------------------------------------------------------------
Securities Dealer Name__________________________________________________________
Main Office Address_____________________________________________________________
Main Office Telephone Number(_______)___________________________________________
Branch Number___________________________________________________________________
Representative Number___________________________________________________________
Representative Name_____________________________________________________________
Branch Address__________________________________________________________________
Branch Telephone Number(_______)________________________________________________
Authorized Signature, Securities Dealer_________________________________________
Title___________________________________________________________________________
- --------------------------------------------------------------------------------
ACCEPTED: Franklin Templeton Distributors, Inc.
By_______________________________________________
Date_____________________________________________
- --------------------------------------------------------------------------------
PLEASE SEE REVERSE SIDE FOR SHAREHOLDER ACCOUNT PRIVILEGES:
[ ] DISTRIBUTION OPTIONS
[ ] SYSTEMATIC WITHDRAWAL PLAN
[ ] SPECIAL INSTRUCTIONS FOR DISTRIBUTIONS
[ ] AUTOMATIC INVESTMENT PLAN
[ ] TELEPHONE EXCHANGE SERVICE
[ ] CUMULATIVE QUANTITY DISCOUNT
[ ] LETTER OF INTENT
This application must be preceded or accompanied by a prospectus for the
Fund(s) being purchased.
TEMPLETON AMERICAN TRUST, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996,
AS AMENDED SEPTEMBER 29, 1995, IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF
TEMPLETON AMERICAN TRUST, INC. DATED MAY 1, 1996,
AS AMENDED FROM TIME TO TIME, WHICH MAY BE OBTAINED
WITHOUT CHARGE UPON REQUEST TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: 800/DIAL BEN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
General Information and History............. 1 -Management Fees............................. 25
Investment Objective and Policies........... 1 -The Investment Manager...................... 26
-Investment Policies....................... 1 -Business Manager............................ 26
-Repurchase Agreements..................... 2 -Custodian and Transfer Agent................ 27
-Debt Securities........................... 2 -Legal Counsel............................... 28
- -STRUCTURED INVESTMENTS..................... 2 -Independent Accountants..................... 28
-Futures Contracts ........................ 4 -Reports to Shareholders..................... 28
-Options on Securities or Indices.......... 5 Brokerage Allocation.......................... 28
-Foreign Currency Hedging Purchase, Redemption and
Transactions............................ 7 Pricing of Shares.......................... 31
-Investment Restrictions................... 8 -Ownership and Authority Disputes............. 32
-Risk Factors............................. 11 -Tax-Deferred Retirement Plans................ 32
-Trading Policies......................... 15 -Letter of Intent............................. 34
-Personal Securities Transactions..........16 -Special Net Asset Value Purchases.............35
Management of the Fund..................... 16 REDEMPTIONS IN KIND........................... 36
Director Compensation.......................23 Tax Status.................................... 36
Principal Shareholders..................... 23 Principal Underwriter......................... 43
Investment Management and Other Description of Shares......................... 45
Services................................. 24 Performance Information....................... 45
- -Investment Management Agreement........... 24 Financial Statements.......................... 49
</TABLE>
GENERAL INFORMATION AND HISTORY
Templeton American Trust, Inc. (the "Fund") was organized as a Maryland
corporation on October 31, 1990, and is registered under the Investment Company
Act of 1940 (the "1940 Act") as an open-end diversified management investment
company.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT POLICIES. The Fund's Investment Objective and Policies are
described in the Prospectus under the heading "General Description -- Investment
Objective and Policies." The Fund may invest for defensive purposes in
commercial paper which, at the date of investment, must be rated A-1 by Standard
& Poor's Corporation ("S&P") or Prime-1 by Moody's Investors Service, Inc.
("Moody's") or, if not rated, be issued by a company which at the date of
investment has an outstanding debt issue rated AAA or AA by S&P or Aaa or Aa by
Moody's.
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which
the buyer of a security simultaneously commits to resell the security to the
seller at an agreed-upon price and date. Under a repurchase agreement, the
seller is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. Templeton
Investment Counsel, Inc. (the "Investment Manager") will monitor the value of
such securities daily to determine that the value equals or exceeds the
repurchase price. Repurchase agreements may involve risks in the event of
default or insolvency of the seller, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. The Fund will
enter into repurchase agreements only with parties who meet creditworthiness
standards approved by the Board of Directors, I.E., banks or broker-dealers
which have been determined by the Investment Manager to present no serious risk
of becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase transaction.
DEBT SECURITIES. The Fund may invest in debt securities which are rated
at least C by Moody's or C by S&P or deemed to be of comparable quality by the
Investment Manager. As an operating policy, the Fund will invest no more than 5%
of its assets in debt securities rated lower than Baa by Moody's or BBB by S&P.1
The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's net asset value.
Although they may offer higher yields than do higher rated securities,
low rated and unrated debt securities generally involve greater volatility of
price and risk of principal and income, including the possibility of default by,
or bankruptcy of, the issuers of the securities. In addition, the markets in
which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish the Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for the Fund to obtain accurate
market quotations for the purposes of valuing the Fund's portfolio. Market
quotations are generally available on many low rated or unrated securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses to
seek recovery.
The Fund may recognize income currently for Federal income tax purposes
in the amount of the unpaid, accrued interest with respect to high yield bonds
structured as zero coupon bonds or pay-in-kind securities, even though it
receives no cash interest until the security's maturity or payment date. In
order to qualify for beneficial tax treatment, the Fund must distribute
substantially all of its income to Shareholders (see "Tax Status"). Thus, the
Fund may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash or leverage itself by borrowing cash, so that it
may satisfy the distribution requirement.
Recent legislation, which requires federally insured savings and loan
associations to divest their investments in low rated debt securities, may have
a material adverse effect on the Fund's net asset value and investment
practices.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities
in which the Fund may invest are entities organized and operated solely for the
purpose of restructuring the investment characteristics of various securities.
these entities are typically organized by investment banking firms which receive
fees in connection with establishing each entity and arranging for the placement
of its securities. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities
("Structures 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 to dependent on the extent of the cash flow
on the underlying instruments. Because structured investments of the
type in which the Fund anticipates investing typically involve no credit
enhancement, their credit risk will generally be equivalent to that of the
underlying instruments.
The Fund is permitted to invest in a class of Structured Investments
that is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Investments typically have higher yields and
present greater risks that unsubordinated Structured Investments. Although the
Fund's purchase of subordinated Structured Investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of the Fund's assets that may be used for borrowing
activities.
Certain issuers of Structured Investments may be deemed to be
"Investment Companies" as defined in the 1940 act. as a result, the Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the 1940 act. Structured Investments are typically sold in private
placement transactions, and there currently is no active trading market for
structured investments. To the extent such investments are illiquid, they will
be subject to the Fund's restrictions on investments in illiquid securities.
FUTURES CONTRACTS. The Fund may purchase and sell financial futures
contracts. Although some financial futures contracts call for making or taking
delivery of the underlying securities, in most cases these obligations are
closed out before the settlement date. The closing of a contractual obligation
is accomplished by purchasing or selling an identical offsetting futures
contract. Other financial futures contracts by their terms call for cash
settlements.
The Fund may also buy and sell index futures contracts with respect to
any stock index traded on a recognized stock exchange or board of trade. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract.
At the time the Fund purchases a futures contract, an amount of cash,
U.S. Government securities, or other highly liquid debt securities equal to the
market value of the futures contract will be deposited in a segregated account
with the Fund's custodian. When writing a futures contract, the Fund will
maintain with its custodian liquid assets that, when added to the amounts
deposited with a futures commission merchant or broker as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, the
Fund may "cover" its position by owning the instruments underlying the contract
(or, in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's custodian).
OPTIONS ON SECURITIES OR INDICES. The Fund may write covered call and
put options and purchase call and put options on securities or stock indices
that are traded on United States and foreign exchanges and in the
over-the-counter markets.2
An option on a security is a contract that gives the purchaser of the
option, in return for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security (in the case of a
put option) from or to the writer of the option at a designated price during the
term of the option. An option on a securities index gives the purchaser of the
option, in return for the premium paid, the right to receive from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option.
The Fund may write a call or put option only if the option is
"covered." A call option on a security written by the Fund is "covered" if the
Fund owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security is also "covered" if the Fund holds a
call on the same security and in the same principal amount as the call written
where the exercise price of the call held (1) is equal to or less than the
exercise price of the call written or (2) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash or high
grade U.S. Government securities in a segregated account with its custodian. A
put option on a security written by the Fund is "covered" if the Fund maintains
cash or fixed-income securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
The Fund will cover call options on stock indices that it writes by
owning securities whose price changes, in the opinion of the Investment Manager,
are expected to be similar to those of the index, or in such other manner as may
be in accordance with the rules of the exchange on which the option is traded
and applicable laws and regulations. Nevertheless, where the Fund covers a call
option on a stock index through ownership of securities, such securities may not
match the composition of the index. In that event, the Fund will not be fully
covered and could be subject to risk of loss in the event of adverse changes in
the value of the index. The Fund will cover put options on stock indices that it
writes by segregating assets equal to the option's exercise price, or in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations.
The Fund will receive a premium from writing a put or call option,
which increases the Fund's gross income in the event the option expires
unexercised or is closed out at a profit. If the value of a security or an index
on which the Fund has written a call option falls or remains the same, the Fund
will realize a profit in the form of the premium received (less transaction
costs) that could offset all or a portion of any decline in the value of the
portfolio securities being hedged. If the value of the underlying security or
index rises, however, the Fund will realize a loss in its call option position,
which will reduce the benefit of any unrealized appreciation in the Fund's
investments. By writing a put option, the Fund assumes the risk of a decline in
the underlying security or index. To the extent that the price changes of the
portfolio securities being hedged correlate with changes in the value of the
underlying security or index, writing covered put options on indices or
securities will increase the Fund's losses in the event of a market decline,
although such losses will be offset in part by the premium received for writing
the option.
The Fund may also purchase put options to hedge its investments against
a decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
accuracy of the correlation between the changes in value of the underlying
security or index and the changes in value of the Fund's security holdings being
hedged.
The Fund may purchase call options on individual securities to hedge
against an increase in the price of securities that the Fund anticipates
purchasing in the future. Similarly, the Fund may purchase call options on a
securities index to attempt to reduce the risk of missing a broad market
advance, or an advance in an industry or market segment, at a time when the Fund
holds uninvested cash or short-term debt securities awaiting investment. When
purchasing call options, the Fund will bear the risk of losing all or a portion
of the premium paid if the value of the underlying security or index does not
rise.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Trading could be interrupted, for
example, because of supply and demand imbalances arising from a lack of either
buyers or sellers, or the options exchange could suspend trading after the price
has risen or fallen more than the maximum specified by the exchange. Although
the Fund may be able to offset to some extent any adverse effects of being
unable to liquidate an option position, the Fund may experience losses in some
cases as a result of such inability.
FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against
foreign currency exchange rate risks, the Fund may enter into forward foreign
currency exchange contracts and foreign currency futures contracts, as well as
purchase put or call options on foreign currencies, as described below. The Fund
may also conduct its foreign currency exchange transactions on a spot (I.E.,
cash) basis at the spot rate prevailing in the foreign currency exchange market.
The Fund may enter into forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. The Fund may enter into a
forward contract, for example, when it enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security. In addition, for example, when the Fund
believes that a foreign currency may suffer a substantial decline against the
U.S. dollar, it may enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward contract to buy that foreign currency for a fixed
dollar amount. This second investment practice is generally referred to as
"cross-hedging." Because in connection with the Fund's forward foreign currency
transactions an amount of the Fund's assets equal to the amount of the purchase
will be held aside or segregated to be used to pay for the commitment, the Fund
will always have cash, cash equivalents or high quality debt securities
available sufficient to cover any commitments under these contracts or to limit
any potential risk. The segregated account will be marked-to-market on a daily
basis. While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority
to regulate forward contracts. In such event, the Fund's ability to utilize
forward contracts in the manner set forth above may be restricted. Forward
contracts may limit potential gain from a positive change in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if it
had not engaged in such contracts.
The Fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
foreign portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and the Fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange rates, although,
in the event of rate movements adverse to the Fund's position, the Fund may
forfeit the entire amount of the premium plus related transaction costs. Options
on foreign currencies to be written or purchased by the Fund will be traded on
U.S. and foreign exchanges or over-the-counter.
The Fund may enter into exchange-traded contracts for the purchase or
sale for future delivery of foreign currencies ("foreign currency futures").
This investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of foreign
currency futures will usually depend on the Investment Manager's ability to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.
INVESTMENT RESTRICTIONS. The Fund has imposed upon itself certain
Investment Restrictions which, together with its Investment Objective, are
fundamental policies except as otherwise indicated. No changes in the Fund's
Investment Objective or these Investment Restrictions can be made without the
approval of the Fund's Shareholders. For this purpose, the provisions of the
1940 Act require the affirmative vote of the lesser of either (1) 67% or more of
the Shares of the Fund present at a Shareholder's meeting at which more than 50%
of the outstanding Shares are present or represented by proxy or (2) more than
50% of the outstanding Shares of the Fund.
The Fund will not:
1. Invest in real estate, unlisted real estate limited
partnerships, or mortgages on real estate (although the Fund
may invest in readily marketable securities secured by real
estate or interests therein or issued by companies or
investment trusts which invest in real estate or interests
therein); invest in other open-end investment companies except
as permitted by the 1940 Act; invest in interests (other than
debentures or equity stock interests) in oil, gas or other
mineral leases, exploration or development programs; or
purchase or sell commodity contracts (except futures contracts
as described in the Fund's Prospectus).
2. Purchase or retain securities of any company in which
Directors or officers of the Fund or of its Investment
Manager, individually owning more than 1/2 of 1% of the
securities of such company, in the aggregate own more than 5%
of the securities of such company.
3. With respect to 75% of its total assets, purchase more than 5%
of any class of securities of any one company, including more
than 10% of its outstanding voting securities,3 or invest in
any company for the purpose of exercising control or
management.
4. Act as an underwriter; issue senior securities except as set
forth in Investment Restriction 6 below; or purchase on margin
or sell short (but the Fund may make margin payments in
connection with options on securities or securities indices,
and foreign currencies; futures contracts and related options;
and forward contracts and related options).
5. Loan money apart from the purchase of a portion of an issue of
publicly distributed bonds, debentures, notes and other
evidences of indebtedness, although the Fund may buy from a
bank or broker-dealer U.S. Government obligations with a
simultaneous agreement by the seller to repurchase them within
no more than seven days at the original purchase price plus
accrued interest and may loan its portfolio securities.
6. Borrow money, except that the Fund may borrow money from banks
in an amount not exceeding 33-1/3% of the value of its total
assets (including the amount borrowed).
7. Invest more than 5% of the value of its total assets in
securities of issuers which have been in continuous operation
less than three years.
8. Invest more than 5% of its total assets in warrants, whether
or not listed on the New York or American Stock Exchanges,
including no more than 2% of its total assets which may be
invested in warrants that are not listed on those exchanges.
Warrants acquired by the Fund in units or attached to
securities are not included in this Investment Restriction.
9. Invest more than 25% of its total assets in a single industry.
10. Participate on a joint or a joint and several basis in any
trading account in securities. (See "Investment Objective and
Policies -- Trading Policies" as to transactions in the same
securities for the Fund and/or other mutual funds with the
same or affiliated advisers.)
Whenever any Investment Policy or Investment Restriction states a
maximum percentage of the Fund's assets which may be invested in any security or
other property, it is intended that such maximum percentage limitation be
determined immediately after and as a result of the Fund's acquisition of such
security or property. Assets are calculated as described in the Prospectus under
the heading "How to Buy Shares of the Fund." If the Fund receives from an issuer
of securities held by the Fund subscription rights to purchase securities of
that issuer, and if the Fund exercises such subscription rights at a time when
the Fund's portfolio holdings of securities of that issuer would otherwise
exceed the limits set forth in investment restrictions 3 or 9 above, it will not
constitute a violation if, prior to receipt of securities upon exercise of such
rights, and after announcement of such rights, the Fund has sold at least as
many securities of the same class and value as it would receive on exercise of
such rights.
RISK FACTORS. The Fund may invest up to 35% of its total assets in
securities in any foreign country, developed or developing, if they are listed
on a stock exchange, as well as a limited right to purchase such securities if
they are unlisted. Investors should consider carefully the substantial risks
involved in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in domestic investments. There may
be less publicly available information about foreign companies comparable to the
reports and ratings published about companies in the United States. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to United States companies. The Fund,
therefore, may encounter difficulty in obtaining market quotations for purposes
of valuing its portfolio and calculating its net asset value. Foreign markets
have substantially less volume than the New York Stock Exchange ("NYSE"), and
securities of some foreign companies are less liquid and more volatile than
securities of comparable United States companies. Although the Fund may not
invest more than 15% of its total assets in unlisted foreign securities,
including not more than 10% of its total assets in securities with a limited
trading market, in the opinion of the Investment Manager such securities with a
limited trading market do not present a significant liquidity problem.
Commission rates in foreign countries, which are generally fixed rather than
subject to negotiation as in the United States, are likely to be higher. In many
foreign countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (1) less social, political and economic stability; (2) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (3) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (4) the absence of
developed legal structures governing private or foreign investment or allowing
for judicial redress for injury to private property; (5) the absence, until
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; and (6) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries.
In addition, many countries in which the Fund may invest have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
INVESTMENTS IN EASTERN EUROPE COUNTRIES MAY INVOLVE RISKS OF
NATIONALIZATION, EXPROPRIATION AND CONFISCATORY TAXATION. The Communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into U.S. dollars, the
conversion rates may be artificial to the actual market values and may be
adverse to Fund Shareholders.
Investing in Russian companies involves a high degree of risk and
special considerations not typically associated with investing in the united
states securities markets, and should be considered highly speculative. Such
risks include: (1) delays in settling portfolio transactions and risk of loss
arising out of russia's system of share registration and custody; (2) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgment; (3) pervasiveness of corruption and crime in the
russian economic system; (4) currency exchange rate volatility and the lack of
available currency hedging instruments; (5) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation); (6)
controls on foreign investment and local practices disfavoring foreign investors
and limitations on repatriation of invested capital, profits and dividends, and
on the fund's ability to exchange local currencies for u.s. dollars; (7) the
risk that the government of russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the soviet union and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the soviet union; (8) the
financial condition of russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (9)
dependency on exports and the corresponding importance of international trade;
(10) the risk that the russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (11) possible
difficulty in identifying a purchaser of securities held by the fund due to the
underdeveloped nature of the securities markets.
There is little historical data on russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia.These registrars are not necessarily
subject to effective state supervision and it is possible for the Fund to lose
its registration through fraud, negligence or even mere oversight. While the
Fund will endeavor to ensure that its interest continues to be appropriately
recorded either itself or through a custodian or other agent inspecting the
share register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent the fund from
investing in the securities of certain Russian companies deemed suitable by the
investment manager. Further, this also could cause a delay in the sale of
Russian company securities by the fund if a potential purchaser is deemed
unsuitable, which may expose the fund to potential loss on the investment.
The Fund endeavors to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread in currency exchange (to cover service
charges) will be incurred, particularly when the Fund changes investments from
one country to another or when proceeds of the sale of Shares in U.S. dollars
are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent the Fund from transferring cash
out of the country or withhold portions of interest and dividends at the source.
There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization or confiscatory taxation, withholding and other
foreign taxes on income or other amounts, foreign exchange controls (which may
include suspension of the ability to transfer currency from a given country),
default in foreign government securities, political or social instability, or
diplomatic developments which could affect investments in securities of issuers
in foreign nations.
The Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Some countries in which the Fund may invest may also
have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies have experienced a steady devaluation
relative to the U.S. dollar. Any devaluations in the currencies in which a
Fund's portfolio securities are denominated may have a detrimental impact on the
Fund. Through the flexible policy of the Fund, the Investment Manager endeavors
to avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where from time to time it places the
investments of the Fund.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Directors consider, at least annually, the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Directors also consider the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories (see "Investment Management and Other
Services -- Custodian and Transfer Agent"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Investment
Manager, any losses resulting from the holding of the Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of the Shareholders. No assurance can be given that the Directors'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
The Fund's ability to reduce or eliminate its futures and related
options positions will depend upon the liquidity of the secondary markets for
such futures and options. The Fund intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be
an active secondary market, but there is no assurance that a liquid secondary
market will exist for any particular contract or at any particular time. Use of
stock index futures and related options for hedging may involve risks because of
imperfect correlations between movements in the prices of the futures or related
options and movements in the prices of the securities being hedged. Successful
use of futures and related options by the Fund for hedging purposes also depends
upon the Investment Manager's ability to predict movements in the direction of
the market correctly, as to which no assurance can be given.
TRADING POLICIES. The Investment Manager and its affiliated companies
serve as investment adviser to other investment companies and private clients.
Accordingly, the respective portfolios of certain of these funds and clients may
contain many or some of the same securities. When certain funds or clients are
engaged simultaneously in the purchase or sale of the same security, the TRADES
may be aggregated for execution and then allocated in a manner designed to be
equitable to each party. The larger size of the transaction may affect the price
of the security and/or the quantity which may be bought or sold for each party.
If the transaction is large enough, brokerage commissions in certain countries
may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other remuneration in
connection therewith, may be effected between any of these funds, or between
funds and private clients, under procedures adopted by the Fund's Board of
Directors pursuant to Rule 17a-7 under the 1940 Act.
PERSONAL SECURITIES TRANSACTIONS. Access persons of the Franklin
Templeton Group, as defined in SEC Rule 17(j) under the 1940 Act, who are
employees of Franklin Resources, Inc. or their subsidiaries, are permitted to
engage in personal securities transactions subject to the following general
restrictions and procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after this clearance;
(2) Copies of all brokerage confirmations must be sent to the Compliance Officer
and within 10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the Compliance Officer; (3) In
addition to items (1) and (2), access persons involved in preparing and making
investment decisions must file annual reports of their securities holdings each
January and also inform the Compliance Officer (or other designated personnel)
if they own a security that is being considered for a fund or other client
transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
MANAGEMENT OF THE FUND
The name, address, principal occupation during the past five years and
other information with respect to each of the Directors and Principal Executive
Officers of the Fund are as follows:
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH FUND DURING PAST FIVE YEARS
HARRIS J. ASHTON Chairman of the Board, president and
Metro Center chief executive officer of General Host
1 Station Place Corporation (nursery and craft centers);
Stamford, Connecticut and a director of RBC Holdings (U.S.A.)
Director Inc. (a bank holding company) and Bar-S
Foods. AGE 63.
NICHOLAS F. BRADY* Chairman of Templeton Emerging Markets
The Bullitt House Investment Trust PLC; chairman of
102 East Dover Street Templeton Latin America Investment Trust
Easton, Maryland PLC; chairman of Darby Overseas
Director Investments, Ltd. (an investment firm)
(1994-present); director os the Amerada
Hess Corporation, Capital Cities/ABC,
Inc., Christiana Companies, and the H.J.
Heinz Company; Secretary of the United
States Department of the Treasury (1988-
January, 1993); and chairman of the board
of Dillon, Read & Co. Inc. (investment
banking) prior thereto. Age 66.
HARMON E. BURNS* Executive vice president, secretary, and
777 Mariners Island Blvd. director of Franklin Resources, Inc.;
San Mateo, California executive vice president and director of
Franklin Templeton Distributors, Inc.;
Director and Vice President executive vice
president of Franklin Advisers, Inc.;
and an officer and/or director, as the
case may be, of other subsidiaries of
Franklin Resources, Inc. and of 41 of the
investment companies in the Franklin
Templeton Group. Age 51.
FRANK J. CROTHERS President and chief executive officer of
P.O. Box N-3238 Atlantic Equipment & Power Ltd.; vice
Nassau, Bahamas chairman of Caribbean Utilities Co.,
Ltd.; president of Provo Power
Director Corporation; and a director of various
other business and nonprofit
organizations. Age 51.
S. JOSEPH FORTUNATO Member of the law firm of Pitney, Hardin,
200 Campus Drive Kipp & Szuch; and a director of General
Florham Park, New Jersey Host Corporation. Age 63.
Director
JOHN WM. GALBRAITH President of Galbraith Properties, Inc.
360 Central Avenue (personal investment company); Director
Suite 1300 of Gulfwest Banks, Inc. (bank holding
st. petersburg, florida company) (1995-present) and Mercantile
Director Bank (1991-present); Vice Chairman of
Templeton, Galbraith & Hansberger Ltd.
(1986-1992); and Chairman of Templeton
Funds Management, Inc.(1974-1991). Age 74.
ANDREW H. HINES, JR. Consultant for the Triangle Consulting
150 2nd Avenue N. Group; chairman of the board and chief
St. Petersburg, Florida executive officer of Florida Progress
Director Corporation (1982-February, 1990) and
director of various of its subsidiaries;
chairman and director of Precise Power
Corporation; executive-in-residence of
Eckerd College (1991-present); and a
director of Checkers Drive-In
Restaurants, Inc. Age 73.
CHARLES B. JOHNSON* President,Chief Executive Officer, and
777 Mariners Island Blvd. Director of Franklin Resources, Inc.;
San Mateo, California Chairman of the Board and Director of
Chairman of the Board Franklin Advisers, Inc. and Franklin
and Vice President Templeton Distributors, Inc.; Director of
Franklin Administrative Services, Inc.,
General Host Corporation, and
Templeton Global Investors, Inc.; and
and officer and director, trustee or
managing general partner, as the case may
be, of most other subsidiaries of
Franklin and of 61 of the investment
companies in the Franklin Templeton Group.
Age 63.
BETTY P. KRAHMER Director or trustee of various civic
2201 Kentmere Parkway associations; formerly, economic analyst,
Wilmington, Delaware U.S. Government. Age 66.
Director
GORDON S. MACKLIN Chairman of White River Corporation
8212 Burning Tree Road (information services); director of Fund
Bethesda, Maryland America Enterprises Holdings, Inc.,
Director Lockheed Martin Corporation, MCI
Communications Corporation, Fusion Systems
Corporation, Infovest Corporation, and
Medimmune, Inc.; and formerly held
the following positions: chairman of
Hambrecht and Quist Group; director of H&Q
Healthcare Investors; and president of the
National Association of Securities
Dealers, Inc. Age 67.
FRED R. MILLSAPS Manager of personal investments (1978-
2665 N.E. 37th Drive present); Chairman and Chief Executive
Fort Lauderdale, Florida Officer of Landmark Banking Corporation
Director (1969-1978); financial Vice President of
Florida Power and Light (1965-1969); vice
president of The Federal Reserve Bank of
Atlanta (1958-1965); and a director of
various other business and nonprofit
organizations. Age 67.
CONSTANTINE DEAN TSERETOPOULOS Physician, Lyford Cay Hospital (1987-
Lyford Cay Hospital present);cardiology fellow, University
P.O. Box N-7776 of Maryland (1985-1987); internal medicine
Nassau, Bahamas intern, Greater Baltimore Medical Center
(July 1982-July 1985). Age 42.
