Registration No. 33-42163
As filed with the Securities and Exchange Commission on April 29, 1996
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 5 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 7 X
(Check appropriate box or boxes)
TEMPLETON DEVELOPING MARKETS TRUST
(Exact Name of Registrant as Specified in Charter)
700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (813) 823-8712
Thomas M. Mistele
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
X on MAY 1, 1996 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on pursuant to paragraph (a)(2) of Rule 485
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
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The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and filed its Rule 24f-2 Notice for the fiscal
year ended December 31, 1995 on February 29, 1996.
TEMPLETON DEVELOPING MARKETS TRUST
CROSS-REFERENCE SHEET
PART A
ITEM NO. CAPTION
1 Cover Page
2 Expense Table
3 Financial Highlights
4 General Description; Investment Techniques
5 Management of the Fund
5A See Annual Report to Shareholders
6 General Information
7 How to Buy Shares of the Fund
8 How to Sell Shares of the Fund
9 Not Applicable
PART B
10 Cover Page
11 Table of Contents
12 General Information and History
13 Investment Objective and Policies
14 Management of the Fund
15 Principal Shareholders
16 Investment Management and Other Services
17 Brokerage Allocation
18 Description of Shares; Part A
19 Purchase, Redemption and Pricing of Shares
20 Tax Status
21 Principal Underwriter
22 Performance Information
23 Financial Statements
TEMPLETON
DEVELOPING MARKETS TRUST PROSPECTUS -- MAY 1, 1996
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INVESTMENT Templeton Developing Markets Trust (the "Fund") seeks long-
OBJECTIVE AND term capital appreciation by investing in securities of
POLICIES issuers of countries having developing markets. INVESTMENT IN
SUCH SECURITIES INVOLVES CERTAIN CONSIDERATIONS WHICH ARE NOT
NORMALLY INVOLVED IN INVESTMENT IN SECURITIES OF U.S.
COMPANIES, AND AN INVESTMENT IN THE FUND MAY BE CONSIDERED
SPECULATIVE. THE FUND MAY BORROW MONEY FOR INVESTMENT
PURPOSES, WHICH MAY INVOLVE GREATER RISK AND ADDITIONAL COSTS
TO THE FUND. IN ADDITION, THE FUND MAY INVEST UP TO 10% OF ITS
ASSETS IN RESTRICTED SECURITIES, WHICH MAY INVOLVE GREATER
RISK AND INCREASED FUND EXPENSES. SEE "RISK FACTORS."
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PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Shareholder Services Department. The Fund offers two classes
to its investors: Templeton Developing Markets Trust--Class I
("Class I") and Templeton Developing Markets Trust--Class II
("Class II"). Investors can choose between Class I Shares,
which generally bear a higher front-end sales charge and lower
ongoing Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and
Class II Shares, which generally have a lower front-end sales
charge and higher ongoing Rule 12b-1 fees. Investors should
consider the differences between the two classes, including
the impact of sales charges and distribution fees, in choosing
the more suitable class given their anticipated investment
amount and time horizon. See "How to Buy Shares of the Fund--
Differences Between Class I and Class II." The minimum initial
investment is $100 ($25 minimum for subsequent investments).
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PROSPECTUS This Prospectus sets forth concisely information about the
INFORMATION Fund that a prospective investor ought to know before
investing. Investors are advised to read and retain this
Prospectus for future reference. A Statement of Additional
Information ("SAI") dated May 1, 1996 has been filed with the
Securities and Exchange Commission (the "SEC") and is
incorporated in its entirety by reference in and made a part
of this Prospectus. The SAI is available without charge upon
request to Franklin Templeton Distributors, Inc., P.O. Box
33030, St. Petersburg, Florida 33733-8030 or by calling the
Fund Information Department.
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FUND INFORMATION DEPARTMENT -- 1-800/DIAL BEN
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TELEFACTS (R)--FRANKLIN TEMPLETON'S AUTOMATED CUSTOMER SERVICING SYSTEM (24
HOURS, SEVEN DAYS A WEEK ACCESS TO CURRENT PRICES, SHAREHOLDER ACCOUNT
BALANCES/VALUES, AND LAST TRANSACTION)--1-800-247-1753. ACCESS CODES: 711
(CLASS I); 791 (CLASS II)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXPENSE TABLE......... 2
FINANCIAL HIGHLIGHTS.. 3
GENERAL DESCRIPTION... 5
Investment Objective
and Policies......... 5
INVESTMENT TECHNIQUES. 6
Temporary Investments. 6
Borrowing............. 7
Loans of Portfolio
Securities........... 7
Options on Securities
or Indices........... 7
Forward Foreign
Currency Contracts
and Options on
Foreign Currencies... 7
Closed-End Investment
Companies............ 8
Futures Contracts..... 8
Repurchase Agreements. 8
Depositary Receipts... 9
RISK FACTORS.......... 9
HOW TO BUY SHARES OF
THE FUND............. 11
Differences Between
Class I and
Class II............. 11
Deciding Which Class
to Purchase.......... 12
Offering Price--Class
I.................... 12
Offering Price--Class
II................... 15
Net Asset Value
Purchases
(Both Classes)....... 15
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of Special
Net Asset Value
Purchases............ 16
Additional Dealer
Compensation
(Both Classes)....... 17
Purchasing Class I and
Class II Shares...... 17
Automatic Investment
Plan................. 18
Institutional
Accounts............. 18
Account Statements.... 18
TeleFACTS(R) System... 18
Retirement Plans...... 18
Net Asset Value....... 18
EXCHANGE PRIVILEGE.... 19
Exchanges of Class I
Shares............... 20
Exchanges of Class II
Shares............... 20
Transfers............. 20
Conversion Rights..... 21
HOW TO SELL SHARES OF
THE FUND............. 21
Reinstatement
Privilege............ 23
Systematic Withdrawal
Plan................. 23
Redemptions by
Telephone ........... 24
Contingent Deferred
Sales Charge......... 24
TELEPHONE
TRANSACTIONS......... 25
Verification
Procedures .......... 25
Restricted Accounts .. 25
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
General .............. 26
MANAGEMENT OF THE
FUND................. 26
Investment Manager.... 26
Business Manager...... 27
Transfer Agent........ 27
Custodian............. 27
Plans of Distribution. 27
Expenses.............. 28
Brokerage Commissions. 28
GENERAL INFORMATION... 28
Description of
Shares/Share
Certificates......... 28
Voting Rights......... 29
Meetings of
Shareholders......... 29
Dividends and
Distributions........ 29
Federal Tax
Information.......... 30
Inquiries............. 30
Performance
Information.......... 30
Statements and
Reports.............. 30
WITHHOLDING
INFORMATION.......... 31
CORPORATE RESOLUTIONS. 32
AUTHORIZATION
AGREEMENT............ 33
THE FRANKLIN TEMPLETON
GROUP................ 34
</TABLE>
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF CAPITAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a Shareholder will bear directly or indirectly
in connection with an investment in the Fund. The figures are estimates of the
Fund's expenses for the current fiscal year, restated to reflect current sales
charges and Rule 12b-1 fees for each class.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS I CLASS II
------- --------
Maximum Sales Charge Imposed on Purchases (as a percentage
of Offering Price)........................................ 5.75% 1.00%/1/
Deferred Sales Charge...................................... None/2/ 1.00%/3/
Exchange Fee (per transaction)............................. None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................................ 1.25% 1.25%
Rule 12b-1 Fees/4/......................................... 0.35% 1.00%
Other Expenses (audit, legal, business management, transfer
agent and custodian)...................................... 0.50% 0.50%
Total Fund Operating Expenses.............................. 2.10% 2.75%
</TABLE>
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/1/Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fees for Class II may cause Shareholders to pay more
for Class II Shares than for Class I Shares. Given the maximum front-end
sales charge and the rate of Rule 12b-1 fees for each class, it is estimated
that this would take less than six years for Shareholders who maintain total
Shares valued at less than $50,000 in the Franklin Templeton Funds.
Shareholders with larger investments in the Franklin Templeton Funds will
reach the cross-over point more quickly. (See "How to Buy Shares of the
Fund.")
/2/Class I investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How to Sell Shares of the Fund--
Contingent Deferred Sales Charge."
/3/Class II Shares redeemed within a "contingency period" of 18 months of the
calendar month of such investments are subject to a 1% contingent deferred
sales charge. See "How to Sell Shares of the Fund--Contingent Deferred Sales
Charge."
/4/Annual Rule 12b-1 fees may not exceed 0.35% of the Fund's average net assets
attributable to Class I Shares and 1% of the Fund's average net assets
attributable to Class II Shares. Consistent with the National Association of
Securities Dealers, Inc.'s rules, it is possible that the combination of
front-end sales charges and Rule 12b-1 fees could cause long-term
Shareholders to pay more than the economic equivalent of the maximum front-
end sales charges permitted under those same rules.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. The information in this table does not reflect the charge of up to
$15 per transaction if a Shareholder requests that redemption proceeds be sent
by express mail or wired to a commercial bank account. For a more detailed
discussion of these matters, investors should refer to the appropriate
sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge and applicable
contingent deferred sales charge, that apply to a $1,000 investment in the
Fund over various time periods assuming (1) a 5% annual rate of return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class I........................ $78 $120 $164 $287
Class II....................... $47 $ 94 $154 $315
You would pay the following
expenses on the same
investment in Class II Shares,
assuming no redemption........ $38 $ 94 $154 $315
</TABLE>
For the purpose of this example, it is assumed that a contingent deferred
sales charge will not apply to Class I Shares.
THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES, INCLUDING
FEES SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly
by Shareholders as a result of their investment in the Fund. In addition,
federal securities regulations require the example to assume an annual rate of
return of 5%, but the Fund's actual return may be more or less than 5%.
2
FINANCIAL HIGHLIGHTS
The following tables of selected financial information have been audited by
McGladrey & Pullen, LLP, independent certified public accountants, for the
periods indicated in their report which is incorporated by reference and which
appears in the Fund's 1995 Annual Report to Shareholders. These statements
should be read in conjunction with the other financial statements and notes
thereto included in the Fund's 1995 Annual Report to Shareholders, which
contains further information about the Fund's performance, and which is
available to Shareholders upon request and without charge.
<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------------------------
OCTOBER 17, 1991
YEAR ENDED DECEMBER 31, (COMMENCEMENT
--------------------------------------------- OF OPERATIONS) TO
PER SHARE OPERATING 1995 1994 1993 1992 DECEMBER 31, 1991
PERFORMANCE ---------- ---------- ---------- -------- -----------------
(for a Share outstanding
throughout the period)
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 13.42 $ 15.27 $ 8.86 $ 10.02 $ 10.00
---------- ---------- ---------- -------- -------
Income from investment
operations:
Net investment income .21 .14 .04 .08 .01
Net realized and
unrealized gain (loss) (.18) (1.44) 6.55 (1.06) .03
---------- ---------- ---------- -------- -------
Total from investment
operations .03 (1.30) 6.59 (.98) .04
---------- ---------- ---------- -------- -------
Distributions:
Dividends from net
investment income (.20) (.12) (.05) (.07) (.01)
Distributions from net
realized gains (.24) (.43) (.13) (.11) --
Distributions from
other sources -- -- -- -- (.01)
---------- ---------- ---------- -------- -------
Total distributions (.44) (.55) (.18) (.18) (.02)
---------- ---------- ---------- -------- -------
Change in net asset
value (.41) (1.85) 6.41 (1.16) .02
---------- ---------- ---------- -------- -------
Net asset value, end of
period $ 13.01 $ 13.42 $ 15.27 $ 8.86 $ 10.02
========== ========== ========== ======== =======
TOTAL RETURN* .36% (8.64)% 74.50% (9.75)% 0.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $2,147,664 $2,009,154 $1,396,392 $180,189 $23,744
Ratio of expenses to
average net assets 2.10% 2.11% 2.20% 2.52% 3.78%**
Ratio of expenses, net
of reimbursement, to
average net assets 2.10% 2.11% 2.20% 2.25% 2.25%**
Ratio of net investment
income to average net
assets 1.66% 1.08% .57% 1.30% .86%**
Portfolio turnover rate 9.76% 18.57% 16.01% 21.98% --
</TABLE>
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*Total return does not reflect sales charges. Not annualized for periods less
than one year.
**Annualized.
3
FINANCIAL HIGHLIGHTS--(CONTINUED)
<TABLE>
<CAPTION>
CLASS II
-----------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
PER SHARE OPERATING PERFORMANCE DECEMBER 31, 1995
(For a Share outstanding throughout the period) -----------------
<S> <C>
Net asset value, beginning of period $13.10
-------
Income from investment operations:
Net investment income .02
Net realized and unrealized gain (loss) .19
-------
Total from investment operations .21
-------
Distributions:
Dividends from net investment income (.18)
Distributions from net realized gains (.18)
-------
Total distributions (.36)
-------
Change in net asset value (.15)
-------
Net asset value, end of period $12.95
=======
TOTAL RETURN* 1.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $41,012
Ratio of expenses to average net assets 2.73%**
Ratio of net investment income to average net assets .19%**
Portfolio turnover rate 9.76%
</TABLE>
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* Total return does not reflect sales commissions or the contingent deferred
sales charge. Not annualized for periods of less than one year.
** Annualized.
+ Commencement of sales.
4
GENERAL DESCRIPTION
Templeton Developing Markets Trust (the "Fund") was organized as a business
trust under the laws of Massachusetts on August 9, 1991, and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end diversified management investment company. The Fund has two classes
of Shares of beneficial interest with a par value of $.01: Templeton
Developing Markets Trust--Class I and Templeton Developing Markets Trust--
Class II. All Fund Shares outstanding before May 1, 1995 have been
redesignated as Class I Shares, and will retain their previous rights and
privileges, except for legally required modifications to Shareholder voting
procedures, as discussed in "General Information--Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public Offering Price. The current public
Offering Price of the Class I Shares is equal to the net asset value per Share
(see "How to Buy Shares of the Fund--Net Asset Value"), plus a variable sales
charge not exceeding 5.75% of the Offering Price depending upon the amount
invested. The current public Offering Price of the Class II Shares is equal to
the net asset value per Share, plus a sales charge of 1% of the Offering
Price. (See "How to Buy Shares of the Fund.")
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is
long-term capital appreciation. The Fund seeks to achieve this objective by
investing primarily in equity securities of issuers in countries having
developing markets. The investment objective of the Fund described above is a
fundamental policy of the Fund and may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act. It is currently expected that under normal conditions
at least 65% of the Fund's total assets will be invested in developing market
equity securities. The Fund and its investment manager, Templeton Asset
Management Ltd.--Hong Kong Branch (the "Investment Manager"), may, from time
to time, use various methods of selecting securities for the Fund's portfolio,
and may also employ and rely on independent or affiliated sources of
information and ideas in connection with management of the Fund's portfolio.
The Investment Manager generally will provide three portfolio managers for the
Fund, and such portfolio management assignments may, from time to time, be
changed or improved. There can be no assurance that the Fund's investment
objective will be achieved.
The Fund considers countries having developing markets to be all countries
that are generally considered to be developing or emerging countries by the
International Bank for Reconstruction and Development (more commonly referred
to as the World Bank) or the International Finance Corporation, as well as
countries that are classified by the United Nations or otherwise regarded by
their authorities as developing. Currently, the countries not in this category
include Ireland, Spain, New Zealand, Australia, the United Kingdom, Italy, the
Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the United
States, Sweden, Finland, Norway, Japan, Iceland, Luxembourg and Switzerland.
In addition, as used in this Prospectus, developing market equity securities
means (i) equity securities of companies the principal securities trading
market for which is a developing market country, as defined above, (ii) equity
securities, traded in any market, of companies that derive 50% or more of
their total revenue from either goods or services produced in developing
market countries or sales made in developing market countries or (iii) equity
securities of companies organized under the laws of, and with a principal
office in, a developing market country. "Equity securities," as used in this
Prospectus, refers to common stock, preferred stock, warrants or rights to
subscribe to or purchase such securities and sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), and
Global Depositary Receipts ("GDRs") (collectively, "Depositary Receipts").
Determinations as to eligibility will be made by the Investment Manager based
on publicly available information and inquiries made to the companies. (See
"Risk Factors" for a discussion of the nature of information publicly
available for non-U.S. companies.) The Fund will at all times, except during
defensive periods, maintain investments in at least three countries having
developing markets.
The Fund seeks to benefit from economic and other developments in developing
markets. The investment objective of the Fund reflects the belief that
investment opportunities may result from an evolving long-term international
trend favoring more market-oriented economies, a trend that may especially
benefit certain countries having developing markets. This trend may be
facilitated by local or
5
international political, economic or financial developments that could benefit
the capital markets of such countries. Certain such countries, which may be in
the process of developing more market-oriented economies, may experience
relatively high rates of economic growth. Other countries although having
relatively mature developing markets, may also be in a position to benefit
from local or international developments encouraging greater market
orientation and diminishing governmental intervention in economic affairs.
For capital appreciation, the Fund may invest up to 35% of its total assets
in debt securities (defined as bonds, notes, debentures, commercial paper,
certificates of deposit, time deposits and bankers' acceptances and which may
include structured investments) which are rated at least C by Moody's
Investors Service, Inc. ("Moody's") or C by Standard & Poor's Corporation
("S&P") or unrated debt securities deemed to be of comparable quality by the
Investment Manager. See "Risk Factors." As an operating policy, which may be
changed by the Board of Trustees, the Fund will not invest more than 5% of its
total assets in debt securities rated lower than Baa by Moody's or BBB by S&P.
Certain debt securities can provide the potential for capital appreciation
based on various factors such as changes in interest rates, economic and
market conditions, improvement in an issuer's ability to repay principal and
pay interest, and ratings upgrades. Additionally, convertible bonds offer the
potential for capital appreciation through the conversion feature, which
enables the holder of the bond to benefit from increases in the market price
of the securities into which they are convertible.
The Fund may also lend its portfolio securities and borrow money for
investment purposes (i.e., "leverage" its portfolio). In addition, the Fund
may enter into transactions in options on securities, securities indices and
foreign currencies, forward foreign currency contracts, and futures contracts
and related options. When deemed appropriate by the Investment Manager, the
Fund may invest cash balances in repurchase agreements and other money market
investments to maintain liquidity in an amount to meet expenses or for day-to-
day operating purposes. These investment techniques are described below and
under the heading "Investment Objective and Policies" in the SAI.
When the Investment Manager believes that market conditions warrant, the
Fund may adopt a temporary defensive position and may invest without limit in
money market securities denominated in U.S. dollars or in the currency of any
foreign country. See "Investment Techniques--Temporary Investments."
The Fund does not emphasize short-term trading profits and usually expects
to have an annual portfolio turnover rate not exceeding 50%.
INVESTMENT TECHNIQUES
The Fund is authorized to use the various investment techniques described
below. Although these strategies are regularly used by some investment
companies and other institutional investors in various markets, some of these
strategies cannot at the present time be used to a significant extent by the
Fund in some of the markets in which the Fund will invest and may not be
available for extensive use in the future.
TEMPORARY INVESTMENTS. For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in the following money market securities,
denominated in U.S. dollars or in the currency of any foreign country, issued
by entities organized in the United States or any foreign country: short-term
(less than twelve months to maturity) and medium-term (not greater than five
years to maturity) obligations issued or guaranteed by the U.S. Government or
the governments of foreign countries, their agencies or instrumentalities;
finance company and corporate commercial paper, and other short-term corporate
obligations, in each case rated Prime-1 by Moody's or A or better by S&P or,
if unrated, of comparable quality as determined by the Investment Manager;
obligations (including certificates of deposit, time deposits and bankers'
acceptances) of banks; and repurchase agreements with banks and broker-dealers
with respect to such securities.
6
BORROWING. The Fund may borrow up to one-third of the value of its total
assets from banks to increase its holdings of portfolio securities. Under the
1940 Act, the Fund is required to maintain continuous asset coverage of 300%
with respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if such liquidations of the
Fund's holdings may be disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of portfolio securities on the Fund's net asset value,
and money borrowed will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average
balances), which may or may not exceed the income received from the securities
purchased with borrowed funds.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of its total
assets to generate income. Such loans must be secured by collateral
(consisting of any combination of cash, U.S. Government securities or
irrevocable letters of credit) in an amount at least equal (on a daily marked-
to-market basis) to the current market value of the securities loaned. The
Fund may terminate the loans at any time and obtain the return of the
securities loaned within five business days. The Fund will continue to receive
any interest or dividends paid on the loaned securities and will continue to
retain any voting rights with respect to the securities. In the event that the
borrower defaults on its obligation to return borrowed securities, because of
insolvency or otherwise, the Fund could experience delays and costs in gaining
access to the collateral and could suffer a loss to the extent that the value
of the collateral falls below the market value of the borrowed securities.
OPTIONS ON SECURITIES OR INDICES. The Fund may write (i.e., sell) covered
put and call options and purchase put and call options on securities or
securities indices that are traded on United States and foreign exchanges or
in the over-the-counter markets. An option on a security is a contract that
permits the purchaser of the option, in return for the premium paid, the right
to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the writer of the
option at a designated price during the term of the option. An option on a
securities index permits the purchaser of the option, in return for the
premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of
the option. The Fund may write a call or put option to generate income, and
will do so only if the option is "covered." This means that so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the call, or hold a call at the same or lower exercise
price, for the same exercise period, and on the same securities as the written
call. A put is covered if the Fund maintains liquid assets with a value at
least equal to the exercise price in a segregated account, or holds a put on
the same underlying securities at an equal or greater exercise price. The
value of the underlying securities on which options may be written at any one
time will not exceed 15% of the total assets of the Fund. The Fund will not
purchase put or call options if the aggregate premium paid for such options
would exceed 5% of its total assets at the time of purchase.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES. The
Fund will normally conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward contracts to
purchase or sell foreign currencies. The Fund will generally not enter into a
forward contract with a term of greater than one year. A forward contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers.
The Fund will generally enter into forward contracts only under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign currency needed
to settle the transaction. Second, when the Investment Manager believes that
the currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to
sell or buy the former foreign currency (or another currency which acts as a
proxy for that currency) approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging." The Fund will
not enter into forward
7
contracts if, as a result, the Fund will have more than 20% of its total
assets committed to the consummation of such contracts. Although forward
contracts will be used primarily to protect the Fund from adverse currency
movements, they also involve the risk that anticipated currency movements will
not be accurately predicted.
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign currency-denominated portfolio securities
and against increases in the U.S. dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, it may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund are traded on U.S. and
foreign exchanges or over-the-counter.
CLOSED-END INVESTMENT COMPANIES. Some countries, such as South Korea, Chile
and India, have authorized the formation of closed-end investment companies to
facilitate indirect foreign investment in their capital markets. In accordance
with the 1940 Act, the Fund may invest up to 10% of its total assets in
securities of closed-end investment companies. This restriction on investments
in securities of closed-end investment companies may limit opportunities for
the Fund to invest indirectly in certain developing markets. Shares of certain
closed-end investment companies may at times be acquired only at market prices
representing premiums to their net asset values. If the Fund acquires shares
of closed-end investment companies, Shareholders would bear both their
proportionate share of expenses of the Fund (including management and advisory
fees) and, indirectly, the expenses of such closed-end investment companies.
FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell
financial futures contracts, stock index futures contracts, foreign currency
futures contracts and options on any of the foregoing. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the
difference between the value of the index at the beginning and at the end of
the contract period. A futures contract on a foreign currency is an agreement
to buy or sell a specified amount of a currency for a set price on a future
date.
When the Fund enters into a futures contract, it must make an initial
deposit, known as "initial margin," as a partial guarantee of its performance
under the contract. As the value of the security, index or currency
fluctuates, either party to the contract is required to make additional margin
payments, known as "variation margin," to cover any additional obligation it
may have under the contract. In addition, when the Fund enters into a futures
contract, it will segregate assets or "cover" its position in accordance with
the 1940 Act. See "Investment Objective and Policies--Futures Contracts" in
the SAI. The Fund may not commit more than 5% of its total assets to initial
margin deposits on futures contracts and related options. The value of the
underlying securities on which futures contracts will be written at any one
time will not exceed 25% of the total assets of the Fund.
REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash
management purposes, the Fund may enter into repurchase agreements with U.S.
banks and broker-dealers. Under a repurchase agreement the Fund acquires a
security from a U.S. bank or a registered broker-dealer who simultaneously
agrees to repurchase the security at a specified time and price. The
repurchase price is in excess of the purchase price by an amount which
reflects an agreed-upon rate of return, which is not tied to the coupon rate
on the underlying security. Under the 1940 Act, repurchase agreements are
considered to be loans collateralized by the underlying security and therefore
will be fully collateralized. However, if the seller should default on its
obligation to repurchase the underlying security, the Fund may experience
delay or difficulty in exercising its rights to realize upon the security and
might incur a loss if the value of the security declines, as well as incur
disposition costs in liquidating the security.
8
DEPOSITARY RECEIPTS. ADRs are Depositary Receipts typically issued by a U.S.
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs and GDRs are typically issued by foreign banks
or trust companies, although they also may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a United States corporation. Generally, Depositary Receipts in
registered form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Depositary Receipts may be issued pursuant to sponsored or
unsponsored programs. In sponsored programs, an issuer has made arrangements
to have its securities traded in the form of Depositary Receipts. In
unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value
of the Depositary Receipts. Depositary Receipts also involve the risks of
other investments in foreign securities, as discussed below. For purposes of
the Fund's investment policies, the Fund's investments in Depositary Receipts
will be deemed to be investments in the underlying securities.
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets. A
decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the price of the Shares of the Fund. Changes
in currency valuations will also affect the price of the Shares of the Fund.
History reflects both decreases and increases in stock markets and currency
valuations, and these may reoccur unpredictably in the future. The value of
debt securities held by the Fund generally will vary severely with changes in
prevailing interest rates. Additionally, investment decisions made by the
Investment Manager will not always be profitable or prove to have been
correct. The Fund is not intended as a complete investment program.
