FRANKLIN
PACIFIC
GROWTH FUND
FRANKLIN INTERNATIONAL TRUST
PROSPECTUS MARCH 1, 1995
AS AMENDED JULY 27, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin International Trust (the "Trust") is an open-end management investment
company consisting of two separate diversified series. Each series of the Trust
in effect represents a separate fund with its own investment objective and
policies, with varying possibilities for income or capital appreciation, and
subject to varying market risks. Through the different series, the Trust
attempts to satisfy different investment objectives.
This Prospectus pertains only to the Franklin Pacific Growth Fund (the "Fund"),
a diversified series, which seeks long-term growth of capital. Under normal
market conditions, the Fund invests at least 65% of its total assets in equity
securities which trade on markets in the Pacific Rim and are (i) issued by
companies domiciled in the Pacific Rim or (ii) issued by companies that derive
at least 50% of either their revenues or pre-tax income from activities in the
Pacific Rim. There can, of course, be no assurance that the Fund's objective
will be achieved.
Under normal market conditions, the Fund's assets are substantially invested in
equity securities consisting of common and preferred stock, securities (bonds or
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as American Depositary
Receipts, or ADRs ("Equity Securities").
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
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
PRINCIPAL.
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.
A Statement of Additional Information (the "SAI") concerning the Trust, dated
March 1, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.
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 UNDERWRITER.
CONTENTS PAGE
Expense Table
Financial Highlights
About the Fund
Investment Objective and
Policies of the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
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. These figures are based on aggregate
operating expenses of the Fund (including fees set by contract) for the Fund's
fiscal year ended October 31, 1994.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases 4.50%
(as a percentage of offering price)
Deferred Sales Charge NONE*
Exchange Fee (per transaction) $5.00**
*Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is imposed on certain
redemptions within 12 months of the calendar month following such investments.
See "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."
**$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 1.00%**
12b-1 Fees 0.23%***
Other Expenses:
Custodian Fees 0.15%
Registration Fees 0.14%
Other 0.20%
-----
Total Other Expenses 0.49%
-----
Total Fund Operating Expenses 1.72%**
=======
**Represents the amount that would have been payable to the investment manager,
absent a fee reduction by the investment manager. The investment manager,
however, has voluntarily agreed to waive or limit its management fees payable by
the Fund. With this reduction, management fees were 0.50% of the Fund's average
net assets, and total operating expenses, including such management fees, were
1.22% of the Fund's average net assets for the fiscal year ended October 31,
1994. This arrangement may be terminated by the investment manager at any time.
***Consistent with rules of the National Association of Securities Dealers, Inc.
(the "NASD"), 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. 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 initial 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. As noted in the table above, the Fund
charges no redemption fees:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$62 $97 $134 $239
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES OF THE FUND,
BEFORE EXPENSE REDUCTIONS OR FEE WAIVERS, 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. See
"Management of the Fund" for a description of the Fund's expenses. In addition,
federal regulations require the example to assume an annual return of 5%, but
the Fund's actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The information for each of the three fiscal years in the period
ended October 31, 1994 and for the period from September 20, 1991
(effective date of registration) to October 31, 1991 has been
audited by Coopers & Lybrand L.L.P., independent auditors,
whose audit report appears in the financial statements in the
Trust's SAI. See the discussion "Reports to Shareholders" under
"General Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE**
- --------------------------------------------------------------------------------------------
NET NET
ASSETS REALIZED & TOTAL DISTRI- DISTRI-
VALUES NET UNREALIZED FROM BUTIONS BUTIONS
YEAR AT BEGIN- INVEST- GAIN INVEST- FROM NET FROM
ENDED NING MENT (LOSS)ON MENT INVESTMENT CAPITAL TOTAL
OCT. 31 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN PACIFIC GROWTH FUND
1991+ $10.01 $.06 $ -- $ .060 $ -- $ -- $ --
1992 10.07 .14 .836 .976 (.146) -- (.146)
1993 10.90 .19 3.825 4.015 (.193) (.282) (.475)
1994 14.44 .21 1.008 1.218 (.198) (.060) (.258)
</TABLE>
<TABLE>
<CAPTION>
PER SHARE
OPERATING
PERFORMANCE** RATIOS/SUPPLEMENTAL DATA
- -------------------- -----------------------------------------------
RATIO
NET RATIO OF OF NET
ASSET NET ASSETS EXPENSES INVESTMENT
YEAR VALUES AT END TO AVERAGE INCOME PORTFOLIO
ENDED AT END TOTAL OF PERIOD NET TO AVERAGE TURNOVER
OCT. 31 OF YEAR RETURN++ (IN 000'S) ASSETS*** NET ASSETS RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FRANKLIN PACIFIC GROWTH FUND
1991+ $10.07 .60% $ 1,165 --% 5.01% --%
1992 10.90 9.77 5,724 .29 1.80 62.96
1993 14.44 38.46 22,619 .50 2.03 47.52
1994 15.40 8.46 58, 241 1.22 1.54 9.16
</TABLE>
*Annualized.
**Selected data for a share of beneficial interest outstanding throughout the
year.
+For the period September 20, 1991 (effective date of registration) to October
31, 1991.
Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.5% initial sales charge and assumes
reinvestment of dividends and capital gains at net asset value.
***During the periods indicated below, Franklin Advisers, Inc., the investment
manager, reduced its management fees and reimbursed other expenses incurred by
the Funds. Had such action not been taken, ratios of operating expenses to
average net assets would have been as follows:
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
<S> <C>
FRANKLIN PACIFIC GROWTH
1991+............................... 2.50%*
1992................................ 2.50
1993................................ 2.31
1994 1.72
*Annualized.
+For the period September 20, 1991 (effective date of registration) to October
31, 1991.
</TABLE>
ABOUT THE FUND
The Trust is an open-end management investment company which consists of two
diversified, open-end series, commonly called mutual funds. The Trust is a
Delaware business trust, organized on March 22, 1991, and registered under the
Investment Company Act of 1940 (the "1940 Act"). The Fund is managed by Franklin
Advisers, Inc. (the "Manager" or "Advisers") and up until December 31, 1992
received portfolio advice and management assistance from Barclays de Zoete Wedd
Investment Management Inc. ("BZWIM"). Since January 1, 1993, Templeton
Investment Counsel, Inc. ("TICI" or the "Sub-adviser"), an indirect subsidiary
of Templeton Worldwide, Inc., which is a direct, wholly-owned subsidiary of
Franklin Resources, Inc. ("Resources"), serves as the sub-adviser under a
contract with the Manager providing services similar to those provided by BZWIM
and with no increase in fees to shareholders. (See "Management of the Fund.")
Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge not
exceeding 4.50% of the offering price. See "How to Buy Shares of the Fund."
INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND
The Fund's principal investment objective is to seek to provide long-term growth
of capital. Under normal market conditions, the Fund invests at least 65% of its
total assets in Equity Securities which trade on markets in the Pacific Rim, and
which are (i) issued by companies domiciled in the Pacific Rim or (ii) issued by
companies that derive at least 50% of either their revenues or pre-tax income
from activities in the Pacific Rim. The investment objective of the Fund is a
fundamental policy and may not be changed without the approval of a majority of
the Fund's outstanding shares. There is, of course, no assurance that the Fund's
objective will be achieved.
For purposes of the Fund's 65% investment policy, the countries in the Pacific
Rim are Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New
Zealand, Pakistan, Philippines, Singapore, South Korea and Thailand.
The Fund may invest up to 35% of its assets in the securities of issuers
domiciled outside of the Pacific Rim. The investments may consist of: (i)
securities of issuers in countries that are not located in the Pacific Rim but
are linked by tradition, economic markets, cultural similarities or geography to
the countries in the Pacific Rim; and (ii) securities of issuers located
elsewhere in the world which have operations in the Pacific Rim or which stand
to benefit from political and economic events in the Pacific Rim. For example,
the Fund may invest in a company outside of the Pacific Rim when the Sub-adviser
believes at the time of investment that the value of the company's securities
may be enhanced by conditions or developments in the Pacific Rim even though the
company's production facilities are located outside of the Pacific Rim.
Up to 35% of the Fund's total assets may be invested in fixed-income debt
securities rated "Baa" or better by Moody's Investors Service ("Moody's") or
"BBB" or better by Standard & Poor's Corporation ("S&P") or that are not rated
but determined by management to be of comparable quality.