Director
GARY P. MOTYL Senior Vice President and Director of
500 East Broward Blvd. Templeton Investment Counsel, Inc.;
Fort Lauderdale, Florida director of Templeton Global Investors,
President Inc.; and president or vice president of
other Templeton Funds. Age 43.
RUPERT H. JOHNSON, JR. Executive Vice President, Secretary and
777 Mariners Island Blvd. Director of Franklin Resources, Inc.;
San Mateo, California Executive Vice President of Franklin
Vice President Templeton Distributors, Inc.; Executive Vice
President of Franklin Advisers, Inc.;
Director of Franklin Templeton Investor
Services, Inc.; officer and/or director, as
the case may be, of other subsidiaries of
Franklin Resources, Inc.; and officer
and/or director or trustee of 61 of the
investment companies in the Franklin
Templeton Group of Funds. Age 55.
CHARLES E. JOHNSON Senior Vice President and Director of
777 Mariners Island Blvd. Franklin Resources, Inc.; Senior Vice
San Mateo, California President of Franklin Templeton
Vice President Distributors, Inc.; President and Director
of Templeton Worldwide, Inc. and Franklin
Institutional Services Corporation;
Chairman of the Board of Templeton
Investment Counsel, Inc.; vice president
and/or director, as the case may be, for
some of the subsidiaries of Franklin
Resources, Inc.; and an officer and/or
director, as the case may be, of 24 of
the investment companies in the Franklin
Templeton Group. Age 39.
DEBORAH R. GATZEK Senior Vice President and General Counsel
777 Mariners Island Blvd. of Franklin Resources, Inc.; Senior Vice
San Mateo, California President of Franklin Templeton
Vice President Distributors, Inc.; Vice President of
Franklin Advisers, Inc. and officer of 61
of the investment companies in the Franklin
Templeton Group of Funds. Age 47.
MARTIN L. FLANAGAN Senior vice president, treasurer and
777 Mariners Island Blvd. chief financial officer of Franklin
San Mateo, California Resources, Inc.; director and executive
Vice President vice president of Templeton Investment
Counsel, Inc.; director, president and
chief executive officer of Templeton Global
Investors, Inc.; director or trustee and
president or vice president of various
Templeton Funds; accountant with Arthur
Andersen & Company (1982-1983); and a
member of the International Society of
Financial Analysts and the American
Institute of Certified Public Accountants.
Age 35.
MARK G. HOLOWESKO President and director of Templeton Global
Lyford Cay Advisors Limited; Chief Investment Officer
Nassau, Bahamas of global equity research for Templeton
Vice President Worldwide, Inc.; president or vice
president of the Templeton Funds;
formerly, investment
administrator with Roy West Trust
Corporation (Bahamas) Limited (1984-1985).
Age 36.
JOHN R. KAY Vice president of the Templeton Funds; vice
500 East Broward Blvd. president and treasurer of Templeton Global
Fort Lauderdale, Florida Investors, Inc. and Templeton Worldwide,
Vice President Inc.; assistant vice president of Franklin
Templeton Distributors, Inc.; formerly,
vice president and controller of the
Keystone Group, Inc. Age 55.
THOMAS M. MISTELE Senior vice president of Templeton Global
700 Central Avenue Investors, Inc.; vice president of Franklin
St. Petersburg, Florida Templeton Distributors, Inc.; secretary of
Secretary the Templeton Funds; formerly,attorney,
Dechert Price & Rhoads (1985-1988) and
Freehill, Hollingdale & Page (1988); and
judicial clerk, U.S. District Court(Eastern
District of Virginia) (1984-1985). Age 42.
JAMES R. BAIO Certified public accountant; treasurer of
500 East Broward Blvd. the Templeton Funds; senior vice president
Fort Lauderdale, Florida of Templeton Worldwide,Inc., Templeton
Treasurer Global Investors, Inc., and Templeton Funds
Trust Company; formerly, senior tax manager
with Ernst & Young (certified public
accountants) (1977-1989). Age 41.
- --------------------
* These are Directors who are "interested persons" of the Fund as that
term is defined in the 1940 Act. Mr. Brady and Franklin Resources,
Inc. are limited partners of Darby Overseas Partners, L.P. ("Darby
Overseas"). Mr. Brady established Darby Overseas in February, 1994,
and is Chairman and a shareholder of the corporate general partner of
Darby Overseas. In addition, Darby Overseas and Templeton Global
Advisors Limited are limited partners of Darby Emerging Markets
Fund, L.P.
There are no family relationships between any of the directors.
DIRECTOR COMPENSATION
All of the Fund's Officers and Directors also hold positions with other
investment companies in the Franklin Templeton Group. No compensation is paid by
the Fund to any officer or Director who is an officer, trustee or employee of
the Investment Manager or its affiliates. Each Templeton Fund pays its
independent directors and trustees and Mr. Brady an annual retainer and/or fees
for attendance at Board and Committee meetings, the amount of which is based on
the level of assets in each fund. Accordingly, the Fund currently pays the
independent Directors and Mr. Brady an annual retainer of $100 and a fee of $0
per meeting attended of the Board and its Committees. The independent Directors
and Mr. Brady are reimbursed for any expenses incurred in attending meetings,
paid pro rata by each Franklin Templeton Fund in which they serve. No pension or
retirement benefits are accrued as part of Fund expenses.
The following table shows the total compensation paid to the Directors
by the Fund and by all investment companies in the Franklin Templeton Group:
<TABLE>
<CAPTION>
NUMBER OF TOTAL COMPENSATION
NAME AGGREGATE FRANKLIN TEMPLETON FROM ALL FUNDS IN
OF COMPENSATION FUND BOARDS ON WHICH FRANKLIN TEMPLETON
DIRECTOR FROM THE FUND* DIRECTOR SERVES GROUP
<S> <C> <C> <C>
Harris J. Ashton $100 56 $327,925
Nicholas F. Brady 100 24 98,225
Frank J. Crothers 118 4 22,975
S. Joseph Fortunato 100 58 344,745
John Wm. Galbraith 75 23 70,100
Andrew H. Hines, Jr. 100 24 106,325
Betty P. Krahmer 75 24 93,475
Gordon S. Macklin 100 53 321,525
Fred R. Millsaps 115 24 104,325
Constantine Dean Tseretopoulos 118 4 22,975
</TABLE>
- -------------------
* For the fiscal year ended December 31, 1995.
PRINCIPAL SHAREHOLDERS
As of March 29, 1996 , there were 3,069,013 Shares of the Fund
outstanding, of which 3,195 Shares (less than 1%) were owned beneficially by all
the Directors and Officers of the Fund as a group. As of that date, to the
knowledge of management, no person owned beneficially or of record 5% or more of
the Fund's outstanding Class I Shares, except that Kurt Eckerle, Morningside
Avenue, RR 1 Box 158, Palisades, New York 10964-9801, owned 8,166 Shares (9% of
the outstanding shares); Hugh G. Robinson, Jr., 9825 Gaillard Road, Fort
Bellvoir, Virginia 22060-1930, owned 7,331 Shares (8% of the outstanding
shares); and Larry H. Hutton, 391 Montclair Drive #228, Big Bear City,
California 92314, owned 6,640 Shares (7% of the outstanding shares); and no
person owned beneficially or of record 5% or more of the fund's outstanding
Class II Shares , except that Merrill Lynch, Pierce, Fenner & Smith Inc., P.O.
Box 45286, Jacksonville, Florida 32232-5286 owned of record 265,968 Shares
(representing 8% of the outstanding Shares).
INVESTMENT MANAgeMENT AND OTHER SERVICES
INVESTMENT MANAGEMENT AGREEMENT. The Investment Manager of the Fund is
Templeton Investment Counsel, Inc., a Florida corporation with offices in Fort
Lauderdale, Florida. The Investment Management Agreement dated October 30, 1992
was approved by Shareholders of the Fund on October 30, 1992, was last approved
by the Board of Directors, including a majority of the Directors who were not
parties to the Agreement or interested persons of any such party, at a meeting
on February 23, 1996 , and will continue through April 30, 1997 . The Investment
Management Agreement will continue from year to year thereafter, subject to
approval annually by the Board of Directors or by vote of the holders of a
majority of the outstanding shares of the Fund (as defined in the 1940 Act) and
also, in either event, with the approval of a majority of those Directors who
are not parties to the Investment Management Agreement or interested persons of
any such party in person at a meeting called for the purpose of voting on such
approval.
The Investment Management Agreement requires the Investment Manager to
manage the investment and reinvestment of the Fund's assets. The Investment
Manager is not required to furnish any personnel, overhead items or facilities
for the Fund, including daily pricing or trading desk facilities, although such
expeneses are paid by investmetn advisers of some other investment companies.
The Investment Management Agreement provides that the Investment
Manager will select brokers and dealers for execution of the Fund's portfolio
transactions consistent with the Fund's brokerage policy (see "Brokerage
Allocation"). Although the services provided by broker-dealers in accordance
with the brokerage policy incidentally may help reduce the expenses of or
otherwise benefit the Investment Manager and other investment advisory clients
of the Investment Manager and of its affiliates, as well as the Fund, the value
of such services is indeterminable, and the Investment Manager's fee is not
reduced by any offset arrangement by reason thereof.
When the Investment Manager determines to buy or sell the same
securities for the Fund that the Investment Manager or certain of its affiliates
have selected for one or more of the Investment Manager's other clients or for
clients of its affiliates, the orders for all such securities trades may be
placed for execution by methods determined by the Investment Manager, with
approval by the Board of Directors, to be impartial and fair, in order to seek
good results for all parties (see Policies -- Trading Policies"). Records of
securities transactions of persons who know when orders are placed by the Fund
are available for inspection at least four times annually by the compliance
officer of the Fund so that the non-interested Directors (as defined in the 1940
Act) can be satisfied that the procedures are generally fair and equitable for
all parties.
The Investment Management Agreement further provides that the
Investment Manager shall have no liability to the Fund or any Shareholder of the
Fund for any error of judgment, mistake of law, or any loss arising out of any
investment or other act or omission in the performance by the Investment Manager
of its duties under the Investment Management Agreement or for any loss or
damage resulting from the imposition by any government of exchange control
restrictions which might affect the liquidity of the Fund's assets, or from acts
or omissions of custodians or securities depositories, or from any wars or
political acts of any foreign governments to which such assets might be exposed,
except for any liability, loss or damage resulting from willful misfeasance, bad
faith or gross negligence on the Investment Manager's part or reckless disregard
of its duties under the Investment Management Agreement. The Investment
Management Agreement will terminate automatically in the event of its
assignment, and may be terminated by the Fund at any time without payment of any
penalty on 60 days' written notice, with the approval of a majority of the
Directors of the Fund in office at the time or by vote of a majority of the
outstanding Shares of the Fund (as defined by the 1940 Act).
MANAGEMENT FEES. For its services, the Fund pays the Investment Manager
a monthly fee equal on an annual basis to 0.70% of its average daily net assets
during the year. Each class of Shares pays a portion of the fee, determined by
the proportion of the Fund that it represents. During the fiscal years ended
December 31, 1995, 1994, AND 1993 and 1992, the Investment Manager (and, prior
to October 30, 1992, TGH, the Fund's previous Investment Manager) received from
the Fund fees of $304,286 $255,905, and $223,035, and $139,914, respectively.
The Investment Manager will comply with any applicable state regulations which
may require the Investment Manager to make reimbursements to the Fund in the
event that the Fund's aggregate operating expenses, including the management
fee, but generally excluding interest, taxes, brokerage commissions and
extraordinary expenses, are in excess of specific applicable limitations. The
strictest rule currently applicable to the Fund is 2.5% of the first $30,000,000
of net assets, 2% of the next $70,000,000 of net assets and 1.5% of the
remainder.
THE INVESTMENT MANAGER. The Investment Manager is an indirect wholly
owned subsidiary of Franklin Resources, Inc. ("Franklin"), a publicly traded
company whose shares are listed on the NYSE. Charles B. Johnson (a Director and
officer of the Fund) and Rupert H. Johnson, Jr., and R. Martin Wiskemann are
principal shareholders of Franklin and own, respectively, approximately 20% and
16% and 9.2% of its outstanding shares.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
BUSINESS MANAGER. Templeton Global Investors, Inc. performs certain
administrative functions for the Fund including:
o providing office space, telephone, office equipment and
supplies for the Fund;
o paying all compensation of the Fund's officers;
o authorizing expenditures and approving bills for payment on
behalf of the Fund;
o supervising preparation of annual and semiannual reports to
Shareholders, notices of dividends, capital gains
distributions and tax credits, and attending to correspondence
and other communications with individual Shareholders;
o daily pricing of the Fund's investment portfolio and preparing
and supervising publication of daily quotations of the bid and
asked prices of the Fund's Shares, earnings reports and other
financial data;
o providing trading desk facilities for the Fund;
o monitoring relationships with organizations serving the
Fund, including the custodian and printers;
o supervising compliance by the Fund with recordkeeping
requirements under the 1940 Act and regulations thereunder,
and with state regulatory requirements, maintaining books and
records for the Fund (other than those maintained by the
custodian and transfer agent), and preparing and filing tax
reports other than the Fund's income tax returns;
o monitoring the qualifications of the tax-deferred retirement
plans offered by the Fund; and
o providing executive, clerical and secretarial help needed to
carry out these responsibilities.
For its services, the Business Manager receives a monthly fee equal on
an annual basis to 0.15% of the first $200,000,000 of the Fund's average daily
net assets, reduced to 0.135% annually of the Fund's net assets in excess of
$200,000,000, further reduced to 0.1% annually of such net assets in excess of
$700,000,000, and further reduced to 0.075% annually of such net assets in
excess of $1,200,000,000. Each class of Shares pays a portion of the fee,
determined by the proportion of the Fund that it represents. Since the Business
Manager's fee covers services often provided by investment advisers to other
funds, the Fund's combined expenses for advisory and administrative services are
higher than those of most other investment companies. During the fiscal years
ended December 31, 1995, 1994, and 1993 and 1992, the Fund paid business
management fees of $65,203, $54,836, and $47,794 and $29,983, respectively.
The Business Manager is relieved of liability to the Fund for any act
or omission in the course of its performance under the Business Management
Agreement in the absence of willful misfeasance, bad faith or gross negligence.
The Business Management Agreement may be terminated by the Fund at any time on
60 days' written notice without payment of penalty, provided that such
termination by the Fund shall be directed or approved by vote of a majority of
the Directors of the Fund in office at the time or by vote of a majority of the
outstanding voting securities of the Fund (as defined by the 1940 Act), and
shall terminate automatically and immediately in the event of its assignment.
Templeton Global Investors, Inc. is an indirect wholly owned subsidiary
of Franklin.
CUSTODIAN AND TRANSFER AGENT. The Chase Manhattan Bank, N.A. serves as
custodian of the Fund's assets, which are maintained at the custodian's
principal office, MetroTech Center, Brooklyn, New York 11245, and at the offices
of its branches and agencies throughout the world. The custodian has entered
into agreements with foreign sub-custodians approved by the Directors pursuant
to Rule 17f-5 under the 1940 Act. The custodian, its branches and sub-custodians
generally do not hold certificates for the securities in their custody, but
instead have book records with domestic and foreign securities depositories,
which in turn have book records with the transfer agents of the issuers of the
securities. Compensation for the services of the custodian is based on a
schedule of charges agreed on from time to time.
Franklin Templeton Investor Services, Inc. serves as the Fund's
transfer agent. Services performed by the transfer agent include processing
purchase, transfer and redemption orders; making dividend payments, capital gain
distributions and reinvestments; and handling routine communications with
Shareholders. The transfer agent receives from the Fund an annual fee of $14.08
per Shareholder account plus out-of-pocket expenses, such fee to be adjusted
each year to reflect changes in the Department of Labor Consumer Price Index.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Fund.
INDEPENDENT ACCOUNTANTS. The firm of McGladrey & Pullen, LLP, 555 Fifth
Avenue, New York, New York 10017, serves as independent accountants for the
Fund. In addition to reporting annually on the financial statements of the Fund,
the Fund's accountants review certain filings of the Fund with the Securities
and Exchange Commission ("SEC") and prepare the Fund's Federal and state
corporation tax returns.
REPORTS TO SHAREHOLDERS. The Fund's fiscal year ends on December 31.
Shareholders will be provided at least semiannually with reports showing the
portfolio of the Fund and other information, including an annual report with
financial statements audited by independent accountants. Shareholders who would
like to receive an interim quarterly report may phone the Fund Information
Department at 1-800/DIAL BEN.
BROKERAGE ALLOCATION
The Investment Management Agreement provides that the Investment
Manager is responsible for selecting members of securities exchanges, brokers
and dealers (such members, brokers and dealers being hereinafter referred to as
"brokers") for the execution of the Fund's portfolio transactions and, when
applicable, the negotiation of commissions in connection therewith. It is not
the duty of the Investment Manager, nor does it have any obligation, to provide
a trading desk for the Fund's portfolio transactions. All decisions and
placements are made in accordance with the following principles:
1. Purchase and sale orders will usually be placed with brokers
who are selected by the Investment Manager as able to achieve
"best execution" of such orders. "Best execution" means
prompt and reliable execution at the most favorable
securities price, taking into account the other provisions
hereinafter set forth. The determination of what may
constitute best execution and price in the execution of a
securities transaction by a broker involves a number of
considerations,
including without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and
any commissions and other costs paid), the efficiency with
which the transaction is effected, the ability to effect the
transaction at all where a large block is involved,
availability of the broker to stand ready to execute possibly
difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are
judgmental and are weighed by the Investment Manager in
determining the overall reasonableness of brokerage
commissions.
2. In selecting brokers for portfolio transactions, the
Investment Manager takes into account its past experience as
to brokers qualified to achieve "best execution," including
brokers who specialize in any foreign securities held by the
Fund.
3. The Investment Manager is authorized to allocate brokerage
business to brokers who have provided brokerage and research
services, as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934 (the "1934 Act"), for the
Fund and/or other accounts, if any, for which the Investment
Manager exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions as to which
fixed minimum commission rates are not applicable, to cause
the Fund to pay a commission for effecting a securities
transaction in excess of the amount another broker would have
charged for effecting that transaction, if the Investment
Manager determines in good faith that such amount of
commission is reasonable in relation to the value of the
brokerage and research services provided by such broker,
viewed in terms of either that particular transaction or the
Investment Manager's overall responsibilities with respect to
the Fund and the other accounts, if any, as to which it
exercises investment discretion. In reaching such determin-
ation, the Investment Manager is not required to place
or attempt to place a specific dollar value on the research
or execution services of a broker or on the portion of any
commission reflecting either of said services. In
demonstrating that such determinations were made in good
faith, the Investment Manager shall be prepared to show that
all commissions were allocated and paid for purposes
contemplated by the Fund's brokerage policy; that commissions
were paid only for products or services which provide lawful
and appropriate assistance to the Investment Manager in the
performance of its investment decision-making
responsibilities; and that the commissions paid were within a
reasonable range. The determination that commissions were
within a reasonable range shall be based on any available
information as to the level of commissions known to be
charged by other brokers on comparable transactions, but
there shall be taken into account the Fund's policies that
(a) obtaining a low commission is deemed secondary to
obtaining a favorable securities price, since it is
recognized that usually it is
more beneficial to the Fund to obtain a favorable price than
to pay the lowest commission; and (b) the quality, comprehen-
siveness and frequency of research studies which are provided
for the Fund and the Investment Manager are useful to the
Investment Manager in performing its advisory services under
its Investment Management Agreement with the Fund. Research
services provided by brokers to the Investment Manager are
considered to be in addition to, and not in lieu of, services
required to be performed by the Investment Manager under its
Investment Management Agreement. Research furnished by
brokers through whom the Fund effects securities transactions
may be used by the Investment Manager for any of its accounts,
and not all such research may be used by the Investment
Manager for the Fund. When execution of portfolio
transactions is allocated to brokers trading on exchanges
with fixed brokerage commission rates, account may be taken of
various services provided by the broker, including quotations
outside the United States for daily pricing of foreign
securities held in the Fund's portfolio.
4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange shall be executed
with primary market makers acting as principal except where,
in the judgment of the Investment Manager, better prices and
execution may be obtained on a commission basis or from other
sources.
5. Sales of the Fund's Shares (which shall be deemed to include
also shares of other investment companies registered under
the 1940 Act which have either the same investment adviser or
an investment adviser affiliated with the Fund's Investment
Manager) made by a broker are one factor among others to be
taken into account in deciding to allocate portfolio
transactions (including agency transactions, principal
transactions, purchases in underwritings or tenders in
response to tender offers) for the account of the Fund to
that broker; provided that the broker shall furnish "best
execution" as defined in paragraph 1 above, and that such
allocation shall be within the scope of the Fund's policies
as stated above; and provided further, that in every
allocation made to a broker in which the sale of Shares is
taken into account there shall be no increase in the amount
of the commissions or other compensation paid to such broker
beyond a reasonable commission or other compensation
determined, as set forth in paragraph 3 above, on the basis
of best execution alone or best execution plus research
services, without taking account of or placing any value upon
such sale of Shares.
Insofar as known to management, no Director or officer of the Fund, nor
the Investment Manager or the Principal Underwriter or any person affiliated
with any of them, has any material direct or indirect interest in any broker
employed by or on behalf of the Fund. Franklin Templeton Distributors, Inc., the
Principal Underwriter for the Fund, is a registered broker-dealer, but has never
executed any purchase or sale transactions for the Fund's portfolio or
participated in commissions on any such transactions, and has no intention of
doing so in the future. During the fiscal years ended December 31, 1995, 1994,
and 1993, the Fund paid brokerage commissions of $ 10,454 , $34,622,
and $20,620, respectively. All portfolio transactions are allocated
to broker-dealers only when their prices and execution, in the good faith
judgment of the Investment Manager, are equal to the best available within the
scope of the Fund's policies. There is no fixed method used in determining which
broker-dealers receive which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which the Fund's Shares may be
purchased and redeemed. See "How to Buy Shares of the Fund" and "How to Sell
Shares of the Fund."
Net asset value per Share is determined as of the scheduled closing of
the NYSE (generally 4:00 p.m., New York time), every Monday through Friday
(exclusive of national business holidays). The Fund's offices will be closed,
and net asset value will not be calculated, on those days on which the NYSE is
closed, which currently are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business in New York on each day on which the NYSE is open. Trading of European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every New York business day. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and on which the Fund's net asset value is not calculated. The Fund calculates
net asset value per Share, and therefore effects sales, redemptions and
repurchases of its Shares, as of the close of the NYSE once on each day on which
that Exchange is open. Such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio securities used in
such calculation, and if events occur which materially affect the value of those
foreign securities, they will be valued at fair market value as determined by
the management and approved in good faith by the Board of Directors.
The Board of Directors may establish procedures under which the Fund
may suspend the determination of net asset value for the whole or any part of
any period during which (1) the NYSE is closed other than for customary weekend
and holiday closings, (2) trading on the NYSE is restricted, (3) an emergency
exists as a result of which disposal of securities owned by the Fund is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (4) for such other period as the
SEC may by order permit for the protection of the holders of the Fund's Shares.
OWNERSHIP AND AUTHORITY DISPUTES. In the event of disputes involving
multiple claims of ownership or authority to control a Shareholder's account,
the Fund has the right (but has no obligation) to: (1) freeze the account and
require the written agreement of all persons deemed by the Fund to have a
potential property interest in the account, prior to executing instructions
regarding the account; or (2) interplead disputed funds or accounts with a court
of competent jurisdiction. Moreover, the Fund may surrender ownership of all or
a portion of an account to the Internal Revenue Service ("IRS") in response to a
Notice of Levy.
In addition to the special purchase plans described in the Prospectus,
other special purchase plans also are available:
TAX-DEFERRED RETIREMENT PLANS. The Fund offers its Shareholders the
opportunity to participate in the following types of retirement plans:
o For individuals, whether or not covered by other qualified
plans;
o For simplified employee pensions;
o For employees of tax-exempt organizations;
o For corporations, self-employed individuals and partnerships.
Capital gains and income received by the foregoing plans generally are
exempt from taxation until distribution from the plans. Investors considering
participation in any such plan should review specific tax laws relating thereto
and should consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan. Additional information,
including the fees and charges with respect to all of these plans, is available
upon request to the Principal Underwriter. No distribution under a retirement
plan will be made until Franklin Templeton Trust Company ("FTTC"), the custodian
of the retirement plans, receives the participant's election on IRS Form W-4P
(available on request from FTTC) and such other documentation as it deems
necessary, as to whether or not U.S. income tax is to be withheld from such
distribution.
INDIVIDUAL RETIREMENT ACCOUNT (IRA). All U.S. individuals (whether or
not covered by qualified private or governmental retirement plans) may purchase
Shares of the Fund pursuant to an IRA. However, contributions to an IRA by an
individual who is covered by a qualified private or governmental plan may not be
tax-deductible depending on the individual's income. Custodial services for IRAS
are available through FTTC. Disclosure statements summarizing certain aspects of
IRAs are furnished to all persons investing in such accounts, in accordance with
Internal Revenue Service regulations.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRA). For employers who wish to
establish a simplified form of employee retirement program investing in Shares
of the Fund, there are available Simplified Employee Pensions invested in IRA
plans. Details and materials relating to these plans will be furnished upon
request to the Principal Underwriter.
RETIREMENT PLAN FOR EMPLOYEES OF TAX-EXEMPT ORGANIZATIONS (403(B)).
Employees of public school systems and certain types of charitable organizations
may enter into a deferred compensation arrangement for the purchase of Shares of
the Fund without being taxed currently on the investment. Contributions which
are made by the employer through salary reduction are excludable from the gross
income of the employee. Such deferred compensation plans, which are intended to
qualify under Section 403(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), are available through the Principal Underwriter. Custodian
services are provided by FTTC.
QUALIFIED PLAN FOR CORPORATIONS, SELF-EMPLOYED INDIVIDUALS AND
PARTNERSHIPS. For employers who wish to purchase Shares of the Fund in
conjunction with employee retirement plans, there is a prototype master plan
which has been approved by the IRS. A "Section 401(k) Plan" is also available.
FTTC furnishes custodial services for these plans. For further details,
including custodian fees and plan administration services, see the master plan
and related material which is available from the Principal Underwriter.