The Fund has the right to purchase securities in any foreign country,
developed or developing. Investors should consider carefully the substantial
risks involved in investing in securities issued by companies and governments
of foreign nations, which are in addition to the usual risks inherent in
domestic investments. These risks are often heightened for investments in
developing markets, including certain Eastern European countries. See "Risk
Factors" in the SAI. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations (including, for example, withholding taxes on interest and dividends)
or other taxes imposed with respect to investments in foreign nations, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), foreign investment controls on daily stock
market movements, default in foreign government securities, political or
social instability, or diplomatic developments which could affect investment
in securities of issuers in foreign nations. In addition, in many countries
there is less publicly available information about issuers than is available
in reports about companies in the United States. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to U.S. companies. The Fund may encounter difficulties or be
unable to vote proxies, exercise shareholder rights, pursue legal remedies,
and obtain judgments in foreign courts. Also, some countries may withhold
portions of income and dividends at the source. These considerations generally
are more of a concern in developing countries, where the possibility of
political instability (including revolution) and dependence on foreign
economic assistance may be greater than in developed countries. Investments in
companies domiciled in developing countries therefore may be subject to
potentially higher risks than investments in developed countries.
9
Brokerage commissions, custodial services, and other costs relating to
investment in developing markets are generally more expensive than in the
United States. Foreign securities markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Russia's system of share registration and
custody creates certain risks of loss (including the risk of total loss) that
are not normally associated with investments in other securities markets.
These risks and other risks associated with the Russian securities market are
discussed more fully in the SAI under the caption "Investment Objectives and
Policies--Risk Factors" and investors should read this section in detail. As a
non-fundamental policy, the Fund will limit its investments in Russian
companies to 5% of its total assets.
Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among
other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade.
In many developing markets, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. There is an increased risk,
therefore, of uninsured loss due to lost, stolen, or counterfeit stock
certificates. In addition, the foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid, and
subject to greater price volatility than those in the United States. The Fund
may invest in Eastern European countries, which involves special risks that
are described under "Investment Objective and Policies--Risk Factors" in the
SAI.
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange transactions (to cover service
charges) will be incurred when the Fund converts assets from one currency to
another.
The Fund is authorized to invest in medium quality or high-risk, lower
quality debt securities that are rated between BBB and as low as C by S&P, and
between Baa and as low as C by Moody's or, if unrated, are of equivalent
investment quality as determined by the Investment Manager. As an operating
policy, which may be changed by the Board of Trustees without Shareholder
approval, the Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P or Baa by Moody's. The Board may
consider a change in this operating policy if, in its judgment, economic
conditions change such that a higher level of investment in high-risk, lower
quality debt securities would be consistent with the interests of the Fund and
its Shareholders. See "Investment Objective and Policies--Debt Securities" in
the SAI for descriptions of debt securities rated BBB by S&P and Baa by
Moody's. High-risk, lower quality debt securities, commonly referred to as
"junk bonds," are regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation and may be in default.
10
Unrated debt securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers. Regardless of
rating levels, all debt securities considered for purchase (whether rated or
unrated) will be carefully analyzed by the Investment Manager to insure, to
the extent possible, that the planned investment is sound. The Fund may, from
time to time, purchase defaulted debt securities if, in the opinion of the
Investment Manager, the issuer may resume interest payments in the near
future. As a fundamental policy, the Fund will not invest more than 10% of its
total assets (at the time of purchase) in defaulted debt securities, which may
be illiquid.
Leveraging by means of borrowing may exaggerate the effect of any increase
or decrease in the value of portfolio securities on the Fund's net asset
value, and money borrowed will be subject to interest and other costs (which
may include commitment fees and/or the cost of maintaining minimum average
balances) which may or may not exceed the income received from the securities
purchased with borrowed funds.
Successful use of futures contracts and related options is subject to
special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation
between movements in the securities or foreign currency on which the futures
or options contract is based and movements in the securities or currency in
the Fund's portfolio. Successful use of futures or options contracts is
further dependent on the Investment Manager's ability to correctly predict
movements in the securities or foreign currency markets and no assurance can
be given that its judgement will be correct. Successful use of options on
securities or stock indices is subject to similar risk considerations. In
addition, by writing covered call options, the Fund gives up the opportunity,
while the option is in effect, to profit from any price increase in the
underlying security above the option exercise price.
There are further risk factors, including possible losses through the
holding of securities in domestic and foreign custodian banks and
depositories, described elsewhere in the Prospectus and in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter of the Shares of the Fund, or directly from
FTD upon receipt by FTD of a completed Shareholder Application and check
payable in U.S. currency. Shares of both classes of the Fund are offered at
their respective public Offering Prices, which are determined by adding the
net asset value per share plus a front-end sales charge, next computed (i)
after the Shareholder's securities dealer receives the order which is promptly
transmitted to the Fund or (ii) after receipt of an order by mail from the
Shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The minimum
initial investment is $100, and subsequent investments must be $25 or more.
These minimums may be waived when the Shares are being purchased through
retirement plans providing for regular periodic investments, as described
below under "Retirement Plans."
DIFFERENCES BETWEEN CLASS I AND CLASS II. The differences between Class I
and Class II Shares lie primarily in their front-end and contingent deferred
sales charges and Rule 12b-1 fees as described below.
Class I. All Fund Shares outstanding before the implementation of the
multiclass structure have been redesignated as Class I Shares, and will retain
their previous rights and privileges. Voting rights of each class will be the
same on matters affecting the Fund as a whole, but each will vote separately
on matters affecting its class. Class I Shares are generally subject to a
variable sales charge upon purchase and not subject to any sales charge upon
redemption. Class I Shares are subject to Rule 12b-1 fees of up to an annual
maximum of 0.35% of average daily net assets of such Shares. With this
multiclass structure, Class I Shares have higher front-end sales charges than
Class II Shares and comparatively lower Rule 12b-1 fees. Class I Shares may be
purchased at reduced front-end
11
sales charges, or at net asset value, if certain conditions are met. In most
circumstances, contingent deferred sales charges will not be assessed against
redemptions of Class I Shares. See "Management of the Fund" and "How to Sell
Shares of the Fund" for more information.
Class II. The current public Offering Price of Class II Shares is equal to
the net asset value per Share, plus a front-end sales charge of 1% of the
Offering Price. Class II Shares are also subject to a contingent deferred
sales charge of 1% if Shares are redeemed within 18 months of the calendar
month of the purchase. In addition, Class II Shares are subject to Rule 12b-1
fees of up to a maximum of 1% per annum of average daily net assets of such
Shares, 0.75% of which will be retained by FTD during the first year of
investment. Class II Shares have lower front-end sales charges than Class I
Shares and comparatively higher Rule 12b-1 fees. See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
Purchases of Class II Shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since that is more beneficial to investors. Such purchases, however,
may be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II Shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which
class of Shares to purchase. Generally, an investor who expects to invest less
than $50,000 in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of investment
should consider purchasing Class II Shares. However, the higher Rule 12b-1
fees on the Class II Shares will result in higher operating expenses, which
will accumulate over time to outweigh the difference in front-end sales
charges and will lower dividends for Class II Shares. For this reason, Class I
Shares may be more attractive to long-term investors even if no sales charge
reductions are available to them.
Investors who qualify to purchase Class I Shares at reduced sales charges
definitely should consider purchasing Class I Shares, especially if they
intend to hold their Shares approximately six years or more. Investors who
qualify to purchase Class I Shares at reduced sales charges but who intend to
hold their Shares less than approximately six years should evaluate whether it
is more economical to purchase Class I Shares through a Letter of Intent or
under cumulative quantity discount rather than purchasing Class II Shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED
FROM PURCHASING CLASS II SHARES.
Each class represents the same interest in the investment portfolio of the
Fund and has the same rights, except that each class has a different sales
charge, bears the separate expenses of its Rule 12b-1 distribution plan, and
has exclusive voting rights with respect to such plan. The two classes also
have separate exchange privileges.
Each class also has a separate schedule for compensating securities dealers
for selling Fund Shares. Investors should take all of the factors regarding an
investment in each class into account before deciding which class of Shares to
purchase.
OFFERING PRICE--CLASS I. The sales charge for Class I Shares is a variable
percentage of the Offering Price depending upon the amount of the sale. The
method of calculating net asset value per Share is described under "Net Asset
Value."
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual together with his or her spouse and their children
under age 21 and their grandchildren under age 21, or by a single trust
account or fiduciary account, other than an employee benefit plan holding
Shares of the Fund on or before February 1, 1995, is the net asset value per
Share plus a
12
sales charge not exceeding 5.75% of the Offering Price (equivalent to 6.10% of
the net asset value), which is reduced on larger sales as shown below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-----------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
AT OFFERING PRICE OF THE SHARES PURCHASED OF THE SHARES PURCHASED RETAINED BY DEALERS/1/,/3/
- ----------------- ----------------------- ----------------------- --------------------------
<S> <C> <C> <C>
Less than $50,000....... 5.75% 6.10% 5.00%
$50,000 but less than
$100,000............... 4.50% 4.71% 3.75%
$100,000 but less than
$250,000............... 3.50% 3.63% 2.80%
$250,000 but less than
$500,000............... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000............. 2.00% 2.04% 1.60%
$1,000,000 or more...... none none (see below)/2/
</TABLE>
- ---------
/1/Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
/2/The following commissions will be paid by FTD, from its own resources, to
securities dealers who initiate and are responsible for purchases of $1
million or more: 1% 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.
/3/At the discretion of FTD, all sales charges may at times be reallowed to the
securities dealer. If 90% or more of the sales commission is reallowed, such
securities dealer may be deemed to be an underwriter as that term is defined
in the Securities Act of 1933.
No front-end sales charge applies to investments of $1 million or more, but
a contingent deferred sales charge of 1% is imposed on certain redemptions of
all or a portion of investments of $1 million or more within 12 months of the
calendar month of such investments ("contingency period"). See "How to Sell
Shares of the Fund--Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on
the purchase of Class I Shares is determined by adding the amount of the
Shareholder's current purchase plus the cost or current value (whichever is
higher) of a Shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds(R) and the Templeton Family of Funds. Included for
these aggregation purposes are (i) the mutual funds in the Franklin Group of
Funds(R) except Franklin Valuemark Funds and Franklin Government Securities
Trust (the "Franklin Funds"); and (ii) the U.S.-registered mutual funds in the
Templeton Family of Funds except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, and Templeton Variable Products Series Fund
(the "Templeton Funds"). (Franklin Funds and Templeton Funds are collectively
referred to as "Franklin Templeton Funds.")
Other Payments to Securities Dealers. FTD, or one of its affiliates, may
make payments, from its own resources, of up to 1% of the purchase price to
securities dealers who initiate and are responsible for purchases made at net
asset value by certain designated retirement plans (as defined below)
(excluding IRA and IRA rollovers), certain non-designated plans (as defined
below), certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of
$1 million or more. See definitions under "Description of Special Net Asset
Value Purchases" below and as set forth in the SAI.
A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan account which was a Shareholder in the Fund on or before
February 1, 1995. Of the 4% sales charge applicable to such purchases, 3.20%
of the Offering Price will be retained by dealers.
Payments by FTD or one of its affiliates to securities dealers of up to 1%
of the purchase price of Class I Shares (purchased at net asset value), may
not be made to the extent such persons are compensated by FTD or one of its
affiliates for administration or recordkeeping costs for retirement plans.
13
Cumulative Quantity Discount. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (i) the
value (calculated at the applicable Offering Price) or (ii) the purchase
price, of Franklin Templeton Funds. The cumulative quantity discount applies
to Franklin Templeton Funds owned at the time of purchase by the purchaser,
his or her spouse, their children under age 21 and their grandchildren under
age 21. In addition, the aggregate investments of a trustee or other fiduciary
account (for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is available, even
though there may be a number of beneficiaries of the account. For example, if
the investor held Class I Shares valued at $40,000 (or, if valued at less than
$40,000, had been purchased for $40,000) and purchased an additional $20,000
of the Fund's Class I Shares, the sales charge for the $20,000 purchase would
be at the rate of 4.50%. It is FTD's policy to make available to investors the
best sales charge rate possible; however, there can be no assurance that an
investor will receive the appropriate discount unless, at the time of placing
the purchase order, the investor or the dealer makes a request for the
discount and gives FTD sufficient information to determine whether the
purchase will qualify for the discount. On telephone orders from dealers for
the purchase of Class I Shares to be registered in "street name," FTD will
accept the dealer's instructions with respect to the applicable sales
commission rate to be applied. The cumulative quantity discount may be amended
or terminated at any time.
Letter of Intent. An investor may be eligible for reduced sales charges on
all investments in Class I Shares by means of a Letter of Intent ("LOI") which
expresses the investor's intention to invest a certain amount within a 13-
month period in Class I Shares of the Fund or any other Franklin Templeton
Fund. See the Shareholder Application. Except for certain employee benefit
plans, the minimum initial investment under an LOI is 5% of the total LOI
amount. Except for Shares purchased by certain employee benefit plans, Shares
purchased with the first 5% of such amount will be held in escrow to secure
payment of the higher sales charge applicable to the Shares actually purchased
if the full amount indicated is not purchased, and such escrowed Shares will
be involuntarily redeemed to pay the additional sales charge, if necessary. A
purchase not originally made pursuant to an LOI may be included under a
subsequent LOI executed within 90 days of the purchase. Any redemptions made
by Shareholders, other than by certain employee benefit plans, during the 13-
month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the LOI have been completed. For a further
description of the LOI, see "Purchase, Redemption and Pricing of Shares--
Letter of Intent" in the SAI.
Group Purchases. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Class I Shares and now were
investing $25,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per Share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.
14
OFFERING PRICE--CLASS II. Unlike Class I Shares, the front-end sales charges
and dealer concessions for Class II Shares do not vary depending on the amount
of purchase. The total sales charges or underwriting commissions and dealer
concessions for Class II Shares are set forth below.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-----------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
AT OFFERING PRICE OF THE SHARES PURCHASED OF THE SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- ----------------------- ----------------------- --------------------
<S> <C> <C> <C>
any amount (less than $1
million)............... 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD, or one of its affiliates, may make additional payments to securities
dealers, from its own resources, of up to 1.0% of the amount invested.
During the first year following a purchase of Class II Shares, FTD will
keep a portion of the Rule 12b-1 fees assessed on those Shares to partially
recoup fees FTD pays to securities dealers.
Class II Shares redeemed within 18 months of their purchase will be assessed
a contingent deferred sales charge of 1.0% on the lesser of the then-current
net asset value or the net asset value of such Shares at the time of purchase,
unless such charge is waived as described under "How To Sell Shares of the
Fund--Contingent Deferred Sales Charge."
NET ASSET VALUE PURCHASES (BOTH CLASSES). Class I Shares may be purchased
without the imposition of a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (i) officers, trustees, directors, and
full-time employees of the Fund, any of the Franklin Templeton Funds, or
Franklin Resources, Inc. and its subsidiaries (the "Franklin Templeton
Group"), and their spouses and family members, including any subsequent
payments made by such parties after cessation of employment; (ii) companies
exchanging Shares with or selling assets pursuant to a merger, acquisition or
exchange offer; (iii) group annuity separate accounts offered to retirement
plans; (iv) accounts managed by the Franklin Templeton Group; (v) certain unit
investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (vi) registered securities dealers
and their affiliates, for their investment account only; and (vii) registered
personnel and employees of securities dealers and their affiliates, and family
members, in accordance with the internal policies and procedures of the
employing securities dealer.
For either Class I or Class II, the same class of Shares of the Fund may be
purchased at net asset value with the proceeds from (i) a redemption of Shares
of the Fund or shares of any other Franklin Templeton Fund except any of the
Franklin Templeton money market funds (unless the redemption proceeds are from
Class I shares of a fund with a lower initial sales charge than that charged
by the Fund and have been held in that fund for less than six months) or (ii)
a dividend or distribution paid by any of the Franklin Templeton Funds or
received from a real estate investment trust ("REIT") sponsored or advised by
Franklin Properties, Inc., within 365 days after the date of the redemption or
dividend and or distribution. See "How to Sell Shares of the Fund--
Reinstatement Privilege." Class II Shareholders may also invest such
distributions at net asset value in Class I shares of a Franklin Templeton
Fund.
Class I Shares may be purchased at net asset value and without imposition of
a contingent deferred sales charge with the proceeds of an annuity payment
received under either an annuity option or from death benefit proceeds,
provided that the annuity contract offers as one underlying investment option
the Franklin Valuemark Funds, Templeton Variable Annuity Fund, Templeton
Variable Products Series Fund, or the Franklin Government Securities Trust.
You must return such payment within 365 days of its payment date. (You should
contact your tax adviser for information on any tax consequences of such
purchases.)
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds, which was subject to a front-end sales charge or
a contingent deferred sales charge and which has investment objectives similar
to those of the Fund.
15
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers , on behalf
of their clients, who are participating in a comprehensive fee program. These
programs are sometimes known as wrap fee programs, are sponsored by the
broker-dealer, and are either advised by the broker-dealer or by another
registered investment advisor affiliated with that broker-dealer.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton
Profit Sharing 401(k) plan), to the extent of such distribution. In order to
exercise this privilege, a written order for the purchase of Shares of the
Fund must be received by Franklin Templeton Trust Company ("FTTC"), the Fund,
or Franklin Templeton Investor Services, Inc. (the "Transfer Agent") within
365 days after the plan distribution.
Class I Shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a securities dealer who has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment, out of
its own resources, to such securities dealer in an amount not to exceed 0.25%
of the amount invested. Contact Franklin Templeton Institutional Services for
additional information.
To qualify to buy Shares at net asset value, please specify in writing the
privilege that applies to the purchase and include a written statement with
the purchase order. Neither the Fund nor the Transfer Agent will be
responsible for purchases that are not made at net asset value if this written
statement is not included with the order.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES. Class I Shares may also be
purchased at net asset value and without the imposition of a contingent
deferred sales charge by certain designated retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with respect to number
of employees or amount of purchase, which may be established by FTD.
Currently, those criteria require that the employer establishing the plan have
200 or more employees or that the amount invested or to be invested during the
subsequent 13-month period in the Fund or in any of the Franklin Templeton
Funds totals at least $1 million. Employee benefit plans not designated above
or qualified under Section 401 of the Code ("non-designated plans") may be
afforded the same privilege if they meet the above requirements as well as the
uniform criteria for qualified groups previously described under "Group
Purchases," which enable FTD to realize economies of scale in its sales
efforts and sales-related expenses.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any of the
Franklin Templeton Funds must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check, or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $1 million or more,
without regard to where such assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases
of Class I Shares.
16
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD, or one of its
affiliates, from its own resources, may also provide additional compensation
to securities dealers in connection with sales of shares of the Franklin
Templeton Funds. Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of the Franklin
Templeton Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Franklin Templeton Funds. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. In addition, FTD or its
affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of Shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.
Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares, and 1% of the
average daily net asset value of Class II Shares, registered in the name of
that broker-dealer as nominee or held in a Shareholder account that designates
that broker-dealer as dealer of record. These payments are made in order to
promote selling efforts and to compensate dealers for providing certain
services, including processing purchase and redemption transactions,
establishing Shareholder accounts and providing certain information and
assistance with respect to the Fund. For purchases of Class I Shares on or
after February 1, 1995 for which FTD advanced a commission to a securities
dealer, the dealer will receive ongoing payments beginning in the thirteenth
month after the date of purchase. For purchases of Class II Shares, the dealer
will receive payments representing a service fee (0.25% of average daily net
asset value of the Shares) beginning in the first month after the date of the
purchase, and will receive additional payments representing compensation for
distribution (0.75% of average daily net asset value of the Shares) beginning
in the thirteenth month after the date of purchase, and beginning May 1, 1997
for exchanges from Templeton American Trust, Inc. if the exchanged shares were
purchased prior to May 1, 1995.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders,
investors should clearly indicate which class of Shares they intend to
purchase. A purchase order that fails to specify a class will automatically be
invested in Class I Shares. Purchases of $1 million or more in a single
payment will be invested in Class I Shares. There are no conversion features
attached to either class of Shares.
Investors who qualify to purchase Class I Shares at net asset value should
purchase Class I rather than Class II Shares. See the section "Net Asset Value
Purchases (Both Classes)" and "Description of Special Net Asset Value
Purchases" above for a discussion of when Shares may be purchased at net asset
value.
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange ("NYSE")
and transmit it to FTD by 5:00 p.m., New York time, for the investor to
receive that day's Offering Price. Payment for such orders must be by check in
U.S. currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the United States and, if over $100,000, may not be
deemed to have been received until the proceeds have been collected unless the
check is certified or issued by such bank. Any subscription may be rejected by
FTD or by the Fund.
The Fund may impose a $10 charge against a Shareholders account in the event
that a check or a draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.
17
Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) in order to ensure that the purchase (or
redemption) of Shares has been accurately recorded in the investor's account.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received at least 10 days prior to the collection date,
or by FTD upon written notice to the investor at least 30 days prior to the
collection date.
INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may be additional methods
of opening accounts and purchasing, redeeming or exchanging Shares of the Fund
available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.
TELEFACTS(R) SYSTEM. From a touch-tone phone, Templeton and Franklin
shareholders may access an automated system (day or night) which offers the
following features. By calling the TeleFACTS(R) system at 1-800-247-1753,
shareholders may obtain Class I and Class II account information, current
price and, if available, yield or other performance information specific to
the Fund or any Franklin Templeton Fund. The codes for the Fund, which will be
needed to access information, are 711 and 791 for Class I and Class II,
respectively. In addition, Class I and II shareholders may request duplicate
confirmation or year-end statements and deposit slips. Franklin Class I
shareholders may process an exchange, within the same class, into an
identically registered Franklin account.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which FTTC or its affiliate
acts as trustee or custodian: IRAs, Simplified Employee Pensions, 403(b)
plans, qualified plans for corporations, self-employed individuals or
partnerships, and 401(k) plans. A plan document must be adopted in order for a
retirement plan to be in existence. For further information about any of the
plans, agreements, applications and annual fees, contact FTD. To determine
which retirement plan is appropriate, an investor should contact his or her
tax adviser.
NET ASSET VALUE. The net asset value per Share of each class of the Fund is
determined as of the scheduled closing time of the NYSE (generally 4:00 p.m.,
New York time) each day that the NYSE is open for trading, by dividing the
value of the Fund's securities plus any cash and other assets (including
accrued interest and dividends receivable) less all liabilities (including
accrued expenses) by the number of Shares outstanding, adjusted to the nearest
whole cent. A security listed or traded on a recognized stock exchange or
NASDAQ is valued at its last sale price on the principal exchange on which the
security is traded. The value of a foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which
it is traded or as of the scheduled closing time of the NYSE, if that is
earlier, and that value is then converted into its U.S. dollar equivalent at
the foreign exchange rate in effect at noon, New York time, on the day the
value of the foreign security is determined. If no sale is reported at that
time, the mean between the current bid and asked price is used. Occasionally,
events which affect the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of the
NYSE, and will therefore not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at fair value as
determined by the management and approved in good faith by the Board of
Trustees. All other securities for which over-the-counter market quotations
are readily available are valued at the mean between the current bid and asked
price. Securities for which market quotations are not readily available and
other assets are valued at fair value as determined by the management and
approved in good faith by the Board of Trustees.
18
Each of the Fund's classes will bear, pro-rata, all of the common expenses
of the Fund. The net asset value of all outstanding Shares of each class of
the Fund will be computed on a pro-rata basis for each outstanding Share based
on the proportionate participation in the Fund represented by the value of
Shares of such classes, except that the Class I and Class II Shares will bear
the Rule 12b-1 expenses payable under their respective plans. Due to the
specific distribution expenses and other costs that will be allocable to each
class, the dividends paid to each class of the Fund may vary.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
Franklin Templeton Funds which are eligible for sale in the Shareholder's
state of residence and in conformity with such funds' stated eligibility
requirements and investment minimums. Some funds, however, may not offer Class
II shares. Class I Shares may be exchanged for Class I shares of any Franklin
Templeton Funds. Class II Shares may be exchanged for Class II shares of any
Franklin Templeton Funds. No exchanges between different classes of shares
will be allowed. A contingent deferred sales charge will not be imposed on
exchanges. If the exchanged Shares were subject to a contingent deferred sales
charge in the original fund purchased, and Shares are subsequently redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date, a contingent deferred sales
charge will be imposed. The period will be tolled (or stopped) for the period
Class I Shares are exchanged into and held in a Franklin Templeton money
market fund. See also "How to Sell Shares of the Fund--Contingent Deferred
Sales Charge."
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. Exchanges of the same
class of shares are made on the basis of the net asset values of the class
involved, except as set forth below. Exchanges of shares of a class which were
originally purchased without a sales charge will be charged a sales charge in
accordance with the terms of the prospectus of the fund and the class of
shares being purchased, unless the original investment on which no sales
charge was paid was transferred in from a fund on which the investor paid a
sales charge. Exchanges of shares from the Franklin Templeton money market
funds are subject to applicable sales charges on the funds being purchased,
unless the Franklin Templeton money market fund shares were acquired by an
exchange from a fund having a sales charge, or by reinvestment of dividends or
capital gain distributions. Exchanges of Class I Shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. All exchanges are permitted
only after at least 15 days have elapsed from the date of the purchase of the
Shares to be exchanged.
A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or--
if the Shareholder Application indicates that the Shareholder has not declined
the option--by telephoning 1-800-632-2301. Telephone exchange instructions
must be received by FTD by the scheduled closing time of the NYSE (generally
4:00 p.m., New York time). Telephonic exchanges can involve only Shares in
non-certificated form. Shares held in certificate form are not eligible, but
may be returned and qualify for these services. All accounts involved in a
telephonic exchange must have the same registration and dividend option as the
account from which the Shares are being exchanged. The Fund and the Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone
Transactions--Verification Procedures." Forms for declining the telephone
exchange privilege and prospectuses of the other funds in the Franklin
Templeton Group may be obtained from FTD. Exchange redemptions and purchases
are processed simultaneously at the share prices next determined after the
exchange order is received. See "How to Buy Shares of the Fund--Offering
Price." A gain or loss for tax purposes generally will be realized upon the
exchange, depending on the tax basis of the Shares redeemed.