It is currently expected that under normal conditions at least 65% of the Fund's
total assets will be invested in securities traded in at least three foreign
countries, including the countries listed herein. The Fund, may, from time to
time, hold significant cash positions until suitable investment opportunities
are available, consistent with its policy on temporary investments.
Up to 35% of the Fund's assets may be invested in bonds, fixed-income debt
securities and synthetic securities, as discussed below. The Fund may seek
capital appreciation by investing in such debt securities which would occur
through changes in relative foreign currency exchange rates, changes in relative
interest rates or improvement in the creditworthiness of an issuer. The receipt
of income from such debt securities is incidental to the Fund's investment
objective of growth of capital. These debt obligations consist of U.S. and
foreign government securities and corporate debt securities, including Samurai
and Yankee bonds, Eurobonds and depository receipts. The issuers of such debt
securities may or may not be domiciled in the Pacific Rim. The Fund will limit
its purchases of debt securities to investment grade obligations. For long-term
debt obligations, this includes securities that are rated "Baa" or better by
Moody's or "BBB" or better by S&P, or that are not rated but determined by
management to be of comparable quality.
Fixed-income debt securities within the top three categories (i.e., "AAA", "AA"
and "A" by S&P or "Aaa", "Aa" or "A" by Moody's) comprise what are known as
high-grade bonds and are regarded as having a strong capacity to pay principal
and interest. Medium-grade bonds (i.e., "BBB" by S&P or "Baa" by Moody's) are
regarded as having an adequate capacity to pay principal and interest but with
greater vulnerability to adverse economic conditions and some speculative
characteristics. An Appendix discussing these ratings is included in the SAI.
Generally, when interest rates rise, the value of the Fund's fixed-income and
convertible investments will decline. Conversely, when rates fall, the value of
such investments may rise. As a result, the presence of debt or convertible
securities in the Fund's portfolio may contribute to fluctuation both in the
value of the Fund's shares and the dividends per share paid by the Fund.
In the event the rating on an issue held in the Fund's portfolio is lowered by a
rating service, such change will be considered by the Fund in its evaluation of
the overall investment merits of that security but will not necessarily result
in an automatic sale of the security.
The Fund may temporarily invest cash in short-term debt instruments of U.S. or
foreign issuers for cash management purposes or pending investment. (See
"Investment Objective and Policies of the Fund - Short-Term Investments" below.)
The systematic method employed by the Sub-adviser to identify opportunities in
the equity markets may result in frequent recommendations to add or remove
securities from the Fund's portfolio, thus increasing the portfolio turnover
rate. High portfolio turnover increases transaction costs which must be paid by
the Fund. High turnover may also result in the realization of net capital gains,
which are taxable when distributed to shareholders.
RISKS RELATED TO INVESTING IN FOREIGN SECURITIES
Foreign securities involve certain risks which should be considered carefully by
prospective investors in the Fund. These risks include political, social or
economic instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, restrictions on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Such securities may be subject to greater fluctuations in
price than securities issued by U.S. corporations or issued or guaranteed by the
U.S. government, its instrumentalities or agencies. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the U.S. In addition, there may be less publicly
available information about a foreign company than about a U.S. domiciled
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions, these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its instrumentalities or agencies.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for the Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of the Fund's securities denominated in that currency.
Such changes will also affect the Fund's income and distributions to
shareholders. In addition, although the Fund will receive income on foreign
securities in such currencies, the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the exchange rate for any
such currency declines materially after the Fund's income has been accrued and
translated into U.S. dollars, the Fund could be required to liquidate portfolio
securities to make required distributions. Similarly, if an exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be greater.
The relative performance of foreign currencies in which securities held by the
Fund are denominated is an important factor in the Fund's overall performance.
TICI intends to manage the Fund's exposure to various currencies to take
advantage of different yield, risk, and return characteristics that different
currencies, currency denominations, and countries can provide for U.S.
investors.
To hedge exposure to currency fluctuations or to increase income, the Fund may
enter into forward foreign currency exchange contracts, and may buy and sell
options, futures contracts and options on futures contracts relating to foreign
currencies. The Fund will use forward currency exchange contracts in the normal
course of business to lock in an exchange rate in connection with purchases and
sales of securities denominated in foreign currencies. Other currency management
strategies allow the Sub-adviser to hedge portfolio securities, to shift
investment exposure from one currency to another, or to attempt to profit from
anticipated declines in the value of a foreign currency relative to the U.S.
dollar. Some of these strategies will require the Fund to set aside liquid
assets in a segregated custodial account to cover its obligations. (See
"Currency Hedging Transactions" below. Options and Futures and Options on
Futures are limited as discussed below.)
Although the Fund will not invest more than 25% of its assets in any one
industry or the government of any one country, the Fund may invest more than 25%
of its assets in the securities of issuers in one or more countries. Investors
should consider the greater risk of such policy versus the safety that may come
with an investment that involves a wider range of geographic localities and
countries. Accordingly, an investor should compare the Fund with other
investment vehicles before making an investment decision. There is, of course,
no assurance that the Fund's objective will be achieved.
Some of the countries in which the Fund invests may not permit direct
investment. Investments in such countries may only be permitted through
government approved investment vehicles. Investing through such vehicles may
involve duplicative or layered fees or expenses and may, as well, be subject to
limitations under the 1940 Act. Under the 1940 Act, the Fund may invest up to
10% of its assets in shares of other investment companies and up to 3% of its
assets in any one investment company as long as the investment does not
represent more than 5% of the voting stock of the acquired investment company.
HOW SHAREHOLDERS PARTICIPATE IN
THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.
A decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the Fund's share price. Changes in currency
valuations will also affect the price of Fund shares. History reflects both
decreases and increases in worldwide stock markets and currency valuations, and
these may reoccur unpredictably in the future.
Changes in the prevailing rates of interest in any of the countries in which the
Fund is invested will likely affect the value of the Fund's holdings and thus
the value of Fund shares. Increased rates of interest which frequently accompany
higher 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
impact the price of Fund shares. History reflects both increases and decreases
in interest rates in individual countries and throughout the world, and in
currency valuations, and these may reoccur unpredictably in the future.
TRADING IN OPTIONS
The Fund may purchase put and call options and write covered put and call
options on securities and securities indices. Such options may be traded on U.S.
exchanges and, to the extent permitted by law, over-the-counter and on foreign
exchanges. Broadly speaking, to comply with SEC asset coverage requirements, no
more than one third of the Fund's assets will be invested in options or other
assets which, as discussed below, must be "covered."
WRITING CALL AND PUT OPTIONS ON SECURITIES. The Fund may write options to
generate additional income and to hedge its investment portfolio against
anticipated adverse market and/or exchange rate movements. Call options written
by the Fund give the holder the right to buy the underlying securities from the
Fund at a stated exercise price. Put options written by the Fund give the holder
the right to sell the underlying security to the Fund at a stated exercise
price. All options written by the Fund will be "covered."
A call option 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 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 (i) is
equal to or less than the exercise price of the call written or (ii) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash and high-grade debt securities in a segregated account with its
custodian.
A put option written by the Fund is "covered" if the Fund maintains cash and
high-grade debt 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 premium paid by the purchaser of an option will reflect, among other things,
the relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand, and
interest rates.
The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing corporation. However, a
writer may not effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, an investor who is the holder of an option may
liquidate its position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
purchased.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected when the Fund so desires.
The writing of covered put options involves certain risks. For example, if the
market price of the underlying security rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund may attempt to close the
position or take delivery of the security at the exercise price and the Fund's
return will be the premium received from the put options minus the amount by
which the market price of the security is below the exercise price.
PURCHASING CALL OPTIONS. The Fund may purchase call options on securities which
it intends to purchase in order to limit the risk of a substantial increase in
the market price of such security. The Fund may also purchase call options on
securities held in its portfolios and on which it has written call options. A
call option gives the holder the right to buy the underlying securities from the
option writer at a stated exercise price. Prior to its expiration, a call option
may be sold in a closing sale transaction. Profit or loss from such a sale will
depend on whether the amount received is more or less than the premium paid for
the call option plus the related transaction costs.