LETTER OF INTENT. Purchasers who intend to invest $50,000 or more in
Class I Shares of the Fund or any other fund in the Franklin Group of Funds and
the Templeton Family of Funds, exceptTempleton Capital AccumulatorFund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust (the "Franklin
Templeton Funds"), within 13 months (whether in one lump sum or in installments
the first of which may not be less than 5% of the total intended amount and each
subsequent installment not less than $25 unless the investor is a qualifying
employee benefit plan (the "benefit plan"), including automatic investment and
payroll deduction plans), and to beneficially hold the total amount of such
Class I Shares fully paid for and outstanding simultaneously for at least one
full business day before the expiration of that period, should execute a Letter
of Intent ("LOI") on the form provided in the Shareholder Application in the
Fund's Prospectus. Payment for not less than 5% of the total intended amount
must accompany the executed loi unless the investor is a benefit plan. except
for purchases of shares by a benefit plan, those Class I Shares purchased with
the first 5% of the intended amount stated in the LOI will be held as "Escrowed
Shares" for as long as the LOI remains unfulfilled. Although the Escrowed Shares
are registered in the investor's name, his full ownership of them is conditional
upon fulfillment of the LOI. No Escrowed Shares can be redeemed by the investor
for any purpose until the LOI is fulfilled or terminated. If the LOI is
terminated for any reason other than fulfillment, the Transfer Agent will redeem
that portion of the Escrowed Shares required and apply the proceeds to pay any
adjustment that may be appropriate to the sales commission on all Class I Shares
(including the Escrowed Shares) already purchased under the LOI and apply any
unused balance to the investor's account. The LOI is not a binding obligation to
purchase any amount of Shares, but its execution will result in the purchaser
paying a lower sales charge at the appropriate quantity purchase level. A
purchase not originally made pursuant to an LOI may be included under a
subsequent LOI executed within 90 days of such purchase. In this case, an
adjustment will be made at the end of 13 months from the effective date of the
LOI at the net asset value per Share then in effect, unless the investor makes
an earlier written request to the Principal Underwriter upon fulfilling the
purchase of Shares under the LOI. In addition, the aggregate value of any
Shares, including Class II Shares, purchased prior to the 90-day period referred
to above may be applied to purchases under a current LOI in fulfilling the total
intended purchases under the LOI. However, no adjustment of sales charges
previously paid on purchases prior to the 90-day period will be made.
If an LOI is executed on behalf of a benefit plan (such plans are
described under "How to Buy Shares of the Fund -- Net Asset Value Purchases
(Both Classes)" in the prospectus), the level and any reduction in sales charge
for these employee benefit plans will be based on actual plan participation and
the projected investments in the Franklin Templeton Funds under the LOI. Benefit
plans are not subject to the requirement to reserve 5% of the total intended
purchase, or to any penalty as a result of the early termination of a plan, nor
are benefit plans entitled to receive retroactive adjustments in price for
investments made before executing LOIs.
SPECIAL NET ASSET VALUE PURCHASES. As discussed in the Prospectus under
"How to Buy Shares of the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase Class I Shares of the
Fund at net asset value (without a front-end or contingent deferred sales
charge). Franklin Templeton Distributors, Inc. ("FTD") or one of its affiliates
may make payments, out of its own resources, to securities dealers who initiate
and are responsible for such purchases, as indicated below. FTD may make these
payments in the form of contingent advance payments, which may require
reimbursement from the securities dealers with respect to certain redemptions
made within 12 months of the calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement between FTD, or its
affiliates, and the securities dealer.
The following amounts will be paid by FTD or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
(i) purchases of most equity and fixed-income Franklin Templeton Funds made at
net asset value by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than $2 million, plus 0.80% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more; and (ii) purchases of most
fixed-income Franklin Templeton Funds made at net asset value by non-designated
retirement plans: 0.75% on sales of $1 million but less than $2 million, plus
0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50 million but less
than $100 million, plus 0.15% on sales of $100 million or more. These payment
breakpoints are reset every 12 months for purposes of additional purchases. With
respect to purchases made at net asset value by certain trust companies and
trust departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, FTD, or one of its
affiliates, out of its own resources, may pay up to 1% of the amount invested.
Under agreements with certain banks in Taiwan, Republic of China, the
Fund's Shares are available to such banks' discretionary trust funds at net
asset value. The banks may charge service fees to their customers who
participate in the discretionary trusts. Pursuant to agreements, a portion of
such service fees may be paid to FTD, or an affiliate of FTD, to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
REDEMPTIONS IN KIND. Redemption proceeds are normally paid in cash;
however, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in lieu of
cash, in conformity with applicable rules of the SEC. In such circumstances, the
securities distributed would be valued at the price used to compute the Fund's
net assets value. If Shares are redeemed in kind, the redeeming Shareholder
might incur brokerage costs in converting the assets into cash. The Fund is
obligated to redeem Shares solely in cash up to the lesser of $250,000 or 1% of
its net assets during any 90-day period for any one Shareholder.
TAX STATUS
The Fund intends normally to pay a dividend at least once annually
representing substantially all of its net investment income (which includes,
among other items, dividends and interest) and any net realized capital gains.
By so doing and meeting certain diversification of assets and other requirements
of the Code, the Fund intends to qualify annually as a regulated investment
company under the Code. The status of the Fund as a regulated investment company
does not involve government supervision of management or of its investment
practices or policies. As a regulated investment company, the Fund generally
will be relieved of liability for U.S. Federal income tax on that portion of its
net investment income and net realized capital gains which it distributes to its
Shareholders. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement also are subject to a nondeductible 4%
excise tax. To prevent application of the excise tax, the Fund intends to make
distributions in accordance with the calendar year distribution requirement.
Dividends representing net investment income and short-term capital
gains (the excess of net short-term capital gains over net long-term capital
losses) are taxable to Shareholders as ordinary income. Distributions
representing net investment income (not including short-term capital gains) may
be eligible for the dividends-received deduction available to corporations to
the extent attributable to the Fund's qualifying dividend income. However, the
alternative minimum tax applicable to corporations may reduce the benefit of the
dividends-received deduction. Distributions of net long-term capital gains (the
excess of net long-term capital gains over net short-term capital losses)
designated by the Fund as capital gain dividends are taxable to Shareholders as
long-term capital gains, regardless of the length of time the Fund's Shares have
been held by a Shareholder, and are not eligible for the dividends-received
deduction. Generally, dividends and distributions are taxable to Shareholders,
whether received in cash or reinvested in Shares of the Fund. Any distributions
that are not from a fund's investment company taxable income or net capital gain
may be characterized as a return of capital to Shareholders or, in some cases,
as capital gain. Shareholders will be notified annually as to the Federal tax
status of dividends and distributions they receive and any tax withheld thereon.
Distributions by the Fund reduce the net asset value of the Fund
Shares. Should a distribution reduce the net asset value below a Shareholder's
cost basis, the distribution nevertheless may be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying Shares just prior to a distribution by the Fund. The price of Shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
Income received by the Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes. It is impossible to determine the rate of foreign tax in
advance, since the amount of the Fund's assets to be invested in various
countries is not known.
If, at the close of any fiscal year, more than 50% of the value of the
Fund's total assets are invested in securities of foreign corporations, the Fund
generally may elect pursuant to Section 853 of the Code to pass through to its
Shareholders the foreign income and similar taxes paid by the Fund in order to
enable such Shareholders to take a credit (or deduction) for foreign income and
similar taxes paid by the Fund. In that case, a Shareholder must include in his
gross income on his Federal income tax return both dividends received by him
from the Fund and the amount which the Fund advises him is his pro rata portion
of foreign income and similar taxes paid with respect to, or withheld from,
dividends, interest, or other income of the Fund from its foreign investments.
The Shareholder may then subtract from his Federal income tax the amount of such
taxes, or else treat such foreign taxes as an itemized deduction in computing
taxable income; however, the above-described tax credit or deduction is subject
to certain limitations which may reduce significantly the value of a credit or
deduction. Foreign taxes generally may not be deducted by a Shareholder that is
an individual in computing alternative taxable income and may at most offset (as
a credit) 90% of the alternative minimum tax.
The foregoing is only a general description of the foreign tax credit.
Because application of the credit depends on the particular circumstances of
each Shareholder, Shareholders are advised to contact their own tax advisers.
Since the Fund currently anticipates that its investments in foreign
securities will be limited, the Fund does not expect to be eligible to make this
election. If the Fund is ineligible to do so, the foreign income and similar
taxes incurred by it generally will reduce the Fund's income that is
distributable to Shareholders.
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to Shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to Shareholders and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Fund accrues income or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts, futures contracts and
options, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition also are treated as ordinary gain or loss. These gains and
losses, referred to under the Code as "section 988" gains and losses, may
increase or decrease the amount of the Fund's net investment income to be
distributed to its Shareholders as ordinary income. For example, fluctuations in
exchange rates may increase the amount of income that the Fund must distribute
in order to qualify for treatment as a regulated investment company and to
prevent application of an excise tax on undistributed income. Alternatively,
fluctuations in exchange rates may decrease or eliminate income available for
distribution. If section 988 losses exceed other net investment income during a
taxable year, the Fund generally would not be able to make ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as return of capital to Shareholders for Federal income tax
purposes, rather than as an ordinary dividend, reducing each Shareholder's basis
in his Fund Shares, or as a capital gain.
Certain of the options, futures contracts, and forward contracts in
which the Fund may invest may be "section 1256 contracts." With certain
exceptions, gains or losses on section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses ("60/40"). Also,
section 1256 contracts held by the Fund at the end of each taxable year (and on
certain other dates prescribed by the Code) are "marked-to-market" with the
result that unrealized gains or losses are treated as though they were realized
and the resulting gain or loss treated as 60/40 gain or loss.
The hedging transactions undertaken by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain may be increased or decreased substantially as
compared to a Fund that did not engage in such hedging transactions.
Certain requirements that must be met under the Code in order for the
Fund to qualify as a regulated investment company may limit the extent to which
the Fund will be able to engage in transactions in options, futures, and forward
contracts.
Some of the debt securities that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption at maturity. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. A portion of the OID includable in income with respect to
certain high-yield corporate debt securities may be treated as a dividend for
Federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain does not exceed the "accrued market discount" on such debt security. In
addition, the deduction of any interest expenses attributable to debt securities
having market discount may be deferred. Market discount generally accrues in
equal daily installments. The Fund may make one or more of the elections
applicable to debt securities having market discount, which could affect the
character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections application to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
Shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
Upon the sale or exchange (including a redemption) of Shares, a
Shareholder will realize a taxable gain or loss depending upon the basis in the
Shares. Such gain or loss will be treated as capital gain or loss if the Shares
are capital assets in the Shareholder's hands, and will be long-term if the
Shareholder's holding period for the Shares is more than one year. Any loss
realized on a sale will be disallowed to the extent that the Shares disposed of
are replaced (including replacement through the reinvesting of dividends and
capital gains distributions in the Fund) within a period of 61 days beginning 30
days before and ending 30 days after the disposition of the Shares. In such a
case, the basis of the Shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a Shareholder on the sale of Fund Shares
held by the Shareholder for six months or less will be treated for Federal
income tax purposes as a long-term capital loss to the extent of any
distributions of long-term capital gains received by the Shareholder with
respect to such Shares.
In some cases, Shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Shares. This prohibition generally applies where (1)
the Shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the Shareholder subsequently acquires
Shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of Shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the Shares
exchanged all or a portion of the sales charge incurred in acquiring those
Shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired Shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
The Fund generally will be required to withhold Federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to Shareholders if (1) the Shareholder
fails to furnish the Fund with the Shareholder's correct taxpayer identification
number or Social Security number and to make such certifications as the Fund may
require, (2) the IRS notifies the Shareholder or the Fund that the Shareholder
has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect, or (3) when required to do so, the
Shareholder fails to certify that he is not subject to backup withholding.
Corporate Shareholders and certain other Shareholders specified in the Code
generally are exempt from backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the Shareholder's
Federal income tax liability.
Ordinary dividends and capital gains distributions declared by the Fund
in October, November or December with a record date in such a month and paid
during the following January will be treated as having been paid by the Fund and
received by Shareholders on December 31 of the calendar year in which declared,
rather than the calendar year in which the dividends are actually received.
Distributions from the Fund and dispositions of Fund Shares also may
be subject to state, local and foreign taxes. Non-U.S. Shareholders may be
subject to U.S. tax rules that differ significantly from those
summarized above.
Shareholders are advised to consult their own tax advisers for details
with respect to the particular tax consequences to them of an investment in the
Fund.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the "Principal
Underwriter"), P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free
telephone (800) 237-0738, is the Principal Underwriter of the Fund's Shares.
FTD is a wholly owned subsidiary of Franklin.
The Fund, pursuant to Rule 12b-1 under the 1940 Act, has adopted a
Distribution Plan with respect to each class of Shares (the "Plans"). Under the
Plan adopted with respect to Class I Shares, the Fund may reimburse FTD or
others quarterly (subject to a limit of a 0.35% per annum of the Fund's average
daily net assets attributable to Class I Shares) for costs and expenses incurred
by FTD or others in connection with any activity that is primarily intended to
result in the sale of Fund Shares. Under the Plan adopted with respect to Class
II Shares, the Fund may reimburse FTD or others quarterly (subject to a limit of
1.00% per annum of the Fund's average daily net assets of which up to 0.25% of
such net assets may be paid to dealers for personal service and/or the
maintenance of Shareholder accounts) for costs and expenses incurred by FTD or
others in connection with any activity which is primarily intended to result in
the sale of Fund Shares. Payments to FTD or others could be for various types of
activities, including (1) payments to broker-dealers who provide certain
services of value to the Fund's Shareholders (sometimes referred to as a "trail
fee") and advances of commissions on sales of Fund Shares, and interest or
carrying charges in connection therewith; (2) expenses relating to selling and
servicing efforts; (3) expenses of organizing and conducting sales seminars; (4)
payments to employees or agents of FTD who engage in or support distribution of
Shares; (5) the costs of preparing, printing and distributing prospectuses and
reports to prospective investors; (6) printing and advertising expenses; and (7)
such other similar services as the Fund's Board of Directors determines to be
reasonably calculated to result in the sale of Shares. Under the Plans, the
costs and expenses not reimbursed in any one given quarter (including costs and
expenses not reimbursed because they exceed the applicable limit) may be
reimbursed insubsequent quarters or years.
During the fiscal year ended December 31, 1995, FTD incurred costs
and expenses in connection with distribution Shares of $ for Class I
Shares of the Fund and $752,822 for Class II Shaes of the Fund. During the
same period, the Fund made payments of $ under the Plan applicable to
Class I Shares and $429,294 under the Plan applicable to Class II Shares. As
indicated above, unreimbursed expenses, which amounted to $ 0 as of
December 31, 1995, may be reimbursed by the Fund during the fiscal year
ending December 31, 1995 or in subsequent years. During the fiscal year
ended December 31, 1995, FTD spent, pursuant to the Plan, with respect to
Class I Shares of the Fund, the following amounts on: compensation to dealers,
$917; wholesale costs and expenses, $206; advanced commissions, $ 0;
printing, $115; sales promotion, $3; and advertising, $9; with
respect to Class II Shares of the Fund, the following amounts on: compensation
to dealers, $116,673; wholesale costs and expenses, $1,736; advanced
commissions, $614,582; printing, $19,177; sales promotion, $172; and
advertising, $482.
The Distribution Agreement provides that the Principal Underwriter will
use its best efforts to maintain a broad and continuous distribution of the
Fund's Shares among bona fide investors and may sign selling contracts with
responsible dealers, as well as sell to individual investors.
During the fiscal years ended December 31, 1995, 1994 and 1993,
FTD received $48,847 $59,594, and $60,701, respectively, from contingent
deferred sales charges on Class II Shares.
The Distribution Agreement provides that the Fund shall pay the costs
and expenses incident to registering and qualifying the Fund's Shares for sale
under the Securities Act of 1933 and under the applicable Blue Sky laws of the
jurisdictions in which the Principal Underwriter desires to distribute such
Shares, and for preparing, printing and distributing prospectuses and reports to
Shareholders. The Principal Underwriter pays the cost of printing additional
copies of prospectuses and reports to Shareholders used for selling purposes.
(The Fund pays costs of preparation, set-up and initial supply of the Fund's
Prospectus for existing Shareholders.) The Distribution Plan is briefly
described in the Prospectus.
The Distribution Agreement is subject to renewal from year to year in
accordance with the provisions of the 1940 Act and terminates automatically in
the event of its assignment. The Distribution Agreement may be terminated
without penalty by either party upon 60 days' written notice to the other,
provided termination by the Fund shall be approved by the Board of Directors or
a majority (as defined in the 1940 Act) of the Shareholders. The Principal
Underwriter is relieved of liability for any act or omission in the course of
its performance of the Distribution Agreement, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
FTD is the Principal Underwriter for the other Templeton Funds.
DESCRIPTION OF SHARES
The Shares have non-cumulative voting rights so that the holders of a
plurality of the Shares voting for the election of Directors at a meeting at
which 50% of the outstanding Shares are present can elect all the Directors, and
in such event, the holders of the remaining Shares voting for the election of
Directors will not be able to elect any person or persons to the Board of
Directors.
The Fund's Bylaws provide that the President or Secretary of the Fund
will call a special meeting of Shareholders at the request in writing by
Shareholders owning 25% of the capital stock of the Fund issued and outstanding
at the time of the call. The Directors are required to call a meeting for the
purpose of considering the removal of a person serving as Director if requested
in writing to do so by the holders of not less than 10% of the outstanding
Shares of the Fund. In addition, the Fund is required to assist Shareholder
communication in connection with the calling of Shareholder meetings to consider
removal of a Director.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return for the Fund will be expressed in terms of the
average annual compounded rate of return for periods in excess of one year or
total return for periods of less than one year of a hypothetical investment in
the Fund over periods of one, five or ten years (up to the life of the Fund)
calculated pursuant to the following formula: P (1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return for
periods of one year or more or the total return for periods of less than one
year, n = the number of years, and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of the maximum contingent deferred sales
charge and deduction of a proportional share of Fund expenses on an annual
basis, and assume that all dividends and distributions are reinvested when paid.
The Fund's average annual total return for the one-year period ended December
31, 1995 and for the period from February 27, 1991 (commencement of
operations) to December 31, 1995 for Class II Shares was 15.25% and
11.28% respectively. For Class I Shares, the average annual total return
for the period from since inception May 1,1995 through December 31, 1995 was
3.62%, respectively.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices, so that investors may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities market in general; (2) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm which ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (3) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's Investment Objective and Policies, characteristics and
quality of the portfolio and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future.
From time to time, the Fund and the Investment Manager may also refer
to the following information:
(1) The Investment Manager's and its affiliates' market share of
international equities managed in mutual funds prepared or
published by Strategic Insight or a similar statistical
organization.
(2) The performance of U.S. equity and debt markets
relative to foreign markets prepared or published by Morgan
Stanley Capital International or a similar financial
organization.
(3) The capitalization of U.S. and foreign stock markets
as prepared or published by the International Finance
Corporation, Morgan Stanley Capital International or a
similar financial organization.
(4) The geographic and industry distribution of the
Fund's portfolio and the Fund's top ten holdings.
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment
improvements due to a liberalization of securities laws and a
reduction of foreign exchange controls, and improving
communication technology, of various countries as published by
various statistical organizations.
(6) To assist investors in understanding the different
returns and risk characteristics of various investments, the
Fund may show historical returns of various investments and
published indices (E.G., Ibbotson Associates, Inc. Charts and
Morgan Stanley EAFE - Index).
(7) The major industries located in various
jurisdictions as published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to
mutual fund shareholder services.
(9) Allegorical stories illustrating the importance of
persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking
relative to industry standards as published by Lipper
Analytical Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by industry, nation and type of stocks or
other securities.
(12) The number of Shareholders in the Fund or the
aggregate number of shareholders in the Franklin Templeton
Group of Funds or the dollar amount of fund and private
account assets under management.
(13) Comparison of the characteristics of various emerging
markets, including population, financial and economic
conditions.
(14) Quotations from the Templeton organization's founder,
Sir John Templeton,* advocating the virtues of diversification
and long-term investing, including the following:
o "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
o "Diversify by company, by industry and by country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among
quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task.'
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
FINANCIAL STATEMENTS
The financial statements contained in the Fund's Annual Report to
Shareholders dated December 31, 1995 are incorporated herein by reference.
TL100 STMT 05/96
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Incorporated by reference from
Registrant's 1995 Annual Report:
Independent Auditor's Report
Investment Portfolio as of December 31, 1995
Statement of Assets and Liabilities as of December
31, 1995
Statement of Operations for the fiscal period
ended December 31, 1995
Statement of Changes in Net Assets
Notes to Financial Statements
(b) Exhibits
(1) (a) Articles of Incorporation
(b) Articles of Amendment
(c) Articles Supplementary 1
(d) Articles of Amendment 1
(2) By-Laws
(3) Not Applicable
(4) Specimen Security 2
(5) Amended and Restated Investment Management
Agreement 1
(6) Distribution Agreement
(7) Not Applicable
(8) Custody Agreement
(9) (a) Transfer Agent Agreement
(b) Business Management Agreement
(c) Shareholder Sub-Accounting Services Agreement
(d) Sub-Transfer Agent Services Agreement
(10) Opinion and consent of Counsel (filed with
Rule 24f-2 Notice)
(11) Consent of Independent Public Accountants
(12) Not Applicable
(13) Letter concerning initial capital 2
(14) Not Applicable
(15) (a) Distribution Plan -- Class I Shares 1
(b) Distribution Plan -- Class II Shares 1
(16) Schedule showing computation of performance
quotations provided in response to Item 22
(unaudited)1
(18) Form of Multiclass Plan 1
(27) Financial Data Schedule
- --------------
1 Filed with Post-Effective Amendment No. 7 on April 28, 1995.
2 Filed with Pre-Effective Amendment No. 2 on February 26, 1991.
Item 25. Persons Controlled by or Under Common Control with Registrant
Not applicable.
Item 26. Number of Record Holders
Class I Shares of Common Stock, par value $0.01 per share:
133 Shareholders as of March 29, 1996.
Class II Shares of Common Stock, par value $0.01 per share:
3,015 Shareholders as of March 29, 1996.
Item 27. Indemnification.
Reference is made to Articles Eight and Eleven of the
Registrant's Articles of Incorporation, which are
incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Articles of Incorporation or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by directors, officers
or controlling persons of the Registrant in connection with
the successful defense of any act, suit or proceeding) is
asserted by such directors, officers or controlling persons in
connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.
Item 28. Business and Other Connections of Investment Adviser and its Officers
and Directors
The business and other connections of Registrant's Investment
Manager are described in Part B of this Registration
Statement.
For information relating to the directors and officers of the
Investment Manager, reference is made to the Form ADV filed
with the Commission under the Investment Advisers Act of 1940
by Templeton Investment Counsel, Inc., which is incorporated
herein by reference.
Item 29. Principal Underwriters
Franklin Templeton Distributors, Inc. also acts as principal
underwriter of shares of the following investment companies:
AGE High Income Fund, Inc.
Franklin Balance Sheet Investment Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Premier Return Fund
Franklin Real Estate Securities Trust
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Japan Fund
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Real Estate Securities Fund
Templeton Smaller Companies Growth, Inc.
Templeton Variable Products Series Fund
(b) The directors and officers of FTD, located at 777 Mariners Island Blvd., San
Mateo, California 94404, are as follows:
<TABLE>
<CAPTION>
Position with Position with
Name Underwriter the Registrant
<S> <C> <C>
Charles B. Johnson Chairman of the Chairman
Board and Director Vice President and
Director
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice Vice President
President and Director
Harmon E. Burns Executive Vice Vice President
President and
Director
Edward V. McVey Senior Vice None
President
Kenneth V. Domingues Senior Vice None
President
William J. Lippman Senior Vice None
President
Deborah R. Gatzek Senior Vice Vice President
President and
Assistant
Secretary
Richard C. Stoker Senior Vice None
President
Charles E. Johnson Senior Vice Vice President
President
James K. Blinn Vice President None
Richard O. Conboy Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Richard N. Geppner Vice President None
Mike Hackett Vice President None
Peter Jones Vice President None
700 Central Avenue
St. Petersburg, Fl
Philip J. Kearns Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Thomas M. Mistele Vice President Secretary
700 Central Avenue
St. Petersburg, FL
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
Kent P. Strazza Vice President None
Francie Arnone Assistant Vice None
President
John R. Kay Assistant Vice Vice President
500 East Broward Blvd. President
Ft. Lauderdale, FL
Heidi Christensen Assistant Vice None
President
Alison Hawksley Assistant Vice None
President
Annette Mulcaire Assistant Vice None
President
Kenneth A. Lewis Treasurer None
Leslie M. Kratter Secretary None
Philip A. Scatena Assistant None
Treasurer
Karen P. DeBellis Assistant Assistant Treasurer
700 Central Avenue Treasurer
St. Petersburg, Fl
</TABLE>
c) Not Applicable (Information on unaffiliated
underwriters).
Item 30. Location of Accounts and Records
The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of Templeton Global
Investors, Inc., 500 East Broward Blvd., Fort Lauderdale,
Florida 33394.
Item 31. Management Services Not Applicable.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to call a meeting of Shareholders
for the purpose of voting upon the question of removal of a
Director or Directors when requested to do so by the holders
of at least 10% of the Registrant's outstanding shares of
common stock and in connection with such meeting to comply
with the shareholders communications provisions of Section
16(c) of the Investment Company Act of 1940.
(d) Registrant undertakes to furnish to each person to whom a
Prospectus for the Registrant is provided a copy of
Registrant's latest Annual Report, upon request and without
charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has met the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of St. Petersburg, Florida on the th day
of April 29, 1996.
TEMPLETON AMERICAN TRUST, INC.
(REGISTRANT)
By: _________________________
Gary P. Motyl, President*
*By:/s/THOMAS M. MISTELE
Thomas M. Mistele, Attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
____________________ President (Chief April 29, 1996
Gary P. Motyl* Executive Officer)
_____________________ Director April 29, 1996
Charles B. Johnson*
___________________ Director April 29, 1996
Harmon E. Burns*
____________________ Director April 29, 1996
Betty P. Krahmer*
____________________ Director April 29, 1996
Constantine Dean Tseretopoulos*
____________________ Director April 29, 1996
Frank Crothers*
____________________ Director April 29, 1996
Fred R. Millsaps*
____________________ Director April 29, 1996
Harris J. Ashton*
____________________ Director April 29, 1996
S. Joseph Fortunato*
____________________ Director April 29, 1996
Andrew H. Hines, Jr.*
____________________ Director April 29, 1996
John Wm. Galbraith*
____________________ Director April 29, 1996
Gordon S. Macklin*
____________________ Director April 29, 1996
Nicholas F. Brady*
____________________ Treasurer April 29, 1996
James R. Baio* (Chief Financial
and Accounting Officer)
</TABLE>
*By: /S/THOMAS M. MISTELE
Thomas M. Mistele, Attorney-in-fact**
- --------------------
** Powers of Attorney previously filed with Post-Effective
Amendment No. 3, filed March 3, 1993, Post-Effective Amendment No. 4, filed
March 2, 1994 and Post-Effective Amendment No. 5, filed January 27, 1995 or
filed herewith.