This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold, and may be modified, limited or terminated
at any time by the Fund upon 60 days' written notice. A Shareholder who wishes
to make an exchange should first obtain and review a current prospectus of the
fund into which he or she wishes to exchange. Broker-dealers who process
19
exchange orders on behalf of their customers may charge a fee for their
services. Such fee may be avoided by making requests for exchange directly to
the Transfer Agent.
If a substantial portion of the Fund's Shareholders should, within a short
period, elect to redeem their Shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold, and incur the additional costs related to such transactions.
On the other hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the general
policy of the Fund to initially invest this money in short-term, interest-
bearing money market instruments, unless it is felt that attractive investment
opportunities consistent with the Fund's investment 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.
EXCHANGES OF CLASS I SHARES. The contingency period of Class I Shares will
be tolled (or stopped) for the period such Shares are exchanged into and held
in a Franklin Templeton Class I money market fund. If a Class I account has
Shares subject to a contingent deferred sales charge, Class I Shares will be
exchanged into the new account on a "first-in, first-out" basis. See also "How
to Sell Shares of the Fund--Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES. When an account is composed of Class II Shares
subject to the contingent deferred sales charge, and Shares that are not, the
Shares will be transferred proportionately into the new fund. Shares received
from reinvestment of dividends and capital gains are referred to as "free
Shares," Shares which were originally subject to a contingent deferred sales
charge but to which the contingent deferred sales charge no longer applies are
called "matured Shares," and Shares still subject to the contingent deferred
sales charge are referred to as "CDSC liable Shares." CDSC liable Shares held
for different periods of time are considered different types of CDSC liable
Shares. For instance, if a Shareholder has $1,000 in free Shares, $2,000 in
matured Shares, and $3,000 in CDSC liable Shares, and the Shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from free Shares,
$1,000 from matured Shares, and $1,500 from CDSC liable Shares. Similarly, if
CDSC liable Shares have been purchased at different periods, a proportionate
amount will be taken from Shares held for each period. If, for example, the
Shareholder holds $1,000 in Shares bought three months ago, $1,000 bought six
months ago, and $1,000 bought nine months ago, and the Shareholder exchanges
$1,500 into a new Fund, $500 from each of these Shares will be exchanged into
the new fund.
The only Money Market Fund exchange option available to Class II
Shareholders is the Franklin Templeton Money Fund II ("Money Fund II"), a
series of the Franklin Templeton Money Fund Trust. No drafts (checks) may be
written on Money Fund II accounts, nor may Shareholders purchase shares of
Money Fund II directly. Class II Shares exchanged for shares of Money Fund II
will continue to age and a contingent deferred sales charge will be assessed
if CDSC liable Shares are redeemed. No other money market funds are available
for Class II Shareholders for exchange purposes. Class I Shares may be
exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these money market funds as described in their
respective prospectuses.
To the extent Shares are exchanged proportionately, as opposed to another
method, such as "first-in, first-out," or free Shares followed by CDSC liable
Shares, the exchanged Shares may, in some instances, be CDSC liable even
though a redemption of such Shares, as discussed elsewhere herein, may no
longer be subject to a CDSC. The proportional method is believed by management
to more closely meet and reflect the expectations of Class II Shareholders in
the event Shares are redeemed during the contingency period. For federal
income tax purposes, the cost basis of Shares redeemed or exchanged is
determined under the Code without regard to the method of transferring Shares
chosen by the Fund for purposes of exchanging or redeeming Shares.
TRANSFERS. Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable events, and are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Shares of each class will
be transferred on the same basis as described above for exchanges.
20
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares. A Shareholder may, however, sell Class II
Shares and use the proceeds to purchase Class I Shares, subject to all
applicable sales charges.
The Fund's exchange privilege is not intended to afford Shareholders a way
to speculate on short-term movements in developing markets. Accordingly, in
order to prevent excessive use of the exchange privilege that may potentially
disrupt the management of the Fund and increase transaction costs, the Fund
has established a policy of prohibiting exchanges by timing or allocation
services.
HOW TO SELL SHARES OF THE FUND
Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL OF THE FOLLOWING REQUIREMENTS:
1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed. The request must be sent to Franklin Templeton
Investor Services, Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including: (a) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (b) national securities
exchanges, registered securities associations and clearing agencies; (c)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (d)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A notarized
signature will not be sufficient for the request to be in Proper Order. If the
Shares are registered in more than one name, the signature of each of the
redeeming Shareholders must be guaranteed. A signature guarantee is not
required for redemptions of $50,000 or less, requested by and payable to all
Shareholders of record, to be sent to the address of record for that account.
However, the Fund reserves the right to require signature guarantees on all
redemptions. A signature guarantee is required in connection with any written
request for transfer of Shares. Also, a signature guarantee is required if the
Fund or the Transfer Agent believes that a signature guarantee would protect
against potential claims based on the transfer instructions, including, for
example, when: (i) the current address of one or more joint owners of an
account cannot be confirmed; (ii) multiple owners have a dispute or give
inconsistent instructions to the Fund; (iii) the Fund has been notified of an
adverse claim; (iv) the instructions received by the Fund are given by an
agent, not the actual registered owner; (v) the Fund determines that joint
owners who are married to each other are separated or may be the subject of
divorce proceedings; or (vi) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;
4. Liquidation requests of corporate, partnership, trust and custodial
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
. Corporation--(i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory to the Transfer Agent;
. Partnership--(i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;
. Trust--(i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust
document listing the trustee(s) or a certificate of incumbency if the
trustee(s) are not listed on the account registration;
21
. 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; and
5. Redemption of Shares held in a retirement plan for which FTTC or its
affiliate acts as trustee or custodian must conform to the distribution
requirements of the plan and the Fund's redemption requirements above.
Distributions from such plans are subject to additional requirements under the
Code, and certain documents (available from the Transfer Agent) must be
completed before the distribution may be made. For example, distributions from
retirement plans are subject to withholding requirements under the Code, and
the IRS Form W-4P (available from the Transfer Agent) may be required to be
submitted to the Transfer Agent with the distribution request, or the
distribution will be delayed. Franklin Templeton Investor Services, Inc. and
its affiliates assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws and will not be responsible
for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Shareholder Services Department at
1-800-632-2301.
The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. A gain or loses for tax purposes generally will be realized upon the
redemption, depending on the tax basis of the Shares redeemed. Payment of the
redemption price ordinarily will be made by check (or by wire at the sole
discretion of the Transfer Agent if wire transfer is requested, including name
and address of the bank and the Shareholder's account number to which payment
of the redemption proceeds is to be wired) within seven days after receipt of
the redemption request in Proper Order. However, if Shares have been purchased
by check, the Fund will make redemption proceeds available when a
Shareholder's check received for the Shares purchased has been cleared for
payment by the Shareholder's bank, which, depending upon the location of the
Shareholder's bank, could take up to 15 days or more. The redemption check
will be mailed by first-class mail to the Shareholder's registered address (or
as otherwise directed). Remittance by wire (to a commercial bank account in
the same name(s) as the Shares are registered) or express mail, if requested,
are subject to a handling charge of up to $15, which will be deducted from the
redemption proceeds.
The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the NYSE on that day. Dealers have the responsibility
of submitting such repurchase requests by calling not later than 5:00 p.m.,
New York time, on such day in order to obtain that day's applicable redemption
price. Repurchase of Shares is for the convenience of Shareholders and does
not involve a charge by the Fund; however, securities dealers may impose a
charge on the Shareholder for transmitting the notice of repurchase to the
Fund. The Fund reserves the right to reject any order for repurchase, which
right of rejection might adversely affect Shareholders seeking redemption
through the repurchase procedure. Ordinarily, payment will be made to the
securities dealer within seven days after receipt of a repurchase order and
Share certificate (if any) in "Proper Order" as set forth above. The Fund will
also accept, from member firms of the NYSE, orders to repurchase Shares for
which no certificates have been issued by wire or telephone without a
redemption request signed by the Shareholder, provided the member firm
indemnifies the Fund and FTD from any liability resulting from the absence of
the Shareholder's signature. Forms for such indemnity agreement can be
obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, except that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-related certifications as the Fund may require. A notice of
redemption sent by first-class mail to the investor's address of record will
fix a date not less than 30 days after the mailing date, and Shares will be
redeemed at the net asset value at the close of business on
22
that date, unless sufficient additional Shares are purchased to bring the
aggregate account value up to $100 or more, or unless a certified taxpayer
identification number (or such other information as the Fund has requested)
has been provided, as the case may be. A check for the redemption proceeds
will be mailed to the investor at the address of record.
REINSTATEMENT PRIVILEGE. For either Class I or Class II, the same class of
Shares of the Fund may be purchased at net asset value with the proceeds from
(i) a redemption of Shares of the Fund or shares of any other Franklin
Templeton Fund, except any of the Franklin Templeton money market funds
(unless the redemption proceeds are from Class I shares of a fund with a lower
initial sales charge than that charged by the Fund and have been held in that
Fund for less than six months), or (ii) a dividend or distribution paid by any
of the Franklin Templeton Funds, within 365 days after the date of the
redemption or dividend or distribution. Class II Shareholders may also invest
such distributions at net asset value in Class I shares of a Franklin
Templeton Fund. However, if a Shareholder's original investment was in Class I
shares of a fund with a lower sales charge, or no sales charge, the
Shareholder must pay the difference. An investor may reinvest an amount not
exceeding the proceeds of the redemption or the dividend or distribution.
While credit will be given for any contingent deferred sales charge paid on
the Shares redeemed, a new contingency period will begin. Matured Shares will
be reinvested at net asset value and will not be subject to a new contingent
deferred sales charge. Shares of the Fund redeemed in connection with an
exchange into another fund (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this privilege, a written
order for the purchase of Shares of the Fund must be received by the Fund or
the Fund's Transfer Agent within 365 days after the redemption or the payment
date of the distribution. The 365 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the Shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the tax basis of the Shares reinvested, and the amount
of gain or loss resulting from a redemption may be affected by exercise of the
reinstatement privilege if the Shares redeemed were held for 90 days or less,
or if a Shareholder reinvests in the same fund within 30 days. Reinvestment
will be at the next calculated net asset value after receipt.
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive regular periodic payments from an account
provided that the net asset value of the Shares held in the account by the
Shareholder is at least $5,000. There are no service charges for establishing
or maintaining a Plan. The minimum amount which the Shareholder may withdraw
is $50 per withdrawal transaction although this is merely the minimum amount
allowed under the Plan and should not be mistaken for a recommended amount.
Retirement plans subject to mandatory distribution requirements are not
subject to the $50 minimum. The Plan may be established on a monthly,
quarterly, semiannual or annual basis. If the Shareholder establishes a Plan,
any capital gain distributions and income dividends paid by the Fund to the
Shareholder's account must be reinvested for the Shareholder's account in
additional Shares at net asset value. Payments are then made from the
liquidation of Shares at net asset value on the day of the liquidation (which
is generally on or about the 25th of the month) to meet the specified
withdrawals. Payments are generally received three to five days after the date
of liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included with this
Prospectus, a Shareholder may direct the selected withdrawals to another of
the Franklin Templeton Funds, to another person, or directly to a checking
account. Liquidation of Shares may reduce or possibly exhaust the Shares in
the Shareholder's account, to the extent withdrawals exceed Shares earned
through dividends and distributions, particularly in the event of a market
decline. If the withdrawal amount exceeds the total Plan balance, the account
will be closed and the remaining balance will be sent to the Shareholder. As
with other redemptions, a liquidation to make a withdrawal payment is a sale
for federal income tax purposes. Because the amount withdrawn under the Plan
may be more than the Shareholder's actual yield or income, part of such a Plan
payment may be a return of the Shareholder's investment.
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I Shares and Class II Shares may be
subject to a contingent deferred sales charge if the Shares are redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of
23
the original purchase date. The Shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual
withdrawals under the Plan during the time such a Plan is in effect.
With respect to Class I Shares, the contingent deferred sales charge is
waived for redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set up on or
after February 1, 1995, the applicable contingent deferred sales charge is
waived for Class I and Class II Share redemptions of up to 1% monthly of an
account's net asset value (12% annually, 6% semiannually, 3% quarterly). For
example, if a Class I account maintained an annual balance of $1,000,000, only
$120,000 could be withdrawn through a once-yearly Systematic Withdrawal Plan
free of charge; any amount over that $120,000 would be assessed a 1% (or
applicable) contingent deferred sales charge. Likewise, if a Class II account
maintained an annual balance of $10,000, only $1,200 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge.
A Plan may be terminated on written notice by the Shareholder or the Fund,
and it will terminate automatically if all Shares are liquidated or withdrawn
from the account, or upon the Fund's receipt of notification of the death or
incapacity of the Shareholder. Shareholders may change the amount (but not
below $50) and schedule of withdrawal payments or suspend one such payment by
giving written notice to the Transfer Agent at least seven business days prior
to the end of the month preceding a scheduled payment. Share certificates may
not be issued while a Plan is in effect.
REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions--Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions--Verification Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. A telephone redemption request received before the scheduled closing
time of the NYSE (generally 4:00 p.m., New York time) on any business day will
be processed that same day. The redemption check will be sent within seven
days, made payable to all the registered owners on the account, and will be
sent only to the address of record. Redemption requests by telephone will not
be accepted within 30 days following an address change by telephone. In that
case, a Shareholder should follow the other redemption procedures set forth in
this Prospectus. Institutional accounts which wish to execute telephone
redemptions in excess of $50,000 must complete an Institutional Telephone
Privileges Agreement which is available from Franklin Templeton Institutional
Services by telephoning 1-800-321-8563.
CONTINGENT DEFERRED SALES CHARGE. In order to recover commissions paid to
securities dealers, Class I investments of $1 million or more, and any Class
II investments, redeemed within the contingency period of 12 months (Class I)
or 18 months (Class II) of the calendar month of their purchase will be
assessed a contingent deferred sales charge, unless one of the exceptions
described below applies. The charge is 1% of the lesser of the net asset value
of the Shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such Shares,
and is retained by FTD. The contingent deferred sales charge is waived in
certain instances. See below.
In determining if a contingent deferred sales charge applies, Shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of Shares representing amounts
attributable to capital appreciation of those Shares held less than the
contingency period (12 months in the case of Class I Shares and 18 months in
the case of Class II Shares); (ii) Shares purchased with reinvested dividends
and capital gain distributions; and (iii) other Shares held longer than the
contingency period, and followed by any Shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds
or an adjustment to the cost basis of the Shares redeemed.
24
The contingent deferred sales charge on each class of Shares is waived, as
applicable, for: exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability, or upon periodic
distributions based on life expectancy; tax-free returns of excess
contributions from employee benefit plans; distributions from employee benefit
plans, including those due to plan termination or plan transfer; 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.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if
any, may be able to execute various transactions by calling Shareholder
Services at 1-800-632-2301.
All Shareholders will be able to: (i) effect a change in address; (ii)
change a dividend option (see "Restricted Accounts" below); (iii) transfer
Fund Shares in one account to another identically registered account in the
Fund; (iv) request the issuance of certificates (to be sent to the address of
record only); and (v) exchange Fund Shares by telephone as described in this
Prospectus. In addition, Shareholders who complete and file an Agreement as
described under "How to Sell Shares of the Fund--Redemptions by Telephone"
will be able to redeem Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. The Fund and the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or the
Transfer Agent is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund, the Transfer Agent, nor their affiliates will be liable for
any losses which may occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are required for any
distribution, redemption, or dividend payment. While the telephone exchange
privilege is extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account Shareholders may call to
speak to a Retirement Plan Specialist at 1-800-527-2020.
25
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 dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction. The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice to
Shareholders.
MANAGEMENT OF THE FUND
The Fund is managed by its Board of Trustees and all powers are exercised by
or under authority of the Board. Information relating to the Trustees and
Officers is set forth under the heading "Management of the Fund" in the SAI.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the authority
to establish additional classes of Shares. It is the Fund's present intention
to offer only two classes of Shares, but new classes may be offered in the
future.
INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton Asset
Management Ltd.--Hong Kong Branch, a Singapore corporation located at Two
Exchange Square, Hong Kong. The Investment Manager manages the investment and
reinvestment of the Fund's assets. The Investment Manager is an indirect
wholly owned subsidiary of Franklin Resources, Inc. ("Franklin"). Through its
subsidiaries, Franklin is engaged in various aspects of the financial services
industry. The Investment Manager and its affiliates serve as advisers for a
wide variety of public investment mutual funds and private clients in many
nations. The Templeton organization has been investing globally over the past
56 years and, with its affiliates, provides investment management and advisory
services to a worldwide client base, including over 4.3 million mutual fund
shareholders, foundations, endowments, employee benefit plans and individuals.
The Investment Manager and its affiliates have approximately 4,100 employees
in the United States, Australia, Scotland, Germany, Hong Kong, Luxembourg,
Bahamas, Singapore, Canada, Russia, France, Poland, Italy, India, Vietnam,
South America and South Africa.
The Investment Manager uses a disciplined, long-term approach to value-
oriented global and international investing. It has an extensive global
network of investment research sources. Securities are selected for the Fund's
portfolio on the basis of fundamental company-by-company analysis. Many
different selection methods are used for different funds and clients and these
methods are changed and improved by the Investment Manager's research on
superior selection methods.
The investment Manager performs similar services for other funds and
accounts and there may be times when the actions taken with respect to the
Fund's portfolio will differ from those taken by the Investment Manager on
behalf of other funds and accounts. Neither the Investment Manager and its
affiliates, its officers, directors or employees, nor the officers and
Trustees of the Fund are prohibited from investing in securities held by the
Fund or other funds and accounts which are managed or administered by the
Investment Manager to the extent such transactions comply with the Fund's Code
of Ethics. Please see "Investment Management and Other Services--Investment
Management Agreement" in the SAI for further information on securities
transactions and a summary of the Fund's Code of Ethics.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee
26
which, during the most recent fiscal year, represented 1.25% of its average
daily net assets. This fee is higher than advisory fees paid by most other
U.S. investment companies, primarily because investing in equity securities of
companies in developing markets, which are not widely followed by professional
analysts, requires the Investment Manager to invest additional time and incur
added expense in developing specialized resources, including research
facilities.
Dr. J. Mark Mobius, Managing Director of the Investment Manager, is the
Fund's principal portfolio manager. He holds a BA in Fine Arts from Boston
University, an MA in Mass Communications from Boston University, and a PhD in
Economics from the Massachusetts Institute of Technology. Prior to joining the
Templeton organization in 1987, Dr. Mobius was president of the International
Investment Trust Company Limited (investment manager of Taiwan, R.O.C. Fund)
(1986-1987) and a director of Vickers da Costa, Hong Kong (an international
securities firm) (1983-1986). Dr. Mobius began working in Vickers da Costa's
Hong Kong office in 1980 and moved to Taiwan in 1983 to open the firm's office
there and to direct operations in India, Indonesia, Thailand, the Philippines,
and Korea. Before joining Vickers da Costa, Dr. Mobius operated his own
consulting firm in Hong Kong from 1970 until 1980. Messrs. Allan Lam and Tom
Wu, Vice Presidents of the Investment Manager, will exercise secondary
portfolio management responsibilities with respect to the Fund. Mr. Lam holds
a BA in Accounting from Rutgers University. Prior to joining the Templeton
organization in 1987, he worked as an auditor with two international
accounting firms in Hong Kong: Deloitte Haskins & Sells CPA and KPMG Peat
Marwick CPA. Mr. Wu holds a Bachelor of Social Sciences Degree in Economics
from the University of Hong Kong and an MBA in Finance from the University of
Oregon. Prior to joining the Templeton organization in 1987, Mr. Wu worked as
an investment analyst, specializing in Hong Kong companies, with Vickers da
Costa. Further information concerning the Investment Manager is included under
the heading "Investment Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns, preparation of financial reports, monitoring
compliance with regulatory requirements and monitoring tax-deferred retirement
plans. For its services, the Fund pays the Business Manager a fee equivalent
on an annual basis to 0.15% of the average daily net assets of the Fund during
the year, reduced to 0.135% of such assets in excess of $200 million, to 0.10%
of such assets in excess of $700 million, and to 0.075% of such assets in
excess of $1,200 million. The combined investment management and business
management fees paid by the Fund are higher than those paid by most other
investment companies.
TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLANS OF DISTRIBUTION. A separate Plan of Distribution has been approved and
adopted for each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees
charged to each class will be based solely on the distribution and servicing
fees attributable to that particular class. Any portion of fees remaining from
either Plan after distribution to securities dealers of up to the maximum
amount permitted under each Plan may be used by the class to reimburse FTD for
routine ongoing promotion and distribution expenses incurred with respect to
such class. Such expenses may include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of FTD's overhead
expenses attributable to the distribution of Fund Shares, as well as any
distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, FTD or its
affiliates.
The maximum amount which the Fund may pay to FTD or others under the Class I
Plan for such distribution expenses is 0.35% per annum of Class I's average
daily net assets, payable on a quarterly basis. All expenses of distribution
and marketing in excess of 0.35% per annum will be borne by FTD, or others who
have incurred them, without reimbursement from the Fund. Under the Class I
Plan, costs and expenses not reimbursed in any one given quarter (including
costs and expenses not reimbursed because they exceed
27
the applicable limit under the Plan) may be reimbursed in subsequent quarters
or years, subject to applicable law. FTD has informed the Fund that the costs
and expenses of Class I Shares that may be reimbursable in future quarters or
years were $195,657 (.0089% of its net assets) at December 31, 1995.
Under the Class II Plan, the maximum amount which the Fund is permitted to
pay to FTD or others for distribution expenses and related expenses is 0.75%
per annum of Class II's average daily net assets, payable quarterly. All
expenses of distribution, marketing and related services over that amount will
be borne by FTD, or others who have incurred them, without reimbursement by
the Fund. In addition, the Class II Plan provides for an additional payment by
the Fund of up to 0.25% per annum of Class II's average daily net assets as a
servicing fee, payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in establishing and
maintaining customer accounts and records; assisting with purchase and
redemption requests; receiving and answering correspondence; monitoring
dividend payments from the Fund on behalf of the customers; or similar
activities related to furnishing personal services and/or maintaining
Shareholder accounts.
During the first year following the purchase of Class II Shares, FTD will
retain 0.75% per annum of Class II's average daily net assets to partially
recoup fees FTD pays to securities dealers. FTD, or its affiliates, may pay,
from its own resources, a commission of up to 1% of the amount invested to
securities dealers who initiate and are responsible for purchases of Class II
Shares.
Both Plans also cover any payments to or by the Fund, the Investment
Manager, FTD, or other parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne by each class of the Fund.
For more information, including a discussion of the Board's policies with
regard to the amount of each Plan's fees, please see the SAI.
EXPENSES. For the fiscal year ended December 31, 1995, expenses borne by
Class I Shares of the Fund amounted to 2.10% of the average net assets of such
class and expenses borne by Class II Shares of the Fund amounted to 2.73%
(annualized) of the average net assets of such class. See the Expense Table
for information regarding estimated expenses of both classes of Shares for the
current fiscal year.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The capitalization of the Fund
consists of an unlimited number of Shares of beneficial interest, par value of
$.01 per Share. The Board of Trustees is authorized, in its discretion, to
classify and allocate the unissued Shares of the Fund. Each Share entitles the
holder to one vote.
Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims liability of the Shareholders, Trustees and
Officers of the Fund for acts or obligations of the Fund, which are binding
only on the assets and property of the Fund. The Declaration of Trust provides
for indemnification out of Fund property for all loss and expense of any
Shareholder held personally liable for the obligations of the Fund. The risk
of a Shareholder incurring financial loss on account of Shareholder liability
is limited to circumstances in which the Fund itself would be unable to meet
its obligations and, thus, should be considered remote.
28
Shares for an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gain distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining Shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. No charge is made for the issuance of one
certificate for all or some of the Shares purchased in a single order. A lost,
stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is generally borne
by the Shareholder, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by the
Shareholder or by the securities dealer.
VOTING RIGHTS. Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and preferences
as the other class of the Fund for matters that affect the Fund as a whole.
For matters that only affect a certain class of the Fund's Shares, however,
only Shareholders of that class will be entitled to vote. Therefore, each
class of Shares will vote separately on matters (1) affecting only that class,
(2) expressly required to be voted on separately by state law, or (3) required
to be voted on separately by the 1940 Act or the rules adopted thereunder. For
instance, if a change to the Rule 12b-1 plan relating to Class I Shares
requires Shareholder approval, only Shareholders of Class I may vote on
changes to the Rule 12b-1 plan affecting that class. Similarly, if a change to
the Rule 12b-1 plan relating to Class II Shares requires Shareholder approval,
only Shareholders of Class II may vote on the change to such plan. On the
other hand, if there is a proposed change to the investment objective of the
Fund, this affects all Shareholders, regardless of which class of Shares they
hold, and therefore, each Share has the same voting rights.
MEETINGS OF SHAREHOLDERS. Massachusetts business trust law does not require
the Fund to hold annual Shareholder meetings, although special meetings may be
called from time to time. The Fund will be required to hold a meeting to elect
Trustees to fill any existing vacancies on the Board if, at any time, fewer
than a majority of the Trustees have been elected by the Shareholders of the
Fund. In addition, the holders of not less than two-thirds of the outstanding
Shares or other voting interests of the Fund may remove a person serving as
Trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding Shares of the
Fund. The Fund is required to assist in Shareholder communications in
connection with the calling of a Shareholder meeting to consider the removal
of a Trustee or Trustees.