PURCHASING PUT OPTIONS. The Fund may purchase put options on particular
securities in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option. A put option gives the holder the right to sell the underlying security
at the option exercise price at any time during the option period. The ability
to purchase put options will allow the Fund to protect the unrealized gain in an
appreciated security in its portfolio without actually selling the security. In
addition, the Fund will continue to receive interest or dividend income on the
security. The Fund may sell a put option which it has previously purchased prior
to the sale of the securities underlying such option. Such sales will result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid for the put option
that is sold. Such gain or loss may be wholly or partially offset by a change in
the value of the underlying security which the Fund owns or has the right to
acquire.
OPTIONS ON STOCK INDICES. The Fund may also purchase and write call and put
options on stock indices in order to hedge against the risk of market or
industry-wide stock price fluctuations or to increase income to the Fund. Call
and put options on stock indices are similar to options on securities except
that, rather than the right to purchase or sell particular securities at a
specified price, options on a stock index give the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
underlying stock index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements in individual securities.
All options written on stock indices must be covered. When the Fund writes an
option on a stock index, it will establish a segregated account containing cash
or high quality, fixed-income securities with its custodian in an amount at
least equal to the market value of the option and will maintain the account
while the option is open or will otherwise cover the transaction.
FORWARD CONVERSIONS. The Fund may engage in "forward conversion" transactions.
In a forward conversion, the Fund will purchase securities and write call
options and purchase put options on such securities. All options written by the
Fund will be covered. By purchasing puts, the Fund protects the underlying
security from depreciation in value. By selling or writing calls on the same
security, the Fund receives premiums which may offset part or all of the cost of
purchasing the puts while foregoing the opportunity for appreciation in the
value of the underlying security. The Fund will not exercise a put it has
purchased while a call option on the same security is outstanding. The use of
options in connection with forward conversions is intended to hedge against
fluctuations in the market value of the underlying security. Although it is
generally intended in forward conversion transactions that the exercise price of
put and call options would be identical, situations might occur in which some
option positions are acquired with different exercise prices. Therefore, the
Fund's return may depend in part on movements in the price of the underlying
security because of the different exercise prices of the call and put options.
Such price movements may also affect the Fund's total return if the conversion
is terminated prior to the expiration date of the options. In such event, the
Fund's return may be greater or less than it would otherwise have been if it had
hedged the security only by purchasing put options.
OVER-THE-COUNTER OPTIONS ON SECURITIES ("OTC" OPTIONS). The Fund may write
covered put and call options and purchase put and call options which trade in
the over-the-counter market to the same extent that it may engage in exchange
traded options. OTC options differ from exchange traded options in certain
material respects. OTC options are arranged directly with dealers and not, as is
the case with exchange traded options, with a clearing corporation. Thus, there
is a risk of non-performance by the dealer. Because there is no exchange,
pricing is typically done by reference to information from market makers.
However, OTC options are available for a greater variety of securities and in a
wider range of expiration dates and exercise prices than exchange traded
options; and the writer of an OTC option is paid the premium in advance by the
dealer.
There can be no assurance that a continuous, liquid secondary market will exist
for any particular option at any specific time. Consequently, the Fund may be
able to realize the value of an OTC option it has purchased only by exercising
it or entering into a closing sale transaction with the dealer that issued the
option. Similarly, when the Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to whom the Fund originally wrote the option.
The Fund understands the current position of the staff of the SEC to be that
purchased OTC options and the assets used as "cover" for written OTC options are
illiquid securities. The Fund and its advisers disagree with this position.
Nevertheless, pending a change in the staff's position, the Fund will treat OTC
options as subject to the Fund's limitation on illiquid securities. (See
"Investment Objective and Policies of the Fund - Illiquid Investments.")
SPREAD AND STRADDLE TRANSACTIONS. The Fund may engage in "spread" transactions
in which it purchases and writes a put or call option on the same underlying
security, with the options having different exercise prices and/or expiration
dates. All options written by the Fund will be covered. The Fund may also engage
in so-called "straddles," in which it purchases or writes combinations of put
and call options on the same security. Because the purchase of options by the
Fund in connection with these transactions may, under certain circumstances,
involve a limited degree of investment leverage, the Fund will not enter into
any spreads or straddles if, as a result, more than 5% of its net assets will be
invested at any time in such option transactions. The Fund's ability to engage
in spread or straddle transactions may be further limited by state securities
laws.
FUTURES TRANSACTIONS
The Fund may purchase or sell (i) financial futures contracts; (ii) interest
rate futures contracts; (iii) options on interest rate futures contracts; (iv)
stock index futures contracts; and (v) options on stock index futures contracts
(collectively, "Futures Transactions") for bona fide hedging purposes. The Fund
may enter into such Futures Transactions on domestic exchanges and, to the
extent such transactions have been approved by the Commodity Futures Trading
Commission ("CFTC") for sale to customers in the U.S., on foreign exchanges. The
Fund will not engage in Futures Transactions for speculation but only as a hedge
against changes resulting from market conditions in the value of its securities
or securities which it intends to purchase. The Fund will not enter into any
Futures Transactions if, immediately thereafter, more than 20% of the Fund's net
assets would be represented by futures contracts or options thereon. In
addition, the Fund will not engage in any Futures Transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
futures positions and premiums paid for options on its futures contracts would
exceed 5% of the market value of the Fund's total assets.
FINANCIAL FUTURES CONTRACTS. Financial futures are commodity contracts that
obligate the holder to take or make delivery of a specified quantity of a
financial instrument, such as a U.S. Treasury security or foreign currencies,
during a specified future period at a specified price. A "sale" of a financial
futures contract means the acquisition of a contractual obligation to deliver
the securities called for by the contract at a specified price on a specified
date. A "purchase" of a financial futures contract means the acquisition of a
contractual obligation to acquire the securities called for by the contract at a
specified price on a specified date.
At the same time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment ("initial deposit"). The futures
contract is valued daily thereafter and the payment of some amount of "variation
margin" may be required, reflecting any decline or increase in the contract's
value.
To the extent the Fund enters into contracts for the purchase or sale for future
delivery of financial futures and to the extent required by the rules of the
SEC, the Fund will maintain, with its custodian, assets in a segregated account
to cover its obligations with respect to such contracts, which assets will
consist of cash, cash equivalents or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Fund with respect to such futures
contracts.
INTEREST RATE FUTURES CONTRACTS. Interest Rate Futures Contracts are futures
contracts on debt securities. The value of these instruments changes in response
to changes in the value of the underlying debt security, which depends primarily
on prevailing interest rates.
The Fund may enter into interest rate futures contracts in order to protect its
portfolio securities from fluctuations in interest rates without necessarily
buying or selling the underlying fixed-income securities. For example, if the
Fund owns bonds, and interest rates are expected to increase, it might sell
futures contracts on debt securities having characteristics similar to those
held in the portfolio. Such a sale would have much the same effect as selling an
equivalent value of the bonds owned by the Fund. If interest rates did increase,
the value of the debt securities in the portfolio would decline, but the value
of the futures contracts to the Fund would increase at approximately the same
rate, thereby keeping the net asset value of the Fund from declining as much as
it otherwise would have.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Fund may also purchase put and
call options and write covered put and call options on interest rate futures
contracts to hedge against risks associated with shifts in interest rates.
STOCK INDEX FUTURES CONTRACTS. A stock index futures contract obligates the
seller to deliver (and the purchaser to take) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement was made. Open futures contracts are valued on a daily
basis, and the Fund may be obligated to provide or receive cash reflecting any
decline or increase in the contract's value. No physical delivery of the
underlying stocks in the index is made in the future.
The Fund may sell stock index futures contracts in anticipation of or during a
market decline in an attempt to offset the decrease in market value of its
Equity Securities that might otherwise result. When the Fund is not fully
invested in stocks and anticipates a significant market advance, it may purchase
stock index futures in order to gain rapid market exposure that may offset
increases in the cost of common stocks that it intends to purchase.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Call and put options on stock index
futures are similar to options on securities except that, rather than the right
to purchase or sell stock at a specified price, options on a stock index futures
contract give the holder the right to receive cash. Upon exercise of the option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
price of the futures contract on the expiration date.
The need to hedge against such risks will depend on the extent of
diversification of the Fund's common stock portfolio and the sensitivity of such
investments to factors influencing the stock market as a whole.