EXHIBIT INDEX
Exhibit Number Name of Exhibit
(1)(a) Articles of Incorporation
(1)(d) Articles of Amendment
(2) By-Laws
(6) Distribution Agreement
(8) Custody Agreement
(9) (a) Transfer Agent Agreement
(b) Business Management Agreement
(c) Shareholder Sub-Accounting Services
Agreement
(d) Sub-Transfer Agent Services Agreement
(11) Consent of Independent Public
Accountants
(27) Financial Data Schedule
- --------
1 In the event that the Board of Directors should raise the percentage
limitation on investment in lower rated securities, investors will
receive 30 days' notice prior to the investment in lower rated
securities rising above the current 5% limit.
2 All option transactions entered into by the Fund will be traded on a
recognized exchange, or will be cleared through a recognized formal
clearing arrangement.
3 As a non-fundamental policy, with respect to 100% of its total assets,
the Fund will not purchase more than 10% of any company's outstanding
voting securities. In addition, with respect to 75% of its total
assets, the Fund will not invest more than 5% of its total assets in
securities issued by any one company or government, exclusive of U.S.
government securities.
* Sir John Templeton sold the Templeton organization to Franklin
Resources, Inc. in October, 1992 and resigned from the Fund's Board
on April 16, 1995. He is no longer involved with the investment
management process.
ARTICLES OF INCORPORATION
OF
TEMPLETON AMERICAN GROWTH TRUST, INC.
FIRST: The undersigned, KEITH W. VANDIVORT, whose post office address
is 1500 K Street, N.W., Washington, D.C. 20005, being of full legal age, under
and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations, is acting as sole incorporator with the intention of
forming a corporation.
SECOND: The name of the Corporation is TEMPLETON AMERICAN
GROWTH TRUST, INC.
THIRD: The purposes for which the Corporation is formed are
as follows:
(1) To hold, invest and reinvest its funds, and in connection therewith
to hold part or all of its funds in cash, and to purchase or otherwise acquire,
hold for investment or otherwise write, sell, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize upon, securities
(which term "securities" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof, be deemed to
include any stocks, shares, bonds, debentures, notes, certificates of deposit
issued by banks, mortgages or other obligations or evidences of indebtedness,
and any options, certificates, receipts, warrants
or other instruments representing rights to receive, purchase or subscribe for
the same, or evidencing or representing any other rights or interests therein or
in any property or assets created or issued by any issuer (which term "issuer"
shall, for the purposes of these Articles of Incorporation, without limiting the
generality thereof, be deemed to include any persons, firms, associations,
partnerships, corporations, syndicates, combinations, organizations, governments
or subdivisions, agencies or instrumentalities of any government); and to
exercise, as owner or holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value of any and all
such securities.
(2) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation heretofore or hereafter
engaged in any business similar to any business which the Corporation has the
power to conduct, and to hold, utilize, enjoy and in any manner dispose of the
whole or any part of the rights, property and business so acquired, and to
assume in connection therewith any liabilities of any such person, firm,
association or corporation.
(3) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which may seem
capable of being used for any of the purposes of the Corporation; and to use,
exercise, develop, grant
- 2 -
licenses in respect of, sell and otherwise turn to account, the
same.
(4) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or kind
of consideration (including without limitation thereto, securities) now or
hereafter permitted by the laws of Maryland and these Articles of Incorporation,
as its Board of Directors may determine.
(5) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the stockholders
of the Corporation) shares of its capital stock in any manner and to the extent
now or hereafter permitted by the laws of said State and by these Articles of
Incorporation.
(6) To conduct its business in all its branches at one or
more offices in Maryland and elsewhere in any part of the world,
without restriction or limit as to extent.
(7) The Corporation shall be authorized to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing powers shall not be deemed to exclude any powers,
rights or privileges so granted or conferred.
(8) To do any and all such further acts and things and to
exercise any and all such further powers as may be necessary,
- 3 -
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of all or any of the
foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as powers
as well as objects and purposes, and the enumeration of specific purposes,
objects and powers shall not be construed to limit or restrict in any manner the
meaning of general terms or the general powers of the Corporation now or
hereafter conferred by the laws of the State of Maryland, nor shall the
expression of one thing be deemed to exclude another, though it be of like
nature, not expressed; provided, however, that the Corporation shall not have
power to carry on within the State of Maryland any business whatsoever the
carrying on of which would preclude it from being classified as an ordinary
business corporation under the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state, territory, district or
country except to the extent that the same may lawfully be carried on or
exercised under the laws thereof.
- 4 -
FOURTH: The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202. The name of the resident agent of
the Corporation is The Corporation Trust Incorporated, a corporation of the
State of Maryland, and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
FIFTH:
(1) The total number of shares of stock which the Corporation shall
have the authority to issue is ONE HUNDRED MILLION (100,000,000) Common Shares
of the par value of ONE CENT ($0.01) each and of the aggregate par value of ONE
MILLION DOLLARS ($1,000,000).
(2) At all meetings of stockholders, each stockholder of the
Corporation shall be entitled to one vote for each share of stock standing in
his name on the books of the Corporation on the date fixed in accordance with
the Bylaws for determination of stockholders entitled to vote at such meeting,
irrespective of the class thereof; provided, however, that to the extent class
voting is required under the Investment Company Act of 1940, as amended, or
Maryland law as to any matter submitted to a vote of the stockholders at any
such meeting, those requirements shall apply. Any fractional share shall carry
proportionately all the
- 5 -
rights of a whole share, including the right to vote and the right to receive
dividends and distributions.
(3) Each holder of the capital stock of the Corporation upon proper
written request (including signature guarantees if required by the Board of
Directors) to the Corporation accompanied, when stock certificates representing
such shares are outstanding, by surrender of the appropriate stock certificate
or certificates in proper form for transfer, or, such other form as the Board of
Directors may provide, shall be entitled to require the Corporation to redeem
all or any part of the Shares of capital stock standing in the name of such
holder on the books of the Corporation, at the net asset value of such shares,
less any redemption fee fixed by the Board of Directors and payable to the
Corporation not exceeding 1% of the net asset value of the shares redeemed. Any
such redemption fee may be applied in such cases as may be determined by the
Board. The method of computing such net asset value, the time as of which such
net asset value shall be computed and the time within which the Corporation
shall make payment thereof, shall be determined as hereinafter provided in
Article SEVENTH of these Articles of Incorporation. Notwithstanding the
foregoing, the Board of Directors of the Corporation may suspend the right of
the holders of the capital stock of the Corporation to require the Corporation
to redeem shares of such capital stock when permitted or required to do so by
the 1940 Act (which term the "1940 Act" shall for the purposes
- 6 -
of these Articles of Incorporation mean the Investment Company Act of 1940 as
from time to time amended and any rule, regulation or order thereunder).
(4) All shares of the capital stock of the Corporation now or hereafter
authorized shall be subject to redemption and redeemable at the option of the
stockholder, in the sense used in the General Laws of the State of Maryland
authorizing the formation of corporations, at the redemption price for any such
shares, determined in the manner set out in these Articles of Incorporation or
in any amendment thereto. In the absence of any specification as to the purposes
for which shares of the capital stock of the Corporation are redeemed or
repurchased by it, all shares so redeemed or repurchased shall be deemed to be
acquired for retirement in the sense contemplated by the laws of the State of
Maryland and the number of the authorized shares of the capital stock of the
Corporation shall not be reduced by the number of any shares redeemed or
repurchased by it.
(5) Notwithstanding any provision of law requiring any action to be
taken or authorized by the affirmative vote of the holders of a majority, or
other designated proportion of the shares, or to be otherwise taken or
authorized by a vote of the stockholders, such action shall be effective and
valid if taken or authorized by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled
- 7 -
to vote thereon pursuant to the provisions of these Articles of
Incorporation.
(6) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation of any class or any other security of the Corporation which it may
issue or sell (whether out of the number of shares authorized by these Articles
of Incorporation, or out of any shares of the capital stock of the Corporation
acquired by it after the issue thereof, or otherwise) other than such right, if
any, as the Board of Directors, in its discretion, may determine.
(7) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of these Articles of Incorporation.
(8) The Board of Directors of the Corporation, subject to any
applicable provisions of the 1940 Act is authorized to classify or to
reclassify, from time to time any unissued shares of stock of the Corporation,
whether now or hereafter authorized, by setting, changing or eliminating the
preference, conversion or rights, voting powers, restrictions or limitations as
to dividends and qualifications or terms and conditions of or rights to require
redemption of the stock and pursuant to such classification, or
reclassification, to increase or decrease the number of authorized shares of any
class, but the number of
- 8 -
shares of any class shall not be reduced by the Board of Directors below the
number of shares outstanding.
Without limiting the generality of the foregoing, the dividends and
distributions of investment income and capital gains with respect to the stock
of the Corporation, and with respect to each class that hereafter may be
created, shall be in such amount as may be declared from time to time by the
Board of Directors, and such dividends and distributions may vary from class to
class to such extent and for such purposes as the Board of Directors may deem
appropriate, including, but not limited to, the purpose of complying with
requirements of regulatory or legislative authorities.
SIXTH: The number of Directors of the Corporation shall initially be
two and the names of those who shall act as such until the first annual meeting
or until their successors are duly chosen and qualified are as follows:
Thomas M. Mistele
Daniel Calabria.
However, the By-laws of the Corporation may fix the number of Directors
at a number greater than that named in these Articles of Incorporation and may
authorize the Board of Directors, by the vote of a majority of the entire Board
of Directors, to increase or decrease the number of Directors fixed by these
Articles of Incorporation or in the By-laws, within the
- 9 -
limits specified in the By-laws, and subject to the provisions of Maryland law,
and to fill the vacancies created by any such increase in the number of
Directors. Unless otherwise provided by the By-laws of the Corporation, the
Directors of the Corporation need not be stockholders therein.
SEVENTH: The following provisions are hereby adopted for
the purpose of defining, limiting and regulating the powers of
the Corporation and the Directors and stockholders.
(1) The By-laws of the Corporation may divide the Directors of the
Corporation into classes and prescribe the tenure of office of the several
classes, but no class shall be elected for a period shorter than that from the
time of the election following the division into classes until the next annual
meeting and thereafter for a period shorter than the interval between annual
meetings or for a period longer than five years, and the term of office of at
least one class shall expire each year. Notwithstanding the foregoing, no such
division into classes shall be made prior to the first annual meeting of
stockholders of the Corporation.
(2) The holders of shares of the capital stock of the Corporation shall
have only such right to inspect the records, documents, accounts and books of
the Corporation as are provided by Maryland law, subject to reasonable
regulations of the Board of Directors, not contrary to Maryland law, as to
whether and to
- 10 -
what extent, and at what times and places, and under what conditions and
regulations, such rights shall be exercised.
(3) Any Director, or any officer elected or appointed by the Board of
Directors or by any committee of said Board or by the stockholders or otherwise,
may be removed at any time, with or without cause, in such lawful manner as may
be provided in the By-laws of the Corporation.
(4) If the By-laws so provide, the Board of Directors of the
Corporation shall have power to hold their meetings, to have an office or
offices and, subject to the provisions of the laws of Maryland, to keep the
books of the Corporation outside of said State at such places as may from time
to time be designated by them.
(5) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the express provisions of the laws of
Maryland, of these Articles of Incorporation and of the By-laws of the
Corporation.
(6) Shares of stock in other corporations shall be voted in person or
by proxy by the President or a Vice-President, or such officer or officers of
the Corporation as the Board of Directors shall designate for the purpose, or by
a proxy or proxies thereunto duly authorized by the Board of Directors, except
as
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otherwise ordered by vote of the holders of a majority of the shares of the
capital stock of the Corporation outstanding and entitled to vote in respect
thereto.
(7) (a) Subject to the provisions of the 1940 Act, any
director, officer or employee individually, or any partnership of which
any director, officer or employee may be a member, or any corporation
or association of which any director, officer or employee may be an
officer, director, trustee, employee or stockholder, may be a party to,
or may be pecuniarily or otherwise interested in, any contract or
transaction of the Corporation, and in the absence of fraud no contract
or other transaction shall be thereby affected or invalidated; provided
that in case a director, or a partnership, corporation or association
of which a director is a member, officer, director, trustee, employee
or stockholder is so interested, such fact shall be disclosed or shall
have been known to the Board of Directors or a majority thereof; and
any Director of the Corporation who is so interested, or who is also a
director, officer, trustee, employee or stockholder of such other
corporation or association or a member of such partnership which is so
interested, may be counted in determining the existence of a quorum at
any meeting of the Board of Directors of the Corporation which shall
authorize any such contract or transaction, and may vote thereat on any
such contract or
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transaction, with like force and effect as if he were not such
director, officer, trustee, employee or stockholder of such other
corporation or association or not so interested or a member of a
partnership so interested.
(b) Specifically, but without limitation of the foregoing, the
Corporation may enter into a management or supervisory contract and
other contracts with, and may otherwise do business with Templeton,
Galbraith & Hansberger Ltd., a Cayman Islands corporation, or any of
its subsidiary or affiliated companies, notwithstanding that the Board
of Directors of the Corporation may be composed in part of directors,
officers, partners or employees of any of said companies, and officers
of the Corporation may have been or may be or become directors,
officers, partners or employees of any of said companies, and in the
absence of fraud the Corporation and said companies may deal freely
with each other, and neither such management or supervisory contract
nor any other contract or transaction between the Corporation and any
of said companies shall be invalidated or in any way affected thereby,
nor shall any Director or officer of the Corporation be liable to the
Corporation or to any stockholder or creditor thereof or to any other
person for any loss incurred by it or him under or by reason of any
such contract or transaction, provided that nothing herein shall
protect any director or officer of the
- 13 -
Corporation against any liability to the Corporation or to its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. (8) The computation of
the net asset value of each share of
capital stock referred to in these Articles of Incorporation shall be determined
as required by the 1940 Act and except as so required, shall be computed in
accordance with the following rules:
(a) The net asset value of each share of capital stock of the
Corporation duly surrendered to the Corporation for redemption pursuant
to the provisions of paragraph (3) of Article FIFTH of these Articles
of Incorporation shall be determined as of the close of business on the
New York Stock Exchange next succeeding the time when such capital
stock is so surrendered.
(b) The net asset value of each share of the capital stock of
the Corporation for the purpose of the issue of such capital stock
shall be determined as of the close of business on the New York Stock
Exchange next succeeding the receipt of an order to purchase such
share.
(c) Unless and until otherwise determined by the Board
of Directors, the net asset value of the shares shall be
computed as of the close of trading on each day the New York
- 14 -
Stock Exchange is open for trading, by dividing the value of the
Corporation's securities plus any cash and other assets (including
accrued interest and dividends receivable) less all liabilities
(including accrued expenses) by the number of shares outstanding, the
result being adjusted to the nearest whole cent. A security listed or
traded on a recognized stock exchange or NASDAQ shall be valued at its
last sale price on the principal exchange on which the security is
traded. The value of a foreign security shall be determined in its
national currency as of the close of trading on the foreign exchange on
which it is traded, or as of 4:00 p.m., New York time, if that is
earlier, and that value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no
sale is reported at that time, the mean between the current bid and
asked price is used. All other securities for which over-the-counter
market quotations are readily available shall be valued at the mean
between the last current bid and asked price. Short-term securities
having a maturity of 60 days or less shall be valued at their amortized
cost. Securities for which market quotations are not readily available
and other assets shall be valued at fair value as determined by the
management and approved in good faith by the Board of Directors.
- 15 -
(d) In addition to the foregoing, the Board of Directors is
empowered, in its absolute discretion, to establish other bases or
times, or both, for determining the net asset value of each share of
stock of the Corporation in accordance with the 1940 Act and to
authorize the voluntary purchase by the Corporation, either directly or
through an agent, of shares of capital stock of the Corporation upon
such terms and conditions and for such consideration as the Board of
Directors shall deem advisable in accordance with the 1940 Act.
(e) Except as otherwise permitted by the 1940 Act, payment of
the net asset value of shares of capital stock of the Corporation
properly surrendered to it for redemption (less any redemption fee)
shall be made by the Corporation within seven days after tender of such
stock to the Corporation for such redemption plus any period of time
during which the right of the holders of the shares of capital stock of
the Corporation to redeem such capital stock has been suspended. Any
such payment may be made in portfolio securities of the Corporation
and/or cash, as the Board of Directors shall deem, advisable, and no
shareholder shall have a right other than as determined by the Board of
Directors, to have his shares redeemed in kind.
(f) The Board of Directors is empowered to cause the
redemption of the shares held in any account if the
- 16 -
aggregate net asset value of such shares (taken at cost or value, as
determined by the Board) is less than $500, or such lesser amount as
the Board may fix, upon such notice to the shareholders in question,
with such permission to increase the investment in question and upon
such other terms and conditions as may be fixed by the Board of
Directors in accordance with the 1940 Act.
(g) In the event that any person advances the organizational
expenses of the Corporation, such advances shall become an obligation
of the Corporation, subject to such terms and conditions as may be
fixed by, and on a date fixed by, or determined in accordance with
criteria fixed by the Board of Directors, to be amortized over a period
or periods to be fixed by the Board.
(h) Whenever any action is taken under this paragraph (8) of
this Article SEVENTH of these Articles of Incorporation under any
authorization.to take action which is permitted by the 1940 Act, such
action shall be deemed to have been properly taken if such action is in
accordance with the construction of the 1940 Act then in effect as
expressed in "no action" letters of the staff of the Securities and
Exchange Commission or any release, rule, regulation or order under the
1940 Act or any decision of a court of competent jurisdiction
notwithstanding that any of
- 17 -
the foregoing shall later be found to be invalid or
otherwise reversed or modified by any of the foregoing.
(i) Any action which may be taken by the Board of Directors of
the Corporation under this paragraph (8) of this Article SEVENTH of
these Articles of Incorporation may be taken by the description thereof
in the then effective prospectus relating to the Corporation's shares
under the Securities Act of 1933 rather than by formal resolution of
the Board.
(j) Whenever under this paragraph (8) of this Article SEVENTH
of these Articles of Incorporation the Board of Directors of the
Corporation is permitted or required to place a value on assets of the
Corporation, such action may be delegated by the Board and/or
determined in accordance with a formula determined by the Board, to the
extent permitted by the 1940 Act.
EIGHTH:
(1) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer or other agent of the Corporation
against expenses (including attorneys' fees),
- 18 -
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith as determined by independent legal counsel and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(2) For purposes of paragraph (1) of this Article EIGHTH, the
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that any person did not act in good faith as
determined by independent legal counsel and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(3) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer or other agent of
the Corporation against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith as
- 19 -
determined by independent legal counsel and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation.
(4) No person shall be indemnified under paragraph (3) of this Article
EIGHTH in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the Corporation unless and only to the extent that the court of
law in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which said court shall deem proper, provided such director, officer or
other agent is not found to be grossly negligent in the performance of his duty
to the Corporation and/or adjudged to be liable by reason of his willful
misconduct.
(5) Any indemnification under paragraphs (1) or (3) of this Article
EIGHTH (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer or other agent is proper in the circumstances because such
determination is based upon an opinion of independent legal counsel.
(6) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in
- 20 -
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors provided that (i) such advances shall be
limited to amounts used or to be used for the preparation and/or presentation of
a defense to the action, suit or proceeding (including costs connected with
preparation of a settlement); (ii) any advances must be accompanied by a written
promise by, or on behalf of, the person in question to repay that amount of the
advance which exceeds the amount which it is ultimately determined that he is
entitled to receive from the Corporation by reason of indemnification; (iii)
such promise shall be secured by a surety bond or other suitable insurance; and
(iv) such surety bond or other insurance shall be paid for by the person in
question.
(7) The indemnification provided hereunder shall not be deemed
exclusive of any other rights to which those who are required to be, or who may
be, indemnified hereunder might be entitled under any other provision hereof,
agreement, vote of shareholders or vote of disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer or other agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(8) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer or other
- 21 -
agent of the Corporation against any liability asserted against him and incurred
by him in any such capacity arising out of his status as such. However, in no
event will the Corporation purchase insurance to indemnify any such person for
any act for which the Corporation itself is not permitted to indemnify him.
(9) Nothing herein contained shall protect or purport to protect any
director, officer or other agent of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
NINTH: The duration of the Corporation shall be
perpetual.
TENTH: From time to time, any of the provisions of these Articles of
Incorporation may be amended, altered or repealed, upon the vote of the holders
of a majority of the shares of capital stock of the Corporation at the time
outstanding and entitled to vote, and other provisions which might, under the
laws of the State of Maryland at the time in force, be lawfully contained in
these Articles of Incorporation may be added or inserted upon the vote of the
holders of a majority of the shares of capital stock of the Corporation at the
time outstanding and entitled to vote, and all rights at any time conferred upon
the
- 22 -
stockholders of the Corporation by these Articles of Incorporation are granted
subject to the provisions of this Article TENTH.
ELEVENTH: No Director or officer shall have any personal
liability to the Corporation or its stockholders for monetary
damages except:
(1) To the extent that it is proved that the person actually received
an improper benefit or profit in money, property, or services, for the amount of
the benefit or profit in money, property, or services actually received.
(2) To the extent that a judgment or other final adjudication adverse
to the person is entered in a proceeding based on a finding in the proceeding
that the person's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated in the
proceeding.
Nothing in this Article ELEVENTH shall protect any Director or officer
of the Corporation against any liability to the Corporation or its stockholders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
No amendment, modification or repeal of this Article ELEVENTH shall
adversely affect any right or protection of a
- 23 -
Director or officer that exists at the time of such amendment, modification or
repeal.
IN WITNESS WHEREOF, the undersigned incorporator of
TEMPLETON AMERICAN GROWTH TRUST, INC. hereby executes the
foregoing Articles of Incorporation and acknowledges the same to
be his act.
Dated this 31st day of October, 1990.
/s/KEITH W. VANDIVORT
Keith W. Vandivort
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TEMPLETON AMERICAN GROWTH TRUST, INC.
ARTICLES OF AMENDMENT
Templeton American Growth Trust, Inc., a Maryland corporation having
its principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Articles of Incorporation of the
Corporation are hereby amended:
By amending Article SECOND to change the name of the
Corporation to Templeton American Trust, Inc.
SECOND: The amendment to the Articles of Incorporation of the
Corporation as hereinabove set forth has been duly advised by the Board of
Directors and approved by the sole shareholder of the Corporation in the manner
and by the vote required by law.
IN WITNESS WHEREOF, TEMPLETON AMERICAN GROWTH TRUST, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf by
its duly authorized officers who acknowledge that these Articles of Amendment
are the act of the Corporation, that to the best of their knowledge, information
and belief, the matters and facts set forth herein as to authorization and
approval are true in all material respects and that this statement is made under
the penalties of perjury.
Dated this 31st day of January, 1991.
TEMPLETON AMERICAN GROWTH TRUST, INC.
[CORPORATE SEAL]
Attest: By: /s/DANIEL CALABRIA
Daniel Calabria
Vice President
By: /s/THOMAS M. MISTELE
Thomas M. Mistele
Secretary
BY-LAWS
-of-
TEMPLETON AMERICAN TRUST, INC.
(As amended and restated April 19, 1991)
ARTICLE I
NAME OF COMPANY, LOCATION OF OFFICES AND SEAL.
SECTION 1. NAME. The name of the Company is Templeton
American Trust, Inc.
SECTION 2. PRINCIPAL OFFICES. The principal office of the
Company in the State of Maryland shall be located in Baltimore, Maryland. The
Company may, in addition, establish and maintain such other offices and places
of business within or outside the State of Maryland as the Board of Directors
may from time to time determine.
SECTION 3. SEAL. The corporate seal of the Company shall be
circular in form and shall bear the name of the Company, the year of its
incorporation and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or Director of the Company shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the Stockholders
shall be held at such place within the United States, whether within or outside
the State of Maryland as the Board of Directors shall determine, which shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2. ANNUAL MEETINGS. The Company shall not be required
to hold an annual meeting of Stockholders in any year in which the election of
Directors is not required to be acted upon under the Investment Company Act of
1940. Otherwise, annual meetings of Stockholders for the election of Directors
and the transaction of such other business as may properly come before the
meeting shall be held at such time and place within the United States as the
Board of Directors shall select.
SECTION 3. SPECIAL MEETINGS. Special meetings of the
Stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Articles of Incorporation, may be called by resolution of the Board of
Directors or by the President, and shall be called by the President or Secretary
at the request in writing of a majority of the Board of Directors or at the
request in writing by Stockholders owning 10% in amount of the entire capital
stock of the Company issued and outstanding at
- 2 -
the time of the call, provided that (1) such request shall state the purpose of
such meeting and the matters proposed to be acted on, and (2) the Stockholders
requesting such meeting shall have paid to the Company the reasonably estimated
cost of preparing and mailing the notice thereof, which the Secretary shall
determine and specify to such Stockholders. No special meeting shall be called
upon the request of Stockholders to consider any matter which is substantially
the same as a matter voted upon at any special meeting of the Stockholders held
during the preceding 12 months, unless requested by the holders of a majority of
all shares entitled to be voted at such meeting.
SECTION 4. NOTICE. Written notice of every meeting of
Stockholders, stating the purpose or purposes for which the meeting is called,
the time when and the place where it is to be held, shall be served, either
personally or by mail, not less than ten nor more than ninety days before the
meeting, upon each Stockholder as of the record date fixed for the meeting and
who is entitled to vote at such meeting. If mailed (1) such notice shall be
directed to a Stockholder at his address as it shall appear on the books of the
Company (unless he shall have filed with the Transfer Agent of the Company a
written request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request) and
(2) such notice shall be deemed to have been given as of the date when it is
deposited in the United States mail
- 3 -
with first class postage thereon prepaid. Irregularities in the notice or in the
giving thereof, as well as the accidental omission to give notice of any meeting
to, or the non-receipt of any such notice by, any of the Stockholders shall not
invalidate any action otherwise properly taken by or at any such meeting. Notice
of any Stockholders' meeting need not be given to any Stockholder who shall sign
a written waiver of such notice either before or after the time of such meeting,
which waiver shall be filed with the records of such meeting, or to any
Stockholder who is present at such meeting in person or by proxy.
SECTION 5. QUORUM, ADJOURNMENT OF MEETINGS. The presence at
any Stockholders' meeting, in person or by proxy, of Stockholders entitled to
cast a majority of the votes entitled to be cast shall be necessary and
sufficient to constitute a quorum for the transaction of business. The holders
of a majority of shares entitled to vote at the meeting and present in person or
by proxy, whether or not sufficient to constitute a quorum, or, any officer
present entitled to preside or act as Secretary of such meeting may adjourn the
meeting without determining the date of the new meeting or from time to time
without further notice to a date not more than 120 days after the original
record date. Any business that might have been transacted at the meeting
originally called may be transacted at such adjourned meeting at which a quorum
is present.
- 4 -
SECTION 6. VOTE OF THE MEETING. When a quorum is present or
represented at any meeting, the vote of the holders of a majority of the stock
entitled to vote thereat present in person or represented by proxy shall decide
any question brought before such meeting, unless the question is one upon which
by express provisions of applicable statutes, of the Articles of Incorporation,
or of these By-Laws, a different vote is required, in which case such express
provisions shall govern and control the decision of such question.