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay a dividend at least
annually representing substantially all of its net investment income and any
net realized capital gains. According to the requirements of the Code,
dividends and capital gains will be calculated and distributed in the same
manner for Class I and Class II Shares. The per share amount of any income
dividends will generally differ only to the extent that each class is subject
to different Rule 12b-1 fees. Unless otherwise requested, income dividends and
capital gain distributions paid by the Fund, other than on those Shares whose
owners keep them registered in the name of a broker-dealer, are automatically
reinvested on the payment date in whole or fractional Shares at net asset
value as of the ex-dividend date, unless a Shareholder makes a written or
telephonic request for payments in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application, Class
I Shareholders may direct that their dividends and/or capital gain
distributions be reinvested in Class I Shares of the Fund or Class I Shares of
any other Franklin Templeton Fund, and Class II Shareholders may direct that
their dividends and/or capital gain distributions be reinvested in either
Class I or Class II Shares of the Fund or any other Franklin Templeton Fund.
Shareholders may also direct the payment of their dividends or capital gain
distributions to another person. The processing date for the reinvestment of
dividends may vary from time to time, and does not affect the amount or value
of the Shares acquired. Income dividends and capital gain distributions will
be paid in cash on Shares during the time that their owners keep them
registered in the name of a broker-dealer, unless the broker-dealer has made
arrangements with the Transfer Agent for reinvestment.
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to
29
the record date will have the effect of reducing the per Share net asset value
of the Shares by the amount of the dividend or distribution. All or a portion
of such dividend or distribution, although in effect a return of capital,
generally will be subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested in the Shareholder's account in whole
or fractional Shares at net asset value next computed after the check has been
received by the Transfer Agent. Subsequent distributions automatically will be
reinvested at net asset value as of the ex-dividend date in additional whole
or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company. A regulated investment
company generally is not subject to federal income tax on income and capital
gains distributed in a timely manner to its shareholders. Earnings of the Fund
not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of this tax, the Fund intends to comply with this
distribution requirement. The Fund intends to distribute substantially all of
its net investment income and net realized capital gains to Shareholders,
which generally will be taxable income or capital gains in their hands.
Distributions declared in October, November or December to Shareholders of
record on a date in such month and paid during the following January will be
treated as having been received by Shareholders on December 31 in the year
such distributions were declared. The Fund will inform Shareholders each year
of the amount and nature of such income or gains. Sales or other dispositions
of Fund Shares generally will give rise to taxable gain or loss. The Fund may
be required to withhold federal income tax at the rate of 31% of all taxable
distributions (including redemptions) paid to Shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications. A more detailed description of tax consequences to
Shareholders is contained in the SAI under the heading "Tax Status."
INQUIRES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St.
Petersburg, Florida 33733-8030--telephone 1-800-632-2301. Transcripts of
Shareholder accounts less than three years old are provided on request without
charge; requests for transcripts going back more than three years from the
date the request is received by the Transfer Agent are subject to a fee of up
to $15 per account.
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect
the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see "Performance Information" in the SAI.
Because Class II Shares were not offered prior to May 1, 1995, no
performance data is available for these Shares. After a sufficient period of
time has passed, Class II performance data will be available.
STATEMENTS AND REPORTS. The Fund's fiscal year ends on December 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semiannual
reports (containing unaudited financial statements) are sent to Shareholders
each year. To reduce the volume of mail sent to one household as well as to
reduce Fund expenses, the Transfer Agent will attempt to identify related
shareholders within a household, and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund
Information Department--telephone 1-800/DIAL BEN. The Fund also sends to each
Shareholder a confirmation statement after every transaction that affects the
Shareholder's account and a year-end historical confirmation statement.
30
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service ("IRS").
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number ("SSN/TIN"), you must obtain Form SS-5 or Form SS-4 from
your local Social Security or IRS office and apply for one. If you have
checked the "Awaiting TIN" box and signed the certification, withholding will
apply to payments relating to your account unless you provide a certified TIN
within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- -----------------------------------------------------------------------------------
. Joint Actual owner of . Corporation, Corporation,
Individual account, or if Partnership Partnership, or other
combined funds, the or other organization
first-named organization
individual
- -----------------------------------------------------------------------------------
. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
- -----------------------------------------------------------------------------------
. Sole Owner of business
Proprietor
- -----------------------------------------------------------------------------------
. Legal Ward, Minor, or
Guardian Incompetent
- -----------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A financial institution A common trust fund operated by a bank
under section 584(a)
An organization exempt from tax An entity registered at all times
under section 501(a), or an under the Investment Company
individual retirement plan Act of 1940
A registered dealer in securities or
commodities registered in the U.S.
or a U.S. possession
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your Federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the taxpayer identification number you have given is correct, and (2) the
IRS has not notified you that you are subject to backup withholding because
you failed to report certain interest or dividend income. You may use Form W-
9, "Payer's Request for Taxpayer Identification Number and Certification," to
make these certifications. If an account is no longer active, you do not have
to notify a Fund/Payer or broker of your change in status unless you also have
another account with the same Fund/Payer that is still active. If you receive
interest from more than one Fund/Payer or have dealings with more than one
broker or barter exchange, file a certificate with each. If you have more than
one account with the same Fund/Payer, the Fund/Payer may require you to file a
separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
31
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that each Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to a Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
______________________________ of _________________________________________
TITLE CORPORATE NAME
a ______________________________________________ organized under the laws of
TYPE OF ORGANIZATION
the State of _______________ and that the following is a true and correct copy
STATE
of a resolution adopted by the Board of Directors at a meeting duly called and
held on _______________
DATE
RESOLVED, that the _________________________________________________ of this
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds (R) or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and
FURTHER RESOLVED, that any of the following ____________________ officers
NUMBER
are authorized to sign any share assignment on behalf of this Corporation
or Association and to take any other actions as may be necessary to sell or
redeem its shares in the Funds or to sign checks or drafts withdrawing funds
from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary.)
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes ________________________________________________________
NAME AND TITLE
CORPORATE SEAL (if appropriate)
32
THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group of Funds (a "Franklin Templeton Fund"
or a "Fund"), now opened or opened at a later date, holding shares registered
as follows:
- ------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT
REGISTRATION ("SHAREHOLDER")
- ------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- ------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- ------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY,
IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions; (2)
the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Templeton Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.
33
The Franklin Templeton Group
Literature Request -- Call today for a free descriptive brochure and
prospectus on any of the funds listed below. The prospectus contains more
complete information, including fees, charges and expenses, and should be read
carefully before investing or sending money.
<TABLE>
<S> <C> <C>
TEMPLETON FUNDS Maryland FRANKLIN FUNDS SEEKING
American Trust Massachusetts*** HIGH CURRENT INCOME
Americas Government Securities Fund Michigan*** AGE High Income Fund
Developing Markets Trust Minnesota*** German Government Bond Fund
Foreign Fund Missouri Global Government Income Fund
Global Bond Fund
</R.
Global Infrastructure Fund New Jersey Investment Grade Income Fund
Global Opportunities Trust New York* U.S. Government Securities Fund
Global Real Estate Fund
Global Smaller Companies Fund
Greater European Fund North Carolina
Growth Fund Ohio*** FRANKLIN FUNDS SEEKING HIGH CURRENT
Growth and Income Fund Oregon INCOME AND STABILITY OF PRINCIPAL
Pennsylvania Adjustable Rate Securities Fund
Japan Fund Tennessee** Adjustable U.S. Government Securities Fund
Latin American Fund Texas Short-Intermediate U.S. Government Securities Fund
Money Fund Virginia
Washington** FRANKLIN FUNDS FOR NON-U.S. INVESTORS
Tax-Advantaged High Yield Securities Fund
World Fund FRANKLIN FUNDS Tax-Advantaged International Bond Fund
SEEKING CAPITAL GROWTH Tax-Advantage U.S. Government Securities Fund
FRANKLIN FUNDS California Growth Fund
SEEKING TAX-FREE INCOME DynaTech Fund FRANKLIN TEMPLETON INTERNATIONAL
Federal Intermediate Term Equity Fund CURRENCY FUNDS
Tax-Free Income Fund Global Health Care Fund Global Currency Fund
Federal Tax-Free Income Gold Fund Hard Currency Fund
High Yield Tax-Free Income Fund Growth Fund High Income Currency Fund
Insured Tax-Free Income Fund*** International Equity Fund
Puerto Rico Tax-Free Income Fund Pacific Growth Fund FRANKLIN MONEY MARKET FUNDS
Real Estate Securities California Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS Small Cap Growth Fund Federal Money Fund
SEEKING TAX-FREE INCOME IFT U.S. Treasury Money Market Portfolio
Alabama FRANKLIN FUNDS SEEKING Money Fund
Arizona* GROWTH AND INCOME New York Tax-Exempt Money Fund
Arkansas** Balance Sheet Investment Fund Tax-Exempt Money Fund
California* -----------------------------
Colorado Convertible Securities Fund FRANKLIN FUND FOR CORPORATIONS
Connecticut Equity Income Fund Corporate Qualified Dividend Fund
Florida* Global Utilities Fund
Georgia Income Fund FRANKLIN TEMPLETON VARIABLE ANNUITIES
Hawaii** Premier Return Fund Franklin Valuemark
Indiana Rising Dividends Fund Franklin Templeton Valuemark Income
Kentucky Strategic Income Fund Plus (an immediate annuity)
Louisiana Utilities Fund
</TABLE>
Toll-free 1-800-DIAL BEN (1-800-342-5236)
* Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of municipal securities, and a high yield
portfolio (CA).
** The fund may invest up to 100% of its assets in bonds that pay interest
subject to the interest subject to the federal alternative minimum tax.
*** Portfolio of insured municipal securities.
34
NOTES
35
NOTES
36
TEMPLETON
DEVELOPING MARKETS
TRUST
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800/DIAL BEN
Institutional Services
1-800-321-8563
Dealer Services
1-800-524-4040
Retirement Plan Services
1-800-527-2020
This Prospectus is not
an offering of the
securities herein
described in any state
in which the offering
is not authorized. No
sales representative,
dealer, or other person
is authorized to give
any information or make
any representations
other than those
contained in this
Prospectus. Further
information may be
obtained from the
Principal Underwriter.
LOGO TL711 05/96
TEMPLETON
DEVELOPING
MARKETS TRUST
Prospectus
May 1, 1996
[LOGO APPEARS HERE]
Franklin Templeton
Mail to: FRANKLIN TEMPLETON
P.O. Box 33031 St. Petersburg, Florida 33733-8031 (800) 393-3001
PLEASE DO NOT USE THIS FORM FOR ANY RETIREMENT PLAN FOR WHICH FRANKLIN TEMPLETON
TRUST COMPANY SERVES AS CUSTODIAN OR TRUSTEE, OR FOR TEMPLETON MONEY FUND,
TEMPLETON INSTITUTIONAL FUNDS OR TEMPLETON CAPITAL ACCUMULATOR FUND. REQUEST
SEPARATE APPLICATIONS AND/OR PROSPECTUSES.
- --------------------------------------------------------------------------------
SHAREHOLDER APPLICATION OR REVISION [ ] PLEASE CHECK THE BOX IF THIS IS A
REVISION AND SEE SECTION 8
- --------------------------------------------------------------------------------
PLEASE CHECK CLASS I OR CLASS II, if applicable, next to your Fund selection.
Class I and Class II shares have different sales charges and operating expenses,
among other differences, as described in each Fund's prospectus.
DATE __________________
CLASS
I II TEMPLETON
[ ] [ ] $______ AMERICAN TRUST
[ ] ______ AMERICAS GOVERNMENT SECURITIES FUND
[ ] [ ] ______ DEVELOPING MARKETS TRUST
[ ] [ ] ______ FOREIGN FUND
[ ] [ ] ______ GLOBAL BOND FUND
CLASS
I II TEMPLETON
[ ] [ ] $______ GLOBAL INFRASTRUCTURE FUND
[ ] [ ] ______ GLOBAL OPPORTUNITIES TRUST
[ ] [ ] ______ GLOBAL REAL ESTATE FUND
[ ] [ ] ______ GLOBAL SMALLER COMPANIES FUND
[ ] [ ] ______ GREATER EUROPEAN FUND
CLASS
I II TEMPLETON
[ ] [ ] $______ GROWTH FUND
[ ] [ ] ______ GROWTH AND INCOME FUND
[ ] ______ JAPAN FUND
[ ] [ ] ______ LATIN AMERICA FUND
[ ] [ ] ______ WORLD FUND
CLASS
I II
[ ] [ ] OTHER: $______
(except for Class II Money Fund)
________________________________
________________________________
________________________________
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION (PLEASE PRINT)
- --------------------------------------------------------------------------------
[ ] INDIVIDUAL OR JOINT ACCOUNT
- -
___________________________________________________ ____________________________
First Name Middle Initial Last Name Social Security Number (SSN)
- -
___________________________________________________ ____________________________
Joint Owner(s) Social Security Number (SSN)
(Joint ownership means "Joint Tenants With Rights
of Survivorship" unless otherwise specified)
All owners must sign Section 4.
- --------------------------------------------------------------------------------
[ ] GIFT/TRANSFER TO A MINOR
______________________________ As Custodian For _______________________________
Name of Custodian (ONE ONLY) Minor's Name (one only)
____________________ Uniform Gifts/Transfers to Minors Act ____________________
State of Residence Minor's Social
Security Number
Please Note: Custodian's Signature, not Minor's, is required in Section 4.
- --------------------------------------------------------------------------------
[ ] TRUST, CORPORATION, PARTNERSHIP, RETIREMENT PLAN, OR OTHER ENTITY
__________________________________________ ____________________________________
Name Taxpayer Identification Number (TIN)
__________________________________________ ____________________________________
Name of Beneficiary Date of Trust Document
(if to be included in the Registration) (must be completed for registration)
________________________________________________________________________________
Name of Each Trustee
(if to be included in the Registration)
- --------------------------------------------------------------------------------
2 ADDRESS
- --------------------------------------------------------------------------------
_________________________________________ Daytime Phone(_______)_____________
Street Address Area Code
_________________________________________ Evening Phone(_______)_____________
City State Zip Code Area Code
I am a Citizen of: [ ] U.S. or [ ]_________________________
Country of Residence
- --------------------------------------------------------------------------------
3 INITIAL INVESTMENT ($100 MINIMUM INITIAL INVESTMENT)
- --------------------------------------------------------------------------------
Check(s) enclosed for $______________. (Payable to the Fund(s) indicated above.)
- --------------------------------------------------------------------------------
4 SIGNATURE AND TAX CERTIFICATIONS (ALL REGISTERED OWNERS MUST SIGN
APPLICATION)
- --------------------------------------------------------------------------------
See "Important Notice Regarding Taxpayer IRS Certifications" in back of
prospectus. The Fund reserves the right to refuse to open an account without
either a certified Taxpayer Identification Number ("TIN") or a certification of
foreign status. Failure to provide tax certifications in this section may result
in backup withholding on payments relating to your account and/or in your
inability to qualify for treaty withholding rates.
I am(We are) not subject to backup withholding because I(we) have not been
notified by the IRS that I am(we are) subject to backup withholding as a result
of a failure to report all interest or dividends or because the IRS has notified
me(us) that I am(we are) no longer subject to backup withholding. (If you are
currently subject to backup withholding as a result of a failure to report all
interest or dividends, please cross out the preceding statement.)
[ ] The number shown above is my(our) correct TIN, or that of the Minor named in
Section 1.
[ ] AWAITING TIN. I am(We are) waiting for a number to be issued to me(us).
I(We) understand that if I(we) do not provide a TIN to the Fund within 60
days, the Fund is required to commence 31% backup withholding until I(we)
provide a certified TIN.
[ ] EXEMPT RECIPIENT. Individuals cannot be exempt. Check this box only after
reading the instructions to see whether you qualify as an exempt recipient.
(You should still provide a TIN.)
[ ] EXEMPT FOREIGN PERSON. Check this box only if the following statement
applies: "I am(we are) neither a citizen nor a resident of the United
States. I(we) certify to the best of my(our) knowledge and belief, I(we)
qualify as an exempt foreign person and/or entity as described in the
instructions."
Permanent address for
tax purposes:___________________________________________________________________
Street Address City State Country Postal Code
PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint
accounts, it is preferred that the primary account owner (or person listed first
on the account) list his/her number as requested above.
CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I(WE) CERTIFY THAT (1) THE
INFORMATION PROVIDED ON THIS APPLICATION IS TRUE, CORRECT AND COMPLETE, (2)
I(WE) HAVE READ THE PROSPECTUS(ES) FOR THE FUND(S) IN WHICH I AM(WE ARE)
INVESTING AND AGREE TO THE TERMS THEREOF, AND (3) I AM(WE ARE) OF LEGAL AGE OR
AN EMANCIPATED MINOR.
I (WE) ACKNOWLEDGE THAT SHARES OF THE FUND(S) ARE NOT INSURED OR GUARANTEED BY
ANY AGENCY OR INSTITUTION AND THAT AN INVESTMENT IN THE SHARES INVOLVES RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
X_____________________________________ X_____________________________________
Signature Signature
X_____________________________________ X_____________________________________
Signature Signature
Please make a photocopy of this application for your records.
- --------------------------------------------------------------------------------
5 BROKER/DEALER USE ONLY (PLEASE PRINT)
- --------------------------------------------------------------------------------
We hereby submit this application for the purchase of shares of the Fund
indicated above in accordance with the terms of our selling agreement with
Franklin Templeton Distributors, Inc. ("FTD"), and with the Prospectus for the
Fund. We agree to notify FTD of any purchases of Class I shares which may be
eligible for reduced or eliminated sales charges.
- --------------------------------------------------------------------------------
WIRE ORDER ONLY: The attached check for $__________ should be applied
against Wire Order
Confirmation Number_____________ Dated________________
For_____________________________ Shares
- --------------------------------------------------------------------------------
Securities Dealer Name__________________________________________________________
Main Office Address_____________________________________________________________
Main Office Telephone Number(_______)___________________________________________
Branch Number___________________________________________________________________
Representative Number___________________________________________________________
Representative Name_____________________________________________________________
Branch Address__________________________________________________________________
Branch Telephone Number(_______)________________________________________________
Authorized Signature, Securities Dealer_________________________________________
Title___________________________________________________________________________
- --------------------------------------------------------------------------------
ACCEPTED: Franklin Templeton Distributors, Inc.
By_______________________________________________
Date_____________________________________________
- --------------------------------------------------------------------------------
PLEASE SEE REVERSE SIDE FOR SHAREHOLDER ACCOUNT PRIVILEGES:
[ ] DISTRIBUTION OPTIONS
[ ] SYSTEMATIC WITHDRAWAL PLAN
[ ] SPECIAL INSTRUCTIONS FOR DISTRIBUTIONS
[ ] AUTOMATIC INVESTMENT PLAN
[ ] TELEPHONE EXCHANGE SERVICE
[ ] CUMULATIVE QUANTITY DISCOUNT
[ ] LETTER OF INTENT
This application must be preceded or accompanied by a prospectus for the
Fund(s) being purchased.
<PAGE>
- --------------------------------------------------------------------------------
6 DISTRIBUTION OPTIONS (CHECK ONE)
- --------------------------------------------------------------------------------
Check one - if no box is checked, all dividends and capital gains will be
reinvested in additional shares of the Fund.
[ ] Reinvest all dividends and capital gains.
[ ] Pay all dividends in cash and reinvest capital gains.
[ ] Pay capital gains in cash and reinvest dividends.
[ ] Pay all dividends and capital gains in cash.
- --------------------------------------------------------------------------------
7 OPTIONAL SHAREHOLDER PRIVILEGES
- --------------------------------------------------------------------------------
A. SPECIAL PAYMENT INSTRUCTIONS FOR DISTRIBUTIONS (Check one box)
[ ] Invest Distributions, as noted in Section 6, or [ ] withdrawals, as noted in
section 7(B), in another Franklin or Templeton Fund. Restrictions may apply
to purchases of shares of a different class. See the prospectus for details.
Fund Name________________________ Existing Account Number ______________________
[ ] Send my Distributions to the person, named below, instead of as registered
and addressed in Sections 1 and 2.
Name______________________________ Street Address______________________________
City________________________________State_______________ Zip Code______________
- --------------------------------------------------------------------------------
B. SYSTEMATIC WITHDRAWAL PLAN
Please withdraw from my Franklin Templeton account $____________($50 minimum)
[ ] Monthly [ ] Quarterly [ ] Semi-Annually or [ ] Annually as set forth
in the Prospectus, starting in _________________________(Month). The net asset
value of the shares held must be at least $5,000 at the time the plan is
established. Additional restrictions may apply to Class II or other shares
subject to contingent deferred sales charge, as described in the prospectus.
Send the withdrawals to: [ ] Address of Record OR [ ] the Franklin Templeton
Fund or person specified in Section 7(A) - Special Payment Instructions for
Distributions.
- --------------------------------------------------------------------------------
C. TELEPHONE TRANSACTIONS
TELEPHONE EXCHANGE PRIVILEGE: If the Fund does not receive specific instructions
- ----------------------------
from the shareholder, either in writing or by telephone, the Telephone Exchange
Privilege (see the prospectus) is automatically extended to each account. The
shareholder should understand, however, that the Fund and Franklin Templeton
Investor Services, Inc. ("FTI") or Franklin Templeton Trust Company and their
agents will not be liable for any loss, injury, damage or expense as a result of
acting upon instructions communicated by telephone reasonably believed to be
genuine. The shareholder agrees to hold the Fund and its agents harmless from
any loss, claims, or liability arising from its or their compliance with such
instructions. The shareholder understands that this option is subject to the
terms and conditions set forth in the prospectus of the fund to be acquired.
[ ] No, I do NOT wish to participate in the Telephone Exchange Privilege or
authorize the Fund or its agents, including FTI or Templeton Funds Trust
Company, to act upon instructions received by telephone to exchange shares
for shares of any other account(s) within the Franklin Templeton Group of
Funds.
TELEPHONE REDEMPTION PRIVILEGE: This is available to shareholders who
- ------------------------------
specifically request it and who complete the Franklin Templeton Telephone
Redemption Authorization Agreement in the back of the Fund's prospectus.
- --------------------------------------------------------------------------------
D. AUTOMATIC INVESTMENT PLAN
IMPORTANT: ATTACH AN UNSIGNED, VOIDED CHECK (FOR CHECKING ACCOUNTS) OR A SAVINGS
ACCOUNT DEPOSIT SLIP HERE, AND COMPLETE THE INFORMATION BELOW.
I(We) would like to establish an Automatic Investment Plan (the "Plan") as
described in the Prospectus. I(We) agree to reimburse FTI and/or FTD for any
expenses or losses that they may incur in connection with my(our) Plan,
including any caused by my(our) bank's failure to act in accordance with my(our)
request. If my(our) bank makes any erroneous payment or fails to make a payment
after shares are purchased on my(our) behalf, any such purchase may be cancelled
and I(we) hereby authorize redemptions and/or deductions from my(our) account
for that purpose.
Debit my (circle one) savings, checking, other _______________ account monthly
for $________________________ ($25 minimum) on or about the [ ] 1st [ ] 5th [ ]
15th or [ ] 20th day starting _______________ (month), to be invested in (name
of Fund) ________________________ Account Number (if known)_____________________
INSTRUCTIONS TO BANK - AUTOMATIC INVESTMENT PLAN AUTHORIZATION
To:_______________________________ ___________________________________________
Name of Your Bank ABA Number
___________________________ _________________ _____________ ______________
Street Address City State Zip Code
I(we) authorize you to charge my(our) Checking/Savings Account and to make
payment to FTD, upon instructions from FTD. I(We) agree that in making payment
for such charges your rights shall be the same as if each were a charge made and
signed personally by me(us). This authority shall remain in effect until you
receive written notice from me(us) changing its terms or revoking it. Until you
actually receive such notice, I(we) agree that you shall be fully protected in
paying any charge under this authority. I(we) further agree that if any such
charge is not made, whether with or with out cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.
X_______________________________________________________________ ______________
SIGNATURE(S) EXACTLY AS SHOWN ON YOUR BANK RECORDS Date
_______________________________________________ ______________________________
Print Name(s) Account Number
___________________________ _________________ _____________ ______________
Your Street Address City State Zip Code
- --------------------------------------------------------------------------------
E. LETTER OF INTENT (LOI) -- NOT APPLICABLE TO PURCHASES OF CLASS II
[ ] I(We) agree to the terms of the LOI and provisions for reservations of Class
I shares and grant FTD the security interest set forth in the Prospectus.
Although I am (we are) not obligated to do so, it is my(our) intention to
invest over a 13 month period in Class I and/or Class II shares of one or
more Franklin or Templeton Funds (including all money market funds in the
Franklin Templeton Group) an aggregate amount at least equal to that which
is checked below. I understand that reduced sales charges will apply only to
purchases of Class I shares.
[ ] $50,000-99,999 (except for Income Fund
and Americas Government Securities Fund)
[ ] $100,000-249,999
[ ] $250,000-499,999
[ ] $500,000-999,999
[ ] $1,000,000 or more
Purchases of Class I shares under LOI of $1,000,000 or more are made at net
asset value and may be subject to a contingent deferred sales charge as
described in the prospectus.
Purchases made within the last 90 days will be included as part of your LOI.
Please write in your Account Number(s) _____________ _____________ _____________
- --------------------------------------------------------------------------------
F. CUMULATIVE QUANTITY DISCOUNT -- NOT APPLICABLE TO PURCHASES OF CLASS II
Class I shares may be purchased at the offering price applicable to the total of
(a) the dollar amount then being purchased plus (b) the amount equal to the cost
or current value (whichever is higher) of the combined holdings of the
purchaser, his or her spouse, and their children or grandchildren under age 21,
of Class I and/or Class II shares of funds in the Franklin Templeton Group, as
well as other holdings of Franklin Templeton Investments, as that term is
defined in the prospectus. In order for this cumulative quantity discount to be
made available, the shareholder or his or her securities dealer must notify FTI
or FTD of the total holdings in the Franklin Templeton Group each time an order
is placed. I understand that reduced sales charges will apply only to purchases
of Class I shares.