CURRENCY HEDGING TRANSACTIONS
In order to hedge against currency exchange rate risks, the Fund may enter into
forward currency exchange contracts and currency futures contracts and options
on such futures contracts, as well as purchase put or call options and write
covered put and call options on currencies traded in U.S. or foreign markets.
A forward currency exchange contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks). A currency
futures contract is a standardized contract for the future delivery of a
specified amount of currency at a future date at a price set at the time of the
contract. The Fund may enter into currency futures contracts traded on regulated
commodity exchanges, including non-U.S. exchanges.
The Fund may either accept or make delivery of the currency specified at the
maturity of a forward or futures contract or, prior to maturity, enter into a
closing transaction involving the purchase or sale of an offsetting contract.
Closing transactions with respect to forward contracts are usually effected with
the currency trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts and options thereon are effected
on the exchange on which the contract was entered into (or on a linked
exchange).
The Fund may enter into forward currency exchange contracts and currency futures
contracts in several circumstances. For example, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency (or options contracts with respect to such futures contracts), or when
the Fund anticipates the receipt in a foreign currency of dividends or interest
payments on such a security that it holds, it may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. In addition, when the Sub-adviser believes
that the currency of a particular country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward or futures contract to
sell, for a fixed amount of U.S. dollars, the amount of that currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such currency. In addition, the Fund may engage in cross-hedging
transactions by using forward contracts in one currency to hedge against
fluctuations in value of securities denominated in a different currency when
there is a pattern of correlation between the two currencies.
The Fund may attempt to accomplish objectives similar to those described above
with respect to forward and futures contracts for currency by means of
purchasing put or call options and writing, on a covered basis, put and call
options on currencies traded on exchanges. A put option can give the Fund the
right to sell a currency at the exercise price on or before the expiration of
the option. A call option can give the purchaser of the option the right to
purchase a currency at the exercise price on or before the expiration of the
option. The purchase or writing of a foreign currency option may constitute an
effective hedge against foreign exchange rate fluctuations. As with other kinds
of option transactions, however, the writing of a foreign currency option will
constitute only a partial hedge, up to the amount of the premium received, and
the Fund could be required to purchase or sell currencies at disadvantageous
exchange rates, thereby incurring losses. Likewise, with respect to foreign
currency options purchased by the Fund, the Fund may forfeit the entire amount
of the premium plus related transaction costs if exchange rates move in a manner
adverse to the Fund's position. The Fund may use foreign currency options to
cross-hedge, which involves writing or purchasing options on one currency to
hedge against changes in exchange rates for a different currency with a pattern
of correlation to the first currency. Foreign currency options to be written or
purchased by the Fund will be traded on U.S. or foreign exchanges or
over-the-counter. The Fund will not enter into such forward currency exchange
contracts or currency futures contracts or purchase or write such options or
maintain a net exposure to such contracts where the completion of the contracts
would obligate the Fund to deliver an amount of currency other than U.S. dollars
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or, in the case of cross-hedging, in a currency
closely correlated to that currency.
RISKS OF OPTIONS AND FUTURES
CONTRACTS AND RELATED OPTIONS
The purchase and sale of futures contracts and options thereon, as well as the
purchase and writing of options on securities and securities indices and
currencies, involve risks different from those involved with direct investments
in securities. While utilization of options, futures contracts and similar
instruments may be advantageous to the Fund, the Fund's ability to hedge
effectively all or a portion of its securities through such transactions and to
increase income to the Fund through the use of options on securities and
securities indices depends on the degree to which price movements in the
underlying index, securities or currencies correlate with price movements in the
relevant portion of the Fund's securities. Perfect correlation is generally not
attainable. Consequently, the Fund bears the risk that the prices of the
securities being hedged will not move in the same amount as the hedging
instrument. It is also possible that there may be a negative correlation between
the index, securities or currencies underlying the hedging instrument and the
hedged securities which would result in a loss on both such securities and the
hedging instrument. In addition, it is not possible to hedge fully or perfectly
against currency fluctuations affecting the value of securities denominated in
foreign currencies because the value of such securities is also likely to
fluctuate as a result of independent factors not related to currency
fluctuations. Therefore, perfect correlation between the Fund's futures
positions and portfolio positions will be impossible to achieve. Accordingly,
successful use by the Fund of options on stock indices, financial and currency
futures contracts and related options, and currency options will be subject to
Advisers' and the Sub-adviser's ability to predict correctly movements in the
direction of the securities and currency markets generally or of a particular
segment. If Advisers or the Sub-adviser is not successful in employing such
instruments in managing the Fund's investments, the Fund's performance will be
worse than if it did not employ such strategies. In addition, the Fund will pay
commissions and other costs in connection with such investments, which may
increase the Fund's expenses and reduce the return. In writing options on
futures, the Fund's loss is potentially unlimited and may exceed the amount of
the premium received.
In certain cases, the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed more effectively and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities. However, there are risks involved in
these transactions as discussed above.
Positions in stock index options, stock index futures contracts, financial
futures contracts, foreign currency futures contracts, related options on
futures and options on currencies may be closed out only on an exchange which
provides a secondary market. There can be no assurance that a liquid secondary
market will exist for any particular option, futures contract or option thereon
at any specific time. Thus, it may not be possible to close such an option or
futures position. The inability to close options or futures positions could have
an adverse impact on the Fund's ability to effectively hedge its securities or
foreign currency exposure. The Fund will enter into options or futures positions
only if TICI believes that a liquid secondary market for such options or futures
contracts exist.
In the case of OTC options on securities there can be no assurance that a
continuous liquid secondary market will exist for any particular OTC option at
any specific time. Consequently, the Fund may be able to realize the value of an
OTC option it has purchased only by exercising it or entering into a closing
sale transaction with the dealer that issued it. Similarly, when the Fund writes
an OTC option, it generally can close out that option prior to its expiration
only by entering into a closing purchase transaction with the dealer to which
the Fund originally wrote it. If the Fund, on a covered call option, cannot
effect a closing transaction, it cannot sell the underlying security until the
option expires or the option is exercised. Therefore, when the Fund writes an
OTC call option, it may not be able to sell the underlying security even though
it might otherwise be advantageous to do so. Likewise, the Fund may be unable to
sell the securities it has pledged to secure OTC put options while it is
obligated as a put writer. Similarly, when the Fund is a purchaser of such put
or call option, the Fund might find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The risk of loss in trading foreign futures contracts and foreign options can be
substantial. Investors should be aware of the following:
(1) Participation in foreign futures contracts and foreign options transactions
involves the execution and clearing of trades on, or subject to, the rules of a
foreign board of trade.
(2) Neither the CFTC, the National Futures Association nor any domestic exchange
regulates activities of any foreign boards of trade, including the execution,
delivery and clearing of transactions, or has the power to compel enforcement of
the rules of a foreign board of trade or any applicable foreign laws. Generally,
the foreign transaction will be governed by applicable foreign law. This is true
even if the exchange is formally linked to a domestic market so that a position
taken on the market may be liquidated by a transaction on another market.
Moreover, such laws or regulations will vary, depending on the foreign country
in which the foreign futures or foreign options transaction occurs.
(3) For these reasons, if the Fund trades foreign futures or foreign options
contracts, it might not be afforded certain of the protective measures provided
by the Commodity Exchange Act, the CFTC's regulations and the rules of the
National Futures Association and any domestic exchange, including the right to
use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, funds received from the Fund for foreign futures or foreign
options transactions may not be provided the same protections as funds received
in respect of transactions on U.S. futures exchanges.
(4) The price of any foreign futures or foreign options contract and, therefore,
the potential profit and loss thereon, may be affected by any variance in the
foreign exchange rate between the time a particular order is placed and the time
it is liquidated, offset or exercised.
The Fund's investment in options, futures contracts, forward contracts, options
on stock indices and futures contracts, and foreign currencies and securities
may be limited by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company. These
securities require the application of complex and special tax rules and
elections, more information about which is included in the SAI.
The Fund's investment in options, futures contracts and forward contracts, and
certain securities transactions involving actual or deemed short sales or
foreign exchange gains or losses may give rise to taxable income, gain or loss
and may be subject to special tax treatment under certain mark-to-market and
straddle rules, the effect of which may be to accelerate income to the Fund,
defer Fund losses, cause adjustments in the holding periods of Fund securities,
convert capital gains and losses into ordinary income and losses, convert
long-term capital gains into short-term capital gains, and convert short-term
capital losses into long-term capital losses. These rules could, therefore,
affect the amount, timing and character of distributions to shareholders.