SECTION 7. VOTING RIGHTS OF STOCKHOLDERS. Each Stockholder of
record having the right to vote shall be entitled at every meeting of the
Stockholders of the Company to one vote for each share of stock having voting
power standing in the name of such Stockholder on the books of the Company on
the record date fixed in accordance with Section 5 of Article VII of these
By-Laws, with pro-rata voting rights for any fractional shares, and such votes
may be cast either in person or by written proxy.
SECTION 8. PROXIES. Every proxy must be executed in writing by
the Stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date of its execution
unless it shall have specified therein its duration. Every proxy shall be
revocable at the pleasure of the person executing it or of his personal
representatives or assigns. Proxies shall be delivered prior to the meeting to
the Secretary of the Company or to the person
- 5 -
acting as Secretary of the meeting before being voted. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by one
of them unless at or prior to exercise of such proxy the Company receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Stockholder shall be deemed valid unless
challenged at or prior to its exercise.
SECTION 9. STOCK LEDGER AND LIST OF STOCKHOLDERS. It shall be
the duty of the Secretary or Assistant Secretary of the Company to cause an
original or duplicate stock ledger to be maintained at the office of the
Company's transfer agent.
SECTION 10. ACTION WITHOUT MEETING. Any action to be taken by
Stockholders may be taken without a meeting if (1) all Stockholders entitled to
vote on the matter consent to the action in writing, (2) all Stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (3) said consents and waivers are filed with
the records of the meetings of Stockholders. Such consent shall be treated for
all purposes as a vote of the meeting.
ARTICLE III
DIRECTORS
SECTION 1. BOARD OF 3 TO 15 DIRECTORS. The Board of
Directors shall consist of not less than three (3) nor more than
- 6 -
fifteen (15) Directors, all of whom shall be of full age and at least 40% of
whom shall be persons who are not interested persons of the Company as defined
in the Investment Company Act of 1940, provided that prior to the issuance of
stock by the Company, the Board of Directors may consist of less than three (3)
Directors, subject to the provisions of Maryland law. Directors shall be elected
at the annual meeting of the Stockholders, if held, and each Director shall be
elected to serve for one year and until his successor shall be elected and shall
qualify or until his earlier death, resignation or removal. Directors need not
be Stockholders. The Directors shall have power from time to time, and at any
time when the Stockholders as such are not assembled in a meeting, regular or
special, to increase or decrease their own number. If the number of Directors be
increased, the additional Directors may be elected by a majority of the
Directors in office at the time of the increase. If such additional Directors
are not so elected by the Directors in office at the time they increase the
number of places on the Board, or if the additional Directors are elected by the
existing Directors, prior to the first meeting of the Stockholders of the
Company, then in either of such events the additional Directors shall be elected
or reelected by the Stockholders at their next annual meeting or at an earlier
special meeting called for that purpose.
- 7 -
The number of Directors may also be increased or decreased by
vote of the Stockholders at any regular or special meeting called for that
purpose. In the event the Stockholders should vote a decrease in the number of
Directors, they shall determine by a majority vote at such meeting which of the
Directors shall be removed and which of the then existing vacancies on the Board
shall be eliminated. If the Stockholders vote an increase in the Board they
shall by plurality vote elect Directors to the newly created places as well as
fill any then existing vacancies on the Board.
The Board of Directors may elect, but shall not be required to
elect, a Chairman of the Board who must be Director.
SECTION 2. VACANCIES. If the office of any Director or
Directors becomes vacant for any reason (other than an increase in the number of
places on the Board as provided in Section 1 of Article III), the Directors in
office, although less than a quorum, shall continue to act and may, by a
majority vote, choose a successor or successors, who shall hold office for the
unexpired term in respect to which such vacancy occurred or until the next
election of Directors (if immediately after filling any such vacancy at least
two-thirds of the Directors then holding office shall have been elected by the
Stockholders), or any vacancy may be filled by the Stockholders at any meeting
thereof.
SECTION 3. MAJORITY TO BE ELECTED BY STOCKHOLDERS. If
at any time, less than a majority of the Directors in office
- 8 -
shall consist of Directors elected by Stockholder, a meeting of the Stockholders
shall be called within 60 days for the purpose of electing Directors to fill any
vacancies in the Board of Directors (unless the Securities and Exchange
Commission or any court of competent jurisdiction shall by order extend such
period).
SECTION 4. REMOVAL. At any meeting of Stockholders duly called
and at which a quorum is present, the Stockholders may, by the affirmative vote
of the holders of a majority of the votes entitled to be cast thereon, remove
any Director or Directors from office, with or without cause, and may elect a
successor or successors to fill any resulting vacancies for the unexpired terms
of the removed Directors.
SECTION 5. POWERS OF THE BOARD. The business of this Company
shall be managed under the direction of its Board of Directors, which may
exercise or give authority to exercise all powers of the Company and do all such
lawful acts and things as are not by statute, by the Articles of Incorporation
or by these By-Laws required to be exercised or done by the Stockholders.
SECTION 6. PLACE OF MEETINGS. The Directors may hold their
meetings at the principal office of the Company or at such other places, either
within or without the State of Maryland, as they may from time to time
determine.
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SECTION 7. REGULAR MEETINGS. Regular meetings of the
Board may be held at such date and time as shall from time to
time be determined by resolution of the Board.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board may
be called by order of the President on one day's notice given to each Director
either in person or by mail, telephone, telegram, telefax, telex, cable or
wireless to each Director at his residence or regular place of business. Special
meetings will be called by the President or Secretary in a like manner on the
written request of a majority of the Directors.
SECTION 9. WAIVER OF NOTICE. No notice of any meting of the
Board of Directors or a committee of the Board need be given to any Director who
is present at the meeting or who waives notice of such meeting in writing (which
waiver shall be filed with the records of such meeting), either before or after
the time of the meeting.
SECTION 10. QUORUM OF ONE-THIRD. At all meetings of the Board
the presence of one-third of the entire number of Directors then in office (but
not less than two Directors) shall be necessary to constitute a quorum and
sufficient for the transaction of business, and any act of a majority present at
a meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by statute, by the Articles of
Incorporation or by these By-Laws. If a quorum shall not be present at any
meeting of Directors, the
- 10 -
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 11. INFORMAL ACTION BY DIRECTORS AND COMMITTEES. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may, except as otherwise required by
statute, be taken without a meeting if a written consent to such action is
signed by all members of the Board, or of such committee, as the case may be and
filed with the minutes of the proceedings of the Board or committee. Subject to
the Investment Company Act of 1940, members of the Board of Directors or a
committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time.
SECTION 12. EXECUTIVE COMMITTEE. There may be an
Executive Committee of two or more Directors appointed by the
Board who may meet at stated times or on notice to all by any of
their own number. The Executive Committee shall consult with and
advise the Officers of the Company in the management of its
business and exercise such powers of the Board of Directors as
may be lawfully delegated by the Board of the Directors.
Vacancies shall be filled by the Board of Directors at any
regular or special meeting. The Executive Committee shall keep
- 11 -
regular minutes of its proceedings and report the same to the
Board when required.
SECTION 13. OTHER COMMITTEES. The Board of Directors, by the
affirmative vote of a majority of the entire Board, may appoint other committees
which shall in each case consist of such number of members (not less than two)
and shall have and may exercise, to the extent permitted by law, such powers as
the Board may determine in the resolution appointing them. A majority of all
members of any such committee may determine its action, and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
The Board of Directors shall have power at any time to change the members and,
to the extent permitted by law, the powers of any such committee, to fill
vacancies, and to discharge any such committee.
SECTION 14. ADVISORY BOARD. There may be an Advisory Board of
any number of individuals appointed by the Board of Directors who may meet at
stated times or on notice to all by any of their own number or by the President.
The Advisory Board shall be composed of Stockholders or representatives of
Stockholders. The Advisory Board will have no power to require the Company to
take any specific action. Its purpose shall be solely to consider matters of
general policy and to represent the Stockholders in all matters except those
involving the purchase or sale of specific securities. A majority of the
Advisory Board, if appointed, must consist of Stockholders who are not
- 12 -
otherwise affiliated or interested persons of the Company or of any affiliate of
the Company as those terms are defined in the Investment Company Act of 1940.
SECTION 15. COMPENSATION OF DIRECTORS. The Board may, by
resolution, determine what compensation and reimbursement of expenses of
attendance at meetings, if any, shall be paid to Directors in connection with
their service on the Board. Nothing herein contained shall be construed to
preclude any Director from serving the Company in any other capacity or from
receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The Officers of the Company shall be
fixed by the Board of Directors and shall include a President, a Vice-President,
a Secretary and a Treasurer. Any two of the aforesaid offices, except those of
President and Vice President, may be held by the same person.
SECTION 2. APPOINTMENT OF OFFICERS. The Directors, at their
first meeting after each annual meeting of Stockholders, shall appoint a
President and the other Officers who need not be members of the Board.
SECTION 3. ADDITIONAL OFFICERS. The Board, at any
regular or special meeting, may appoint such other Officers and
- 13 -
agents as it shall deem necessary who shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.
SECTION 4. SALARIES OF OFFICERS. The salaries of all
Officers of the Company shall be fixed by the Board of Directors.
SECTION 5. TERM, REMOVAL, VACANCIES. The Officers of the
Company shall hold office for one year and until their successors are chosen and
qualify in their stead. Any Officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Directors. If the office of any Officer becomes vacant for any reason, the
vacancy shall be filled by the Board of Directors.
SECTION 6. PRESIDENT. The President shall be the chief
executive officer of the Company; he shall, subject to the supervision of the
Board of Directors, have general responsibility for the management of the
business of the Company and shall see that all orders and resolutions of the
Board are carried into effect.
SECTION 7. VICE-PRESIDENT. The Vice-President (senior in
service), at the request or in the absence or disability of the President shall
perform the duties and exercise the powers of the President and shall perform
such other duties as the Board of Directors shall prescribe.
SECTION 8. TREASURER. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full
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and accurate accounts of receipts and disbursements in books belonging to the
Company and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the Company as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render to
the President and Directors at the regular meetings of the Board, or whenever
they may require it, an account of all his transactions as Treasurer and of the
financial condition of the Company.
Any Assistant Treasurer may perform such duties of the
Treasurer as the Treasurer of the Board of Directors may assign, and, in the
absence of the Treasurer, he may perform all the duties of the Treasurer.
SECTION 9. SECRETARY. The Secretary shall attend meetings of
the Board and meetings of the Stockholders and record all votes and the minutes
of all proceedings in books to be kept for that purpose. He shall give or cause
to be given notice of all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors. He shall keep in safe custody the seal of the Company
and affix it to any instrument when authorized by the Board of Directors.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Directors may assign,
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and, in the absence of the Secretary, may perform all the duties
of the Secretary.
SECTION 10. SUBORDINATE OFFICERS. The Board of Directors from
time to time may appoint such other officers or agents as it may deem advisable,
each of whom shall have such title, hold office for such period, have such
authority and perform such duties as the Board of Directors may determine. The
Board of Directors from time to time may delegate to one or more officers or
agents the power to appoint any such subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties.
SECTION 11. SURETY BONDS. The Board of Directors may require
any officer or agent of the Company to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Company in such sum and with such surety or sureties as the Board of Directors
may determine, conditioned upon the faithful performance of his duties to the
Company, including responsibility for negligence and for the accounting of any
of the Company's property, funds or securities that may come into his hands.
- 16 -
ARTICLE V
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Company shall indemnify its Directors to the fullest extent that indemnification
of directors is permitted by the Maryland General Corporation Law. The Company
shall indemnify its Officers to the same extent as its Directors and to such
further extent as is consistent with law. The Company shall indemnify its
Directors and Officers who while serving as Directors or Officers also serve at
the request of the Company as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. The indemnification and other rights provided by this Article shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. This Article shall not protect any such person against any liability to
the Company or any Stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
- 17 -
SECTION 2. ADVANCES. Any current or former director or officer
of the Company seeking indemnification within the scope of this Article shall be
entitled to advances from the Company for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Company a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Company has been met
and a written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Company for his undertaking; (b) the Company is insured against losses arising
by reason of the advance; or (c) a majority of a quorum of Directors of the
Company who are neither interested persons as defined in the Investment Company
Act of 1940, nor parties to the proceeding ("disinterested non-party
Directors"), or independent legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available to the Company at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking
- 18 -
indemnification will ultimately be found to be entitled to
indemnification.
SECTION 3. PROCEDURE. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum of disinterested
non-party Directors or (ii) an independent legal counsel in a written opinion.
SECTION 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees
and agents who are not Officers or Directors of the Company may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
SECTION 5. OTHER RIGHTS. The Board of Directors may
make further provision consistent with law for indemnification
and advance of expenses to Directors, Officers, employees and
- 19 -
agents by resolution, agreement or otherwise. The indemnification provided by
this Article shall not be deemed exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking indemnification may be
entitled under any insurance or other agreement or resolution of Stockholders or
disinterested Directors or otherwise. The rights provided to any person by this
Article shall be enforceable against the Company by such person who shall be
presumed to have relied upon it in serving or continuing to serve as a director,
officer, employee, or agent as provided above.
SECTION 6. AMENDMENTS. References in this Article are to the
Maryland General Corporation Law and to the Investment Company Act of 1940 as
from time to time amended. No amendment of these By-laws shall effect any right
of any person under this Article based on any event, omission or proceeding
prior to the amendment.
SECTION 7. INSURANCE. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company or who, while a director, officer, employee, or agent of
the Company, is or was serving at the request of the Company as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity
- 20 -
or arising out of such person's position; provided, that no insurance may be
purchased which would indemnify any Director or Officer of the Company against
any liability to the Company or to its security holders to which he would
otherwise be subject by reason of disabling conduct.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. WAIVER OF NOTICE. Whenever by statute, the
provisions of the Articles of Incorporation or these ByLaws, the Stockholders or
the Board of Directors are authorized to take any action at any meeting after
notice, such notice may be waived, in writing, before or after the holding of
the meeting, by the person or persons entitled to such notice, or, in the case
of a Stockholder, by his attorney thereunto authorized.
SECTION 2. CHECKS. All checks or demands for money and notes
of the Company shall be signed by such Officer or Officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the
Company shall be determined by resolution of the Board of Directors.
- 21 -
SECTION 4. ACCOUNTANT. The Company shall employ an independent
public accountant or a firm of independent public accountants as its Accountant
to examine the accounts of the Company and to sign and certify financial
statements filed by the Company. The employment of the Accountant shall be
conditioned upon the right of the Company to terminate the employment forthwith
without any penalty by vote of a majority of the outstanding voting securities
at any Stockholders' meeting called for that purpose.
ARTICLE VII
CAPITAL STOCK
SECTION 1. CERTIFICATE OF STOCK. The interest of each
Stockholder of the Company may be evidenced by certificates for shares of stock
in such form as the Board of Directors may from time to time prescribe. The
certificates shall be numbered and entered in the books of the Company as they
are issued. They shall exhibit the holder's name and the number of shares and no
certificate shall be valid unless it has been signed by the President or a
Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary and bears the corporate seal. Such seal may be a
facsimile, engraved or printed. Where any such certificate is signed by a
Transfer Agent or by a Registrar, the signatures of any such Officer may
- 22 -
be facsimile, engraved or printed. In case any of the Officers of the Company
whose manual or facsimile signature appears on any stock certificate delivered
to a Transfer Agent of the Company shall cease to be such Officer prior to the
issuance of such certificate, the Transfer Agent may nevertheless countersign
and deliver such certificate as though the person signing the same or whose
facsimile signature appears thereon had not ceased to be such Officer, unless
written instructions of the Company to the contrary are delivered to the
Transfer Agent.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board
of Directors, or the President together with the Treasurer or Secretary, may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Company, alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed, or by his legal representative. When
authorizing such issue of a new certificate, the Board of Directors, or the
President and Treasurer or Secretary, may, in its or their discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it or they shall require and/or give the Company a bond
in such sum and with such surety or sureties as it or they may direct as
indemnity against any claim that may be made against the Company
- 23 -
with respect to the certificate alleged to have been lost, stolen or destroyed
or such newly issued certificate.
SECTION 3. TRANSFER OF STOCK. Shares of the Company shall be
transferable on the books of the Company by the holder thereof in person or by
his duly authorized attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same number of shares of
the same class, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, with such proof of the authenticity of the
signature as the Company or its agents may reasonably require. The Board of
Directors may, from time to time, adopt rules and regulations with reference to
the method of transfer of the shares of stock of the Company.
SECTION 4. REGISTERED HOLDER. The Company shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof, except as
expressly provided by statute.
SECTION 5. RECORD DATE. The Board of Directors may fix a time
not less than 10 nor more than 90 days prior to the date of any meeting of
Stockholders or prior to the last day on which the consent or dissent of
Stockholders may be effectively expressed for any purpose without a meeting, as
the time as of
- 24 -
which Stockholders entitled to notice of and to vote at such a meeting or whose
consent or dissent is required or may be expressed for any purpose, as the case
may be, shall be determined; and all persons who were holders of record of
voting stock at such time and no other shall be entitled to notice of and to
vote at such meeting or to express their consent or dissent, as the case may be.
If no record date has been fixed, the record date for the determination of
Stockholders entitled to notice of or to vote at a meeting of Stockholders shall
be the later of the close of business on the day on which notice of the meeting
is mailed or the thirtieth day before the meeting, or, if notice is waived by
all Stockholders, at the close of business on the tenth day next preceding the
day on which the meeting is held. The Board of Directors may also fix a time not
exceeding 90 days preceding the date fixed for the payment of any dividend or
the making of any distribution, or for the delivery of evidences of rights, or
evidences of interests arising out of any change, conversion or exchange of
capital stock, as a record time for the determination of the Stockholder
entitled to receive any such dividend, distribution, rights or interests.
SECTION 6. STOCK LEDGERS. The stock ledgers of the
Company, containing the names and addresses of the Stockholders
and the number of shares held by them respectively, shall be kept
at the principal offices of the Company or at the offices of the
- 25 -
transfer agent of the Company or at such other location as may be authorized by
the Board of Directors from time to time.
SECTION 7. TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers (if any) of shares of stock of the Company, and it may
appoint the same person as both transfer agent and registrar. Upon any such
appointment being made, all certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such transfer agents or by
one of such registrars of transfers (if any) or by both and shall not be valid
unless so countersigned. If the same person shall be both transfer agent and
registrar, only one countersignature by such person shall be required.
SECTION 8. DIVIDENDS. Dividends upon the capital stock of the
Company, subject to any provisions of the Articles of Incorporation relating
thereto, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law.
SECTION 9. RESERVE BEFORE DIVIDENDS. Before payment of any
dividend, there may be set aside out of the net profits of the Company available
for dividends such sum or sums as the Directors from time to time in their
absolute discretion think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Company, or for such other purpose as the Directors shall think conducive to the
interests of the Company, and the Directors may
- 26 -
modify or abolish any such reserve in the manner in which it was
created.
SECTION 10. NO PRE-EMPTIVE RIGHTS. Shares of stock
shall not possess pre-emptive rights to purchase additional
shares of stock when offered.
SECTION 11. FRACTIONAL SHARES. Fractional shares
entitle the holder to the same voting and other rights and
privileges as whole shares on a pro-rata basis.
ARTICLE VIII
AMENDMENTS
SECTION 1. BY STOCKHOLDERS. By-Laws may be adopted, amended or
repealed, by vote of the holders of a majority of the Company's stock, as
defined by the Investment Company Act of 1940, at any annual or special meeting
of the Stockholders at which a quorum is present or represented, provided notice
of the proposed amendment shall have been contained in the notice of the
meeting.
SECTION 2. BY DIRECTORS. The Directors may adopt, amend or
repeal any By-Law (which is not inconsistent with any By-Law adopted, amended or
repealed by the Company's Stockholders in accordance with Section 1 of this
Article VIII) by majority vote of all of the Directors in office at any regular
meeting, or
- 27 -
at any special meeting, in accordance with the requirements of
applicable law.
ARTICLE IX
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Company shall place
and at all times maintain in the custody of a Custodian (including any
sub-custodian for the Custodian, which may be a foreign bank which meets
applicable requirements of law) all funds, securities and similar investments
owned by the Company. The Custodian (and any sub-custodian) shall be a bank
having not less than $2,000,000 aggregate capital, surplus and undivided profits
or such other financial institution as shall be permitted by rule or order of
the United States Securities and Exchange Commission. The Custodian shall be
appointed from time to time by the Directors, who shall fix its remuneration.
SECTION 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT.
Upon termination of a Custodian Agreement or inability of the Custodian to
continue to serve, the Directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Directors shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Company
shall function without a custodian
- 28 -
or shall be liquidated. If so directed by vote of the holders of a majority of
the outstanding voting securities, the Custodian shall deliver and pay over all
funds, securities and similar investments held by it as specified in such vote.
SECTION 3. PROVISIONS OF CUSTODIAN AGREEMENT. The
following provisions shall apply to the employment of a Custodian
and to any contract entered into with the Custodian so employed:
The Directors shall cause to be delivered to the Custodian all
securities owned by the Company or to which it may become
entitled, and shall order the same to be delivered by the
Custodian only in completion of a sale, exchange, transfer,
pledge, loan of portfolio securities to another person, or
other disposition thereof, all as the Directors may generally
or from time to time require or approve or to a successor
Custodian; and the Directors shall cause all funds owned by
the Company or to which it may become entitled to be paid to
the Custodian, and shall order the same disbursed only for
investment against delivery of the securities acquired, or the
return of cash held as collateral for loans of portfolio
securities, or in payment of expenses, including management
compensation, and liabilities of the Company, including
distributions to shareholders, or to a successor Custodian. In
connection with the Company's purchase or sale of
- 29 -
futures contracts, the Custodian shall transmit, prior to
receipt on behalf of the Company of any securities or other
property, funds from the Company's custodian account in order
to furnish to and maintain funds with brokers as margin to
guarantee the performance of the Company's futures obligations
in accordance with the applicable requirements of commodities
exchanges and brokers.
ARTICLE X
MISCELLANEOUS
SECTION 1. MISCELLANEOUS.
(a) Except as hereinafter provided, no Officer or Director of
the Company and no partner, officer, director or shareholder of the Investment
Adviser of the Company or of the Distributor of the Company, and no Investment
Adviser or Distributor of the Company, shall take long or short positions in the
securities issued by the Company.
(1) The foregoing provisions shall not prevent the
Distributor from purchasing Shares from the Company if such purchases are
limited (except for reasonable allowances for clerical errors, delays and errors
of transmission and cancellation of orders) to purchases for the purpose of
filling orders for such Shares received by the Distributor, and provided
- 30 -
that orders to purchase from the Company are entered with the Company or the
Custodian promptly upon receipt by the Distributor of purchase orders for such
Shares, unless the Distributor is otherwise instructed by its customer.
(2) The foregoing provision shall not prevent
the Distributor from purchasing Shares of the Company as agent for the account
of the Company.
(3) The foregoing provision shall not prevent
the purchase from the Company or from the Distributor of Shares issued by the
Company, by any officer, or Director of the Company or by any partner, officer,
director or shareholder of the Investment Adviser of the Company or of the
Distributor of the Company at the price available to the public generally at the
moment of such purchase, or as described in the then currently effective
Prospectus of the Company.
(4) The foregoing shall not prevent the
Distributor, or any affiliate thereof, of the Company from purchasing Shares
prior to the effectiveness of the first registration statement relating to the
Shares under the Securities Act of 1933.
(b) The Company shall not lend assets of the Company to any
officer or Director of the Company, or to any partner, officer, director or
shareholder of, or person financially interested in, the Investment Adviser of
the Company, or the
- 31 -
Distributor of the Company, or to the Investment Adviser of the Company or to
the Distributor of the Company.
(c) The Company shall not impose any restrictions upon the
transfer of the Shares of the Company except as provided in the Articles of
Incorporation, but this requirement shall not prevent the charging of customary
transfer agent fees.
(d) The Company shall not permit any officer or Director of
the Company, or any partner, officer or director of the Investment Adviser or
Distributor of the Company, to deal for or on behalf of the Company with himself
as principal or agent, or with any partnership, association or corporation in
which he has a financial interest; provided that the foregoing provisions shall
not prevent (a) Officers and Directors of the Company or partners, officers or
directors of the Investment Adviser or Distributor of the Company from buying,
holding or selling Shares in the Company, or from being partners, officers or
directors or otherwise financially interested in the Investment Adviser or
Distributor of the Company; (b) purchases or sales of securities or other
property by the Company from or to an affiliated person or to the Investment
Adviser or Distributor of the Company if such transaction is exempt from the
applicable provisions of the 1940 Act; (c) purchases of investments for the
portfolio of the Company or sales of investments owned by the Company through a
security dealer who is, or one or more of whose partners, shareholders, officers
or directors is, an Officer or Director of the
- 32 -
Company, or a partner, officer or director of the Investment Adviser or
Distributor of the Company, if such transactions are handled in the capacity of
broker only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian who is, or has a partner, shareholder,
officer, or director who is, an officer or Director of the Company, or a
partner, officer or director of the Investment Adviser or Distributor of the
Company, if only customary fees are charged for services to the Company; (e)
sharing statistical research, legal and management expenses and office hire and
expenses with any other investment company in which an officer or Director of
the Company, or a partner, officer or director of the Investment Adviser or
Distributor of the Company, is an officer or director or otherwise financially
interested.
- 33 -
TEMPLETON AMERICAN TRUST, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Franklin Templeton Distributors, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Re: Amended and Restated Distribution Agreement
Gentlemen:
We, TEMPLETON AMERICAN TRUST, INC. (the "Fund") are a Maryland corporation
operating as an open-end management investment company or "mutual fund", which
is registered under the Investment Company Act of 1940 (the "1940 Act") and
whose shares are registered under the Securities Act of 1933 (the "1933 Act").
We desire to issue one or more series or classes of our authorized but unissued
shares of capital stock or beneficial interest (the "Shares") to authorized
persons in accordance with applicable Federal and State securities laws. The
Fund's Shares may be made available in one or more separate series, each of
which may have one or more classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Board of Directors
("Board") passed at a meeting at which a majority of Board members, including a
majority who are not otherwise interested persons of the Fund and who are not
interested persons of our investment adviser, its related organizations or with
you or your related organizations, were present and voted in favor of the said
resolution approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and
in consideration of the agreements on your part herein expressed and upon the
terms and conditions set forth herein, we hereby appoint you as the exclusive
sales agent for our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of Shares, but are
not obligated to sell any specific number of Shares.
However, the Fund and each series retain the right to make direct sales
of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its shareholders only,
transactions involving the reorganization of the Fund or any series, and
transactions involving the merger or combination of the Fund or any series with
another corporation or trust.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.
3. OFFERING PRICE. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you with
the net asset value of the Shares of each available series and class which shall
be determined in accordance with our then effective prospectus. All Shares will
be sold in the manner set forth in our then effective prospectus and statement
of additional information, and in compliance with applicable law.