[ ] I(We) own shares of more than one Fund in the Franklin Templeton Group and
qualify for the Cumulative Quantity Discount described above and in the
Prospectus.
My(Our) other Account Number(s) are _____________ _____________ _____________
- --------------------------------------------------------------------------------
8 ACCOUNT REVISION (IF APPLICABLE)
- --------------------------------------------------------------------------------
If you are using this application to revise your Account Registration, or wish
to have Distributions sent to an address other than the address on your existing
Account's Registration, a Signature Guarantee is required. Signatures of all
registered owners must be guaranteed by an "eligible guarantor" as defined in
the "How to Sell Shares of the Fund" section in the Fund's Prospectus. A Notary
Public is not an acceptable guarantor.
X___________________________________________ _________________________________
Signature(s) of Registered Account Owners Account Number(s)
X___________________________________________ _________________________________
X___________________________________________
X___________________________________________ _________________________________
Signature Guarantee Stamp
NOTE: For any change in registration, please send us any outstanding
Certificates by Registered Mail.
- --------------------------------------------------------------------------------
TLGOF APP 05/96
TEMPLETON DEVELOPING MARKETS TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996,
IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS OF TEMPLETON DEVELOPING
MARKETS TRUST DATED MAY 1, 1996, AS AMENDED FROM TIME TO TIME,
WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST TO
THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: 800/DIAL BEN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
General Information and History......................1 -Legal Counsel...............................25
Investment Objective and Policies....................1 -Independent Accountants........................25
-Investment Policies................................1 -Reports to Shareholders.......................25
-Repurchase Agreements..............................1 Brokerage Allocation............................25
-Debt Securities....................................2 Purchase, Redemption and Pricing of Shares......27
-Structured Investments.............................3 -Ownership and Authority Disputes...............28
-Futures Contracts...................................3 -Tax-Deferred Retirement Plans................28
-Options on Securities or Indices...................4 -Letter of Intent...............................30
-Foreign Currency Hedging Transactions..............6 -Special Net Asset Value Purchases..............31
-Investment Restrictions............................7 -Redemptions in Kind............................ 31
-Risk Factors......................................10 Tax Status......................................32
-Trading Policies..................................13 -Distributions.................................34
-Personal Securities Transactions..................13 -Options and Hedging Transactions..............34
Management of the Fund..............................14 -Currency Fluctuations -- "Section 988" Gains or Losses
Trustee Compensation................................19 35
Principal Shareholders..............................21 -Sale of Shares................................36
Investment Management and Other Services............21 -Foreign Taxes.................................36
-Investment Management Agreement...................21 -Backup Withholding............................37
-Management Fees...................................23 -Foreign Shareholders..........................37
-Templeton Asset Management Ltd. ..................23 -Other Taxation................................37
-Business Manager..................................23 Principal Underwriter........................... 37
-Custodian and Transfer Agent......................24 Description of Shares...........................37
Performance Information.........................40
Financial Statements.............................42
</TABLE>
GENERAL INFORMATION AND HISTORY
Templeton Developing Markets Trust (the "Fund") was organized as
a Massachusetts business trust on August 9, 1991, and is registered under
the Investment Company Act of 1940 (the "1940 Act") as an open-end
diversified management investment company.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT POLICIES. The Fund's Investment Objective and Policies
are described in the Prospectus under the heading "General Description --
Investment Objective and Policies."
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under
which the buyer of a security simultaneously commits to resell the security to
the seller at an agreed-upon price and date. Under a repurchase agreement,
the seller is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. Templeton Asset
Management Ltd.-- Hong kong Branch (the "Investment
Manager") will monitor the value of such securities daily to determine
that the value equals or exceeds the repurchase price. Repurchase
agreements may involve risks in the event of default or insolvency of the
seller, including possible delays or restrictions upon the Fund's ability
to dispose of the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet creditworthiness
standards approved by the Board of Trustees, I.E., banks or
broker-dealers which have been determined by the Investment Manager to
present no serious risk of becoming involved in bankruptcy proceedings
within the time frame contemplated by the repurchase transaction.
DEBT SECURITIES. The Fund may invest in debt securities which
are rated at least C by Moody's Investors Service, Inc. ("Moody's") or C
by Standard & Poor's Corporation ("S&P") or unrated debt securities
deemed to be of comparable quality by the Investment Manager. As an
operating policy, the Fund will invest no more than 5% of its assets in
debt securities rated lower than Baa by Moody's or BBB by S&P. The market
value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods
of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value
of such securities generally declines. These changes in market value will
be reflected in the Fund's net asset value.
Bonds which are rated C by Moody's are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Bonds rated C
by S&P are obligations on which no interest is being paid.
Although they may offer higher yields than do higher rated
securities, low rated and unrated debt securities generally involve
greater volatility of price and risk of principal and income, including
the possibility of default by, or bankruptcy of, the issuers of the
securities. In addition, the markets in which low rated and unrated debt
securities are traded are more limited than those in which higher rated
securities are traded. The existence of limited markets for particular
securities may diminish the Fund's ability to sell the securities at fair
value either to meet redemption requests or to respond to a specific
economic event such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain low rated or
unrated debt securities may also make it more difficult for the Fund to
obtain accurate market quotations for the purposes of valuing the Fund's
portfolio. Market quotations are generally available on many low rated or
unrated securities only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual
sales.
Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of low
rated debt securities, especially in a thinly traded market. Analysis of
the creditworthiness of issuers of low rated debt securities may be more
complex than for issuers of higher rated securities, and the ability of
the Fund to achieve its investment objective may, to the extent of
investment in low rated debt securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were
investing in higher rated securities.
Low rated debt securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of low rated debt securities have
been found to be less sensitive to interest rate changes than higher
rated investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn
or of a period of rising interest rates, for example, could cause a
decline in low rated debt securities prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional
expenses to seek recovery.
Recent legislation, which requires federally insured savings and
loan associations to divest their investments in low rated debt
securities, may have a material adverse effect on the Fund's net asset
value and investment practices.
STRUCTURED INVESTMENTS. Included among the issuers of debt
securities in which the Fund may invest are entities organized and
operated solely for the purpose of restructuring the investment
characteristics of various securities. These entities are typically
organized by investment banking firms which receive fees in connection
with establishing each entity and arranging for the placement of its
securities. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified
instruments and the issuance by that entity of one or more classes of
securities ("Structured Investments") backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment
characteristics such as varying maturities, payment priorities or
interest rate provisions; the extent of the payments made with respect to
Structured Investments is dependent on the extent of the cash flow on the
underlying instruments. Because Structured Investments of the type in
which the Fund anticipates investing typically involve no credit
enhancement, their credit risk will generally be equivalent to that of
the underlying instruments.
The Fund is permitted to invest in a class of Structured
Investments that is either subordinated or unsubordinated to the right of
payment of another class. Subordinated Structured Investments typically
have higher yields and present greater risks than unsubordinated
Structured Investments. Although the Fund's purchase of subordinated
Structured Investments would have a similar economic effect to that of
borrowing against the underlying securities, the purchase will not be
deemed to be leverage for purposes of the limitations placed on the
extent of the Fund's assets that may be used for borrowing activities.
Certain issuers of Structured Investments may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, a Fund's
investment in these Structured Investments may be limited by the
restrictions contained in the 1940 Act. Structured Investments are
typically sold in private placement transactions, and there currently is
no active trading market for Structured Investments. To the extent such
investments are illiquid, they will be subject to the Fund's restrictions
on investments in illiquid securities.
FUTURES CONTRACTS. The Fund may purchase and sell financial
futures contracts. Although some financial futures contracts call for
making or taking delivery of the underlying securities, in most cases
these obligations are closed out before the settlement date. The closing
of a contractual obligation is accomplished by purchasing or selling an
identical offsetting futures contract. Other financial futures contracts
by their terms call for cash settlements.
The Fund may also buy and sell index futures contracts with
respect to any stock index traded on a recognized stock exchange or board
of trade. An index futures contract is a contract to buy or sell units of
an index at a specified future date at a price agreed upon when the
contract is made. The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take place.
Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the
contract.
At the time the Fund purchases a futures contract, an amount of
cash, U.S. Government securities, or other highly liquid debt securities
equal to the market value of the futures contract will be deposited in a
segregated account with the Fund's custodian. When writing a futures
contract, the Fund will maintain with its custodian liquid assets that,
when added to the amounts deposited with a futures commission merchant or
broker as margin, are equal to the market value of the instruments
underlying the contract. Alternatively, the Fund may "cover" its position
by owning the instruments underlying the contract (or, in the case of an
index futures contract, a portfolio with a volatility substantially
similar to that of the index on which the futures contract is based), or
holding a call option permitting the Fund to purchase the same futures
contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid
assets with the Fund's custodian).
OPTIONS ON SECURITIES OR INDICES. The Fund may write covered
call and put options and purchase call and put options on securities or
stock indices that are traded on United States and foreign exchanges and
in the over-the-counter markets.1
An option on a security is a contract that gives the purchaser
of the option, in return for the premium paid, the right to buy a
specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the writer of the
option at a designated price during the term of the option. An option on
a securities index gives the purchaser of the option, in return for the
premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price
of the option.
The Fund may write a call or put option only if the option is
"covered." A call option on a security written by the Fund is "covered"
if the Fund owns the underlying security covered by the call or has an
absolute and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option on a security is also
"covered" if the Fund holds a call on the same security and in the same
principal amount as the call written where the exercise price of the call
held (1) is equal to or less than the exercise price of the call written
or (2) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or high grade U.S.
Government securities in a segregated account with its custodian. A put
option on a security written by the Fund is "covered" if the Fund
maintains cash or fixed income securities with a value equal to the
exercise price in a segregated account with its custodian, or else holds
a put on the same security and in the same principal amount as the put
written where the exercise price of the put held is equal to or greater
than the exercise price of the put written.
The Fund will cover call options on stock indices that it writes
by owning securities whose price changes, in the opinion of the
Investment Manager, are expected to be similar to those of the index, or
in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and
regulations. Nevertheless, where the Fund covers a call option on a stock
index through ownership of securities, such securities may not match the
composition of the index. In that event, the Fund will not be fully
covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. The Fund will cover put options on
stock indices that it writes by segregating assets equal to the option's
exercise price, or in such other manner as may be in accordance with the
rules of the exchange on which the option is traded and applicable laws
and regulations.
The Fund will receive a premium from writing a put or call
option, which increases the Fund's gross income in the event the option
expires unexercised or is closed out at a profit. If the value of a
security or an index on which the Fund has written a call option falls or
remains the same, the Fund will realize a profit in the form of the
premium received (less transaction costs) that could offset all or a
portion of any decline in the value of the portfolio securities being
hedged. If the value of the underlying security or index rises, however,
the Fund will realize a loss in its call option position, which will
reduce the benefit of any unrealized appreciation in the Fund's
investments. By writing a put option, the Fund assumes the risk of a
decline in the underlying security or index. To the extent that the price
changes of the portfolio securities being hedged correlate with changes
in the value of the underlying security or index, writing covered put
options on indices or securities will increase the Fund's losses in the
event of a market decline, although such losses will be offset in part by
the premium received for writing the option.
The Fund may also purchase put options to hedge its investments
against a decline in value. By purchasing a put option, the Fund will
seek to offset a decline in the value of the portfolio securities being
hedged through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the
option does not increase, the Fund's loss will be limited to the premium
paid for the option plus related transaction costs. The success of this
strategy will depend, in part, on the correlation between the changes in
value of the underlying security or index and the changes in value of the
Fund's security holdings being hedged.
The Fund may purchase call options on individual securities to
hedge against an increase in the price of securities that the Fund
anticipates purchasing in the future. Similarly, the Fund may purchase
call options on a securities index to attempt to reduce the risk of
missing a broad market advance, or an advance in an industry or market
segment, at a time when the Fund holds uninvested cash or short-term debt
securities awaiting investment. When purchasing call options, the Fund
will bear the risk of losing all or a portion of the premium paid if the
value of the underlying security or index does not rise.
There can be no assurance that a liquid market will exist when
the Fund seeks to close out an option position. Trading could be
interrupted, for example, because of supply and demand imbalances arising
from a lack of either buyers or sellers, or the options exchange could
suspend trading after the price has risen or fallen more than the maximum
specified by the exchange. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option
position, the Fund may experience losses in some cases as a result of
such inability.
FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against
foreign currency exchange rate risks, the Fund may enter into forward
foreign currency exchange contracts and foreign currency futures
contracts, as well as purchase put or call options on foreign currencies,
as described below. The Fund may also conduct its foreign currency
exchange transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market.
The Fund may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies. A forward contract is an obligation to purchase or
sell a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and
their customers. The Fund may enter into a forward contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security. In addition, for example, when the Fund believes
that a foreign currency may suffer or enjoy a substantial movement
against another currency, it may enter into a forward contract to sell an
amount of the former foreign currency approximating the value of some or
all of the Fund's portfolio securities denominated in such foreign
currency. This second investment practice is generally referred to as
"cross-hedging." Because in connection with the Fund's forward foreign
currency transactions an amount of the Fund's assets equal to the amount
of the purchase will be held aside or segregated to be used to pay for
the commitment, the Fund will always have cash, cash equivalents or high
quality debt securities available sufficient to cover any commitments
under these contracts or to limit any potential risk. In addition, when
the Fund sells a forward contract, it will cover its obligation under the
contract by segregating cash, cash equivalents or high quality debt
securities, or by owning securities denominated in the corresponding
currency and with a market value equal to or greater than the Fund's
obligation. Assets used as cover for forward contracts will be marked to
market on a daily basis. While these contracts are not presently
regulated by the Commodity Futures Trading Commission ("CFTC"), the CFTC
may in the future assert authority to regulate forward contracts. In such
event, the Fund's ability to utilize forward contracts in the manner set
forth above may be restricted. Forward contracts may limit potential gain
from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Fund than if it had not engaged in
such contracts.
The Fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the dollar
value of foreign portfolio securities and against increases in the dollar
cost of foreign securities to be acquired. As is the case with other
kinds of options, however, the writing of an option on foreign currency
will constitute only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective
hedge against fluctuation in exchange rates, although, in the event of
rate movements adverse to the Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. Options on
foreign currencies to be written or purchased by the Fund will be traded
on U.S. and foreign exchanges or over-the-counter.
The Fund may enter into exchange-traded contracts for the
purchase or sale for future delivery of foreign currencies ("foreign
currency futures"). This investment technique will be used only to hedge
against anticipated future changes in exchange rates which otherwise
might adversely affect the value of the Fund's portfolio securities or
adversely affect the prices of securities that the Fund intends to
purchase at a later date. The successful use of foreign currency futures
will usually depend on the Investment Manager's ability to forecast
currency exchange rate movements correctly. Should exchange rates move in
an unexpected manner, the Fund may not achieve the anticipated benefits
of foreign currency futures or may realize losses.
INVESTMENT RESTRICTIONS. The Fund has imposed upon itself certain Investment
Restrictions, which together with its Investment Objective, are fundamental
policies except as otherwise indicated. No changes in the Fund's Investment
Objective or these Investment Restrictions can be made without approval of the
Fund's Shareholders. For this purpose, the provisions in the 1940 Act require
the affirmative vote of the lesser of either (a) 67% or more of the
Shares present at a Shareholders' meeting at which more than 50% of the
outstanding Shares are present or represented by proxy or (b) more than
50% of the outstIn accordance with these restrictions, the Fund will not:
1. Invest in real estate or mortgages on real estate
(although the Fund may invest in marketable securities
secured by real estate or interests therein or issued
by companies or investment trusts which invest in real
estate or interests therein); invest in interests
(other than debentures or equity stock interests) in
oil, gas or other mineral exploration or development
programs; purchase or sell commodity contracts (except
futures contracts as described in the Fund's
Prospectus); or invest in other open-end investment
companies except as permitted by the 1940 Act.2
2. Purchase or retain securities of any company in which Trustees
or officers of the Fund or of its Investment Manager,
individually owning more than 1/2 of 1% of the securities of
such company, in the aggregate own more than 5% of the
securities of such company.
3. Purchase any security (other than obligations of the U.S.
Government, its agencies and instrumentalities) if, as a
result, as to 75% of the Fund's total assets (i) more than 5%
of the Fund's total assets would be invested in securities of
any single issuer, or (ii) the Fund would then own more than
10% of the voting securities of any single issuer.3
4. Act as an underwriter; issue senior securities except as set
forth in Investment Restriction 6 below; or purchase on margin
or sell short (but the Fund may make margin payments in
connection with options on securities or securities indices,
foreign currencies, futures contracts and related options, and
forward contracts and related options).
5. Loan money, apart from the purchase of a portion of an issue
of publicly distributed bonds, debentures, notes and other
evidences of indebtedness, although the Fund may enter into
repurchase agreements and lend its portfolio securities.
6. Borrow money, except that the Fund may borrow money from banks
in an amount not exceeding 33-1/3% of the value of the Fund's
total assets (including the amount borrowed), or pledge,
mortgage or hypothecate its assets for any purpose, except to
secure borrowings and then only to an extent not greater than
15% of the Fund's total assets. Arrangements with respect to
margin for futures contracts, forward contracts and related
options are not deemed to be a pledge of assets.
7. Invest more than 5% of the value of the Fund's total assets in
securities of issuers, including their predecessors, which
have been in continuous operation less than three years.
8. Invest more than 5% of the Fund's total assets in warrants,
whether or not listed on the New York or American Stock
Exchange, including no more than 2% of its total assets which
may be invested in warrants that are not listed on those
exchanges. Warrants acquired by the Fund in units or attached
to securities are not included in this restriction.
9. Invest more than 25% of the Fund's total assets in a single
industry.
10. Participate on a joint or a joint and several basis in any
trading account in securities. (See "Investment Objective and
Policies -- Trading Policies" as to transactions in the same
securities for the Fund and other Templeton Funds and
clients.)
11. Invest more than 15% of the Fund's total assets in securities
of foreign issuers that are not listed on a recognized United
States or foreign securities exchange, including no more than
10% of its total assets in restricted securities, securities
that are not readily marketable, repurchase agreements having
more than seven days to maturity, and over-the-counter options
purchased by the Fund. Assets used as cover for
over-the-counter options written by the Fund are considered
not readily marketable.
Whenever any investment policy or investment restriction states a
maximum percentage of the Fund's assets which may be invested in any security or
other property, it is intended that such maximum percentage limitation be
determined immediately after and as a result of the Fund's acquisition of such
security or property. Assets are calculated as described in the Prospectus under
the heading "How to Buy Shares of the Fund." If the Fund receives from an issuer
of securities held by the Fund subscription rights to purchase securities of
that issuer, and if the Fund exercises such subscription rights at a time when
the Fund's portfolio holdings of securities of that issuer would otherwise
exceed the limits set forth in investment restrictions 3 or 9 above, it will not
constitute a violation if, prior to receipt of securities upon exercise of such
rights, and after announcement of such rights, the Fund has sold at least as
many securities of the same class and value as it would receive on exercise of
such rights. The Fund may borrow up to 5% of the value of its total assets to
meet redemptions and for other temporary purposes.
RISK FACTORS. Investors should consider carefully the substantial risks
involved in securities of companies and governments of foreign nations,
which are in addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing
practices and requirements may not be comparable to those applicable to
United States companies. The Fund, therefore, may encounter difficulty in
obtaining market quotations for purposes of valuing its portfolio and
calculating its net asset value. Foreign markets have substantially less
volume than the New York Stock Exchange ("NYSE") and securities of some
foreign companies are less liquid and more volatile than securities of
comparable United States companies. Commission rates in foreign countries,
which are generally fixed rather than subject to negotiation as in the United
States, are likely to be higher. In many foreign countries there is less
government supervision and regulation of stock exchanges, brokers and
listed companies than in the United States.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
In addition, many countries in which the Fund may invest have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, the Fund could lose a substantial
portion of any investments it has made in the affected countries. Further, no
accounting standards exist in Eastern European countries. Finally, even though
certain Eastern European currencies may be convertible into U.S. dollars, the
conversion rates may be artificial to the actual market values and may be
adverse to Fund Shareholders.
Certain Eastern European countries, which do not have market economies,
are characterized by an absence of developed legal structures governing private
and foreign investments and private property. Certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment by foreign persons in a particular company, or limit the
investment of foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the 1940 Act
to act as foreign custodians of the Fund's cash and securities, the Fund's
investment in such countries may be limited or may be required to be effected
through intermediaries. The risk of loss through governmental confiscation may
be increased in such countries.
Investing in Russian companies involves a high degree of risk and
special considerations not typically associated with investing in the United
States securities markets, and should be considered highly speculative. Such
risks include: (a) delays in settling portfolio transactions and risk of loss
arising out of Russia's system of share registration and custody; (b) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgment; (c) pervasiveness of corruption and crime in the
Russian economic system; (d) currency exchange rate volatility and the lack of
available currency hedging instruments; (e) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation); (f)
controls on foreign investment and local practices disfavoring foreign investors
and limitations on repatriation of invested capital, profits and dividends, and
on the Fund's ability to exchange local currencies for U.S. dollars; (g) the
risk that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (h) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (i)
dependency on exports and the corresponding importance of international trade;
(j) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (k) possible
difficulty in identifying a purchaser of securities held by the Fund due to the
underdeveloped nature of the securities markets.
There is little historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision and it is possible for the Fund to lose
its registration through fraud, negligence or even mere oversight. While the
Fund will endeavor to ensure that its interest continues to be appropriately
recorded either itself or through a custodian or other agent inspecting the
share register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent the Fund from
investing in the securities of certain Russian companies deemed suitable by the
Investment Manager. Further, this also could cause a delay in the sale of
Russian company securities by the Fund if a potential purchaser is deemed
unsuitable, which may expose the Fund to potential loss on the investment.
The Fund endeavors to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread on currency exchange (to cover service
charges) may be incurred, particularly when the Fund changes investments from
one country to another or when proceeds of the sale of Shares in U.S. dollars
are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent the Fund from transferring cash
out of the country, withhold portions of interest and dividends at the source,
or impose other taxes, with respect to the Fund's investments in securities of
issuers of that country. Although the management places the Fund's investments
only in foreign nations which it considers as having relatively stable and
friendly governments, there is the possibility of cessation of trading on
national exchanges, expropriation, nationalization, confiscatory or other
taxation, foreign exchange controls (which may include suspension of the ability
to transfer currency from a given country), default in foreign government
securities, political or social instability, or diplomatic developments that
could affect investments in securities of issuers in those nations.
The Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Some countries in which the Fund may invest may also
have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies have experienced a steady devaluation
relative to the U.S. dollar. Any devaluations in the currencies in which the
Fund's portfolio securities are denominated may have a detrimental impact on the
Fund. Through the Fund's flexible policy, management endeavors to avoid
unfavorable consequences and to take advantage of favorable developments in
particular nations where from time to time it places the Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Trustees consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Trustees also consider the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories (see "Investment Management and Other
Services -- Custodian and Transfer Agent"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Investment
Manager, any losses resulting from the holding of the Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of the Shareholders. No assurance can be given that the Trustees'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
The Fund's ability to reduce or eliminate its futures and related
options positions will depend upon the liquidity of the secondary markets for
such futures and options. The Fund intends to purchase or sell futures and
related options only on exchanges or boards of trade where there appears to be
an active secondary market, but there is no assurance that a liquid secondary
market will exist for any particular contract or at any particular time. Use of
stock index futures and related options for hedging may involve risks because of
imperfect correlations between movements in the prices of the futures or related
options and movements in the prices of the securities being hedged. Successful
use of futures and related options by the Fund for hedging purposes also depends
upon the Investment Manager's ability to predict correctly movements in the
direction of the market, as to which no assurance can be given.
TRADING POLICIES. The Investment Manager and its affiliated companies
serve as investment manager to other investment companies and private
clients. Accordingly, the respective portfolios of certain of these funds and
clients may contain many or some of the same securities. When certain funds
or clients are engaged simultaneously in the purchase or sale of the same
security, the trades may be aggregated for execution and then allocated in
a manner designed to be equitable to each party. The larger size of the
transaction may affect the price of the security and/or the quantity which may
be bought or sold for each party. If the transaction is large enough,
brokerage commissions may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other remuneration in
connection therewith, may be effected between any of these funds, or between
funds and private clients, under procedures adopted pursuant to Rule 17a-7 under
the 1940 Act.
PERSONAL SECURITIES TRANSACTIONS. Access persons of the Franklin
Templeton Group, as defined in SEC Rule 17(j) under the 1940 Act, who are
employees of Franklin Resources, Inc. or their subsidiaries, are permitted to
engage in personal securities transactions subject to the following general
restrictions and procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after this clearance;
(2) Copies of all brokerage confirmations must be sent to the Compliance Officer
and within 10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the Compliance Officer; (3) In
addition to items (1) and (2), access persons involved in preparing and making
investment decisions must file annual reports of their securities holdings each
January and also inform the Compliance Officer (or other designated personnel)
if they own a security that is being considered for a fund or other client
transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
MANAGEMENT OF THE FUND
The name, address, principal occupation during the past five years and
other information with respect to each of the Trustees and Principal Executive
Officers of the Fund are as follows:
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH FUND DURING THE PAST FIVE YEARS
HARRIS J. ASHTON Chairman of the Board, President, and Chief
Metro Center, 1 Station Place Executive Officer of General Host Corp-
Stamford, Connecticut oration (nursery and craft centers); and a
Trustee Director of RBC Holdings (U.S.A.) Inc. (a
bank holding company) and Bar-S Foods. Age
63.
NICHOLAS F. BRADY* Chairman of Templeton Emerging Markets
The Bullitt House Investment Trust PLC, Templeton Latin a
102 East Dover Street America Investment Trust PLC and Darby
Easton, Maryland Overseas Investments, Ltd. (an investment
Trustee firm) (1994-present); Director of the
Amerada Hess Corporation, Capital Cities/
ABC, Inc., Christiana Companies, and the
H.J. Heinz Company; Secretary of the
United States Department of the Treasury
(1988-January 1993); and chairman of the
board of Dillon, Read & Co. Inc. (invest-
ment banking) prior thereto. Age 66.