Certain elections may be available to the Fund to mitigate some of the
unfavorable consequences of the provisions described in this paragraph. These
investments and transactions are discussed in the SAI.
SECURITIES WARRANTS
The Fund may invest up to 10% of its net assets in warrants, including such
warrants that are not listed on an exchange. A warrant is typically a long-term
option issued by a corporation which gives the holder the privilege of buying a
specified number of shares of the underlying common stock at a specified
exercise price at any time on or before an expiration date. Stock index warrants
entitle the holder to receive, upon exercise, an amount in cash determined by
reference to fluctuations in the level of a specified stock index. If the Fund
does not exercise or dispose of a warrant prior to its expiration, it will
expire worthless.
SYNTHETIC CONVERTIBLES
The Fund may invest up to 35% of its assets in "synthetic convertible"
securities. A synthetic convertible is created by combining distinct securities
which together possess the two principal characteristics of a true convertible,
that is, fixed income and the right to acquire the underlying equity security.
This combination is achieved by investing in nonconvertible fixed-income
securities and in warrants or stock or stock index call options which grant the
holder the right to purchase a specified quantity of securities within a
specified period of time at a specified price or to receive cash in the case of
stock index options. Synthetic convertible securities are not considered to be
Equity Securities for purposes of the Fund's 65% investment policy.
Synthetic convertible securities differ from the true convertible security in
several respects. The value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertibility component. Thus, the values
of a synthetic convertible and a true convertible security will respond
differently to market fluctuations. Further, although the Fund expects normally
to create synthetic convertibles whose two components represent one issuer, the
character of a synthetic convertible allows the Fund to combine components
representing distinct issuers or to combine a fixed-income security with a call
option on a stock index, when it is determined that such a combination would
better promote the Fund's investment objectives. In addition, the component
parts of a synthetic convertible security may be purchased simultaneously or
separately, and the holder of a synthetic convertible faces the risk that the
price of the stock, or the level of the market index underlying the
convertibility component, will decline.
LOANS OF PORTFOLIO SECURITIES
Consistent with procedures approved by the Board of Trustees and subject to the
following conditions, the Fund may lend its portfolio securities to qualified
securities dealers or other institutional investors, provided that such loans do
not exceed 33 1U3% of the value of the Fund's total assets at the time of the
most recent loan. The borrower must deposit with the Fund's custodian collateral
with an initial market value of at least 102% of the initial market value of the
securities loaned, including any accrued interest, with the value of the
collateral and loaned securities marked-to-market daily to maintain collateral
coverage of at least 100%. Such collateral shall consist of cash, securities
issued by the U.S. Government, its agencies or instrumentalities, or irrevocable
letters of credit. The lending of securities is a common practice in the
securities industry. The Fund engages in security loan arrangements with the
primary objective of increasing the Fund's income either through investing the
cash collateral in short-term interest bearing obligations or by receiving a
loan premium from the borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially.
BORROWING
As a fundamental policy, the Fund will not borrow money or mortgage or pledge
any of its assets, except that borrowings and the pledging of assets therefor to
meet redemption requests and for other temporary or emergency purposes may be
made from banks in an amount up to 10% of total asset value. While borrowings
exceed 5% of the Fund's total assets, it will not make any additional
investments.
ILLIQUID INVESTMENTS
The Fund reserves the right to invest up to 10% of its net assets in illiquid
securities (a term which means securities that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
the Fund has valued the securities). It is the current policy of the Fund,
however (which may be changed without the approval of the Fund's shareholders),
to limit any such investments (including illiquid Equity Securities, repurchase
agreements of more than seven days duration, OTC options, illiquid real estate
investment trusts, securities of issuers with less than three years continuous
operation and other securities which are not readily marketable) to 5% of the
Fund's net assets. The Board of Trustees has authorized the Fund to invest in
restricted securities where such investments are consistent with the Fund's
investment objective and has authorized such securities to be considered to be
liquid and thus not within the foregoing 10% limit, to the extent the
Sub-adviser or the Manager, as the case may be, determines on a daily basis that
there is a liquid institutional or other market for such securities.
Notwithstanding the determinations of the Manager and the Sub-adviser in this
regard, the Board of Trustees remains responsible for such determinations and
considers appropriate action to maximize the Fund's liquidity and its ability to
meet redemption demands if a security should become illiquid subsequent to its
purchase. To the extent the Fund invests in restricted securities that are
deemed liquid, the general level of illiquidity in the Fund may be increased if
qualified institutional buyers become uninterested in purchasing these
securities or the market for these securities contracts. (See "Investment
Objectives, Policies and Restrictions - Other Investment Policies" in the SAI.)
SHORT-TERM INVESTMENTS
Occasionally, in order to honor redemptions, pending investment of proceeds from
new sales of Fund shares or to satisfy other short-term needs, the Fund may hold
cash (U.S. dollars, foreign currencies or multinational currency units) and/or
invest a portion of its assets in high quality money-market instruments. In any
period of market weakness or of uncertain market or economic conditions, or
while awaiting attractive investment opportunities, the Fund may establish a
temporary defensive position by investing in high quality money-market
instruments if the Manager or Sub-adviser anticipates that developments in any
market may seriously jeopardize the value of most Equity Securities in such
market. Any decision to substantially withdraw from the equity market is
reviewed by the Board of Trustees. Money-market instruments in which the Fund
may invest include, but are not limited to, the following instruments of U.S. or
foreign issuers: government securities; commercial paper; bank certificates of
deposit; bankers' acceptances; and repurchase agreements secured by any of the
foregoing. It is impossible to predict when or for how long the Fund would
employ defensive strategies. All such securities will be rated "A-1" or "A-2" by
S&P or "P-1" or "P-2" by Moody's or, if not rated, determined by the Manager or
Sub-adviser to be of comparable quality.
REPURCHASE AGREEMENTS
For cash management or other short-term purposes as listed above, the Fund may
engage in repurchase transactions, in which the Fund purchases a U.S. government
security subject to resale to a bank or dealer at an agreed-upon price and date.
The transaction requires the collateralization of the seller's obligation by the
transfer of securities with an initial market value, including accrued interest,
equal to at least 102% of the dollar amount invested by the Fund in each
agreement, with the value of the underlying security marked to market daily to
maintain coverage of at least 100%. A default by the seller might cause the Fund
to experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. The Fund might also incur disposition costs in liquidating
the collateral. The Fund, however, intends to enter into repurchase agreements
only with financial institutions such as broker-dealers and banks which are
deemed credit worthy by the Fund's investment manager. A repurchase agreement is
deemed to be a loan by the Fund under the 1940 Act. The U.S. government security
subject to resale (the collateral) will be held on behalf of the Fund by a
custodian approved by the Fund's Board and will be held pursuant to a written
agreement.
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see the SAI.
MANAGEMENT OF THE FUND
The Board of Trustees has the primary responsibility for the overall management
of the Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations.
Advisers serves as the Fund's investment manager. Advisers is a wholly owned
subsidiary of Resources, a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 33 U.S. registered investment
companies (113 separate series) with aggregate assets of over $74 billion. Under
a management agreement, the Manager also serves as investment manager and
adviser to the Trust's Franklin International Equity Fund.
TICI is an indirect subsidiary of Templeton Worldwide, Inc., which, operating
through its subsidiaries, is a major investment management organization with
approximately $41.8 billion of assets currently under management and a long
history of global investing. Under a sub-advisory agreement, TICI also serves as
sub-adviser to the Trust's Franklin International Equity Fund.
Pursuant to the management agreements, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.
Pursuant to the sub-advisory agreement between Advisers and TICI, and subject to
the overall policies, control, direction and review of the Board of Trustees and
to the instructions and supervision of Advisers, TICI is responsible for
recommending an optimal geographic equity allocation, for providing advice with
respect to the Fund's investments and, subject to the Board's and Advisers'
direction and supervision, for determining which securities will be purchased,
retained or sold, as well as for execution of portfolio transactions.