4. COMPENSATION.
A. SALES COMMISSION. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class
of each Fund's Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. DISTRIBUTION PLANS. You shall also be entitled to
compensation for your services as provided in any Distribution Plan adopted as
to any series and class of any Fund's Shares pursuant to Rule 12b-1 under the
1940 Act.
5. TERMS AND CONDITIONS OF SALES. Shares shall be offered for sale only
in those jurisdictions where they have been properly registered or are exempt
from registration, and only to those groups of people which the Board may from
time to time determine to be eligible to purchase such shares.
6. ORDERS AND PAYMENT FOR SHARES. Orders for Shares shall be directed
to the Fund's shareholder services agent, for acceptance on behalf of the Fund.
At or prior to the time of delivery of any of our Shares you will pay or cause
to be paid to the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of Shares shall be
deemed to be made when and where accepted by the Fund's shareholder services
agent. The Fund's custodian and shareholder services agent shall be identified
in its prospectus.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our Shares
for your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. SALE OF SHARES TO AFFILIATES. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. ALLOCATION OF EXPENSES. We will pay the expenses:
(a) Of the preparation of the audited and certified
financial statements of our company to be included in
any Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940
Act, including the prospectus and statement of
additional information included therein;
(b) Of the preparation, including legal fees, and
printing of all Amendments or supplements filed with
the Securities and Exchange Commission, including the
copies of the prospectuses included in the Amendments
and the first 10 copies of the definitive
prospectuses or supplements thereto, other than those
necessitated by your (including your "Parent's")
activities or Rules and Regulations related to your
activities where such Amendments or supplements
result in expenses which we would not otherwise have
incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our
existing shareholders; and
(d) Of filing and other fees to Federal and State
securities regulatory authorities necessary to
continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer
our Shares;
(b) Of the preparation, excluding legal fees, and
printing of all Amendments and supplements to our
prospectuses and statements of additional information
if the Amendment or supplement arises from your
(including your "Parent's") activities or Rules and
Regulations related to your activities and those
expenses would not otherwise have been incurred by
us;
(c) Of printing additional copies, for use by you as
sales literature, of reports or other communications
which we have prepared for distribution to our
existing shareholders; and
(d) Incurred by you in advertising, promoting and selling
our Shares.
10. FURNISHING OF INFORMATION. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
11. CONDUCT OF BUSINESS. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws
and regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
12. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If Shares are tendered
to us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. OTHER ACTIVITIES. Your services pursuant to this Agreement
shall not be deemed to be exclusive, and you may render similar services and
act as an underwriter, distributor or dealer for other investment companies
in the offering of their shares.
14. TERM OF AGREEMENT. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2) years.
The Agreement is renewable annually thereafter, with respect to the Fund or, if
the Fund has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Fund or, if the Fund has more than one
series, of each series, or (b) by a vote of the Board, AND (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.
This Agreement may at any time be terminated by the Fund or by
any series without the payment of any penalty, (i) either by vote of the Board
or by vote of a majority of the outstanding voting securities of the Fund or any
series on 90 days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect to the Fund and
each series in the event of its assignment.
15. SUSPENSION OF SALES. We reserve the right at all times to
suspend or limit the public offering of Shares upon two days' written notice to
you.
16. MISCELLANEOUS. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Fund as an open-end investment company. This Agreement
shall supersede all Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset Value," "Offering
Price," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," "Parent," "Affiliated Person," and
"Majority of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
Templeton American Trust, Inc.
By:/s/THOMAS M. MISTELE
Accepted:
Franklin Templeton Distributors, Inc.
By:/s/PETER D. JONES
DATED: May 1, 1995
CUSTODY AGREEMENT
AGREEMENT dated as of February 26, 1991, between THE CHASE
MANHATTAN BANK, N.A. ("Chase"), having its principal place of business at 1
Chase Manhattan Plaza, New York, New York 10081, and TEMPLETON AMERICAN TRUST,
INC. (the "Fund"), an investment company registered under the Investment Company
Act of 1940 ("Act of 1940"), having its principal place of business at 700
Central Avenue, St. Petersburg, Florida 33701.
WHEREAS, the Fund wishes to appoint Chase as custodian to the
securities and assets of the Fund and Chase is willing to act as custodian under
the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Fund and its successors and assigns and
Chase and its successors and assigns, hereby agree as follows:
1. APPOINTMENT AS CUSTODIAN. Chase agrees to act as custodian
for the Fund, as provided herein, in connection with (a) cash ("Cash") received
from time to time from, or for the account of, the Fund for credit to the Fund's
deposit account or accounts administered by Chase, Chase Branches and Domestic
Securities Depositories (as hereinafter defined), and/or Foreign Banks and
Foreign Securities Depositories (as hereinafter defined) (the "Deposit
Account"); (b) all stocks, shares, bonds, debentures, notes, mortgages, or other
obligations for the payment of money and any certificates, receipts, warrants,
or other instruments representing rights to receive, purchase, or subscribe for
the same or evidencing or representing any other
rights or interests therein and other similar property ("Securities") from time
to time received by Chase and/or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository for the account of the
Fund (the "Custody Account"); and (c) original margin and variation margin
payments in a segregated account for futures contracts (the "Segregated
Account").
All Cash held in the Deposit Account or in the Segregated
Account in connection with which Chase agrees to act as custodian is hereby
denominated as a special deposit which shall be held in trust for the benefit of
the Fund and to which Chase, Chase Branches and Domestic Securities Depositories
and/or Foreign Banks and Foreign Securities Depositories shall have no ownership
rights, and Chase will so indicate on its books and records pertaining to the
Deposit Account and the Segregated Account. All cash held in auxiliary accounts
that may be carried for the Fund with Chase (including a Money Market Account,
Redemption Account, Distribution Account and Imprest Account) is not so
denominated as a special deposit and title thereto is held by Chase subject to
the claims of creditors.
2. AUTHORIZATION TO USE BOOK-ENTRY SYSTEM, DOMESTIC
SECURITIES DEPOSITORIES, BRANCH OFFICES, FOREIGN BANKS AND
FOREIGN SECURITIES DEPOSITORIES. Chase is hereby authorized to
- 2 -
appoint and utilize, subject to the provisions of Sections 4 and
5 hereof:
A. The Book Entry System and The Depository Trust
Fund; and also such other Domestic Securities Depositories
selected by Chase and as to which Chase has received a
certified copy of a resolution of the Fund's Board of
Directors authorizing deposits therein;
B. Chase's foreign branch offices in the United
Kingdom, Hong Kong, Singapore, and Tokyo, and such other
foreign branch offices of Chase located in countries approved
by the Board of Directors of the Fund as to which Chase shall
have given prior notice to the Fund;
C. Foreign Banks which Chase shall have
selected, which are located in countries approved by
the Board of Directors of the Fund, and as to which
banks Chase shall have given prior notice to the Fund;
and
D. Foreign Securities Depositories which Chase
shall have selected and as to which Chase has received
a certified copy of a resolution of the Fund's Board of
Directors authorizing deposits therein;
to hold Securities and Cash at any time owned by the Fund, it being understood
that no such appointment or utilization shall in any way relieve Chase of its
responsibilities as provided for in
- 3 -
this Agreement. Foreign branch offices of Chase appointed and utilized by Chase
are herein referred to as "Chase Branches." Unless otherwise agreed to in
writing, (a) each Chase Branch, each Foreign Bank and each Foreign Securities
Depository shall be selected by Chase to hold only Securities as to which the
principal trading market or principal location as to which such Securities are
to be presented for payment is located outside the United States; and (b) Chase
and each Chase Branch, Foreign Bank and Foreign Securities Depository will
promptly transfer or cause to be transferred to Chase, to be held in the United
States, Securities and/or Cash that are then being held outside the United
States upon request of the Fund and/or of the Securities and Exchange
Commission. Utilization by Chase of Chase Branches, Domestic Securities
Depositories, Foreign Banks and Foreign Securities Depositories shall be in
accordance with provisions as from time to time amended, of an operating
agreement to be entered into between Chase and the Fund (the "Operating
Agreement").
3. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
(a) "Authorized Persons of the Fund" shall mean such
officers or employees of the Fund or any other person or
persons as shall have been designated by a resolution of the
Board of Directors of the Fund, a certified copy of which has
been filed with Chase, to
- 4 -
act as Authorized Persons hereunder. Such persons shall
continue to be Authorized Persons of the Fund, authorized to
act either singly or together with one or more other of such
persons as provided in such resolution, until such time as the
Fund shall have filed with Chase a written notice of the Fund
supplementing, amending, or revoking the authority of such
persons.
(b) "Book-Entry system" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and its
nominee or nominees.
(c) "Domestic Securities Depository" shall mean The
Depository Trust Fund, a clearing agency registered with the
Securities and Exchange Commission, its successor or
successors and its nominee or nominees; and (subject to the
receipt by Chase of a certified copy of a resolution of the
Fund's Board of Directors specifically approving deposits
therein as provided in Section 2(a) of this Agreement) any
other person authorized to act as a depository under the Act
of 1940, its successor or successors and its nominee or
nominees.
- 5 -
(d) "Foreign Bank" shall mean any banking institution
organized under the laws of a jurisdiction other than the
United States or of any state thereof.
(e) A "Foreign Securities Depository" shall mean any
system for the central handling of securities abroad where all
securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping without physical
delivery of the securities by any Chase Branch or Foreign
Bank.
(f) "Written Instructions" shall mean
instructions in writing signed by Authorized Persons of
the Fund giving such instructions, and/or such other
forms of communications as from time to time shall be
agreed upon in writing between the Fund and Chase.
4. SELECTION OF COUNTRIES IN WHICH SECURITIES MAY BE
HELD. Chase shall not cause Securities and Cash to be held in any country
outside the United States until the Fund has directed the holding of Fund assets
in such country. Chase will be provided with a copy of a resolution of the
Fund's Board of Directors authorizing such custody in any country outside of the
United States, which resolution shall be based upon, among other factors, the
following:
(a) comparative operational efficiencies of
custody;
- 6 -
(b) clearance and settlement and the costs
thereof; and
(c) political and other risks, other than those
risks specifically assumed by Chase.
5. RESPONSIBILITY OF CHASE TO SELECT CUSTODIANS IN INDIVIDUAL
FOREIGN COUNTRIES. The responsibility for selecting the Chase Branch, Foreign
Bank or Foreign Securities Depository to hold the Fund's Securities and Cash in
individual countries authorized by the Fund shall be that of Chase. Chase
generally shall utilize Chase Branches where available. In locations where there
are no Chase Branches providing custodial services, Chase shall select as its
agent a Foreign Bank, which may be an affiliate or subsidiary of Chase. To
facilitate the clearance and settlement of securities transactions, Chase
represents that, subject to the approval of the Fund, it may deposit Securities
in a Foreign Securities Depository in which Chase is a participant. In
situations in which Chase is not a participant in a Foreign Securities
Depository, Chase may, subject to the approval of the Fund, authorize a Foreign
Bank acting as its subcustodian to deposit the Securities in a Foreign
Securities Depository in which the Foreign Bank is a participant.
Notwithstanding the foregoing, such selection by Chase of a Foreign Bank or
Foreign Securities Depository shall not become effective until Chase has been
advised by the Fund that a majority of its Board of Directors:
- 7 -
(a) Has approved Chase's selection of the particular
Foreign Bank or Foreign Securities Depository, as the case may
be, as consistent with the best interests of the Fund and its
Shareholders; and
(b) Has approved as consistent with the best
interests of the Fund and its Shareholders a written
contract prepared by Chase which will govern the manner
in which such Foreign Bank will maintain the Fund's
assets.
6. CONDITIONS ON SELECTION OF FOREIGN BANK OR FOREIGN
SECURITIES DEPOSITORY. Chase shall authorize the holding of
Securities and Cash by a Chase Branch, Foreign Bank or Foreign
Securities Depository only:
(a) to the extent that the Securities and Cash are
not subject to any right, charge, security interest, lien or
claim of any kind in favor of any such Foreign Bank or Foreign
Securities Depository, except for their safe custody or
administration; and
(b) to the extent that the beneficial ownership
of Securities is freely transferable without the
payment of money or value other than for safe custody
or administration.
7. CHASE BRANCHES AND FOREIGN BANKS NOT AGENTS OF THE
FUND. Chase Branches, Foreign Banks and Foreign Securities
Depositories shall be subject to the instructions of Chase and/or
- 8 -
the Foreign Bank, and not to those of the Fund. Chase warrants and represents
that all such instructions shall afford protection to the Fund at least equal to
that afforded for Securities held directly by Chase. Any Chase Branch, Foreign
Bank or Foreign Securities Depository shall act solely as agent of Chase or of
such Foreign Bank.
8. CUSTODY ACCOUNT. Securities held in the Custody
Account shall be physically segregated at all times from those of
any other person or persons except that (a) with respect to
Securities held by Chase Branches, such Securities may be placed
in an omnibus account for the customers of Chase, and Chase shall
maintain separate book entry records for each such omnibus
account, and such Securities shall be deemed for the purpose of
this Agreement to be held by Chase in the Custody Account; (b)
with respect to Securities deposited by Chase with a Foreign
Bank, a Domestic Securities Depository or a Foreign Securities
Depository, Chase shall identify on its books as belonging to the
Fund the Securities shown on Chase's account on the books of the
Foreign Bank, Domestic Securities Depository or Foreign
Securities Depository; and (c) with respect to Securities
deposited by a Foreign Bank with a Foreign Securities Depository,
Chase shall cause the Foreign Bank to identify on its books as
belonging to Chase, as agent, the Securities shown on the Foreign
Bank's account on the books of the Foreign Securities Depository.
All Securities of the Fund maintained by Chase pursuant to this
- 9 -
Agreement shall be subject only to the instructions of Chase, Chase Branches or
their agents. Chase shall only deposit Securities with a Foreign Bank in
accounts that include only assets held by Chase for its customers.
8a. SEGREGATED ACCOUNT FOR FUTURES CONTRACTS. With
respect to every futures contract purchased, sold or cleared for
the Custody Account, Chase agrees, pursuant to Written
Instructions, to:
(a) deposit original margin and variation margin
payments in a segregated account maintained by Chase;
and
(b) perform all other obligations attendant to
transactions or positions in such futures contracts, as
such payments or performance may be required by law or
the executing broker.
8b. SEGREGATED ACCOUNT FOR REPURCHASE AGREEMENTS.
With respect to purchases for the Custody Account from banks (including Chase)
or broker-dealers, of United States or foreign government obligations subject to
repurchase agreements, Chase agrees, pursuant to Written Instructions, to:
(a) deposit such securities and repurchase
agreements in a segregated account maintained by Chase;
and
(b) promptly show on Chase's records that such
securities and repurchase agreements are being held on
- 10 -
behalf of the Fund and deliver to the Fund a written
confirmation to that effect.
8c. SEGREGATED ACCOUNTS FOR DEPOSITS OF COLLATERAL.
Chase agrees, with respect to (i) cash or high quality debt securities to secure
the Fund's commitments to purchase new issues of debt obligations offered on a
when-issued basis; (ii) cash, U.S. government securities, or irrevocable letters
of credit of borrowers of the Fund's portfolio securities to secure the loan to
them of such securities; and/or (iii) cash, securities or any other property
delivered to secure any other obligations; (all of such items being hereinafter
referred to as "collateral"), pursuant to Written Instructions, to:
(a) deposit the collateral for each such
obligation in a separate segregated account maintained
by Chase; and
(b) promptly to show on Chase's records that
such collateral is being held on behalf of the Fund and
deliver to the Fund a written confirmation to that
effect.
9. DEPOSIT ACCOUNT. Subject to the provisions of
this Agreement, the Fund authorizes Chase to establish and maintain in each
country or other jurisdiction in which the principal trading market for any
Securities is located or in which any Securities are to be presented for
payment, an account or accounts, which may include nostro accounts with Chase
- 11 -
Branches and omnibus accounts of Chase at Foreign Banks, for receipt of cash in
the Deposit Account, in such currencies as directed by Written Instructions. For
purposes of this Agreement, cash so held in any such account shall be evidenced
by separate book entries maintained by Chase at its office in London and shall
be deemed to be Cash held by Chase in the Deposit Account. Unless Chase receives
Written Instructions to the contrary, cash received or credited by Chase or any
other Chase Branch, Foreign Bank or Foreign Securities Depository for the
Deposit Account in a currency other than United States dollars shall be
converted promptly into United States dollars whenever it is practicable to do
so through customary banking channels (including without limitation the
effecting of such conversions at Chase's preferred rates through Chase, its
affiliates or Chase Branches), and shall be automatically transmitted back to
Chase in the United States.
10. SETTLEMENT PROCEDURES. Settlement procedures for
transactions in Securities delivered to, held in, or to be
delivered from the Custody Account in Chase Branches, Domestic
Securities Depositories, Foreign Banks and Foreign Securities
Depositories, including receipts and payments of cash held in any
nostro account or omnibus account for the Deposit Account as
described in Section 9, shall be carried out in accordance with
the provisions of the Operating Agreement. It is understood that
such settlement procedures may vary, as provided in the Operating
- 12 -
Agreement, from securities market to securities market, to reflect particular
settlement practices in such markets.
Chase shall make or cause the appropriate Chase Branch or
Foreign Bank to move payments of Cash held in the Deposit Account only:
(a) in connection with the purchase of Securities for
the account of the Fund and only against the receipt of such
Securities by Chase or by another appropriate Chase Branch,
Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository, or otherwise as provided in the
Operating Agreement, each such payment to be made at prices
confirmed by Written Instructions, or
(b) in connection with any dividend, interim
dividend or other distribution declared by the Fund, or
(c) as directed by the Fund by Written Instructions
setting forth the name and address of the person to whom the
payment is to be made and the purpose for which the payment is
to be made.
Upon the receipt by Chase of Written Instructions specifying
the Securities to be so transferred or delivered, which instructions shall name
the person or persons to whom transfers or deliveries of such Securities shall
be made and shall indicate the time(s) for such transfers or deliveries,
- 13 -
Securities held in the Custody Account shall be transferred, exchanged, or
delivered by Chase, any Chase Branch, Domestic Securities Depository, Foreign
Bank, or Foreign Securities Depository, as the case may be, against payment in
Cash or Securities, or otherwise as provided in the Operating Agreement, only:
(a) upon sale of such Securities for the account of
the Fund and receipt of such payment in the amount shown in a
broker's confirmation of sale of the Securities or other
proper authorization received by Chase before such payment is
made, as confirmed by Written Instructions;
(b) in exchange for or upon conversion into other
Securities alone or other Securities and Cash pursuant to any
plan of merger, consolidation, reorganization,
recapitalization, readjustment, or tender offer;
(c) upon exercise of conversion, subscription,
purchase, or other similar rights represented by such
Securities; or
(d) otherwise as directed by the Fund by Written
Instructions which shall set forth the amount and
purpose of such transfer or delivery.
Until Chase receives Written Instructions to the
contrary, Chase shall, and shall cause each Chase Branch,
Domestic Securities Depository, Foreign Bank and Foreign
- 14 -
Securities Depository holding Securities or Cash to, take the following actions
in accordance with procedures established in the Operating Agreement:
(a) collect and timely deposit in the Deposit Account
all income due or payable with respect to any Securities and
take any action which may be necessary and proper in
connection with the collection and receipt of such income;
(b) present timely for payment all Securities in the
Custody Account which are called, redeemed or retired or
otherwise become payable and all coupons and other income
items which call for payment upon presentation and to receive
and credit to the Deposit Account Cash so paid for the account
of the Fund except that, if such Securities are convertible,
such Securities shall not be presented for payment until two
business days preceding the date on which such conversion
rights would expire unless Chase previously shall have
received Written Instructions with respect thereto;
(c) present for exchange all Securities in the
Custody Account converted pursuant to their terms into
other Securities;
(d) in respect of securities in the Custody
Account, execute in the name of the Fund such ownership
- 15 -
and other certificates as may be required to obtain payments
in respect thereto, provided that Chase shall have requested
and the Fund shall have furnished to Chase any information
necessary in connection with such certificates;
(e) exchange interim receipts or temporary
Securities in the Custody Account for definitive
Securities; and
(f) receive and hold in the Custody Account all
Securities received as a distribution on Securities
held in the Custody Account as a result of a stock
dividend, share split-up or reorganization,
recapitalization, readjustment or other rearrangement
or distribution of rights or similar Securities issued
with respect to any Securities held in the Custody
Account.
11. RECORDS. Chase hereby agrees that Chase and any
Chase Branch or Foreign Bank shall create, maintain, and retain all records
relating to their activities and obligations as custodian for the Fund under
this Agreement in such manner as will meet the obligations of the Fund under the
Act of 1940, particularly Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and Federal, state and foreign tax laws and other legal or
administrative rules or procedures, in each case as currently in effect and
applicable to the Fund. All records so
- 16 -
maintained in connection with the performance of its duties under this Agreement
shall, in the event of termination of this Agreement, be preserved and
maintained by Chase as required by regulation, and shall be made available to
the Fund or its agent upon request, in accordance with the provisions of Section
19.
Chase hereby agrees, subject to restrictions under applicable
laws, that the books and records of Chase and any Chase Branch pertaining to
their actions under this Agreement shall be open to the physical, on-premises
inspection and audit at reasonable times by the independent accountants
("Accountants") employed by, or other representatives of, the Fund. Chase hereby
agrees that, subject to restrictions under applicable laws, access shall be
afforded to the Accountants to such of the books and records of any Foreign
Bank, Domestic Securities Depository or Foreign Securities Depository with
respect to Securities and Cash as shall be required by the Accountants in
connection with their examination of the books and records pertaining to the
affairs of the Fund. Chase also agrees that as the Fund may reasonably request
from time to time, Chase shall provide the Accountants with information with
respect to Chase's and Chase Branches' systems of internal accounting controls
as they relate to the services provided under this Agreement, and Chase shall
use its best efforts to obtain and furnish similar information with respect to
each Domestic
- 17 -
Securities Depository, Foreign Bank and Foreign Securities
Depository holding Securities and Cash.
12. REPORTS. Chase shall supply periodically, upon the
reasonable request of the Fund, such statements, reports, and advices with
respect to Cash in the Deposit Account and the Securities in the Custody Account
and transactions in Securities from time to time received and/or delivered for
or from the Custody Account, as the case may be, as the Fund shall require. Such
statements, reports and advices shall include an identification of the Chase
Branch, Domestic Securities Depository, Foreign Bank and Foreign Securities
Depository having custody of the Securities and Cash, and descriptions thereof.
13. REGISTRATION OF SECURITIES. Securities in the Custody
Account which are issued or issuable only in bearer form (except such securities
as are held in the Book-Entry System) shall be held by Chase, Chase Branches,
Domestic Securities Depositories, Foreign Banks or Foreign Securities
Depositories in that form. All other Securities in the Custody Account shall be
held in registered form in the name of Chase, or any Chase Branch, the
Book-Entry System, Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository and their nominees, as custodian or nominee.
14. STANDARD OF CARE.
(a) GENERAL. Chase shall assume entire
responsibility for all Securities held in the Custody
- 18 -
Account, Cash held in the Deposit Account, Cash or Securities
held in the Segregated Account and any of the Securities and
Cash while in the possession of Chase or any Chase Branch,
Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository, or in the possession or control of any
employees, agents or other personnel of Chase or any Chase
Branch, Domestic Securities Depository, Foreign Bank or
Foreign Securities Depository; and shall be liable to the Fund
for any loss to the Fund occasioned by any destruction of the
Securities or Cash so held or while in such possession, by any
robbery, burglary, larceny, theft or embezzlement by any
employees, agents or personnel of Chase or any Chase Branch,
Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository, and/or by virtue of the disappearance
of any of the Securities or Cash so held or while in such
possession, with or without any fault attributable to Chase
("fault attributable to Chase" for the purposes of this
Agreement being deemed to mean any negligent act or omission,
robbery, burglary, larceny, theft or embezzlement by any
employees or agents of Chase or any Chase Branch, Domestic
Securities Depository, Foreign Bank or Foreign Securities
Depository). In the event of Chase's
- 19 -
discovery or notification of any such loss of Securities or
Cash, Chase shall promptly notify the Fund and shall reimburse
the Fund to the extent of the market value of the missing
Securities or Cash as at the date of the discovery of such
loss. The Fund shall not be obligated to establish any
negligence, misfeasance or malfeasance on Chase's part from
which such loss resulted, but Chase shall be obligated
hereunder to make such reimbursement to the Fund after the
discovery or notice of such loss, destruction or theft of such
Securities or Cash. Chase may at its option insure itself
against loss from any cause but shall be under no obligation
to insure for the benefit of the Fund.
(b) COLLECTIONS. All collections of funds or other
property paid or distributed in respect of Securities held in
the Custody Account shall be made at the risk of the Fund.
Chase shall have no liability for any loss occasioned by delay
in the actual receipt of notice by Chase (or by any Chase
Branch or Foreign Bank in the case of Securities or Cash held
outside of the United States) of any payment, redemption or
other transaction regarding Securities held in the Custody
Account or Cash held in the Deposit Account in respect of
which Chase has agreed to take action in the absence
- 20 -
of Written Instructions to the contrary as provided in Section
10 of this Agreement, which does not appear in any of the
publications referred to in Section 16 of this Agreement.
(c) EXCLUSIONS. Notwithstanding any other provision
in this Agreement to the contrary, Chase shall not be
responsible for (i) losses resulting from war or from the
imposition of exchange control restrictions, confiscation,
expropriation, or nationalization of any securities or assets
of the issuer of such securities, or (ii) losses resulting
from any negligent act or omission of the Fund or any of its
affiliates, or any robbery, theft, embezzlement or fraudulent
act by any employee or agent of the Fund or any of its
affiliates. Chase shall not be liable for any action taken in
good faith upon Written Instructions of Authorized Persons of
the Fund or upon any certified copy of any resolution of the
Board of Directors of the Fund, and may rely on the
genuineness of any such documents which it may in good faith
believe to be validly executed.
(d) LIMITATION ON LIABILITY UNDER SECTION 14(A).
Notwithstanding any other provision in this Agreement
to the contrary, it is agreed that Chase's sole
responsibility with respect to losses under Section
- 21 -
14(a) shall be to pay the Fund the amount of any such loss as
provided in Section 14(a) (subject to the limitation provided
in Section 14(e) of this Agreement). This limitation does not
apply to any liability of Chase under Section 14(f) of this
Agreement.
(e) ANNUAL ADJUSTMENT OF LIMITATION OF LIABILITY. As
soon as practicable after June 1 of every year, the Fund shall
provide Chase with the amount of its total net assets as of
the close of business on such date (or if the New York Stock
Exchange is closed on such date, then in that event as of the
close of business on the next day on which the New York Stock
Exchange is open for business).