FRANK J. CROTHERS President and Chief Executive Officer of
P.O. Box N-3238 Atlantic Equipment & Power Ltd.; Vice
Nassau, Bahamas Chairman of Caribbean Utilities Co., Ltd.;
Trustee President of Provo Power Corporation;
and a director of various director of
various other businesses and nonprofit
organizations. Age 51.
S. JOSEPH FORTUNATO Member of the law firm of Pitney, Hardin,
200 Campus Drive Kipp & Szuch; and a director of General Host
Florham Park, New Jersey Corporation. Age 63.
Trustee
JOHN Wm. GALBRAITH President of Galbraith Properties, Inc.
360 Central Avenue (personal investment company); Director of
Suite 1300 Gulfwest Banks, Inc. (bank holding company)
St. Petersburg, Florida (1995-present) and Mercantile Bank (1991-
Trustee present); Vice Chairman of Templeton,
Galbraith & Hansberger Ltd. (1986-1992); and
Chairman of Templeton Funds Management, Inc.
(1974-1991). Age 74.
ANDREW H. HINES, JR. Consultant for the Triangle Consulting Group;
150 2nd Avenue N. Chairman of the Board and Chief Executive
St. Petersburg, Florida Officer of Florida Progress Corporation
Trustee (1982-February, 1990) and director of various
of its subsidiaries; Chairman and
Director of Precise Power Corporation;
executive-in-residence of Eckerd College
(1991-present); and a Director of
Checkers Drive-In Restaurants, Inc. Age
73.
CHARLES B. JOHNSON* President, Chief Executive Officer, and
777 Mariners Island Blvd. Director of Franklin Resources, Inc.;
San Mateo, California Chairman of the Board and Director of
Trustee, Chairman of the Board Franklin Advisers, Inc. and Franklin
and Vice President Templeton Distributors, Inc.; General Host
Corporation, and Templeton Global Investors,
Inc.; and officer and director, trustee or
managing general partner, as the case may
be, of most other subsidiaries of Franklin
and of 55 of the investment companies in the
Franklin Templeton Group. Age 63.
CHARLES E. JOHNSON* Senior Vice President and Director of
777 Mariners Island Blvd. Franklin Resources, Inc.; Senior Vice
San Mateo, California President of Franklin Templeton Distributors,
Trustee and Vice President Inc.; President and Director of Templeton
Worldwide, Inc. and Franklin Institutional
Service Corporation; Chairman of the Board
of Templeton Investment Counsel, Inc.; vice
president and/or director, as the case may
be, for some of the subsidiaries of Franklin
Resources, Inc.; and an officer and/or
director, as the case may be, of 24 of the
investment companies in the Franklin
Templeton Group. Age 39.
BETTY P. KRAHMER Director or trustee of various civic
2201 Kentmere Parkway associations; formerly, economic analyst,
Wilmington, Delaware U.S. Government. Age 66.
Trustee
GORDON S. MACKLIN Chairman of White River Corporation
8212 Burning Tree Road (information services); Director of Fund
Bethesda, Maryland America Enterprises Holdings, Inc., Lockheed
Trustee Martin Corporation, MCI Communications
Corporation, Fusion Systems Corporation,
Infovest Corporation, and Medimmune, Inc.;
formerly, Chairman of Hambrecht and Quist
Group; Director of H&Q Healthcare Investors;
and President of the National Association of
Securities Dealers, Inc. Age 67.
FRED R. MILLSAPS Manager of personal investments (1978-
2665 N.E. 37th Drive present); Chairman and Chief Executive
Fort Lauderdale, Florida Officer of Landmark Banking Corporation
Trustee (1969-1978); Financial Vice President of
Florida Power and Light (1965-1969); Vice
President of The Federal Reserve Bank of
Atlanta (1958-1965); and a director of
various other business and nonprofit
organizations. Age 67.
CONSTANTINE DEAN TSERETOPOULOS Physician, Lyford Cay Hospital (July 1987-
Lyford Cay Hospital present); cardiology fellow, University of
P.O. Box N-7776 Maryland (July 1985-July 1987); internal
medicine intern, Greater Baltimore Medical
Nassau, Bahamas Center (July 1982-July
1985). Age 42.
Trustee
J. MARK MOBIUS Managing director of Templeton Asset
Two Exchange Square Management Ltd.; portfolio manager for
Hong Kong various Templeton advisory affiliates;
President President of International Investment
Trust Company Limited (investment manager
of Taiwan R.O.C. Fund) (1986-1987); and
Director of Vickers da Costa, Hong Kong
(1983-1986). Age 49.
RUPERT H. JOHNSON, JR. Executive Vice President and Director of
777 Mariners Island Blvd. Franklin Resources, Inc.; President and
San Mateo, California Director of Franklin Advisers, Inc.;
Vice President Executive Vice President and Director of
Franklin Templeton Distributors, Inc.; and
officer and/or director, trustee or managing
general partner, as the case may be, of most
other subsidiaries of Franklin Resources,
Inc., and of 61 of the investment companies
in the Franklin Templeton Group. Age 55.
HARMON E. BURNS Executive Vice President, Secretary and
777 Mariners Island Blvd. Director of Franklin Resources, Inc.;
San Mateo, California Executive Vice President and Director of
Vice President Franklin Templeton Distributors, Inc.;
Executive Vice President of Franklin
Advisers, Inc.; Director of Franklin
Templeton Investor Services, Inc.; officers
and/or director, as the case may be of other
subsidiaries of Franklin Resources, Inc.;
and officer and/or director of 61 of the
investment companies in the Franklin
Templeton Group of Funds. Age 51.
DEBORAH R. GATZEK Senior Vice President and General Counsel of
777 Mariners Island Blvd. Franklin Resources, Inc.; Senior Vice
San Mateo, California President of Franklin Templeton
Vice President Distributors, Inc., and Franklin Advisers,
Inc. and officer of 61 of the investment
companies in the Franklin Templeton Group
of Funds. Age 47.
MARK G. HOLOWESKO President and Director of Templeton
Lyford Cay Global Advisors Limited; Chief Investment
Nassau, Bahamas Officer of global equity research for
Vice President Templeton Worldwide, Inc.; president or vice
president of other Templeton Funds;
formerly, investment administrator with
Roy West Trust Corporation (Bahamas)
Limited (1984-1985). Age 36.
MARTIN L. FLANAGAN Senior vice president, Treasurer and Chief
777 Mariners Island Blvd. Financial Officer of Franklin Resources,
San Mateo, California Inc. Director and Executive Vice
Vice President President of Templeton Investment Counsel,
Inc.; Director, Chief Executive Officer,
and President of Templeton Global
Investors, Inc.; director or trustee and
president or vice president of various
Templeton Funds; accountant with Arthur
Andersen & Company (1982-1983); and a
member of the International Society of
Financial Analysts and the American
Institute of Certified Public Accountants.
Age 35.
JOHN R. KAY Vice President of the Templeton Funds; Vice
500 East Broward Blvd. President and Treasurer of Templeton Global
Fort Lauderdale, Florida Investors,Inc. and Templeton Worldwide,Inc.;
Vice President Assistant Vice President of Franklin
Templeton Distributors, Inc.; formerly, Vice
President and Controller of the Keystone
Group, Inc. Age 55.
THOMAS M. MISTELE Senior Vice President of Templeton Global
700 Central Avenue Investors, Inc.; Vice President of Franklin
St. Petersburg, Florida Templeton Distributors, Inc.; Secretary of
Secretary the Templeton Funds; formerly, attorney,
Dechert Price & Rhoads (1985-1988) and
Freehill, Hollingdale & Page (1988); and
judicial clerk, U.S. District Court (Eastern
District of Virginia) (1984-1985).
Age 42.
JAMES R. BAIO Certified Public Accountant; Treasurer of the
500 East Broward Blvd. Templeton Funds; Senior Vice President of
Fort Lauderdale, Florida Templeton Worldwide, Inc., Templeton Global
Treasurer Investors, Inc., and Templeton Funds
Trust Company; formerly, senior tax manager
with Ernst & Young (certified public
accountants)(1977-1989). Age 41.
- ----------------------
* These Trustees are "interested persons" of the Fund as that term is
defined in the 1940 Act. Mr. Brady and Franklin Resources, Inc.
are limited partners of Darby Overseas Partners, L.P. ("Darby
Overseas"). Mr. Brady established Darby Overseas in February, 1994,
and is Chairman and a shareholder of the corporate general partner of
Darby Overseas. In addition, Darby Overseas and Templeton Global
Advisors Limited. are limited partners of Darby Emerging Markets Fund,
L.P.
There are no family relationships between any of the Trustees, except that
Mr. Charles B. Johnson is the father of Mr. Charles E. Johnson.
TRUSTEE COMPENSATION
All of the Fund's Officers and Trustees also hold positions with other
investment companies in the Franklin Templeton Group. No compensation is paid by
the Fund to any officer or Trustee who is an officer, trustee or employee of the
Investment Manager or its affiliates. Each Templeton Fund pays its independent
directors and trustees and Mr. Brady an annual retainer and/or fees for
attendance at Board and Committee meetings, the amount of which is based on the
level of assets in each fund. Accordingly, the Fund will pay the independent
Trustees and Mr. Brady an annual retainer of $6,000 and a fee of $500 per
meeting attended of the Board and its Committees. The independent Trustees and
Mr. Brady are reimbursed for any expenses incurred in attending meetings, paid
pro rata by each Franklin Templeton Fund in which they serve. No pension or
retirement benefits are accrued as part of Fund expenses.
The following table shows the total compensation paid to the Trustees
by the Fund and by all investment companies in the Franklin Templeton Group:
<TABLE>
<CAPTION>
Number of Total Compensation
Aggregate Franklin Templeton from All Funds in
Compensation Fund Boards on which Franklin Templeton
NAME OF DIRECTOR FROM THE FUND* DIRECTOR SERVES GROUP*
- ---------------- -------------- -------------------- -------------
<S> <C> <C> <C>
Harris J. Ashton $ 8,000 56 $327,925
Nicholas F. Brady 8,000 24 98,225
Frank J. Crothers 8,863 4 22,975
S. Joseph Fortunato 8,000 58 344,745
John Wm. Galbraith 6,000 23 70,100
Andrew H. Hines, Jr. 8,000 24 106,325
Betty P. Krahmer 6,000 24 93,475
Gordon S. Macklin 8,000 53 321,525
Fred R. Millsaps 8,711 24 104,325
Constantine Dean 8,863 4 22,975
Tseretopoulos
</TABLE>
- ---------------
* For the fiscal year ended December 31, 1995
PRINCIPAL SHAREHOLDERS PRINCIPAL SHAREHOLDERS
As of March 29, 1996, there were 191,077,127 Fund Shares outstanding,
of which 47,601 Shares (0.025%)were owned beneficially by the Trustees and
Officers of the Fund as a group. As of March 29, 1996, to the knowledge of
management, no person owned beneficially or of record 5% or more of the Fund's
outstanding Class I Shares, except that Merrill Lynch, Pierce, Fenner & Smith
Inc., P.O. Box 45286, Jacksonville, Florida 32232-5286, owned 14,785,202 Shares
(8% of the outstanding shares) and no person owned beneficially or of record 5%
or more of the Fund's outstanding Class II Shares, except that Merrill Lynch,
Pierce, Fenner & Smith Inc., Mutual Funds Operations, 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, owned 1,167,908 Shares (15% of the outstanding
shares).
INVESTMENT MANAGEMENT AND OTHER SERVICESVESTMENT MANAGEMENT AND OTHER SERVICES
. The Investment Manager of the Fund is Templeton Asset Management, Ltd. -- Hong
Kong Branch, a Singapore corporation with offices at, Two Exchange Square,
Suite 908, Hong Kong. The Investment Management Agreement, dated October 30,
1992, as amended and restated November 23, 1995 was approved by Shareholders of
the Fund on October 30, 1992, and was last approved by the Board of Trustees,
including a majority of the Trustees who were not parties to the Agreement or
interested persons of any such party, at a meeting on February 23, 1996, and
will continue through April 30, 1997. The Investment Management Agreement will
continue from year to year thereafter, subject to approval annually by the Board
of Trustees or by vote of the holders of a majority of the outstanding shares of
the Fund (as defined in the 1940 Act) and also, in either event, with the
approval of a majority of those Trustees who are not parties to the Investment
Management Agreement or interested persons of any such party in person at a
meeting called for the purpose of voting on such approval.
The Agreement requires the Investment Manager to manage the investment
and reinvestment of the Fund's assets. The Investment Manager is not required to
furnish any personnel, overhead items or facilities for the Fund, including
daily pricing or trading desk facilities, although such expenses are paid by
investment advisers of some other investment companies.
The Agreement provides that the Investment Manager will select brokers
and dealers for execution of the Fund's portfolio transactions consistent with
the Fund's brokerage policies (see "Brokerage Allocation"). Although the
services provided by broker-dealers in accordance with the brokerage policies
incidentally may help reduce the expenses of or otherwise benefit the Investment
Manager and other investment advisory clients of the Investment Manager and of
its affiliates, as well as the Fund, the value of such services is
indeterminable and the Investment Manager's fee is not reduced by any offset
arrangement by reason thereof.
The Investment Manager renders its services to the Fund from outside
the United States. When the Investment Manager determines to buy or sell the
same security for the Fund that the Investment Manager or certain of its
affiliates have selected for one or more of the Investment Manager's other
clients or for clients of its affiliates, the orders for all such securities
trades may be placed for execution by methods determined by the Investment
Manager, with approval by the Board of Trustees, to be impartial and fair, in
order to seek good results for all parties. See "Investment Objective and
Policies -- Trading Policies." Records of securities transactions of persons who
know when orders are placed by the Fund are available for inspection at least
four times annually by the compliance officer of the Fund so that the
non-interested Trustees (as defined in the 1940 Act) can be satisfied that the
procedures are generally fair and equitable to all parties.
The Investment Manager also provides management services to numerous
other investment companies or funds and accounts pursuant to management
agreements with each fund or account. The Investment Manager may give advice and
take action with respect to any of the other funds and accounts it manages, or
for its own account, which may differ from action taken by the Manager on behalf
of the Fund. Similarly, with respect to the Fund, the Investment Manager is not
obligated to recommend, purchase or sell, or to refrain from recommending,
purchasing or selling, any security that the Investment Manager and access
persons, as defined by the 1940 Act, may purchase or sell for its or their own
account or for the accounts of any other fund or account. Furthermore, the
Investment Manager is not obligated to refrain from investing in securities held
by the Fund or other funds or accounts which it manages or administers. Any
transactions for the accounts of the Investment Manager and other access persons
will be made in compliance with the Fund's Code of Ethics as described in the
section "Investment Objective and Policies -- Personal Securities Transactions."
The Agreement provides that the Investment Manager shall have no
liability to the Fund or any Shareholder of the Fund for any error of judgment,
mistake of law, or any loss arising out of any investment or other act or
omission in the performance by the Investment Manager of its duties under the
Agreement, except liability resulting from willful misfeasance, bad faith or
gross negligence on the Investment Manager's part or reckless disregard of its
duties under the Agreement. The Agreement will terminate automatically in the
event of its assignment, and may be terminated by the Fund at any time without
payment of any penalty on 60 days' written notice, with the approval of a
majority of the Trustees in office at the time or by vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act.)
MANAGEMENT FEES. For its services, the Fund pays the Investment Manager a
monthly fee equal on an annual basis to 1.25% of its average daily net assets
during the year. Each class of Shares pays a portion of the fee, determined by
the proportion of the Fund that it represents. This fee is higher than advisory
fees paid by most other U.S. investment companies, primarily because investing
in equity securities of companies with smaller capital markets, many of which
are not widely followed by professional analysts, requires the Investment
Manager to invest additional time and incur added expense in developing
specialized resources, including research facilities. During the fiscal years
ended December 31, 1995, 1994, and 1993, the Investment Manager received fees
from the Fund of $26,314,151, $23,325,167, and $6,765,008, respectively.
The Investment Manager will comply with any applicable state
regulations which may require the Investment Manager to make reimbursements to
the Fund in the event that the Fund's aggregate operating expenses, including
the advisory fee, but generally excluding distribution expenses, interest,
taxes, brokerage commissions and extraordinary expenses, are in excess of
specific applicable limitations. The strictest rule currently applicable to the
Fund is 2.5% of the first $30,000,000 of net assets, 2.0% of the next
$70,000,000 of net assets and 1.5% of the remainder.
TEMPLETON ASSET MANAGEMENT LTD.- HONG KONG BRANCH. The Investment
Manager is an indirect wholly owned subsidiary of Franklin Resources, Inc.
("Franklin"), a publicly traded company whose shares are listed on the NYSE.
Charles B. Johnson (a Trustee and officer of the Fund), and Rupert H. Johnson,
Jr are principal shareholders of Franklin and own, respectively, approximately
20%, and 16% of its outstanding shares. Messrs. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers.
BUSINESS MANAGER. Templeton Global Investors, Inc. performs certain
administrative functions as Business Manager for the Fund, including:
o providing office space, telephone, office equipment and
supplies for the Fund;
o paying compensation of the Fund's officers for services
rendered as such;
o authorizing expenditures and approving bills for payment on
behalf of the Fund;
o supervising preparation of annual and semi-annual reports to
Shareholders, notices of dividends, capital gains
distributions and tax credits, and attending to correspondence
and other special communications with individual Shareholders;
o daily pricing of the Fund's investment portfolio and
supervising publication of daily quotations of the bid and
asked prices of the Fund's Shares, earnings reports and other
financial data;
o providing trading desk facilities for the Fund;
o monitoring relationships with organizations serving the
Fund, including custodians, transfer agents and printers;
o supervising compliance by the Fund with recordkeeping
requirements under the 1940 Act and regulations thereunder and
with state regulatory requirements, maintaining books and
records for the Fund (other than those maintained by the
Custodian and Transfer Agent), and preparing and filing tax
reports other than the Fund's income tax returns;
o monitoring the qualifications of tax-deferred retirement
plans providing for investment in
Shares of the Fund; and
o providing executive, clerical and secretarial help needed to
carry out these responsibilities.
For its services, the Business Manager receives a monthly fee equal on
an annual basis to 0.15% of the first $200,000,000 of the Fund's average daily
net assets, reduced to 0.135% annually of the Fund's net assets in excess of
$200,000,000, further reduced to 0.1% annually of such net assets in excess of
$700,000,000, and further reduced to 0.075% annually of such net assets in
excess of $1,200,000,000. Each class of Shares pays a portion of the fee,
determined by the proportion of the Fund that it represents. During the fiscal
years ended December 31, 1995, 1994, and 1993, the Business Manager (and, prior
to April 1, 1993, Templeton Funds Management, Inc., the previous business
manager) received business management fees of $2,153,848,$1,974,513, and
$760,331, , respectively.
The Business Manager is relieved of liability to the Fund for any act
or omission in the course of its performance under the Business Management
Agreement, in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties and obligations under the Agreement. The
Agreement may be terminated by the Fund at any time on 60 days' written notice
without payment of penalty, provided that such termination by the Fund shall be
directed or approved by vote of a majority of the Trustees of the Fund in office
at the time or by vote of a majority of the outstanding voting securities of the
Fund, and shall terminate automatically and immediately in the event of its
assignment.
Templeton Global Investors, Inc. is a wholly owned subsidiary of Franklin.
CUSTODIAN AND TRANSFER AGENT. The Chase Manhattan Bank, N.A., serves as
Custodian of the Fund's assets, which are maintained at the Custodian's
principal office, MetroTech Center, Brooklyn, New York 11245, and at the offices
of its branches and agencies throughout the world. The Custodian has entered
into agreements with foreign sub-custodians approved by the Trustees pursuant to
Rule 17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians
generally domestically, and frequently abroad, do not actually hold certificates
for the securities in their custody, but instead have book records with domestic
and foreign securities depositories, which in turn have book records with the
transfer agents of the issuers of the securities. Compensation for the services
of the Custodian is based on a schedule of charges agreed on from time to time.
Franklin Templeton Investor Services, Inc. serves as the Fund's
Transfer Agent. Services performed by the Transfer Agent include processing
purchase and redemption orders; making dividend payments, capital gain
distributions and reinvestments; and handling routine communications with
Shareholders. The Transfer Agent receives from the Fund an annual fee of $14.08
per Shareholder account plus out-of-pocket expenses. These fees are adjusted
each year to reflect changes in the Department of Labor Consumer Price Index.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C.
20005, is legal counsel for the Fund.
INDEPENDENT ACCOUNTANTS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York,
New York 10017, serve as independent accountants for the Fund. Their audit
services comprise examination of the Fund's financial statements and review of
the Fund's filings with the Securities and Exchange Commission ("SEC") and the
Internal Revenue Service ("IRS").
REPORTS TO SHAREHOLDERS. The Fund's fiscal year ends on December 31.
Shareholders are provided at least semi-annually with reports showing the Fund's
portfolio and other information, including an annual report with financial
statements audited by independent accountants. Shareholders who would like to
receive an interim quarterly report may phone the Fund Information Department at
1-800/DIAL BEN.
BROKERAGE ALLOCATION
The Investment Management Agreement provides that the Investment
Manager is responsible for selecting members of securities exchanges, brokers
and dealers (such members, brokers and dealers being hereinafter referred to as
"brokers") for the execution of the Fund's portfolio transactions and, when
applicable, the negotiation of commissions in connection therewith. All
decisions and placements are made in accordance with the following principles:
1. Purchase and sale orders are usually placed with brokers who
are selected by the Investment Manager as able to achieve
"best execution" of such orders. "Best execution" means
prompt and reliable execution at the most favorable
securities price, taking into account the other provisions
hereinafter set forth. The determination of what may
constitute best execution and price in the execution of a
securities transaction by a broker involves a number of
considerations, including, without limitation, the overall
direct net economic result to the Fund (involving both price
paid or received and any commissions and other costs paid),
the efficiency with which the transaction is effected, the
ability to effect the transaction at all where a large block
is involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future, and
the financial strength and stability of the broker. Such
considerations are judgmental and are weighed by the
Investment Manager in determining the overall reasonableness
of brokerage commissions.
2. In selecting brokers for portfolio transactions, the
Investment Manager takes into account its past experience as
to brokers qualified to achieve "best execution," including
brokers who specialize in any foreign securities held by the
Fund.
3. The Investment Manager is authorized to allocate brokerage
business to brokers who have provided brokerage and research
services, as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934 (the "1934 Act"), for the
Fund and/or other accounts, if any, for which the Investment
Manager exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions as to which
fixed minimum commission rates are not applicable, to cause
the Fund to pay a commission for effecting a securities
transaction in excess of the amount another broker would have
charged for effecting that transaction, if the Investment
Manager in making the selection in question determines in good
faith that such amount of commission is reasonable in
relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either
that particular transaction or the Investment Manager's
overall responsibilities with respect to the Fund and the
other accounts, if any, as to which it exercises investment
discretion. In reaching such determination, the Investment
Manager is not required to place or attempt to place a
specific dollar value on the research or execution services
of broker or on the portion of any commission reflecting
either of said services. In demonstrating that such
determinations were made in good faith, the Investment
Manager shall be prepared to show that all commissions were
allocated and paid for purposes contemplated by the Fund's
brokerage policy; that the research services provide lawful
and appropriate assistance to the Investment Manager in the
performance of its investment decision-making
responsibilities; and that the commissions paid were within
a reasonable range. The determination that commissions
were within a reasonable range shall be based on any
available information as to the level of commissions known
to be charged by other brokers on comparable transactions,
but there shall be taken into account the Fund's policies
that (i) obtaining a low commission is deemed secondary to
obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the Fund
to obtain a favorable price than to pay the lowest
commission; and (ii) the quality, comprehensiveness and
frequency of research studies which are provided for the
Investment Manager are useful to the Investment Manager in
performing its advisory services under its Agreement with the
Fund. Research services provided by brokers to the
Investment Manager are considered to be in addition to, and
not in lieu of, services required to be performed by the
Investment Manager under its Agreement with the Fund.
Research furnished by brokers through whom the Fund effects
securities transactions may be used by the Investment
Manager for any of its accounts, and not all such research
may be used by the Investment Manager for the Fund. When
execution of portfolio transactions is allocated to brokers
trading on exchanges with fixed brokerage commission rates,
account may be taken of various services provided by the
broker, including quotations outside the United States for
daily pricing of foreign securities held in the Fund's
portfolio.
4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange are executed with
primary market makers acting as principal, except where, in
the judgment of the Investment Manager, better prices and
execution may be obtained on a commission basis or from other
sources.
5. Sales of the Fund's Shares (which shall be deemed to include
also shares of other companies registered under the 1940 Act
which have either the same investment manager or an investment
manager affiliated with the Investment Manager) made by a
broker are one factor, among others, to be taken into account
in deciding to allocate portfolio transactions (including
agency transactions, principal transactions, purchases in
underwritings or tenders in response to tender offers) for
the account of the Fund to that broker; provided that the
broker shall furnish "best execution," as defined in
paragraph 1 above, and that such allocation shall be within
the scope of the Fund's other policies as stated above; and
provided further, that in every allocation made to a broker
in which the sale of Shares is taken into account there
shall be no increase in the amount of the commissions or
other compensation paid to such broker beyond a reasonable
commission or other compensation determined, as set forth in
paragraph 3 above, on the basis of best execution alone or
best execution plus research services, without taking account
of or placing any value upon such sale of Shares.