Investments may be shifted among the world's various capital markets and among
different types of securities in accordance with ongoing analysis of trends and
developments affecting such markets and securities.
Under the management agreement with the Fund, for the services provided and
expenses assumed by it the Manager is entitled to receive a fee, computed and
payable monthly, based upon the Fund's average net assets. The management fee is
higher than the management fees paid by most mutual funds, although the Board of
Trustees believes it to be comparable to fees paid by many international funds
having similar investment objectives and policies.
Under the sub-advisory agreement with the Manager, for its sub-advisory fee TICI
is entitled to receive from the Manager an amount equal to approximately 50% of
the fees paid by the Fund to the Manager (subject to certain adjustments). The
sub-advisory fees paid by the Manager have no effect on the fees payable by the
Fund to the Manager.
During the fiscal year ended October 31, 1994, fees totaling 1.00% of the
average net assets of the Fund would have accrued to Advisers. Total operating
expenses, including management fees, would have represented 1.72% of the average
net assets of the Fund. Pursuant to an agreement by Advisers to limit its fees,
the Fund paid management fees totaling 0.50% of the average net assets of the
Fund. This action by Advisers to limit its management fees may be terminated by
Advisers at any time.
Further information on the services provided by Advisers and TICI and the fees
payable by the Fund for these services is included in the SAI under "Investment
Advisory and Other Services."
Among the responsibilities of Advisers and TICI under their respective
agreements are the selection of brokers and dealers through which transactions
in the Fund's portfolio securities for which each is responsible are effected.
The Manager and Sub-adviser seek to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to provide the
best execution, Advisers and TICI will consider the furnishing of quotations and
of other market services, research, statistical and other data for Advisers and
TICI and their affiliates, as well as the sale of shares of the Fund, as factors
in selecting a broker. Further information is included under "Policies Regarding
Brokers Used on Portfolio Transactions" in the SAI.
Except as noted above and in the SAI under "Investment Advisory and Other
Services", the Fund's service contractors bear all expenses in connection with
the performance of their services, except that Distributors and Advisers are
reimbursed for expenses incurred under the Plan of Distribution (as described
below). Similarly, the Fund bears the expenses incurred in its operation. (See
the SAI - "Investment Advisory and Other Services" for further information
describing the Fund's expenses.)
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent") in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended October 31, 1994, expenses borne by the Fund,
including fees paid to Advisers and Investor Services, totaled 1.22% of the
average net assets of the Fund.
PLAN OF DISTRIBUTION
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may reimburse Distributors or
others for all expenses incurred by Distributors or others in the promotion and
distribution of the Fund's shares. 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 Distributor'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, Distributors or its affiliates. The maximum amount which the Fund may
pay to Distributors or others for such distribution expenses is 0.25% per annum
of the average daily net assets of the Fund, payable on a quarterly basis. All
expenses of distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Fund. The Plan also covers any payments to or by the Fund,
Distributors, Advisers, or other parties on behalf of the Fund, Distributors,
Advisers, 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 Plan are included in
the maximum operating expenses which may be borne by the Fund. For more
information, please see the SAI.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which the Fund may make to its
shareholders:
1. INCOME DIVIDENDS. The Fund receives income in the form of dividends, interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed net capital gains from the prior fiscal year. These
distributions, when made, will generally be fully taxable to the Fund's
shareholders. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
DISTRIBUTION DATE
Although subject to change by the Trust's Board of Trustees without prior notice
to or approval by shareholders, the Fund's current policy is to declare income
dividends, payable semi-annually in June and December, to shareholders of record
generally on the first business day preceding the 15th day of these months,
payable on or about the last business day of such months. The amount of income
dividend payments by the Fund is dependent upon the amount of net income
received by the Fund from its portfolio holdings, is not guaranteed and is
subject to the discretion of the Trust's Board of Trustees. Fund shares are
quoted ex-dividend on the first business day following the record date
(generally the 15th day of such months or prior business day depending on the
record date). THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF
RETURN ON AN INVESTMENT IN ITS SHARES.
In order to be entitled to a dividend, an investor must have acquired Fund
shares prior to the close of business on the record date. An investor
considering purchasing Fund shares shortly before the record date of a
distribution should be aware that because the value of the Fund's shares is
based directly on the amount of its net assets, rather than on the principle of
supply and demand, any distribution of income or capital gain will result in a
decrease in the value of the Fund's shares equal to the amount of the
distribution. While a dividend or capital gain distribution received shortly
after purchasing shares represents, in effect, a return of a portion of the
shareholder's investment, it may be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset value in the Fund
or Class I shares of other Franklin Templeton Funds. Shareholders have the right
to change their election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as to
distributions for which the record date is seven or more business days after the
Fund has been notified. See the SAI for more information.
Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to
another fund in the Franklin Group of Funds(Registered Trademark) or the
Templeton Funds, to another person, or directly to a checking account. If the
bank at which the account is maintained is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
this last option is requested, the shareholder should allow at least 15 days for
initial processing. Dividends which may be paid in the interim will be sent to
the address of record. Additional information regarding automated fund transfers
may be obtained from Franklin's Shareholder Services Department. See "Purchases
at Net Asset Value" under "How to Buy Shares of the Fund."
Investors should be aware that for federal tax purposes, foreign exchange losses
realized by the Fund, including any such losses realized on a sale of foreign
currency-denominated debt securities, are treated as ordinary losses. This
treatment may have the effect of reducing the Fund's income available for
distribution to shareholders and causing some or all of the Fund's previously
distributed income to be classified as a return of capital.
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled,
"Additional Information Regarding Taxation" in the SAI.
The Fund intends to qualify for treatment as a regulated investment company
under Subchapter M of the Code. By distributing all of its income and meeting
certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income or
excise taxes.
Foreign securities, which meet the definition in the Code of a Passive Foreign
Investment Company ("PFIC") may subject the Fund to an income tax and interest
charge with respect to such investments. To the extent possible, the Fund will
avoid such treatment by not investing in PFIC securities or by adopting other
tax strategies for any PFIC securities it does purchase.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares. Distributions derived from the excess of net long-term
capital gain over net short-term capital loss are treated as long-term capital
gain regardless of the length of time the shareholder has owned Fund shares and
regardless of whether such distributions are received in cash or in additional
shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
paid by the Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or a loss. Any loss incurred on sale or exchange
of the Fund's shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
For corporate shareholders, it is anticipated that only a small portion of the
Fund's dividends during the current fiscal year will qualify for the corporate
dividends-received deduction because of the Fund's principal investment
objective of investing in foreign equity securities and non-equity investments.
To the extent that the Fund pays dividends which qualify for this deduction, the
availability of the deduction is subject to certain holding period and debt
financing restrictions imposed under the Code on the corporation claiming the
deduction.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise them of the tax status for federal income tax purposes
of such dividends and distributions.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares in the
Fund and to distributions and redemption proceeds received from the Fund.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for the purchase of
shares.
The Fund may impose a $10 charge for each returned item, against any shareholder
account which, in connection with the purchase of Fund shares, submits a check
or a draft which is returned unpaid to the Fund.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price, which is determined
by adding the net asset value per share, plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives the order which
is promptly transmitted to the Fund or (2) 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 sales charge is
a variable percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places using standard
rounding criteria. A description of the method of calculating net asset value
per share is included under the caption "Valuation of Fund Shares."
Set forth below is a table of total front-end sales charges or underwriting
commissions and dealer concessions.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
DEALER
AS A CONCESSION AS A
AS A PERCENTAGE PERCENTAGE OF PERCENTAGE OF
OF OFFERING PRICE NET AMOUNT OFFERING
SIZE OF TRANSACTION INVESTED PRICE*,***
AT OFFERING PRICE
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more none none (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 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. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.
***At the discretion of Distributors, all sales charges may at times be allowed
to the securities dealer. If 90% or more of the sales commission is allowed,
such securities dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on 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 within the 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 Fund 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(Registered Trademark) and the Templeton Group of Funds. Included
for these aggregation purposes are (a) the mutual funds in the Franklin Group of
Funds except Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Funds"); (b) other investment products underwritten by
Distributors or its affiliates (although certain investments may not have the
same schedule of sales charges and/or may not be subject to reduction) and (c)
the U.S. registered mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate holdings of (a), (b) and
(c) above ("Franklin Templeton Investments") may be effective only after
notification to Distributors that the investment qualifies for a discount.