It is understood by the parties to this Agreement (1)
that Chase has entered into substantially similar custody
agreements with other Templeton Funds, all of which Funds have
as their investment adviser either the Investment Manager of
the Fund or companies which are affiliated with the Investment
Manager; and (2) that Chase may enter into substantially
similar custody agreements with additional mutual funds under
Templeton management which may hereafter be organized. Each of
such custody agreements with each of such other Templeton
Funds contains (or will contain) a "Standard
- 22 -
of Care" section similar to this Section 14, except that the
limit of Chase's liability is (or will be) in varying amounts
for each Fund, with the aggregate limits of liability in all
of such agreements, including this Agreement, amounting to
$150,000,000.
On each June 1, Chase will total the net assets
reported by each one of the Templeton Funds, and will
calculate the percentage of the aggregate net assets of all
the Templeton Funds that is represented by the net asset value
of this Fund. Thereupon Chase shall allocate to this Agreement
with this Fund that proportion of its total of $150,000,000
responsibility undertaking which is substantially equal to the
proportion which this Fund's net assets bears to the total net
assets of all such Templeton Funds subject to adjustments for
claims paid as follows: all claims previously paid to this
Fund shall first be deducted from its proportionate allocable
share of the $150,000,000 Chase responsibility, and if the
claims paid to this Fund amount to more than its allocable
share of the Chase responsibility, then the excess of such
claims paid to this Fund shall diminish the balance of the
$150,000,000 Chase responsibility available for the
proportionate shares of all of the other Templeton Funds
having similar custody agreements
- 23 -
with Chase. Based on such calculation, and on such adjustment
for claims paid, if any, Chase thereupon shall notify the Fund
of such limit of liability under this Section 14 which will be
available to the Fund with respect to (1) losses in excess of
payment allocations for previous years and (2) losses
discovered during the next year this Agreement remains in
effect and until a new determination of such limit of
responsibility is made on the next succeeding June 1.
(f) OTHER LIABILITY. Independently of Chase's
liability to the Fund as provided in Section 14(a) above (it
being understood that the limitations in Sections 14(d) and
14(e) do not apply to the provisions of this Section 14(f)),
Chase shall be responsible for the performance of only such
duties as are set forth in this Agreement or contained in
express instructions given to Chase which are not contrary to
the provisions of this Agreement. Chase will use and require
the same care with respect to the safekeeping of all
Securities held in the Custody Account, Cash held in the
Deposit Account, and Securities or Cash held in the Segregated
Account as it uses in respect of its own similar property, but
it need not maintain any insurance for the benefit of the
Fund. With respect to Securities and Cash held outside of the
United States, Chase will
- 24 -
be liable to the Fund for any loss to the Fund resulting from
any disappearance or destruction of such Securities or Cash
while in the possession of Chase or any Chase Branch, Foreign
Bank or Foreign Securities Depository, to the same extent it
would be liable to the Fund if Chase had retained physical
possession of such Securities and Cash in New York. It is
specifically agreed that Chase's liability under this Section
14(f) is entirely independent of Chase's liability under
Section 14(a). Notwithstanding any other provision in this
Agreement to the contrary, in the event of any loss giving
rise to liability under this Section 14(f) that would also
give rise to liability under Section 14(a), the amount of such
liability shall not be charged against the amount of the
limitation on liability provided in Section 14(d).
(g) COUNSEL; LEGAL EXPENSES. Chase shall be entitled
to the advice of counsel (who may be counsel for the Fund) at
the expense of the Fund, in connection with carrying out
Chase's duties hereunder and in no event shall Chase be liable
for any action taken or omitted to be taken by it in good
faith pursuant to advice of such counsel. If, in the absence
of fault attributable to Chase and in the course of or in
connection with carrying out its duties and obligations
- 25 -
hereunder, any claims or legal proceedings are insti-
tuted against Chase or any Chase Branch by third
parties, the Fund will hold Chase harmless against any
claims, liabilities, costs, damages or expenses
incurred in connection therewith and, if the Fund so
elects, the Fund may assume the defense thereof with
counsel satisfactory to Chase, and thereafter shall not
be responsible for any further legal fees that may be
incurred by Chase, provided, however, that all of the
foregoing is conditioned upon the Fund's receipt from
Chase of prompt and due notice of any such claim or
proceeding.
15. EXPROPRIATION INSURANCE. Chase represents that it
does not intend to obtain any insurance for the benefit of the Fund which
protects against the imposition of exchange control restrictions on the transfer
from any foreign jurisdiction of the proceeds of sale of any Securities or
against confiscation, expropriation or nationalization of any securities or the
assets of the issuer of such securities by a government of any foreign country
in which the issuer of such securities is organized or in which securities are
held for safekeeping either by Chase, or any Chase Branch, Foreign Bank or
Foreign Securities Depository in such country. Chase has discussed the
availability of expropriation insurance with the Fund, and has advised the Fund
as to its understanding of the position of the staff of the
- 26 -
Securities and Exchange Commission that any investment company investing in
securities of foreign issuers has the responsibility for reviewing the
possibility of the imposition of exchange control restrictions which would
affect the liquidity of such investment company's assets and the possibility of
exposure to political risk, including the appropriateness of insuring against
such risk. The Fund has acknowledged that it has the responsibility to review
the possibility of such risks and what, if any, action should be taken.
16. PROXY, NOTICES, REPORTS, ETC. Chase shall watch for the
dates of expiration of (a) all purchase or sale rights (including warrants,
puts, calls and the like) attached to or inherent in any of the Securities held
in the Custody Account and (b) conversion rights and conversion price changes
for each convertible Security held in the Custody Account as published in
Telstat Services, Inc., Standard & Poor's Financial Inc. and/or any other
publications listed in the Operating Agreement (it being understood that Chase
may give notice to the Fund as provided in Section 21 as to any change, addition
and/or omission in the publications watched by Chase for these purposes). If
Chase or any Chase Branch, Foreign Bank or Foreign Securities Depository shall
receive any proxies, notices, reports, or other communications relative to any
of the Securities held in the Custody Account, Chase shall, on its behalf or on
behalf of a Chase Branch, Foreign Bank or Foreign Securities Depository,
- 27 -
promptly transmit in writing any such communication to the Fund. In addition,
Chase shall notify the Fund by person-to-person collect telephone concerning any
such notices relating to any matters specified in the first sentence of this
Section 16.
As specifically requested by the Fund, Chase shall execute or
deliver or shall cause the nominee in whose name Securities are registered to
execute and deliver to such person as may be designated by the Fund proxies,
consents, authorizations and any other instruments whereby the authority of the
Fund as owner of any Securities in the Custody Account registered in the name of
Chase or such nominee, as the case may be, may be exercised. Chase shall vote
Securities in accordance with Written Instructions timely received by Chase, or
such other person or persons as designated in or pursuant to the Operating
Agreement.
Chase and any Chase Branch shall have no liability for any
loss or liability occasioned by delay in the actual receipt by them or any
Foreign Bank or Foreign Securities Depository of notice of any payment or
redemption which does not appear in any of the publications referred to in the
first sentence of this Section 16.
17. COMPENSATION. The Fund agrees to pay to Chase
from time to time such compensation for its services pursuant to
this Agreement as may be mutually agreed upon in writing from
time to time and Chase's out-of-pocket or incidental expenses, as
- 28 -
from time to time shall be mutually agreed upon by Chase and the Fund. The Fund
shall have no responsibility for the payment of services provided by any
Domestic Securities Depository, such fees being paid directly by Chase. In the
event of any advance of Cash for any purpose made by Chase pursuant to any
Written Instruction, or in the event that Chase or any nominee of Chase shall
incur or be assessed any taxes in connection with the performance of this
Agreement, the Fund shall indemnify and reimburse Chase therefor, except such
assessment of taxes as results from the negligence, fraud, or willful misconduct
of Chase, any Domestic Securities Depository, Chase Branch, Foreign Bank or
Foreign Securities Depository, or as constitutes a tax on income, gross receipts
or the like of any one or more of them. Chase shall have a lien on Securities in
the Custody Account and on Cash in the Deposit Account for any amount owing to
Chase from time to time under this Agreement upon due notice to the Fund.
18. AGREEMENT SUBJECT TO APPROVAL OF THE FUND. It is
understood that this Agreement and any amendments shall be
subject to the approval of the Fund.
19. TERM. This Agreement shall remain in effect until
terminated by either party upon 60 days' written notice to the
other, sent by registered mail. Notwithstanding the preceding
sentence, however, if at any time after the execution of this
Agreement Chase shall provide written notice to the Fund, by
registered mail, of the amount needed to meet a substantial
- 29 -
increase in the cost of maintaining its present type and level of bonding and
insurance coverage in connection with Chase's undertakings in Section 14(a), (d)
and (e) of this Agreement, said Section 14(a), (d) and (e) of this Agreement
shall cease to apply 60 days after the providing of such notice by Chase, unless
prior to the expiration of such 60 days the Fund agrees in writing to assume the
amount needed for such purpose. Chase, upon the date this Agreement terminates
pursuant to notice which has been given in a timely fashion, shall, and/or shall
cause each Domestic Securities Depository to, deliver the Securities in the
Custody Account, pay the Cash in the Deposit Account, and deliver and pay
Securities and Cash in the Segregated Account to the Fund unless Chase has
received from the Fund 60 days prior to the date on which this Agreement is to
be terminated Written Instructions specifying the name(s) of the person(s) to
whom the Securities in the Custody Account shall be delivered, the Cash in the
Deposit Account shall be paid, and Securities and Cash in the Segregated Account
shall be delivered and paid. Concurrently with the delivery of such Securities,
Chase shall deliver to the Fund, or such other person as the Fund shall
instruct, the records referred to in Section 11 which are in the possession or
control of Chase, any Chase Branch, or any Domestic Securities Depository, or
any Foreign Bank or Foreign Securities Depository, or in the event that Chase is
unable to obtain such records in their original form Chase shall deliver true
copies of such records.
- 30 -
20. AUTHORIZATION OF CHASE TO EXECUTE NECESSARY DOCUMENTS. In
connection with the performance of its duties hereunder, the Fund hereby
authorizes and directs Chase and each Chase Branch acting on behalf of Chase,
and Chase hereby agrees, to execute and deliver in the name of the Fund, or
cause such other Chase Branch to execute and deliver in the name of the Fund,
such certificates, instruments, and other documents as shall be reasonably
necessary in connection with such performance, provided that the Fund shall have
furnished to Chase any information necessary in connection therewith.
21. NOTICES. Any notice or other communication
authorized or required by this Agreement to be given to the
parties shall be sufficiently given (except to the extent
otherwise specifically provided) if addressed and mailed postage
prepaid or delivered to it at its office at the address set forth
below:
If to the Fund, then to
Templeton American Trust, Inc.
700 Central Avenue, P.O. Box 33030
St. Petersburg, Florida 33733
Attention: Thomas M. Mistele, Secretary
If to Chase, then to
The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
33rd Floor
New York, New York 10036
Attention: Global Custody Division Executive
or such other person or such other address as any party shall have furnished to
the other party in writing.
- 31 -
22. NON-ASSIGNABILITY OF AGREEMENT. This Agreement shall not
be assignable by either party hereto; provided, however, that any corporation
into which the Fund, the Fund or Chase, as the case may be, may be merged or
converted or with which it may be consolidated, or any corporation succeeding to
all or substantially all of the trust business of Chase, shall succeed to the
respective rights and shall assume the respective duties of the Fund or of
Chase, as the case may be, hereunder.
23. GOVERNING LAW. This Agreement shall be governed
by the laws of the State of New York.
THE CHASE MANHATTAN BANK, N.A.
By:/s/RICHARD SAMUEL________________
Vice President
TEMPLETON AMERICAN TRUST, INC.
By:/s/DANIEL CALABRIA
Daniel Calabria
Vice President
- 32 -
TRANSFER AGENT AGREEMENT BETWEEN
TEMPLETON AMERICAN TRUST, INC. AND
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
AGREEMENT dated as of September 1, 1993, and amended and restated as of
August 10, 1995, between TEMPLETON AMERICAN TRUST, INC., a registered open-end
investment company with offices at 700 Central Avenue, St. Petersburg, Florida
33701 (the "Fund"), and FRANKLIN TEMPLETON INVESTOR SERVICES, INC., a registered
transfer agent with offices at 700 Central Avenue, St. Petersburg, Florida 33701
("FTIS").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Fund and FTIS agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
(a) "Articles of Incorporation" shall mean the Articles
of Incorporation of the Fund as the same may be amended from time to time;
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Fund, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Fund as indicated in a certificate furnished to FTIS pursuant to Section 4(c)
hereof as may be received by FTIS from time to time;
(c) "Custodian" refers to the custodian and any sub-custodian
of all securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of such
custodian pursuant to the Custody Agreement;
(d) "Oral Instructions" shall mean instructions, other than
written instructions, actually received by FTIS from a person reasonably
believed by FTIS to be an Authorized Person;
(e) "Shares" refers to shares of common stock, par value
$.01 per share, of the Fund; and
(f) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FTIS to be an Authorized Person and
actually received by FTIS.
2. APPOINTMENT OF FTIS. The Fund hereby appoints and constitutes FTIS
as transfer agent for Shares of the Fund and as shareholder servicing agent for
the Fund, and FTIS accepts such appointment and agrees to perform the duties
hereinafter set forth.
3. COMPENSATION.
(a) The Fund will compensate or cause FTIS to be compensated
for the performance of its obligations hereunder in accordance with the fees set
forth in the written schedule of fees annexed hereto as Schedule A and
incorporated herein. Schedule A does not include out-of-pocket disbursements of
FTIS for which FTIS shall be entitled to bill the Fund separately. FTIS will
bill the Fund as soon as practicable after the end of each calendar month, and
said billings will be detailed in accordance with Schedule A. The Fund will
promptly pay to FTIS the amount of such billing.
Out-of-pocket disbursements shall include, but shall not be
limited to, the items specified in the written schedule of out-of-pocket
expenses annexed hereto as Schedule B and incorporated herein. Schedule B may be
modified by FTIS upon not less than 30 days' prior written notice to the Fund.
Unspecified out-of-pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by FTIS in the performance of its obligations
hereunder. Reimbursement by the Fund for expenses incurred by FTIS in any month
shall be made as soon as practicable after the receipt of an itemized bill from
FTIS.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A of this Agreement a revised Fee
Schedule.
4. DOCUMENTS. In connection with the appointment of FTIS, the Fund
shall, on or before the date this Agreement goes into effect, but in any case,
within a reasonable period of time for FTIS to prepare to perform its duties
hereunder, deliver or cause to be delivered to FTIS the following documents:
(a) If applicable, specimens of the certificates for
Shares of the Fund;
(b) All account application forms and other documents
relating to Shareholder accounts or to any plan, program or service offered by
the Fund;
(c) A certificate identifying the Authorized Persons and
specimen signatures of Authorized Persons who will sign Written Instructions;
and
(d) All documents and papers necessary under the laws of
Florida, under the Fund's Articles of Incorporation, and as may be required for
the due performance of FTIS's duties under this Agreement or for the due
performance of additional duties as may from time to time be agreed upon between
the Fund and FTIS.
5. DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of
Trustees of the Trust shall declare a distribution payable in Shares, the Trust
shall deliver or cause to be delivered to FTIS written notice of such
declaration signed on behalf of the Trust by an officer thereof, upon which FTIS
shall be entitled to rely for all purposes, certifying (i) the number of Shares
involved, and (ii) that all appropriate action has been taken.
6. DUTIES OF THE TRANSFER AGENT. FTIS shall be responsible for
administering and/or performing transfer agent functions; for acting as service
agent in connection with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection with the
issuance, transfer and redemption or repurchase (including coordination with the
Custodian) of Shares. The operating standards and procedures to be followed
shall be determined from time to time by agreement between the Fund and FTIS.
Without limiting the generality of the foregoing, FTIS agrees to perform the
specific duties listed on Schedule C.
7. RECORDKEEPING AND OTHER INFORMATION. FTIS shall create and
maintain all necessary records in accordance with all applicable laws, rules
and regulations.
8. OTHER DUTIES. In addition, FTIS shall perform such other duties and
functions, and shall be paid such amounts therefor, as may from time to time be
agreed upon in writing between the Fund and FTIS. Such other duties and
functions shall be reflected in a written amendment to Schedule C, and the
compensation for such other duties and functions shall be reflected in a written
amendment to Schedule A.
9. RELIANCE BY TRANSFER AGENT; INSTRUCTIONS.
(a) FTIS will be protected in acting upon Written or Oral
Instructions reasonably believed to have been executed or orally communicated by
an Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from an
officer of the Fund. FTIS will also be protected in processing Share
certificates which it reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Fund and the proper countersignature of FTIS.
(b) At any time FTIS may apply to any Authorized Person of the
Fund for Written Instructions and may seek advice at the Fund's expense from
legal counsel for the Fund or from its own legal counsel, with respect to any
matter arising in connection with this Agreement, and it shall not be liable for
any action taken or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of counsel for the
Fund or for FTIS. Written Instructions requested by FTIS will be provided by the
Fund within a reasonable period of time. In addition, FTIS, or its officers,
agents or employees, shall accept Oral Instructions or Written Instructions
given to them by any person representing or acting on behalf of the Fund only if
said representative is known by FTIS, or its officers, agents or employees, to
be an Authorized Person.
10. ACTS OF GOD, ETC. FTIS will not be liable or responsible for delays
or errors by reason of circumstances beyond its control, including acts of civil
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply.
11. DUTY OF CARE AND INDEMNIFICATION. The Fund will indemnify FTIS
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit not resulting from willful
misfeasance, bad faith or gross negligence on the part of FTIS, and arising out
of, or in connection with, its duties hereunder. In addition, the Fund will
indemnify FTIS against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any claim, demand, action or suit as a result of: (i)
any action taken in accordance with Written or Oral Instructions, or any other
instructions or Share certificates reasonably believed by FTIS to be genuine and
to be signed, countersigned or executed, or orally communicated by an Authorized
Person; (ii) any action taken in accordance with written or oral advice
reasonably believed by FTIS to have been given by counsel for the Fund or by its
own counsel; (iii) any action taken as a result of any error or omission in any
record (including but not limited to magnetic tapes, computer printouts, hard
copies and microfilm copies) delivered, or caused to be delivered by the Fund to
FTIS in connection with this Agreement; or (iv) any action taken in accordance
with oral instructions given under the Telephone Exchange and Redemption
Privileges, as described in the Fund's current prospectus, when believed by FTIS
to be genuine.
In any case in which the Fund may be asked to indemnify or hold FTIS
harmless, the Fund shall be advised of all pertinent facts concerning the
situation in question and FTIS will use reasonable care to identify and notify
the Fund promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the Fund. The Fund shall have the
option to defend FTIS against any claim which may be the subject of this
indemnification, and, in the event that the Fund so elects, such defense shall
be conducted by counsel chosen by the Fund and satisfactory to FTIS, and
thereupon the Fund shall take over complete defense of the claim and FTIS shall
sustain no further legal or other expenses in such situation for which it seeks
indemnification under this Section 11. FTIS will not confess any claim or make
any compromise in any case in which the Fund will be asked to provide
indemnification, except with the Fund's prior written consent. The obligations
of the parties hereto under this Section shall survive the termination of this
Agreement.
12. TERM AND TERMINATION.
(a) This Agreement shall be effective as of the date first
written above and shall continue until April 30, 1994 and thereafter shall
continue automatically for successive annual periods ending on April 30 of each
year, provided such continuance is specifically approved at least annually by
(i) the Fund's Board of Directors or (ii) a vote of a "majority" (as defined in
the Investment Company Act of 1940 (the "1940 Act")) of the Fund's outstanding
voting securities, provided that in either event the continuance is also
approved by a majority of the Board of Directors who are not "interested
persons" (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of voting such approval.
(b) Either party hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Fund, it shall be accompanied by a
resolution of the Board of Directors of the Fund, certified by the Secretary of
the Fund, designating a successor transfer agent or transfer agents. Upon such
termination and at the expense of the Fund, FTIS will deliver to such successor
a certified list of Shareholders of the Fund (with names and addresses), an
historical record of the account of each Shareholder and the status thereof, and
all other relevant books, records, correspondence, and other data established or
maintained by FTIS under this Agreement in a form reasonably acceptable to the
Fund, and will cooperate in the transfer of such duties and responsibilities,
including provisions for assistance from FTIS's personnel in the establishment
of books, records and other data by such successor or successors.
13. AMENDMENT. This Agreement may not be amended or modified in
any manner except by a written agreement executed by both parties.
14. SUBCONTRACTING. The Fund agrees that FTIS may, in its
discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
agent shall not relieve FTIS of its responsibilities hereunder.
15. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Fund or FTIS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Templeton American Trust, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
To FTIS:
Franklin Templeton Investor Services, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
(b) This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with
the laws of the State of California.
(d) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers thereunder duly authorized as of
the day and year first above written.
TEMPLETON AMERICAN TRUST, INC.
BY:/s/JOHN R. KAY
John R. Kay
Vice President
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
BY:/s/THOMAS M. MISTELE
Thomas M. Mistele
Vice President
A-1
Schedule A
FEES
Shareholder account maintenance $14.08, adjusted as of
(per annum, prorated payable February 1 of each year
monthly) to reflect changes in the
Department of Labor
Consumer Price Index.
Cash withdrawal program No charge to the Fund.
Retirement plans No charge to the Fund.
Wire orders or express $15.00 fee may be charger
mailings of redemption for each wire order and each
proceeds express mailing.
February 1, 1996
C-3
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse FTIS monthly for the following out-of-pocket
expenses:
o postage and mailing
o forms
o outgoing wire charges
o telephone
o Federal Reserve charges for check clearance
o if applicable, magnetic tape and freight
o retention of records
o microfilm/microfiche
o stationery
o insurance
o if applicable, terminals, transmitting lines and any expenses
incurred in connection with such terminals and lines
o all other miscellaneous expenses reasonably incurred by FTIS
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FTIS. In addition, the Fund will
promptly reimburse FTIS for any other expenses incurred by FTIS as to which the
Fund and FTIS mutually agree that such expenses are not otherwise properly borne
by FTIS as part of its duties and obligations under the Agreement.
C-1
Schedule C
DUTIES
AS TRANSFER AGENT FOR INVESTORS IN THE FUND, FTIS WILL:
o Record in its transfer record, countersign as transfer agent,
and deliver certificates signed manually or by facsimile, by
the President or a Vice-President and by the Secretary or the
Assistant Secretary of the Company, in such names and for such
number of authorized but hitherto unissued Shares of the Fund
as to which FTIS shall receive instructions; and
o Transfer on its records from time to time, when presented to
it for that purpose, certificates of said Shares, whether now
outstanding or hereafter issued, when countersigned by a duly
authorized transfer agent, and upon the cancellation of the
old certificates, record and countersign new certificates for
a corresponding aggregate number of Shares and deliver said
new certificates.
AS SHAREHOLDER SERVICE AGENT FOR INVESTORS IN THE FUND, FTIS WILL:
o Receive from the Fund, from the Fund's Principal Underwriter
or from a Shareholder, on a form acceptable to FTIS,
information necessary to record sales and redemptions and to
generate sale and/or redemption confirmations;
o Mail sale and/or redemption confirmations using standard
forms;
o Accept and process cash payments from investors, and clear
checks which represent payments for the purchase of Shares;
o Requisition Shares in accordance with instructions of the
Principal Underwriter of the Shares of the Company;
o Produce periodic reports reflecting the accounts receivable
and the paid pending (free stock) items;
o Open, maintain and close Shareholder accounts;
o Establish registration of ownership of Shares in accordance
with generally accepted form;
o Maintain monthly records of (i) issued Shares and (ii) number
of Shareholders and their aggregate Shareholdings classified
according to their residence in each State of the United
States or foreign country;
o Accept and process telephone exchanges and redemptions for
Shares in accordance with a Fund's Telephone Exchange and
Redemption Privileges as described in the Fund's current
prospectus;
o Maintain and safeguard records for each Shareholder showing
name(s), address, number of any certificates issued, and
number of Shares registered in such name(s), together with
continuous proof of the outstanding Shares, and dealer
identification, and reflecting all current changes; on
request, provide information as to an investor's qualification
for Cumulative Quantity Discount; and provide all accounts
with confirmation statements reflecting the most recent
transactions, and also provide year-end historical
confirmation statements;
o Provide on request a duplicate set of records for file
maintenance in the Fund's office in St.Petersburg, Florida;
o Out of money received in payment for Share sales, pay to the
Fund's Custodian Account with the Custodian, the net asset
value per Share and pay to the Principal Underwriter its
commission;
o Redeem Shares and prepare and mail (or wire) liquidation
proceeds;
o Pass upon the adequacy of documents submitted by a Share-
holder or his legal representative to substantiate the
transfer of ownership of Shares from the registered owner
to transferees;
o From time to time, make transfers upon the books of the Fund
in accordance with properly executed transfer instructions
furnished to FTIS and make transfers of certificates for such
Shares as may be surrendered for transfer properly endorsed,
and countersign new certificates issued in lieu thereof;
o Upon receipt of proper documentation, place stop transfers,
obtain necessary insurance forms, and reissue replacement
certificates against lost, stolen or destroyed Share
certificates;
o Check surrendered certificates for stop transfer restrictions.
Although FTIS cannot insure the genuineness of certificates
surrendered for cancellation, it will employ all due
reasonable care in deciding the genuineness of such
certificates and the guarantor of the signature(s) thereon;
o Cancel surrendered certificates and record and countersign new
certificates;
o Certify outstanding Shares to auditors;
o In connection with any meeting of Shareholders, upon receiving
appropriate detailed instructions and written materials
prepared by the Fund and proxy proofs checked by the Fund,
print proxy cards; deliver to Shareholders all reports,
prospectuses, proxy cards and related proxy materials of
suitable design for enclosing; receive and tabulate executed
proxies; and furnish a list of Shareholders for the meeting;
o Answer routine correspondence and telephone inquiries about
individual accounts; prepare monthly reports for
correspondence volume and correspondence data necessary for
the Fund's Semi-Annual Report on Form N-SAR;
o Prepare and mail dealer commission statements and checks;
o Maintain and furnish the Fund and its Shareholders with such
information as the Fund may reasonably request for the purpose
of compliance by the Fund with the applicable tax and
securities laws of applicable jurisdictions;
o Mail confirmations of transactions to investors and dealers
in a timely fashion;
o Pay or reinvest income dividends and/or capital gains
distributions to Shareholders of record, in accordance with
the Fund's and/or Shareholder's instructions, provided that:
(a) The Fund shall notify FTIS in writing
promptly upon declaration of any such
dividend and/or distribution, and in any
event at least forty-eight (48) hours before
the record date;
(b) Such notification shall include the
declaration date, the record date, the
payable date, the rate, and, if applicable,
the reinvestment date and the reinvestment
price to be used; and
(c) Prior to the payable date, the Fund shall
furnish FTIS with sufficient fully and
finally collected funds to make such
distribution.
o Prepare and file annual United States information returns of
dividends and capital gains distributions (Form 1099) and mail
payee copies to Shareholders; report and pay United States
income taxes withheld from distributions made to nonresidents
of the United States; and prepare and mail to Shareholders the
notice required by the U.S. Internal Revenue Code as to
realized capital gains distributed and/or retained, and their
proportionate share of any foreign taxes paid by the Fund;
o Prepare transfer journals;
o Set up wire order trades on file;
o Receive payment for trades and update the trade file;
o Produce delinquency and other trade file reports;
o Provide dealer commission statements and payments thereof for
the Principal Underwriter;
o Sort and print Shareholder information by state, social code,
price break, etc.; and
o Mail promptly the Statement of Additional Information of a
Fund to each Shareholder who requests it, at no cost to the
Shareholder.