Insofar as known to management, no Trustee or officer of the Fund has
any material direct or indirect interest in any broker employed by or on behalf
of the Fund. Franklin Templeton Distributors, Inc., the Fund's Principal
Underwriter, is a registered broker-dealer, but has never executed any purchase
or sale transactions for the Fund's portfolio or participated in any commissions
on any such transactions, and has no intention of doing so in the future. The
total brokerage commissions on the portfolio transactions for the Fund during
the fiscal years ended December 31, 1995, 1994, and 1993 amounted to $4,305,521,
$4,035,106, and $3,109,324, respectively. All portfolio transactions are
allocated to broker-dealers only when their prices and execution, in the good
faith judgment of the Investment Manager, are equal or superior to the best
available within the scope of the Fund's policies. There is no fixed method used
in determining which broker-dealers receive which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARESASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which the Fund's Shares may be
purchased and redeemed. See "How to Buy Shares of the Fund" and "How to Sell
Shares of the Fund."
Net asset value per Share is determined as of the scheduled closing of
the NYSE (generally 4:00 p.m., New York time), every Monday through Friday
(exclusive of national business holidays). The Fund's offices will be closed,
and net asset value will not be calculated, on those days on which the NYSE is
closed, which currently are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Trading in securities on European and Far Eastern exchanges and
over-the-counter markets is normally completed well before the close of business
in New York on each day on which the NYSE is open. Trading of European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every New York business day. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and on
which the Fund's net asset value is not calculated. The Fund calculates net
asset value per Share, and therefore effects sales, redemptions and repurchases
of its Shares, as of the close of the NYSE once on each day on which that
Exchange is open. Such calculation does not take place contemporaneously with
the determination of the prices of many of the portfolio securities used in such
calculation and if events occur which materially affect the value of those
foreign securities, they will be valued at fair market value as determined by
the management and approved in good faith by the Board of Trustees.
The Board of Trustees may establish procedures under which the Fund may
suspend the determination of net asset value for the whole or any part of any
period during which (1) the NYSE is closed other than for customary weekend and
holiday closings, (2) trading on the NYSE is restricted, (3) an emergency exists
as a result of which disposal of securities owned by the Fund is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (4) for such other period as the SEC may by
order permit for the protection of the holders of the Fund's Shares.
The Fund will not effect redemptions of its Shares in assets other than
cash, except in accordance with applicable provisions of the 1940 Act.
OWNERSHIP AND AUTHORITY DISPUTES. In the event of disputes involving
multiple claims of ownership or authority to control a Shareholder's account,
the Fund has the right (but has no obligation) to: (1) freeze the account and
require the written agreement of all persons deemed by the Fund to have a
potential property interest in the account, prior to executing instructions
regarding the account; or (2) interplead disputed funds or accounts with a court
of competent jurisdiction. Moreover, the Fund may surrender ownership of all or
a portion of an account to the IRS in response to a Notice of Levy.
In addition to the special purchase plans described in the Prospectus,
other special purchase plans also are available:
TAX-DEFERRED RETIREMENT PLANS. The Fund offers its Shareholders the opportunity
to participate in the following types of retirement plans:
o For individuals whether or not covered by other qualified
plans;
o For simplified employee pensions;
o For employees of tax-exempt organizations; and
o For corporations, self-employed individuals and partnerships.
Capital gains and income received by the foregoing plans generally are
exempt from taxation until distribution from the plans. Investors considering
participation in any such plan should review specific tax laws relating thereto
and should consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan. Additional information,
including the fees and charges with respect to all of these plans, is available
upon request to the Principal Underwriter. No distribution under a retirement
plan will be made until Franklin Templeton Trust Company ("FTTC") receives the
participant's election on IRS Form W-4P (available on request from FTTC) and
such other documentation as it deems necessary as to whether or not U.S.
income tax is to be withheld from such distribution.
INDIVIDUAL RETIREMENT ACCOUNT (IRA). All U.S. individuals (whether
or not covered by qualified private or governmental retirement plans) may
purchase Shares of the Fund pursuant to an IRA. However, contributions to an
IRA by an individual who is covered by a qualified private or governmental plan
may not be tax-deductible depending on the individual's income. Custodial
services for IRAs are available through FTTC. Disclosure statements summarizing
certain aspects of IRAs are furnished to all persons investing in such accounts,
in accordance with IRS regulations.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRA). For employers who wish to
establish a simplified form of employee retirement program investing in Shares
of the Fund, there are available Simplified Employee Pensions invested in IRA
Plans. Details and materials relating to these Plans will be furnished upon
request to the Principal Underwriter.
RETIREMENT PLAN FOR EMPLOYEES OF TAX-EXEMPT ORGANIZATIONS (403(B)).
Employees of public school systems and certain types of charitable
organizations may enter into a deferred compensation arrangement for the
purchase of Shares of the Fund without being taxed currently on the investment.
Contributions which are made by the employer through salary reduction are
excludable from the gross income of the employee. Such deferred compensation
plans, which are intended to qualify under Section 403(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), are available through the
Principal Underwriter. Custodial services are provided by FTTC.
QUALIFIED PLAN FOR CORPORATIONS, SELF-EMPLOYED INDIVIDUALS AND
PARTNERSHIPS. For employers who wish to purchase Shares of the Fund in
conjunction with employee retirement plans, there is a prototype master plan
which has been approved by the IRS. A "Section 401(k) plan" is also available.
FTTC furnishes custodial services for these Plans. For further details,
including custodian fees and Plan administration services, see the master plan
and related material which is available from the Principal Underwriter.
LETTER OF INTENT. Purchasers who intend to invest $50,000 or more in
Class I Shares of the Fund or any other fund in the Franklin Group of Funds
and the Templeton Family of Funds, except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Templeton Funds"), within 13 months (whether in one lump sum or
in installments the first of which may not be less than 5% of the total
intended amount such subsequent installment not less than $25 unless the
investor is a qualifying employee benefit plan (the "Benefit Plan"),
including automatic investment and payroll deduction plans), and to
beneficially hold the total amount of such Class I Shares fully paid for and
outstanding simultaneously for at least one full business day before the
expiration of that period, should execute a Letter of Intent ("LOI") on the
form provided in the Shareholder Application in the Prospectus. Payment
for not less than 5% of the total intended amount must accompany the
executed LOI unless the investor is a Benefit Plan. Except for purchases
of Shares by a Benefit Plan, those Class I Shares purchased with the first
5% of the intended amount stated in the LOI will be held as "Escrowed
Shares" for as long as the LOI remains unfulfilled. Although the Escrowed
Shares are registered in the investor's name, his full ownership of them is
conditional upon fulfillment of the LOI. No Escrowed Shares can be redeemed
by the investor for any purpose until the LOI is fulfilled or terminated.
If the LOI is terminated for any reason other than fulfillment, the Transfer
Agent will redeem that portion of the Escrowed Shares
required and apply the proceeds to pay any adjustment that may be appropriate to
the sales commission on all Class I Shares (including the Escrowed Shares)
already purchased under the LOI and apply any unused balance to the investor's
account. The LOI is not a binding obligation to purchase any amount of Shares,
but its execution will result in the purchaser paying a lower sales charge
at the appropriate quantity purchase level. A purchase not originally
made pursuant to an LOI may be included under a subsequent LOI executed
within 90 days of such purchase. In this case, an adjustment will be made
at the end of 13 months from the effective date of the LOI at the net asset
value per Share then in effect, unless the investor makes an earlier written
request to the Principal Underwriter upon fulfilling the purchase of Shares
under the LOI. In addition, the aggregate value of any Shares, including
Class II Shares, purchased prior to the 90-day period referred to above may be
applied to purchases under a current LOI in fulfilling the total intended
purchases under the LOI. However, no adjustment of sales charges
previously paid on purchases prior to the 90-day period will be made.
If an LOI is executed on behalf of a benefit plan (such plans are
described under "How to Buy Shares of the Fund -- Net Asset Value Purchases
(Both Classes)" in the Prospectus), the level and any reduction in sales charge
for these employee benefit plans will be based on actual plan participation and
the projected investments in the Franklin Templeton Funds under the LOI. Benefit
Plans are not subject to the requirement to reserve 5% of the total intended
purchase, or to any penalty as a result of the early termination of a plan, nor
are Benefit Plans entitled to receive retroactive adjustments in price for
investments made before executing LOIs.
SPECIAL NET ASSET VALUE PURCHASES. As discussed in the Prospectus under
"How to Buy Shares of the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase Class I Shares of the
Fund at net asset value (without a front-end or contingent deferred sales
charge). Franklin Templeton Distributors, Inc. ("FTD") or one of its affiliates
may make payments, out of its own resources, to securities dealers who initiate
and are responsible for such purchases, as indicated below. FTD may make these
payments in the form of contingent advance payments, which may require
reimbursement from the securities dealers with respect to certain redemptions
made within 12 months of the calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement between FTD, or its
affiliates, and the securities dealer.
The following amounts will be paid by FTD or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
(i) purchases of most equity and fixed-income Franklin Templeton Funds made at
net asset value by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than $2 million, plus 0.80% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more; and (ii) purchases of most
fixed-income Franklin Templeton Funds made at net asset value by non-designated
retirement plans: 0.75% on sales of $1 million but less than $2 million, plus
0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50 million but less
than $100 million, plus 0.15% on sales of $100 million or more. These payment
breakpoints are reset every 12 months for purchases of additional purchases.
With respect to purchases made at net asset value by certain trust companies and
trust departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, FTD, or one of its
affiliates, out of its own resources, may pay up to 1% of the amount invested.
Under agreements with certain banks in Taiwan, Republic of China, th
Fund's Shares are avaiable to such banks' discretionary trut funds at net asset
value. The banks may charge service fees to their customers who participate
inthe discretinary trusts. Pursuant to agreements, a portion of such service
fees may be paid to FTD, or an affiliate of FTD to help defray expenses of
maintaining a service office in Taiwan, inlcuding expenses related to local
literature fulfillment and communication facilities.
REDEMPTIONS IN KIND. Redemption proceeds are normally paid in cash;
however, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in lieu of
cash, in conformity with applicable rules of the SEC. In such circumstances, the
securities distributed would be valued at the price used to compute the Fund's
net asset value. If Shares are redeemed in kind, the redeeming Shareholder might
incur brokerage costs inconverting the assets into cash. The Fund is obligated
to redeem Shares solely in cash up to the lesser of $250,000 or 1% of its net
assets during any 90-day period for any one Shareholder.
TAX STATUS
The Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, the Fund generally must,
among other things, (a) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures contracts and
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (b) derive less than 30% of its gross income
from the sale or other disposition of certain assets (namely, (i) stock or
securities, (ii) options, futures, and forward contracts (other than those on
foreign currencies), and (iii) foreign currencies (including options, futures,
and forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stocks or securities (or options and futures
with respect to stocks and securities)) held less than three months (the "30%
Limitation"); (c) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Fund's total assets and not greater than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies) or of any two or more issuers that the Fund controls and
that are determined to be engaged in the same business or some similar or
related business; and (d) distribute at least 90% of its investment company
taxable income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses, but does not
include net long-term capital gains in excess of net short-term capital losses)
each taxable year.
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its investment company taxable income and
net capital gains (net long-term capital gains in excess of net short-term
capital losses), if any, that it distributes to Shareholders. The Fund intends
to distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the tax,
the Fund must distribute during each calendar year an amount equal to the sum of
(1) at least 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year, (2) at least 98% of its capital gains in
excess of its capital losses (adjusted for certain ordinary losses) for the
twelve-month period ending on October 31 of the calendar year, and (3) any
ordinary income and capital gains for previous years that was not distributed
during those years. A distribution will be treated as having been received on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to Shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Some of the debt securities that may be acquired by a Fund may be
treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Fund in a given year,
original issue discount on a taxable debt security earned in that given year
generally is treated for Federal income tax purposes as interest and, therefore,
such income would be subject to the distribution requirements of the Code. Thus,
the Fund may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash or leverage itself by borrowing cash, so that it
may satisfy the distribution requirement.
Some of the debt securities may be purchased by the Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for Federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by the Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the Fund, at a constant yield to maturity which takes into account
the semiannual compounding of interest.
Exchange control regulations that may restrict repatriation of
investment income, capital, or the proceeds of securities sales by foreign
investors may limit the Fund's ability to make sufficient distributions to
satisfy the 90% and calendar year distribution requirements. See "Risk Factors"
section of the SAI.
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to tax
on a portion of the excess distribution, whether or not the corresponding income
is distributed by the Fund to Shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. The Fund itself will be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company taxable
income will be taxable to a Shareholder as ordinary income. Because a portion of
the Fund's income may consist of dividends paid by U.S. corporations, a portion
of the dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. However, the alternative minimum tax applicable to
corporations may reduce the benefit of the dividends received deduction.
Distributions of net capital gains, if any, designated by the Fund as capital
gain dividends, are taxable as long-term capital gains, regardless of how long
the Shareholder has held the Fund's Shares, and are not eligible for the
dividends-received deduction. GENERALLY, dividends and distributions are taxable
to Shareholders, whether received in cash or reinvested in Shares of the Fund.
ANY DISTRIBUTIONS THAT ARE NOT FROM THE FUND'S INVESTMENT COMPANY TAXABLE INCOME
OR NET CAPITAL GAIN MAY BE CHARACTERIZED AS A RETURN OF CAPITAL TO SHAREHOLDERS
OR, IN SOME CASES, CAPITAL GAIN. Shareholders receiving distributions in the
form of newly issued Shares generally will have a cost basis in each Share
received equal to the net asset value of a Share of the Fund on the distribution
date. Shareholders will be notified annually as to the U.S. Federal tax status
of distributions, and Shareholders receiving distributions in the form of
newly-issued Shares will receive a report as to the net asset value of the
Shares received.
Distributions by the Fund reduce the net asset value of the Fund
Shares. Should a distribution reduce the net asset value below a Shareholder's
cost basis, the distribution nevertheless may be taxable to the Shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying Shares just prior to a distribution by the Fund. The price of Shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
If the Fund retains net capital gains for reinvestment, the Fund may
elect to treat such amounts as having been distributed to Shareholders. As a
result, the Shareholders would be subject to tax on undistributed net capital
gains, would be able to claim their proportionate share of the Federal income
taxes paid by the Fund on such gains as a credit against their own Federal
income tax liabilities, and would be entitled to an increase in their basis in
their Fund Shares.
OPTIONS AND HEDGING TRANSACTIONS. Certain options, futures contracts and forward
contracts in which the Fund may invest are "section 1256 contracts." Gains or
losses on section 1256 contracts generally are considered 60% long-term and 40%
short-term capital gains or losses ("60/40"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by the
Fund at the end of each taxable year (and, in some cases, for purposes of the 4%
excise tax, on October 31 of each year) are "marked-to-market" with the result
that unrealized gains or losses are treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Shareholders and which will be taxed to Shareholders as ordinary
income or long-term capital gain may be increased or decreased as compared to a
fund that did not engage in such hedging transactions.
Requirements relating to the Fund's tax status as a regulated
investment company may limit the extent to which the Fund will be able to engage
in transactions in options, futures contracts and forward contracts.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES. Under the Code,
gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues income or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of debt
securities denominated in a foreign currency and on disposition of certain
financial contracts, forward contracts and options, gains or losses attributable
to fluctuations in the value of foreign currency between the date of acquisition
of the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or loses, may increase, decrease or eliminate the amount of
the Fund's investment company taxable income to be distributed to its
Shareholders as ordinary income. If section 988 losses exceed other net
investment income during a taxable year, the Fund generally would not be able to
make ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as return of capital to Shareholders for
Federal income tax purposes, rather than as an ordinary dividend, reducing each
Shareholder's basis in his Fund Shares, or as a capital gain.
SALE OF SHARES. Upon the sale, exchange or other taxable disposition of
Shares of the Fund, a Shareholder may realize a capital gain or loss which will
be long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including
replacement through the reinvestment of dividends and capital gain distributions
in the Fund) within a period of 61 days beginning 30 days before and ending 30
days after disposition of the Shares. In such a case, the basis of the Shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
Shareholder on a disposition of Fund Shares held by the Shareholder for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the Shareholder with respect
to such Shares.
Under certain circumstances, the sales charge incurred in acquiring
Shares of the Fund may not be taken into account in determining the gain or loss
on the disposition of those Shares. For example, this rule applies if (1) the
Shareholder incurs a sales charge in acquiring stock of a regulated investment
company, (2) Shares of the Fund are exchanged for Shares of another Templeton or
Franklin Fund within 90 days after the date they were purchased, and (3) the new
Shares are acquired without a sales charge or at a reduced sales charge under a
"reinvestment right" received upon the initial purchase of Shares of stock. In
that case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the sales charge incurred in acquiring such
Shares exchanged all or a portion of the amount of sales charge incurred in
acquiring the Shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired Shares is reduced as
a result of having incurred the sales charge initially. Instead, the portion of
the sales charge affected by this rule will be treated as an amount paid for the
new Shares.
FOREIGN TAXES. Income received by the Fund from sources within foreign
countries may be subject to withholding and other income or similar taxes
imposed by such countries. If more than 50% of the value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible and intends to elect to "pass-through"
to the Fund's Shareholders the amount of foreign taxes paid by the Fund.
Pursuant to this election, a Shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
of the foreign taxes paid by the Fund, and will be entitled either to deduct (as
an itemized deduction) his pro rata share of foreign taxes in computing his
taxable income or to use it as a foreign tax credit against his U.S. Federal
income tax liability, subject to limitations. No deduction for foreign taxes may
be claimed by a Shareholder who does not itemize deductions, but such a
Shareholder may be eligible to claim the foreign tax credit (see below). Each
Shareholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass-through" for
that year.
Generally, a credit for foreign taxes is subject to the limitation that
it may not exceed the Shareholder's U.S. tax attributable to his or her foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Fund's income flows through to its Shareholders. With respect
to the Fund, gains from the sale of securities will be treated as derived from
U.S. sources and certain currency fluctuation gains, including fluctuation gains
from foreign currency denominated debt securities, receivables and payables,
will be treated as ordinary income derived from U.S. sources. The limitation on
the foreign tax credit is applied separately to foreign source passive income
(as defined for purposes of the foreign tax credit), including the foreign
source passive income passed through by the Fund. Because of changes made by the
Tax Reform Act of 1986, Shareholders may be unable to claim a credit for the
full amount of their proportionate share of the foreign taxes paid by the Fund.
Foreign taxes may not be deducted in computing alternative minimum taxable
income and the foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If the Fund is not eligible
to make the election to "pass through" to its Shareholders its foreign taxes,
the foreign taxes it pays will reduce investment company taxable income and the
distributions by the Fund will be treated as United States source income.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. Federal
income tax at the rate of 31% ("backup withholding") of all taxable
distributions and gross redemption proceeds payable to Shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, where the Fund or Shareholder has been notified by the
IRS that they are subject to backup withholding. Corporate Shareholders and
certain other Shareholders specified in the Code generally are exempt from such
backup withholding, or when required to do so, the Shareholder fails to certify
that he is not subject to backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the Shareholder's
U.S. Federal income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign Shareholder of
an investment in the Fund may differ from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
OTHER TAXATION. The foregoing discussion relates only to U.S. Federal
income tax law as applicable to U.S. persons (I.E., U.S. citizens and residents
and U.S. domestic corporations, partnerships, trusts and estates).
Distributions by the Fund also may be subject to state, local and foreign
taxes, and their treatment under state and local income tax laws may differ
from U.S. Federal income tax treatment. Shareholders should consult their
tax advisers with respect to particular questions of U.S. Federal, state and
local taxation. Shareholders who are not U.S. persons should consult their
tax advisers regarding U.S. and foreign tax consequences of ownership of
Shares of the Fund, including the likelihood that distributions to them would
be subject to withholding of U.S. Federal income tax at a rate of 30% (or at
a lower rate under a tax treaty).
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the "Principal
Underwriter"), P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free
telephone (800) 237-0738, is the Principal Underwriter of the Fund's Shares.
FTD is a wholly owned subsidiary of Franklin.
The Fund pursuant to Rule 12b-1 under the 1940 Act has adopted a
Distribution Plan with respect to each class of Shares (the "Plans"). Under the
Plan adopted with respect to Class I Shares, the Fund may reimburse FTD or
others quarterly (subject to a limit of 0.35% per annum of the Fund's average
daily net assets attributable to Class I Shares) for costs and expenses incurred
by FTD or others in connection with any activity which is primarily intended to
result in the sale of Fund Shares. Under the Plans adopted with respect to Class
II Shares, the Fund will pay FTD or others quarterly (subject to a limit of
1.00% per annum of the Fund's average daily assets attributable to Class II
Shares of which up to 0.25% of such net assets may be paid to dealers for
personal service and/or maintenance of Shareholder accounts) for costs and
expenses incurred by FTD or others in connection with any activity which is
primarily intended to result in the sale of the Fund's Shares. The Plans are
reimbursement type plans which do not provide for the payment of interest or
carrying charges as distribution expenses. Payments to FTD or others could be
for various types of activities, including (1) payments to broker-dealers who
provide certain services of value to the Fund's Shareholders (sometimes referred
to as a "trail fee"); (2) expenses relating to selling and servicing efforts;
(3) expenses of organizing and conducting sales seminars; (4) payments to
employees or agents of FTD who engage in or support distribution of Shares; (5)
the costs of preparing, printing and distributing prospectuses and reports to
prospective investors; (6) printing and advertising expenses; (7) dealer
commissions and wholesaler compensation in connection with sales of Fund Shares;
and (8) such other similar services as the Fund's Board of Trustees determines
to be reasonably calculated to result in the sale of Shares. Under the Plan
adopted with respect to Class I Shares, the costs and expenses not reimbursed in
any one given quarter (including costs and expenses not reimbursed because they
exceed 0.35% of the Fund's average daily net assets attributable to Class I
Shares) may be reimbursed in subsequent quarters or years.
During the fiscal year ended December 31, 1995, FTD incurred, in
connection with the distribution of Shares, costs and expenses of $6,651,862 for
Class I Shares of the Fund and $372,513 for Class II Shares of the Fund. During
the same period, the Fund made reimbursements pursuant to the Class I Plan in
the amount of $7,316,486 and pursuant to the Class II Plan in the amount $ . As
indicated above, unreimbursed expenses, which amounted to $195,657 as of
December 31, 1995, may be reimbursed by the Fund during the fiscal year ending
December 31, 1996 or in subsequent years. In the event that the Plan is
terminated, the Fund will not be liable to FTD for any unreimbursed expenses
that had been carried forward from previous months or years. During the fiscal
year ended December 31, 1995, FTD spent, pursuant to the Plan, with respect to
Class I Shares of the Fund, the following amounts on: compensation to dealers,
$4,843,345 ; sales promotion, $208,133 ; printing, $291,320 ; advertising,
$1,058,308 ; and wholesaler costs and expenses, $250,756 ; with respect to Class
II Shares of the Fund, the following amounts on: compensation to dealers,
$34,668; sales promotion, $322; printing, $1,308; advertising, $4,342;
wholesaler costs and expenses, $331,873.
The Distribution Agreement provides that the Principal Underwriter will
use its best efforts to maintain a broad and continuous distribution of the
Fund's Shares among bona fide investors and may sign selling agreements with
responsible dealers, as well as sell to individual investors. The Shares are
sold only at the Offering Price in effect at the time of sale, and the Fund
receives not less than the full net asset value of the Shares sold. The discount
between the Offering Price and the net asset value may be retained by the
Principal Underwriter or it may reallow all or any part of such discount to
dealers. During the fiscal years ended December 31, 1995, 1994, and 1993 FTD
(and, prior to June 1, 1993, Templeton Funds Distributor, Inc.) retained of such
discount $2,087,056, $6,592,272, and $414,599, or approximately 13.3%, 16.1%,
and 15%, respectively, of the gross sales commissions.
The Distribution Agreement provides that the Fund shall pay the costs
and expenses incident to registering and qualifying its Shares for sale under
the Securities Act of 1933 and under the applicable blue sky laws of the
jurisdictions in which the Principal Underwriter desires to distribute such
Shares, and for preparing, printing and distributing prospectuses and reports to
Shareholders. The Principal Underwriter pays the cost of printing additional
copies of prospectuses and reports to Shareholders used for selling purposes,
although the Principal Underwriter may recoup these costs from payments it
receives under the Distribution Plan. (The Fund pays costs of preparation,
set-up and initial supply of its prospectus for existing Shareholders.)
The Distribution Agreement is subject to renewal from year to year in
accordance with the provisions of the 1940 Act and terminates automatically in
the event of its assignment. The Agreement may be terminated without penalty by
either party upon 60 days' written notice to the other, provided termination by
the Fund shall be approved by the Board of Trustees or a majority (as defined in
the 1940 Act) of the Shareholders. The Principal Underwriter is relieved of
liability for any act or omission in the course of its performance of the
Agreement, in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations.
FTD is the principal underwriter for the other Templeton Funds.
DESCRIPTION OF SHARES
The Shares have non-cumulative voting rights, so that the holders of a
plurality of the Shares voting for the election of Trustees at a meeting at
which 50% of the outstanding Shares are present can elect all the Trustees and,
in such event, the holders of the remaining shares voting for the election of
Trustees will not be able to elect any person or persons to the Board of
Trustees.
The Declaration of Trust provides that the holders of not less than
two-thirds of the outstanding Shares of the Fund may remove a person serving as
Trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding Shares of the
Fund. In addition, the Fund is required to assist Shareholder communication in
connection with the calling of Shareholder meetings to consider removal of a
Trustee.
Under Massachusetts law, Shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Fund for acts or obligations of the Fund, which are
binding only on the assets and property of the Fund. The Declaration of Trust
provides for indemnification out of Fund property for all loss and expense of
any Shareholder held personally liable for the obligations of the Fund. The risk
of a Shareholder incurring financial loss on account of Shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations and, thus, should be considered remote.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return for the Fund will be expressed in terms of the
average annual compounded rate of return for periods in excess of one year or
total return for periods of less than one year of a hypothetical investment in
the Fund over a period of one year (or, if less, up to the life of the Fund,
calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return for
periods of one year or more or the total return for periods of less than one
year, n = the number of years, and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. With respect to the Class I Shares, the Fund's average annual total
return for the one-year period ended December 31, 1995 and for the period from
October 16, 1991 (commencement of operations) to December 31, 1995 was -5.42%
and 7.70%, respectively. With respect to the Class II Shares, the Fund's annual
total return for the period May 1, 1995 (commencement of sales) through December
31, 1995 was -2.27%.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare the
Fund's results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities market in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm which ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure of inflation) to assess
the real rate of return from an investment in the Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deduction for
administrative and management costs and expenses.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objective and policies, characteristics and
quality of the portfolio and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future.