OTHER PAYMENTS TO SECURITIES DEALERS
Distributors, or one of its affiliates, may make payments, out of its own
resources, of up to 1% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by certain
designated retirement plans (excluding IRA and IRA rollovers), certain
non-designated plans, certain trust companies and trust departments of banks and
certain retirement plans of organizations with collective retirement plan assets
of $10 million or more. See definitions under "Description of Special Net Asset
Value Purchases" and as set forth in the SAI.
Distributors, or one of its affiliates, out of 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. None of the aforementioned
additional compensation is paid for by the Fund or its shareholders.
Additional terms concerning the offering of the Fund's shares are included in
the SAI
Certain officers and Trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, the
investor or the securities dealer should notify Distributors at the time of each
purchase of shares which qualifies for the reduction. In determining whether a
purchase qualifies for discount, an investment in any of the Franklin Templeton
Investments may be combined with those of the investor's spouse and children
under the age of 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. The value of
Class II shares owned by the investor may also be included for this purpose.
In addition, an investment in the Fund may qualify for a reduction in the sales
charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value (whichever is higher) of
existing investments in the Franklin Templeton Investments may be combined with
the amount of the current purchase in determining the sales charge to be paid.
2. LETTER OF INTENT. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of the Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which, if made at one time, would qualify for
a reduced sales charge and grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. Purchases under the Letter
will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.
AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in shares of the Fund, registered in the investor's
name, to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will be included in the
total shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid.
For more information, see "Additional Information Regarding Purchases" in the
SAI.
Although the sales charges on Class II shares cannot be reduced through these
programs, the value of Class II shares owned by the investor may be included in
determining a reduced sales charge to be paid on Class I shares pursuant to the
Letter of Intent and Rights of Accumulation programs.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase 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 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 Fund shares and now were investing $25,000, the sales charge would be
3.75%. Information concerning the current sales charge applicable to a group may
be obtained by contacting Distributors.
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 Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to Distributors, and 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 used 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.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased without the imposition of a front-end sales
charge ("net asset value") or a contingent deferred sales charge by (1)
officers, trustees, directors and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members, including subsequent payments made by such parties
after cessation of employment; (2) companies exchanging shares with or selling
assets pursuant to a merger, acquisition or exchange offer; (3) insurance
company separate accounts for pension plan contracts; (4) accounts managed by
the Franklin Templeton Group; (5) shareholders of Templeton Institutional Funds,
Inc. reinvesting redemption proceeds from that fund under an employee benefit
plan qualified under Section 401 of the Internal Revenue Code of 1986, as
amended, in shares of the Fund; (6) certain unit investment trusts and unit
holders of such trusts reinvesting their distributions from the trusts in the
Fund; (7) registered securities dealers and their affiliates, for their
investment account only, and (8) registered personnel and employees of
securities dealers and by their spouses and family members, in accordance with
the internal policies and procedures of the employing securities dealer.
Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 365 days, their shares of the Fund or another of
the Class I Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end sales charge must be
paid at the time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed and subsequently
repurchased, a new contingency period will begin. Shares redeemed in connection
with an exchange into another of the Franklin Templeton Funds (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 Shareholder Services Agent within 120
days after the redemption. The 120 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
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 amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.
Shares of the Fund or another of the Franklin Templeton Funds' Class I shares
may be purchased at net asset value and without a contingent deferred sales
charge by persons who have received dividends and capital gains distributions in
cash from investments in the Fund within 365 days of the payment date of such
distribution. To exercise this privilege, a written request to reinvest the
distribution must accompany the purchase order. Additional information may be
obtained from Shareholder Services at 1-800/632-2301. See "Distributions in
Cash" under "Distributions to Shareholders."
Shares of the Fund 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 and which was not subject to a front-end sales
charge or a contingent deferred sales charge and which has investment objectives
similar to those of the Fund.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers who have
entered into a supplemental agreement with Distributors, or by registered
investment advisors affiliated with such broker-dealers, on behalf of their
clients who are participating in a comprehensive fee program (sometimes known as
a wrap fee program.)
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by 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 (the "Trust Company"), the Fund or
Investor Services, within 120 days after the plan distribution.
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS 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 Distributors, Distributors or one of its affiliates may make a
payment, out of their own resources, to such securities dealer in an amount not
to exceed 0.25% of the amount invested. Contact Franklin's Institutional Sales
Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund 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 Distributors. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent 13-month period in the Fund or in any of
the Franklin Templeton Investments totals at least $1,000,000. 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 Distributors to
realize economies of scale in its sales efforts and sales related expenses.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by 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
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in this Fund or any of the
Franklin Templeton Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust company,
with payment by federal funds received by the close of business on the next
business day following such order.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of organizations
with collective retirement plan assets of $10 million or more, without regard to
where such assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases.
GENERAL
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.
PURCHASING SHARES OF THE FUND
IN CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS
Shares of the Fund may be used for individual or employer-sponsored retirement
plans involving tax-deferred investments. The Fund may be used as an investment
vehicle for an existing retirement plan, or Franklin Templeton Trust Company (
the "Trust Company") may provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.The Trust Company, an affiliate of Distributors, can serve as
custodian or trustee for retirement plans. Brochures for the Trust Company plans
contain important information regarding eligibility, contribution and deferral
limits and distribution requirements. Please note that an application other than
the one contained in this Prospectus must be used to establish a retirement plan
account with the Trust Company. To obtain a retirement plan brochure or
application, call 1-800/DIAL BEN (1-800/342-5236).
Please see "How to Sell Shares of the Fund" for specific information regarding
redemptions from retirement plan accounts. Specific forms are required to be
completed for distributions from Franklin Templeton Trust Company retirement
plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension consultants before choosing a retirement plan. In addition, retirement
plan investors should consider consulting their investment representatives or
advisers concerning investment decisions within their plans.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT, OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
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. 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.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder semi-annually to
reflect the dividends reinvested during that period and after each other
transaction which affects the shareholder's account. This statement will also
show the total number of shares owned by the shareholder, including the number
of shares in "plan balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan Application
included with this Prospectus contains the requirements applicable to this
program. In addition, shareholders may obtain more information concerning this
program from their securities dealers or from Distributors.
The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net asset value of the
shares held by the shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal 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. Retirment 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 will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made from the
liquidation of shares at net asset value on the day of the transaction (which is
generally the first business day of the month in which the payment is scheduled)
with payment generally received by the shareholder 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.
If the bank at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments which may be paid in the interim
will be sent to the address of record. 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 the payment may be a return of the shareholder's investment.
The maintenance of a Systematic Withdrawal 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 shares may be subject
to a contingent deferred sales charge if the shares are redeemed within 12
months of the calendar month of 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. The applicable contingent deferred sales charge is waived for share
redemptions of up to 1% monthly of an account's net asset value (12% annually,
6% semiannually, 3% quarterly). For example, if an 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. A Systematic
Withdrawal 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 the specified minimum) and schedule of withdrawal payments, or suspend
one such payment by giving written notice to Investor Services at least seven
business days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
Franklin's Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives or policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for shares of other Franklin Templeton Funds' Class I shares which are
eligible for sale in the shareholder's state of residence and in conformity with
such fund's stated eligibility requirements and investment minimums. Investors
should review the prospectus of the fund they wish to exchange from and the fund
they wish to exchange into for all specific requirements or limitations on
exercising the exchange privilege, for example, minimum holding periods or
applicable sales charges.
Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(REGISTERED TRADEMARK) SYSTEM (DAY OR NIGHT)
AT 1-800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A
PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
Franklin Templeton Funds' Class I shares. The Telephone Exchange Privilege is
available only for uncertificated shares or those which have previously been
deposited in the shareholder's account. The Fund and Investor Services will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Please refer to "Telephone Transactions - Verification
Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "Exchanges By Telephone"
above. Such a dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling an
exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period such shares are exchanged
into and held in a Franklin or Templeton money market fund. If the account has
shares subject to a contingent deferred sales charge, the 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 are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the 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 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.
When an investor requests the exchange of the total value of the Fund account,
declared but unpaid income dividends and capital gain distributions will be
transferred to the fund being exchanged into and will be invested at net asset
value. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the SAI.