BUSINESS MANAGEMENT AGREEMENT BETWEEN
TEMPLETON AMERICAN TRUST, INC. AND
TEMPLETON GLOBAL INVESTORS, INC.
AGREEMENT dated as of April 1, 1993, between Templeton
American Trust, Inc., a Maryland corporation which is a registered open-end
investment company (the "Fund"), and Templeton Global Investors, Inc.
("TGII").
In consideration of the mutual promises herein made, the
parties hereby agree as follows:
(1) TGII agrees, during the life of this Agreement, to be
responsible for:
(a) providing office space, telephone, office equipment
and supplies for the Fund;
(b) paying compensation of the Fund's officers for
services rendered as such;
(c) authorizing expenditures and approving bills for
payment on behalf of the Fund;
(d) supervising preparation of annual and semiannual
reports to Shareholders, notices of dividends,
capital gains distributions and tax credits, and
attending to routine correspondence and other
communications with individual Shareholders;
(e) daily pricing of the Fund's investment portfolios and
preparing and supervising publication of daily
quotations of the bid and asked prices of the Fund's
Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations serving
the Fund, including custodians, transfer agents and
printers;
(g) providing trading desk facilities for the Fund;
(h) supervising compliance by the Fund with recordkeeping
requirements under the Investment Company Act of 1940
(the "1940 Act") and the rules and regulations
thereunder, with state regulatory requirements,
maintenance of books and records for the Fund (other
than those maintained by the custodian and transfer
agent), preparing and filing of tax reports other
than the Fund's income tax returns;
(i) monitoring the qualifications of tax deferred
retirement plans providing for investment in Shares
of the Fund; and
(j) providing executive, clerical and secretarial
personnel needed to carry out the above
responsibilities.
(2) The Fund agrees, during the life of this Agreement, to pay
to TGII as compensation for the foregoing a monthly fee equal on an annual basis
to 0.15% of the first $200 million of the aggregate average daily net assets of
the Fund during the month preceding each payment, reduced as follows: on such
net assets in excess of $200 million up to $700 million, a monthly fee equal on
an annual basis to 0.135%; on such net assets in excess of $700 million up to
$1.2 billion, a monthly fee equal on an annual basis to 0.1%; and on such net
assets in excess of $1.2 billion, a monthly fee equal on an annual basis to
0.075%.
(3) This Agreement shall remain in full force and effect
through April 30, 1994 and thereafter from year to year to the extent
continuance is approved annually by the Board of Directors of the Fund.
(4) This Agreement may be terminated by the Fund at any time
on sixty (60) days' written notice without payment of penalty, provided that
such termination by the Fund shall be directed or approved by the vote of a
majority of the Directors of the Fund in office at the time or by the vote of a
majority of the outstanding voting securities of the Fund (as defined by the
1940 Act); and shall automatically and immediately terminate in the event of its
assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of TGII, or of reckless disregard of its duties and
obligations hereunder, TGII shall not be subject to liability for any act or
omission in the course of, or connected with, rendering services hereunder.
(6) TGII has advanced for the account of the Fund all
organizational expenses of the Fund, all of which expenses are being deferred by
the Fund and amortized ratably over a five-year period commencing on February
26, 1991; and during the amortization period, the proceeds of any redemption of
the original Shares will be reduced by a pro rata portion of any then
unamortized organizational expenses based on the ratio of the Shares redeemed to
the total initial Shares outstanding immediately prior to the redemption.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and their
respective corporate seals to be hereunto duly affixed and attested.
TEMPLETON AMERICAN TRUST, INC.
By:/s/HAROLD F. MCELRAFT
Harold F. McElraft
Vice President
ATTEST:
/s/THOMAS M. MISTELE
Thomas M. Mistele
Secretary
TEMPLETON GLOBAL INVESTORS, INC.
By:/s/THOMAS L. HANSBERGER
Thomas L. Hansberger
President
ATTEST:
/s/GREGORY E. MCGOWAN
Gregory E. McGowan
Secretary
SHAREHOLDER SUB-ACCOUNTING SERVICES AGREEMENT
Agreement made as of the 1st day of May, 1991 by and between (i) each
of the investment companies listed (collectively the "Templeton Funds"), as such
Schedule may be amended from time to time; (ii) Templeton Funds Trust Company
("Templeton Funds Trust Company"); (iii) Financial Data Service, Inc. ("FDS"), a
New Jersey corporation; and (iv) Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), a Delaware corporation.
WITNESSETH:
WHEREAS, the Templeton Funds are investment companies registered under
the Investment Company Act of 1940, as amended (the"Act"); and
WHEREAS, Templeton Funds Trust Company, is the transfer agent, dividend
disbursing agent and shareholder servicing agent for the Templeton Funds; and
WHEREAS, Templeton Funds and Templeton Funds Trust Company have entered
into a separate agreement pursuant to which Templeton Funds Trust Company agreed
to arrange for the performance of certain administrative services for
shareholders of the Templeton Funds who maintain shares of any of such Funds in
a brokerage account with MLPF&S, a broker-dealer affiliated with FDS; and
WHEREAS, Templeton Funds Trust Company desires to retain MLPF&S to
perform such services and MLPF&S is willing and able to furnish such services on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agree, as follows:
1. MLPF&S agrees to perform the administrative services and functions
specified in Exhibit A hereto (the "Services") for the benefit of the
shareholders of the Templeton Funds who maintain shares of any of such Funds in
brokerage accounts with MLPF&S and whose shares are included in the master
account referred to in paragraph 1 of Exhibit A (collectively, the "MLPF&S
customers").
2. MLPF&S agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing the
services, and will other wise comply with all law, rules and regulations
applicable to the services. Upon the request of Templeton Funds Trust Company,
MLPF&S shall provide copies of all the historical records relating to
transactions involving any Templeton Fund and MLPF&S customers, written
communication regarding that Fund to or from such customers and other materials,
in each case as amy reasonably be requested to enable any of the Funds or its
representatives, including without limitation its auditors, investment adviser,
Templeton Funds Trust Company or successor transfer agent or distributor, to
monitor and
review the Services, or to comply with any request of the board of directors,
trustees or general partners (collectively, the "Directors") of Templeton Funds
or of a governmental body, self-regulatory organization or a shareholder. MLPF&S
agrees that it will permit Templeton Funds Trust Company, and any Templeton Fund
or their representatives to have reasonable access to its personnel and records
in order to facilitate the monitoring of the quality of the services. It is
understood that notwithstanding anything herein to the contrary, neither FDS nor
MLPF&S shall be required to provide the names and addresses of MLPF&S customers
to Templeton Funds Trust Company, any Templeton Fund of their representatives,
unless applicable laws otherwise require.
3. MLPF&S may contract with or establish relationships with
FDS or other parties for the provision of services or activities of
MLPF&S required by the Agreement.
4. Each of MLPF&S and FDS hereby agrees to notify promptly Templeton
Funds Trust Company if for any reason either of them is unable to perform fully
and promptly any of its obligations under this Agreement.
5. Each of MLPF&S and FDS hereby represent that neither of them now
owns or holds with power to vote any shares of the Templeton Funds which are
registered in the name of MLPF&S or the name of its nominee and which are
maintained in MLPF&S brokerage accounts.
6. The provisions of the Agreement shall in no way limit the authority
of Templeton Funds Trust Company or any Templeton Fund to take such action as it
may deem appropriate or advisable in connection with all matters relating to the
operations of such Fund and/or sale of its shares.
7. In consideration of the performance of the services by MLPF&S and
FDS, hereunder, each Templeton Fund severally agrees to compensate FDS at the
rate of $6.00 annually per shareholder account which rate may change pursuant to
a written amendment to this Agreement executed by and amount the parties hereto.
Payment shall be made monthly based upon the number of shareholders of a Fund
who hold shares of such Fund in a MLPF&S brokerage account for any part of the
subject month. MLPF&S agrees that, notwithstanding anything herein to the
contrary, it will not request any increase in its compensation hereunder prior
to May 3, 1993. In the event MLPF&S or FDS as it's agent where to mail any such
Fund's proxy materials, reports, prospectuses and other information to
shareholders of any Templeton Fund who are Merrill Lynch customers pursuant to
paragraph 4 of Exhibit A, Templeton Funds Trust Company or any such Templeton
Funds agrees to reimburse MLPF&S or FDS, as the case by be, for postage,
handling fees and reasonable costs of supplies used by it in such mailings in an
amount to be determined in accordance with the rates set forth in Rule 451.90 of
the New York Stock Exchange, Inc.
The accuracy of the account charges and the expenses for postage, handling fees
and reasonable costs of suppliers billed pursuant to this paragraph shall be
certified once each year by independent public accountants of MLPF&S as of a
month selected by Templeton Funds Trust Company, such certification to be at the
expense of MLPF&S.
8. FDS shall indemnify and hold harmless each Templeton Fund and
Templeton Funds Trust Company, from and against any all losses or liabilities
that any one or more of them may incur, including without limitation reasonable
attorneys' fees, expenses and cost, arising out of or related to the performance
or non-performance of MLPF&S or FDS or its responsibilities under this
Agreement, EXCLUDING, HOWEVER, any such claims, suits, loss, damage or cost
caused by, contributed to or arising from any noncompliance by Templeton Funds
Trust Company or any of the Templeton Funds with its obligations under this
Agreement, as to which Templeton Funds Trust Company and the Templeton Funds
shall indemnify, hold harmless and defend FDS and MLPF&S on the same basis as
set forth above.
9. This Agreement may be terminated at any time by each of MLPF&S, FDS
and Templeton Funds Trust Company or by any Templeton Fund as to itself upon 30
days written notice to FDS. This Agreement may also be terminated at any time
without penalty upon 30 days written notice to FDS that a majority of the
Directors of any Templeton Fund have determined to terminate its agreement(s)
with Templeton Funds Trust Company pertaining to the service hereunder.The
provisions of paragraph 2 and 8 shall continue in full force and effect after
termination of this Agreement. Notwithstanding the foregoing, this Agreement
shall require MLPF&S to preserve any records relating to this Agreement beyond
the time periods otherwise required by the laws to which MLPF&S is subject.
10. Any other Templeton Fund for which Templeton Funds Trust Company
serves as transfer agent may become a party to this Agreement by giving written
notice to MLPF&S or FDS that it has elected to become party hereto and by having
this Agreement executed on its behalf.
11. Each of MLPF&S and FDS understand and agree that the obligations of
the Templeton Funds under this Agreement are not binding upon any shareholder of
any of the Funds personally, but bind only each Fund and each Fund's property;
each of MLPF&S and FDS represents that it has notice of the provisions of the
Declaration of trust of each of the Templeton Funds disclaiming shareholder
liability for acts or obligations of the Funds.
12. It is understood and agreed that in performing the services under
this Agreement, neither MLPF&S nor FDS shall be acting as an agent for any of
the Templeton Funds.
IN WITNESS HEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH, PIERCE, FENNER FINANCIAL DATA SERVICES, INC.
& SMITH INC.
By: /s/HARRY P. ALLEX By: /s/ROBERT C. DOAN
Print Name: Harry P. Allex Print Name: Robert C. Doan
Title: Sr. Vice President Title: President
Templeton Funds Trust Company Templeton Income
Templeton Growth Fund, Inc.
Templeton Smaller Companies
Growth Fund, Inc.
Templeton Foreign Fund
Templeton World Fund
Templeton Real Estate Securities
Fund
Templeton Global Opportunities
Trust
Templeton American Trust, Inc.
By:/s/DAN CALABRIA By: /s/DAN CALABRIA
Print Name: Dan Calabria Print Name: Dan Calabria
Title: President Title: Vice President
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, MLPF&S shall
perform the following services:
1. Maintain separate records for each shareholder of any of the
Templeton Funds who hold shares of a Fund in a brokerage account with MLPF&S
("MLPF&S customers"), which records shall reflect shares purchased and redeemed
and share balances. MLPF&S shall maintain a single master account with the
transfer agent of the Fund on behalf of MLPF&S customers and such account shall
be in the name of MLPF&S or its nominee as the record owner of the shares owned
by such customers.
2. Disburse or credit to MLPF&S customers all proceeds of
redemptions of share of the Funds and all dividends and other
distributions not reinvested in shares of the Funds.
3. Prepare and transmit to MLPF&S customers periodic account statements
showing the total number of shares owned by the customer as of the statement
closing date, purchases and redemptions of Templeton Funds shares by the
customer during the period covered by the statement and the dividends and other
distributions paid to the customer during the statement period (whether paid in
cash or reinvested in Fund shares).
4. Transit to MLPF&S customers proxy materials and reports and other
information received by MLPF&S from any of the Templeton Funds and required to
be sent to shareholders under the federal securities laws, and, upon request of
the Fund's transfer agent transmit to MLPF&S customers material fund
communications deemed by the fund, through its Board of Directors or other
similar governing body, to be necessary and proper for receipt by all Fund
beneficial shareholders.
5. Transmit to the Fund's transfer agent purchase and redemption orders
on behalf of Merrill Lynch customers in accordance with the commission schedule
(front and rear rend) in the Fund's then current prospectus.
6. Provide to Templeton Funds Trust Company, or the Fund, or any of the
agents designated by any of the, such periodic reports as Templeton Funds Trust
Company shall reasonably conclude is necessary to enable any of the Templeton
Funds and its distributor to comply with State Blue Sky requirements.
7. Prepare and transmit to MLPF&S customers annually all tax
information reports or statements required to be furnished to shareholders of
the Templeton Funds with respect to their Fund shares by the Internal Revenue
Code and the Regulations promulgated thereunder.
SUB-TRANSFER AGENT SERVICES AGREEMENT
AGREEMENT made as of March 1, 1992 by and between (i) each of the investment
companies listed herein (collectively the "FUNDS"); (ii) Templeton Funds Trust
Company ("TFTC"); and (iii) THE SHAREHOLDER SERVICES GROUP, INC. ("TSSG").
WITNESSETH
WHEREAS, the FUNDS are investment companies registered under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the FUNDS have engaged TFTC to act as their transfer agent,
dividend disbursing agent and shareholder servicing agent; and
WHEREAS, the FUNDS and TFTC have entered into a separate agreements
pursuant to which TFTC agreed to arrange for the performance of certain
administrative services for shareholders of the FUNDS who maintain shares of
such Funds; and
WHEREAS, TSSG, a transfer agent registered under the Securities
Exchange Act of 1934, has presented to the FUNDS the various shareholder
administrative services that may be performed by TSSG; and
WHEREAS, the FUNDS desire to retain TSSG in a sub-transfer agent
capacity to perform such services and TSSG is willing and able to furnish such
services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees, as follows:
1. TSSG agrees to perform the shareholder administrative services and
functions specified in Exhibit A hereto (the "Services") for the benefit of the
shareholders of the FUNDS who maintain shares of any such FUND in brokerage
accounts with Shearson Lehman Brothers (the "Broker"), where the shareholders'
shares are included in the master account referred to in Exhibit A
(collectively, the "Broker Customers").
2. TSSG agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing the
services, and will otherwise comply with the law, rules and regulations
applicable to the services. Upon the written authorization of the Broker and the
FUND, TSSG shall provide copies of all the historical records relating to
transactions involving the FUNDS and Broker Customers, data formats for written
communication regarding that FUND to or from such customers and other materials,
in each case as may reasonably be requested to enable the FUND or its
representatives, including without limitation its auditors, investment advisor,
transfer agent
or successor transfer agent or distributor, to monitor and review the Services,
or to copmly with any request of the board of directors, trustees or general
partners (collectively, the "Directors") of the FUNDS or of a governmental body,
self-regulatory organization or a shareholder. TSSG agrees that it will permit
the FUNDS to have reasonable access to its personnel and records in order to
facilitate the monitoring of the quality of the services. It is understood that
notwithstanding anything herein to the contrary, TSSG shall not be required to
provide the names, addresses and account numbers of Broker Customers to the
TFTC, the FUNDS or their representatives, unless applicable laws or regulations
otherwise require.
3. TSSG may contract with or establish relationships with third
parties, including, without limitation, the Broker, for the provision of
services or activities of TSSG required by the Agreement.
4. TSSG hereby agrees to notify promptly TFTC and the FUNDS if for any
reason TSSG is unable to perform fully and promptly any of its obligations under
this Agreement.
5. The provisions of this Agreement shall in no way limit the authority
of any of the FUNDS to take such actions as it may deem appropriate or advisable
in connection with all matters relating to the operations of such FUND and/or
sale of its shares.
6. In consideration of the performance of the services by TSSG,
hereunder, the FUNDS severally agree to compensate TSSG at the rate specified in
Schedule A, which rate may change pursuant to a written amendment to this
Agreement executed by and among the parties hereto. Payment shall be made
monthly based upon the number of shareholders of a FUND who hold shares of such
FUND in a broker's account for any part of the subject month. This number shall
be certified each year by independent public accountants of TSSG. The FUNDS also
agree to reimburse TSSG or its designated agent for postage and handling
expenses associated with teh distribution of proxies, prospectuses, reports and
other communications to shareholders prepared by the FUNDS or necessitated by
the actions of the FUNDS.
7. TSSG shall indemnify and hold harmless TFTC and the FUNDS from and
against any and all losses or liabilities that any one or more of them may
incur, including without limitation reasonable attorneys' fees, expenses and
cost, arising out of or related to the perofrmance or non-performance of TSSG of
its responsibilities under this Agreement, excluding, however, any such claims,
suits, loss, damage or cost caused by, materially contributed to or arising from
any noncompliance by TFTC or a FUND with its obligations under this Agreement,
as to which TFTC and each of the FUNDS shall indemnify, hold harmless and defend
TSSG on the same basis as set forth above.
8. This Agreement may be terminated at any time by each of
TSSG, TFTC or by any FUNDS as to itself upon 30 days written notice to TSSG. The
provisions of paragraphs 2 and 7 shall continue in full force and effect after
termination of this Agreement. Notwithstanding the foregoing, this Agreement
shall not require TSSG to preserve any records relating to this Agreement beyond
the time periods otherwise required by the laws to which TSSG is subject.
9. Any other investment company affiliated with the FUNDS may become a
party to this Agreement by giving written notice to TSSG that it has elected to
become a party hereto and by having this Agreement executed on its behalf.
10. TSSG understands and agrees that the obligations of each FUND under
this Agreement are not binding upon any shareholder of the FUND personally, but
bind only each FUND and each FUND'S property; TSSG represents that it has notice
of the provisions of the Declaration of Trust, if applicable, of each FUND
disclaiming shareholder liability for acts or obligations of the FUNDS.
11. The parties agree that they are independent contractors
and not partners or co-venturers.
12. No amendment of any provision of this Agreement shall in any event
be effective unless the same shall be in writing and signed by both parties. Any
failure of any party to comply with any obligation, agreement or condition
hereunder may only be waived in writing by the other party, but such waiver
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. No failure by any party to take any action against any breach of
this Agreement of default by any other party shall constitute a waiver of such
party's right to enforce any provision hereof or to take such action.
13. All notices, demands and other communications hereunder shall be in
writing and shall be sent by personal delivery or registered or certified mail,
postage prepaid, or by telecopier confirmed in writing within three business
days as follows:
(a) if to the FUNDS:
Templeton Funds Management, Inc.
700 Central Avenue
St. Petersburg, FL 33701
Attention: President
(b) if to TFTC:
Templeton Funds Trust Company
700 Central Avenue
St. Petersburg, FL 33701
Attention: President
(c) if to TSSG:
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Attention: President
With a copy to:
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Attention: General Counsel
Any party may change its address for receiving notices by written notice given
to the others named above. All notices shall be effective upon the earlier of
actual delivery or when deposited in the mail addressed as set forth above.
14. This agreement shall be governed by and construed in accordance
with the law of the State of New York, without regard to its conflicts of laws
doctrine, and the parties hereby consent to the jurisdiction of New York courts
over all matter relating to this Agreement and irrevocably waive any objection,
including without limitation, any objection of the laying of venue or based on
the grounds of forum non conveniens, which they may now have or may hereafter
have to bringing of any action or proceeding in such jurisdiction.
IN WITNESS HEREOF, the parties hereto have executed and delivered this
agreement as of the date first above written.
THE SHAREHOLDER SERVICES GROUP, INC.
By:________________________________
Title:_____________________________
Templeton Funds Trust Company Templeton Income
Templeton Growth Fund, Inc.
Templeton Smaller Companies Growth
Fund, Inc.
Templeton Foreign Fund
Templeton World Fund
Templeton Real Estate Securities Fund
Templeton Global Opportunities Trust
Templeton Insured Tax Free Fund
Templeton Value Fund, Inc.
Templeton American Trust, Inc.
Templeton Developing Markets Trust
By:/s/HAROLD F. MCELRAFT By:________________________
Print Name: Harold F. McElraft Print Name:________________
Title:____________________ Title:_____________________
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, TSSG shall,
upon the effective date of this Agreement, perform or cause to be performed, the
following services, as well as telephonic and personal shareholder services
related to the following services:
1. Transmit to TFTC purchase and redemption order placements and
registration instructions. Collect and remit to TFTC payments for all purchase
orders placed on behalf of Broker Customers.
2. Maintain separate records for each shareholder of any of the FUNDS
who hold shares of a FUND in a brokerage account with Broker Customers, which
records shall reflect shares purchased and redeemed, as well as account and
share balances. Process transactions versus master accounts maintained by TFTC
on behalf of Broker Customers and such account shall be in the name of the
Broker or its nominee as the record owner of the shares owned by such customers.
3. Disburse or credit to the Broker Customers all proceeds of
redemptions of shares of the FUNDS and all dividends and other distributions not
reinvested in shares of the FUNDS.
4. Prepare and transmit to Broker Customers:
(a) Periodic account statements which show the total number of FUND
shares owned by the Broker Customer in that account as of the closing date, as
well as purchases, redemption dividends (cash and reinvested) and other
distributions in the account during the period covered by the statement;
(b) Proxy materials and reports and other information received by TSSG
or its agent from any of the FUNDS and required to be sent to shareholders under
the federal securities laws, and, upon request of TFTC transmit to Broker
Customers material fund communications deemed by the FUND, through its Directors
or other similar governing body, to be necessary and proper for receipt by all
FUND beneficial shareholders.
(c) Provide to TFTC, or the FUNDS, or any of the agents designated by
any of them, such information as shall reasonably conclude is necessary to
enable any of the FUNDS and its distributor to comply with State Blue Sky
requirements.
(d) All tax information reports or statements required to be furnished
to shareholders of the FUNDS with respect to their FUND shares by the Internal
Revenue Code and the Regulations promulgated thereunder.
The following fees shall be billed by TSSG monthly in arrears
on a prorated basis of 1/12 of the annualized fee for all accounts that are open
during such month.
Upon execution of this Agreement, the FUND shall pay TSSG an annualized
fee of $6.00 for each Broker Customer account in the FUND that is open during
any monthly period effective March 1, 1992.
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated February 3,
1995, on the financial statements of Templeton American Trust,
Inc. referred to therein, which appears in the 1994 Annual Report
to Shareholders and which is incorporated herein by reference, in
Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A, File No. 33-37511 as filed with the Securities and
Exchange Commission.
We also consent to the reference to our firm in the
Statement of Additional Information under the caption
"Independent Accountants" and in the Prospectus under the caption
"Financial Highlights."
McGladrey & Pullen, LLP
New York, New York
April 26, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
Templeton American Trust, Inc. December 31, 1995 annual report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000869404
<NAME> TEMPLETON AMERICAN TRUST, INC.
<SERIES>
<NUMBER> 001
<NAME> CLASS 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 36362711
<INVESTMENTS-AT-VALUE> 45082192
<RECEIVABLES> 188811
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5675
<TOTAL-ASSETS> 45276678
<PAYABLE-FOR-SECURITIES> 9896
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203050
<TOTAL-LIABILITIES> 212946
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36346024
<SHARES-COMMON-STOCK> 61870
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1773)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8719481
<NET-ASSETS> 45063732
<DIVIDEND-INCOME> 747182
<INTEREST-INCOME> 707452
<OTHER-INCOME> 0
<EXPENSES-NET> 1041057
<NET-INVESTMENT-INCOME> 413577
<REALIZED-GAINS-CURRENT> 804689
<APPREC-INCREASE-CURRENT> 5748102
<NET-CHANGE-FROM-OPS> 6966368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11296)
<DISTRIBUTIONS-OF-GAINS> (15561)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 103187
<NUMBER-OF-SHARES-REDEEMED> (43053)
<SHARES-REINVESTED> 1736
<NET-CHANGE-IN-ASSETS> 7104366
<ACCUMULATED-NII-PRIOR> 5267
<ACCUMULATED-GAINS-PRIOR> 69360
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 304286
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1041057
<AVERAGE-NET-ASSETS> 682049
<PER-SHARE-NAV-BEGIN> 13.37
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 1.21
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> (.26)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.23
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
Templeton American Trust, Inc. December 31, 1995 annual report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000869404
<NAME> TEMPLETON AMERICAN TRUST, INC.
<SERIES>
<NUMBER> 002
<NAME> CLASS 2
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 36362711
<INVESTMENTS-AT-VALUE> 45082192
<RECEIVABLES> 188811
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5675
<TOTAL-ASSETS> 45276678
<PAYABLE-FOR-SECURITIES> 9896
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203050
<TOTAL-LIABILITIES> 212946
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36346024
<SHARES-COMMON-STOCK> 3101475
<SHARES-COMMON-PRIOR> 3038787
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1773)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8719481
<NET-ASSETS> 45063732
<DIVIDEND-INCOME> 747182
<INTEREST-INCOME> 707452
<OTHER-INCOME> 0
<EXPENSES-NET> 1041057
<NET-INVESTMENT-INCOME> 413577
<REALIZED-GAINS-CURRENT> 804689
<APPREC-INCREASE-CURRENT> 5748102
<NET-CHANGE-FROM-OPS> 6966368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (402975)
<DISTRIBUTIONS-OF-GAINS> (864834)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 484989
<NUMBER-OF-SHARES-REDEEMED> (501685)
<SHARES-REINVESTED> 79384
<NET-CHANGE-IN-ASSETS> 7104366
<ACCUMULATED-NII-PRIOR> 5267
<ACCUMULATED-GAINS-PRIOR> 69360
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 304286
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1041057
<AVERAGE-NET-ASSETS> 43012264
<PER-SHARE-NAV-BEGIN> 12.49
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 2.04
<PER-SHARE-DIVIDEND> (.14)
<PER-SHARE-DISTRIBUTIONS> (.28)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.25
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