There are differences among the Franklin Templeton Funds. Before making an
exchange, a shareholder should obtain and review a current prospectus of the
fund into which the shareholder wishes to transfer.
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 objectives 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.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) plan accounts may accomplish exchanges
directly. Certain restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated in "How to Buy Shares of the Fund,"
reserve the right to refuse any order for the purchase of shares.
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share (less the
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated (at the
scheduled closing of the New York Stock Exchange [the "Exchange"] which is
generally 1:00 p.m. Pacific time) each day that the Exchange is open for
business will receive the price calculated on the following business day.
Shareholders are requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact a shareholder promptly when necessary will speed
the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption. Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction require the
following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust 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.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES 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 the completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled closing of
the Exchange (generally 1:00 p.m. Pacific 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 (certain corporations, bank trust
departments, government entities, and qualified retirement plans which qualify
to purchase shares at net asset value pursuant to the terms of this Prospectus)
which wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available from the
Franklin Templeton Institutional Services Department by telephoning
1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to the Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. The documents, as
described in the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt of a repurchase
order from the dealer, the Fund will still require a signed letter of
instruction and all other documents set forth above. A shareholder's letter
should reference the Fund, the account number, the fact that the repurchase was
ordered by a dealer and the dealer's name. Details of the dealer-ordered trade,
such as trade date, confirmation number, and the amount of shares or dollars,
will help speed processing of the redemption. The seven-day period within which
the proceeds of the shareholder's redemption will be sent will begin when the
Fund receives all documents required to complete ("settle") the repurchase in
proper form. The redemption proceeds will not earn dividends or interest during
the time between receipt of the dealer's repurchase order and the date the
redemption is processed upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. The
shareholder's dealer may charge a fee for handling the order. The SAI contains
more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers on investments of $1
million or more redeemed within the contingency period of 12 months of the
calendar month following 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 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 Distributors. The contingent
deferred sales charge is waived in certain instances.
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; (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.
The contingent deferred sales charge is waived for: exchanges; any account fees;
distributions to participants or their beneficiearies in Trust Company
individual retirement plan accounts due to death, disability or attainment of
age 59 1/2; tax-free returns of excess contributions from employee benefit
plans; distributions from employee benefit plans, including those due to
termination or plan transfer; redemptions through a Systematic Withdrawal Plan
set up for shares prior to February 1, 1995, and for Systematic Withdrawal Plans
set up thereafter, 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.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
RETIREMENT ACCOUNTS
Retirement account liquidations require the completion of certain additional
forms to ensure compliance with Internal Revenue Service ("IRS") regulations. To
liquidate a retirement plan account, a shareholder or securities dealer may call
Franklin's Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Internal Revenue Code.
OTHER
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor 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 as described in this Prospectus by telephone. 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 Investor Services 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 by 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 Investor Services 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 Investor Services 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
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services 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 and requests for
certificates 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 for Franklin accounts or
1-800/354-9191 (press "2" when prompted to do so) for Templeton accounts.
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
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services 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.
VALUATION OF FUND SHARES
The net asset value per share of the Fund is determined as of the scheduled
closing of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum sales charge of the Fund).
The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, including, without limitation, the current
market value of any outstanding options written by the Fund, accrued expenses
and taxes and any necessary reserves, is deducted from the aggregate gross value
of all assets, and the difference is divided by the number of shares of the Fund
outstanding at the time. For the purpose of determining the aggregate net assets
of the Fund, cash and receivables are valued at their realizable amounts.
Interest is recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such reported
sale, within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The current market
value of any option held by the Fund is its last sales price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value. Other securities for
which market quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. With the approval of trustees, the Fund may
utilize a pricing service, bank or securities dealer to perform any of the above
described functions.
Securities denominated in foreign currencies and traded on foreign exchanges or
in foreign markets will be valued in a similar manner and their value translated
into U.S. dollars at the bid price of their respective currency denomination
against U.S. dollars last quoted by a major bank or, if no such quotation is
available, at the rate of exchange determined in accordance with policies
established in good faith by the Board of Trustees. Because the value of
securities denominated in foreign currencies must be translated into U.S.
dollars, fluctuations in the value of such currencies in relation to the U.S.
dollar will affect the net asset value of Fund shares even though there has not
been any change in the values of such securities.
Because foreign securities markets may close prior to the time the Fund
determines its net asset value, events affecting the value of portfolio
securities occurring between the time prices are determined and the time the
Fund calculates its net asset value will not be reflected in the Fund's
calculation of net asset value unless Advisers or the Sub-adviser, under
supervision of the Board of Trustees, determines that the particular event would
materially affect the Fund's net asset value. The Fund's portfolio securities
listed on foreign exchanges may trade on days other than the Fund's normal
business days, such as Saturdays. As a result, the net asset value of the Fund
may be significantly affected by such trading on days when shareholders have no
access to the Fund.
HOW TO GET INFORMATION
REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:
By calling the Franklin TeleFACTS(Registered Trademark) 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. In addition,
Franklin Class I shareholders may process an exchange, within the same class,
into an identically registered Franklin account; and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.
Fund information may be accessed by entering Fund Code 90 followed by the #
sign. The system's automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC
TIME)
(MONDAY THROUGH FRIDAY)
DEPARTMENT NAME TELEPHONE NO.
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin or Templeton's
service departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods or based on
investments at various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Yield which is calculated according to a formula prescribed by the SEC (see the
SAI) is not indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to shareholders
are reflected in the current distribution rate, which may be quoted to
shareholders. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past 12 months by a
current maximum offering price. Under certain circumstances, such as when there
has been a change in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the dividends paid
during the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing, and short-term capital gain, and is calculated over a different
period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the Fund's yield, distribution rate or total return may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends October 31. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Copies may be obtained by investors or shareholders,
without charge, upon request to the Fund at the telephone number or address set
forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and the SAI.
ORGANIZATION
The Trust is a Delaware business trust, organized on March 22, 1991. The Trust
is authorized to issue an unlimited number of shares of beneficial interest,
with a par value of $.01 per share, in various series. All shares have one vote,
and, when issued for the consideration described in the prospectus, are fully
paid, non-assessable, and redeemable. Currently, the Trust issues shares in two
series or funds. Additional series may be added in the future by the Board of
Trustees.
VOTING RIGHTS
Shares of each fund vote separately as to issues affecting that fund or the
Trust, unless otherwise permitted by the 1940 Act. Shares have non-cumulative
voting rights, which means that in all elections of trustees, the holders of
more than 50% of the shares voting can elect 100% of the trustees if they choose
to do so, and, in such event, the holders of the remaining shares voting will
not be able to elect any person or persons to the Board of Trustees. Delaware
corporate law does not require corporations registered as management investment
companies under the 1940 Act to hold routine annual meetings of shareholders,
and the Fund does not intend to hold such routine annual meetings. The Fund may,
however, hold a
special meeting for such purposes as changing fundamental investment
restrictions, approving a new management agreement or any other matters which
are required to be acted on by shareholders under the 1940 Act. A meeting may
also be called by a majority of the Board of Trustees or by shareholders holding
at least ten percent of the shares entitled to vote at the meeting. Shareholders
may receive assistance in communicating with other shareholders in connection
with the election or removal of trustees such as that provided in Section 16(c)
of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the SAI.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed, and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available include the "NSCC's Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Fund that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio: William T. Howard, Jr., Mark Beveridge and Gary Clemons.
BIOGRAPHICAL INFORMATION
William T. Howard, Jr.
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Howard is a Chartered Financial Analyst and holds a Master of Business
Administration degree from Emory University. He earned his Bachelor of Arts
degree from Rhodes College. Prior to joining Templeton, Mr. Howard was a
portfolio manager and analyst with the State of Tennessee Consolidated
Retirement System. He started managing the Fund upon joining Templeton in 1993.
Mark R. Beveridge
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Beveridge is a Chartered Financial Analyst and holds a Bachelor of Business
Administration degree in finance from the University of Miami. He joined
Templeton in 1985 and started managing the Fund in January 1994.
Gary Clemons
Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Clemons is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of Wisconsin at Madison. He earned his
Bachelor of Science degree in Earth Science from the University of Nevada at
Reno. Mr. Clemons was a research analyst for Structured Asset Management. He
joined Templeton in 1990.