From time to time, the Fund and the Investment Manager may also refer
to the following information:
(1) The Investment Manager's and its affiliates' market share of
international equities managed in mutual funds prepared or
published by Strategic Insight or a similar statistical
organization.
(2) The performance of U.S. equity and debt markets relative to
foreign markets prepared or published by Morgan Stanley
Capital International or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance
Corporation, Morgan Stanley Capital International or a
similar financial organization.
(4) The geographic and industry distribution of the Fund's
portfolio and the Fund's top ten holdings.
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment
improvements due to a liberalization of securities laws and a
reduction of foreign exchange controls, and improving
communication technology, of various countries as published by
various statistical organizations.
(6) To assist investors in understanding the different returns and
risk characteristics of various investments, the Fund may show
historical returns of various investments and published
indices (E.G., Ibbotson Associates, Inc. Charts and Morgan
Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as
published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
(9) Allegorical stories illustrating the importance of persistent
long-term investing.
(10) The Fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical
Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by industry, nation and type of stocks or
other securities.
(12) The number of Shareholders in the Fund or the aggregate number
of shareholders in the Franklin Templeton Group of Funds or
the dollar amount of fund and private account assets under
management.
(13) Comparison of the characteristics of various emerging
market, including population, financial and economic
conditions.
(14) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and
long-term investing, including the following:
o "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
o "Diversify by company, by industry and by country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among
quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
FINANCIAL STATEMENTS
The financial statements contained in the Fund's Annual Report to
Shareholders dated December 31, 1995 are incorporated herein by reference.
TL711 STMT 05/96
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS: Incorporated by reference from
Registrant's 1995 Annual Report:
Independent Auditor's Report
Investment Portfolio as of December 31, 1995
Statement of Assets and Liabilities as of December
31, 1995
Statement of Operations for the year ended December
31, 1995
Statement of Changes in Net Assets for the years
ended December 31, 1995 and 1994
Notes to Financial Statements
(b) EXHIBITS
(1) (a) Amended and Restated Declaration of
Trust
(c) Establishment and Designation of Classes
of Shares of Beneficial Interest 1
(2) By-Laws
(3) Not Applicable
(4) Specimen Security 2
(5) Amended and Restated Investment Management
Agreement
(6) Distribution Agreement
(7) Not Applicable
(8) Custody Agreement
(9) (a) Transfer Agent Agreement
(b) Business Management Agreement
(c) Shareholder Sub-Accounting Services
Agreement
(d) Sub-Transfer Agent Services Agreement
(10) Opinion and consent of Counsel (filed with Rule
24f-2 Notice)
(11) Consent of independent public accountants
(12) Not Applicable
(13) (a) Letter concerning initial capital 3
(b) Investment Letter 1
(14) Not Applicable
(15) (a) Distribution Plan -- Class I Shares 1
(b) Distribution Plan -- Class II Shares 1
(16) Schedule showing computation of performance
quotations provided in response to Item
22 (unaudited)1
(18) Form of Multiclass Plan 1
(27) Financial Data Schedule
- ---------------
1 Previously filed with Post-Effective Amendment No. 4 to the
Registration Statement on April 28, 1995.
2 Previously filed with Pre-Effective Amendment No. 1 to the
Registration Statement on September 19, 1991.
3 Previously filed with Pre-Effective Amendment No. 2 to the
Registration Statement on October 16, 1991.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest, par value $0.01 per share -
Class I: 216,146 Shareholders as of March 29, 1996.
Shares of Beneficial Interest, par value $0.01 per share -
Class II: 9,368 Shareholders as of March 29, 1996.
ITEM 27. INDEMNIFICATION.
Reference is made to Article IV of the Registrant's
Declaration of Trust, which is filed herewith.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers
or controlling persons of the Registrant in connection with
the successful defense of any act, suit or proceeding) is
asserted by such trustees, officers or controlling persons in
connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND ITS OFFICERS
AND DIRECTORS
The business and other connections of Registrant's Investment
Managers are described in Part B of this Registration
Statement.
For information relating to the directors and officers of the
Investment Manager, reference is made to the Form ADV filed
with the Commission under the Investment Advisers Act of 1940
by Templeton Asset Management Ltd., which is incorporated
herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of:
Franklin Templeton Japan Fund
Templeton Growth Fund, Inc.
Templeton Funds, Inc.
Templeton Smaller Companies Growth Fund, Inc.
Templeton Income Trust
Templeton Real Estate Securities Fund
Templeton Capital Accumulator Fund, Inc.
Templeton American Trust, Inc.
Templeton Institutional Funds, Inc.
Templeton Global Opportunities Trust
Templeton Variable Products Series Fund
Templeton Global Investment Trust
AGE High Income Fund, Inc.
Franklin Balance Sheet Investment Fund
Franklin California Tax Free Income Fund, Inc.
Franklin California Tax Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Premier Return Fund
Franklin Real Estate Securities Fund
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities
Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
(b) The directors and officers of FTD, located at 777 Mariners Island
Blvd., San Mateo, California 94404, are as follows:
<TABLE>
<CAPTION>
Position with Position with
NAME UNDERWRITER THE REGISTRANT
<S> <C> <C>
Charles B. Johnson Chairman of the Vice President
Board and Director
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice Vice President
President and
Director
Harmon E. Burns Executive Vice Vice President
President and
Director
Edward V. McVey Senior Vice None
President
Kenneth V. Domingues Senior Vice None
President
William J. Lippman Senior Vice None
President
Richard C. Stoker Senior Vice None
President
Charles E. Johnson Senior Vice Vice President
Trustee
President
Deborah R. Gatzek Senior Vice Vice President
President and
Assistant Secretary
James K. Blinn Vice President None
Richard O. Conboy Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
Mike Hackett Vice President None
Peter Jones Vice President None
Philip J. Kearns Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Thomas M. Mistele Vice President Secretary
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
Kent P. Strazza Vice President None
Francie Arnone Asst. Vice President None
Heidi Christensen Asst. Vice President None
Alison Hawksley Asst. Vice President None
John R. Kay Asst. Vice President Vice President
Annette Mulcaire Asst. Vice President None
Kenneth A. Lewis Treasurer None
Philip A. Scatena Asst. Treasurer None
Karen DeBellis Asst. Treasurer Asst. Treasurer
Leslie M. Kratter Secretary None
</TABLE>
(c) Not Applicable (Information on unaffiliated underwriters).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of Templeton Global
Investors, Inc., 500 East Broward Blvd., Fort Lauderdale,
Florida 33394.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to call a meeting of
Shareholders for the purpose of voting upon the
question of removal of a Trustee or Trustees when
requested to do so by the holders of at least 10% of
the Registrant's outstanding shares of beneficial
interest and in connection with such meeting to
comply with the shareholder communications provisions
of Section 16(c) of the Investment Company Act of
1940.
(d) Registrant undertakes to furnish to each person to
whom its Prospectus is provided a copy of its latest
Annual Report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of St. Petersburg in the State of Florida
on the day of April 29, 1996.
TEMPLETON DEVELOPING MARKETS TRUST
By: ____________________
J. Mark Mobius, President*
- ---------------------------
*By: /s/THOMAS M. MISTELE
Thomas M. Mistele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
____________________ President (Chief April 29, 1996
J. Mark Mobius* Executive Officer)
____________________ Treasurer (Chief April 29, 1996
James R. Baio* Financial and
Accounting Officer)
____________________ Trustee April 29, 1996
Charles B. Johnson*
____________________ Trustee April 29, 1996
Charles E. Johnson*
____________________ Trustee April 29, 1996
Nicholas F. Brady*
____________________ Trustee April 29, 1996
Fred R. Millsaps*
____________________ Trustee April 29, 1996
Betty P. Krahmer
____________________ Trustee April 29, 1996
Constantine Dean
Tseretopoulos*
____________________ Trustee April 29, 1996
Frank J. Crothers*
____________________ Trustee April 29, 1996
Harris J. Ashton*
____________________ Trustee April 29, 1996
S. Joseph Fortunato*
____________________ Trustee April 29, 1996
Andrew H. Hines, Jr.*
____________________ Trustee April 29, 1996
John Wm. Galbraith*
____________________ Trustee April 29, 1996
Gordon S. Macklin*
</TABLE>
*By:/s/THOMAS M. MISTELE
Thomas M. Mistele**
as attorney-in-fact
- --------------------
** Powers of Attorney were previously filed with Registration
Statement No. 33-42163 and are incorporated by reference or are
attached hereto.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned,
being a duly elected Trustee of Templeton Developing Markets Trust (the
"Trust"), constitutes and appoints Allan S. Mostoff, Jeffrey L. Steele, William
J. Kotapish and Thomas M. Mistele, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him in his name, place and stead, in any and all capacities, to sign the
Trust's registration statement and any and all amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and conforming
all that said attorneys-in-fact and agents, or any of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: March 1, 1996
/s/ CHARLES B. JOHNSON
Charles B. Johnson
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the
duly elected Treasurer and Chief Financial Officer of Templeton Developing
Markets Trust (the "Trust"), constitutes and appoints Allan S. Mostoff, Jeffrey
L. Steele, William J. Kotapish and Thomas M. Mistele, and each of them, his true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him in his name, place and stead, in any and all capacities,
to sign the Trust's registration statement and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 31, 1995
/s/ JOHN WM. GALBRAITH
John Wm. Galbraith
EXHIBIT LIST
Exhibit Number Name of Exhibit
(1)(a) Amended and Restated Declaration of
Trust
(2) By-Laws
(5) Amended and Restated Investment
Management Agreement
(6) Distribution Agreement
(8) Custody Agreement
(9)(a) Transfer Agent Agreement
(b) Business Management Agreement
(c) Shareholder Sub-Accounting Services
Agreement
(d) Sub-Transfer Agent Services Agreement
(11) Consent of Independent Public Accountants
(27) Financial Data Schedule
- --------
1 All option transactions entered into by the Fund will be traded
on a recognized exchange, or will be cleared through a
recognized formal clearing arrangement.
2 As a non-fundamental policy, the Fund will not invest more than
10% of its assets in real estate investment trusts. In addition,
the Fund has undertaken with a state securities commission that
(1) the Fund will invest in other open-end investment companies
only (a) for short term investment of cash balances in money
market funds, or (b) for investment in securities in the
portfolios of such other open-end investment companies, direct
investment in which is unavailable to the Fund; and (2) the Fund
will not pay an investment management fee with respect to any
portion of its portfolio comprising shares of other open-end
investment companies.
3 The Fund has undertaken with a state securities commission that, with
respect to 100% of its assets, the Fund will not purchase more than 10%
of a company's outstanding voting securities. As a non-fundamental
policy, the Fund will not invest in any company for the purpose of
exercising control or management.
* Sir John Templeton sold the Templeton organization to
Franklin Resources, Inc. in October, 1992 and resigned from the
Fund's Board on April 16, 1995. He is no longer involved with
the investment management process.
TEMPLETON DEVELOPING MARKETS TRUST
DECLARATION OF TRUST
AMENDED AND RESTATED
DECEMBER 9, 1992
TABLE OF CONTENTS
Page
ARTICLE I -- NAME AND DEFINITIONS 2
Section 1.1 Name............................... 2
Section 1.2 Definitions........................ 2
ARTICLE II -- TRUSTEES 4
Section 2.1 General Powers..................... 4
Section 2.2 Investments........................ 5
Section 2.3 Legal Title........................ 8
Section 2.4 Issuance and Repurchase of
Securities....................... 9
Section 2.5 Delegation; Committees............. 9
Section 2.6 Collection and Payment............. 9
Section 2.7 Expenses........................... 10
Section 2.8 Manner of Acting; By-Laws.......... 10
Section 2.9 Miscellaneous Powers............... 11
Section 2.10 Principal Transactions............. 12
Section 2.11 Number of Trustees................. 13
Section 2.12 Election and Term.................. 13
Section 2.13 Resignation and Removal............ 13
Section 2.14 Vacancies.......................... 14
Section 2.15 Delegation of Power to Other
Trustees......................... 15
ARTICLE III -- CONTRACTS 16
Section 3.1 Underwriting Contract.............. 16
Section 3.2 Advisory, Management or
Administrative Contracts......... 16
Section 3.3 Other Service Contracts............ 17
Section 3.4 Affiliations of Trustees or
Officers, Etc.................... 17
Section 3.5 Compliance with 1940 Act........... 18
ARTICLE IV -- LIMITATIONS OF LIABILITY OF SHARE-
HOLDERS, TRUSTEES AND OTHERS 19
Section 4.1 No Personal Liability of Share-
holders, Trustees, Etc........... 19
Section 4.2 Non-Liability of Trustees, Etc..... 20
Section 4.3 Mandatory Indemnification.......... 20
Section 4.4 No Bond Required of Trustees....... 24
Section 4.5 No Duty of Investigation; Notice
in Trust Instruments, Etc........ 24
Section 4.6 Reliance on Experts, Etc........... 25
PAGE
ARTICLE V -- SHARES OF BENEFICIAL INTEREST 26
Section 5.1 Beneficial Interest............... 26
Section 5.2 Rights of Shareholders............ 26
Section 5.3 Trust Only........................ 27
Section 5.4 Issuance of Shares................ 27
Section 5.5 Register of Shares................ 28
Section 5.6 Transfer of Shares................ 29
Section 5.7 Notices........................... 30
Section 5.8 Treasury Shares................... 30
Section 5.9 Voting Powers..................... 30
Section 5.10 Meetings of Shareholders.......... 31
Section 5.11 Series Designation................ 32
Section 5.12 Class Designation................. 36
Section 5.13 Power of Trustees to Change
Provisions Relating to Shares... 38
ARTICLE VI -- REDEMPTION AND REPURCHASE OF SHARES 40
Section 6.1 Redemption of Shares.............. 40
Section 6.2 Price............................. 41
Section 6.3 Payment........................... 41
Section 6.4 Effect of Suspension of
Determination of Net
Asset Value..................... 41
Section 6.5 Repurchase by Agreement........... 42
Section 6.6 Redemption of Shareholder's
Interest........................ 42
Section 6.7 Redemption of Shares in Order
to Qualify as Regulated
Investment Company;
Disclosure of Holding........... 43
Section 6.8 Reductions in Number of Out-
standing Shares Pursuant
to Net Asset Value Formula...... 44
Section 6.9 Suspension of Right of Redemption. 44
ARTICLE VII -- DETERMINATION OF NET ASSET VALUE, NET
INCOME AND DISTRIBUTIONS 45
Section 7.1 Net Asset Value................... 45
Section 7.2 Distributions to Shareholders..... 46
Section 7.3 Determination of Net Income....... 47
Section 7.4 Allocation Between Principal and
Income.......................... 49
Section 7.5 Power to Modify Foregoing
Procedures...................... 49
PAGE
ARTICLE VIII -- DURATION, TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC. 50
Section 8.1 Duration.......................... 50
Section 8.2 Termination of Trust or
Series of the Trust............. 50
Section 8.3 Amendment Procedure............... 52
Section 8.4 Merger, Consolidation and Sale
of Assets....................... 54
Section 8.5 Incorporation..................... 54
ARTICLE IX -- REPORTS TO SHAREHOLDERS 56
ARTICLE X -- MISCELLANEOUS 56
Section 10.1 Filing............................ 56
Section 10.2 Governing Law..................... 57
Section 10.3 Counterparts...................... 57
Section 10.4 Reliance by Third Parties......... 57
Section 10.5 Provisions in Conflict with Law
or Regulations.................. 58
Section 10.6 Name Reservation.................. 58
DECLARATION OF TRUST
OF
TEMPLETON DEVELOPING MARKETS TRUST
THIS DECLARATION OF TRUST, made August 9, 1991 by the Trustees hereunder
(together with all other persons from time to time duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, the
"Trustees") and amended April 16, 1992 by the Shareholders hereunder;
WHEREAS, the Trustees desire to establish a trust for the
investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1. NAME. The name of the trust created hereby,
until and unless changed by the Trustees as provided in Section
8.3(a) hereof, is "Templeton Developing Markets Trust."
SECTION 1.2. DEFINITIONS. Wherever they are used herein,
the following terms have the following respective meanings:
(a) "BY-LAWS" means the By-laws referred to in Section 2.8 hereof, as
from time to time amended.
(b) The terms "COMMISSION" and "INTERESTED PERSON," have the meanings
given them in the 1940 Act. Except as otherwise defined by the Trustees in
conjunction with the establishment of any series of Shares, the term "VOTE OF A
MAJORITY OF THE SHARES OUTSTANDING AND ENTITLED TO VOTE" shall have the same
meaning as the term "VOTE OF A MAJORITY OF THE OUTSTANDING VOTING SECURITIES"
given it in the 1940 Act.
(c) "CUSTODIAN" means any Person other than the Trust who has custody
of any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(d) "DECLARATION" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "DECLARATION", "HEREOF," and
"HEREUNDER" shall be deemed to refer to this Declaration rather than exclusively
to the article or section in which such words appear.
(e) "DISTRIBUTOR" means a party, other than the Trust, to a contract
described in Section 3.1 hereof.
(f) "HIS" shall include the feminine and neuter, as well as the
masculine, genders, and the plural as well as the singular number, in accordance
with the context.
(g) The "1940 ACT" means the Investment Company Act of 1940, as
amended from time to time.
(h) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(i) "SHAREHOLDER" means a record owner of Outstanding
Shares.
(j) "SHARES" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all series which may be established by the
Trustees, and includes fractions of Shares as well as whole Shares. "OUTSTANDING
SHARES" means those Shares shown from time to time on the books of the Trust or
its Transfer Agent as then issued and outstanding, but shall not include Shares
which have been redeemed or repurchased by the Trust and which are at the time
held in the Treasury of the Trust.
(k) "TRANSFER AGENT" means any Person other than the Trust who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(l) The "TRUST" means Templeton Developing Markets
Trust.
(m) The "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust, including any series of the Trust, or the Trustees in their capacity as
such.
(n) The "TRUSTEES" means any Person who has signed this Declaration,
so long as he shall continue in office in accordance with the terms hereof, and
any other Person who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, and
reference herein to a Trustee or the Trustees shall refer to such Person or
Persons in this capacity or their capacities as Trustees hereunder.
ARTICLE II
TRUSTEES
SECTION 2.1. GENERAL POWERS. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted, and such obligations and duties as may be prescribed, by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all states
of the
United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they may
deem necessary, proper or desirable in order to promote the interests of the
Trust, including such things as may not be herein specifically mentioned. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be executed
without order of or resort to any court.
SECTION 2.2. INVESTMENTS. The Trustees shall have the
power:
(a) To operate as and carry on the business of an open-end, management
investment company, as defined in the 1940 Act, and exercise all the powers
necessary and appropriate to the conduct of such operations.
(b) To invest in, hold for investment, or reinvest in, securities
(which term "securities" shall include common and preferred stocks; warrants;
bonds, debentures, bills, time notes and all other evidences of indebtedness;
negotiable or non-negotiable instruments; government securities, including
securities of any state, municipality or other political subdivision thereof, or
any government or quasi-governmental agency or instrumentality; and money market
instruments including bank certificates of deposit, finance paper, commercial
paper, bankers' acceptances and all kinds of repurchase agreements, of any
corporation, company, trust, association, firm or other business organization
however established, and of any country, state, municipality or other political
subdivision, or any governmental or quasi-governmental agency or
instrumentality).
(c) To acquire (by purchase, subscription or otherwise), to hold, to
trade in and deal in, to acquire or sell any rights, options, futures contracts
or other instruments to purchase or sell, and to sell or otherwise dispose of,
to lend, and to pledge any securities, property or other assets.
(d) To exercise all rights, powers and privileges of ownership or
interest in all securities and repurchase agreements included in the Trust
Property, including the right to vote thereon and otherwise act with respect
thereto and to do all acts for the preservation, protection, improvement and
enhancement in value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue notes
or other evidence of indebtedness; to secure borrowings by
mortgaging, pledging or otherwise subjecting as security the Trust Property; to
endorse, guarantee, or undertake the performance of any obligation or engagement
of any other Person and to lend Trust Property.
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest.
(h) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the
investments which may be made by fiduciaries.
SECTION 2.3. LEGAL TITLE. Legal title to all the Trust
Property shall be vested in the Trustees as joint tenants except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the Trust,
or in the name of any other Person as nominee, on such terms as the Trustees may
determine, provided that the interest of the Trust therein is deemed
appropriately protected. The right, title and interest of the Trustees in the
Trust Property and the property of each series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property and the right, title and interest of such Trustee in all such
property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveying documents have
been executed and delivered.
SECTION 2.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VI and VII and Section 5.11 hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of
the particular series of the Trust with respect to which such Shares are issued,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
SECTION 2.5. DELEGATION; COMMITTEES. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
SECTION 2.6. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and, without need for any court order, to enter into releases, agreements and
other instruments.
SECTION 2.7. EXPENSES. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carrying out any of the purposes of this Declaration, and to pay reasonable
compensation from the Trust and/or its series to themselves as Trustees. The
Trustees shall fix the compensation of all officers, employees and Trustees.
SECTION 2.8. MANNER OF ACTING; BY-LAWS. Except as otherwise provided herein
or in the By-laws, any action to be taken by the Trustees may be taken by a
majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of one or
more Trustees and less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as if
the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative agency or other
adjudicatory body.
SECTION 2.9. MISCELLANEOUS POWERS. The Trustees shall have
the power to: (a) employ or contract with such Persons as the
Trustees may deem desirable for the transaction of the business of the Trust;
(b) enter into joint ventures, partnerships and any other combinations or
associations, to the extent permitted by law; (c) remove Trustees or fill
vacancies in or add to their number, elect and remove such officers and appoint
and terminate such agents or employees as they consider appropriate, and appoint
from their own number, and terminate, any one or more committees which may
exercise some or all of the power and authority of the Trustees as the Trustees
may determine; (d) to the extent permitted by law, purchase, and pay for out of
Trust Property, insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, administrators, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity; (e) establish pension,
profit-sharing, Share purchase, and other retirement, incentive and benefit
plans for any Trustees, officers, employees and agents of the Trust; (f) to the
extent permitted by law, indemnify any person with whom the Trust has dealings,
including persons referred to in subparagraph (d), above, to such extent as the
Trustees shall determine; (g) determine and change the fiscal year of the Trust
and the method by which its accounts shall be kept; and (h) adopt a seal for the
Trust, but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the
Trust.
SECTION 2.10. PRINCIPAL TRANSACTIONS. Except in transactions not permitted
by the 1940 Act or rules and regulations adopted by the Commission, the Trustees
may, on behalf of the Trust, buy any securities from or sell any securities to,
or lend any assets of the Trust to, any Trustee or officer of the Trust or any
firm of which any such Trustee or officer is a member acting as principal, or
have any such dealings with persons acting as investment adviser, administrator,
Distributor or Transfer Agent or with any Interested Person of such Person; and
the Trust may employ any such Person, or firm or company in which such Person is
an Interested Person, as broker, legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian upon customary terms.
SECTION 2.11. NUMBER OF TRUSTEES. The number of Trustees shall initially be
one (1), and thereafter shall be such number as shall be fixed from time to time
by a written instrument signed by a majority of the Trustees, provided, however,
that the number of Trustees shall in no event be less than one (1) nor more than
fifteen (15).
SECTION 2.12. ELECTION AND TERM. Except for the Trustees named herein,
designated by such Trustees prior to the issuance of Shares, or appointed to
fill vacancies pursuant to Section 2.14 hereof, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders called for that purpose. Except in the event of
resignation or removal pursuant to Section 2.13 hereof, each Trustee shall hold
office until the next such meeting of Shareholders and until his successor is
duly elected and qualified.
SECTION 2.13. RESIGNATION AND REMOVAL. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (i) with cause, by the action of
two-thirds of the remaining Trustees (provided the aggregate number of Trustees
after such removal shall not be less than three) or (ii) by vote of holders of
two-thirds of the outstanding Shares of the Trust, either by declaration in
writing or at a meeting called for such purpose. A meeting for the purpose of
considering the removal of a person serving as Trustee shall be called by the
Trustees if requested in writing to do so by holders of not less than 10% of the
outstanding Shares of the Trust. Upon the resignation or removal of a Trustee,
or his otherwise ceasing to be a Trustee, he shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in the name of
the resigning or removed Trustee. Upon the incapacity or death of any Trustee,
his legal representative shall execute and deliver on his behalf such documents
as the remaining Trustee shall
require as provided in the preceding sentence.
SECTION 2.14. VACANCIES. The term of office of a Trustee
shall terminate and a vacancy shall occur in the event of the death,
resignation, removal, bankruptcy, adjudicated incompetence or other incapacity
to perform the duties of the office of a Trustee. No such vacancy shall operate
to annul the Declaration or to revoke any existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees. Subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by a written instrument signed by a majority of the Trustees
then in office. Any such appointment shall not become effective, however, until
the person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.14, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
SECTION 2.15. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration, except as herein otherwise expressly provided.
ARTICLE III
CONTRACTS
SECTION 3.1. UNDERWRITING CONTRACT. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive underwriting contract
or contracts providing for the sale of the Shares to net the Trust not less than
the amount provided for in Section 7.1 of Article VII hereof, whereby the
Trustees may either agree to sell the Shares to the other party to the contract
or appoint such other party their sales agent for the Shares, and in either case
on such terms and conditions as may be prescribed in the By-laws, if any, and
such further terms and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this Article III or of the
By-laws; and such contract may also provide for the repurchase of the Shares by
such other party as agent of the
Trustees.
SECTION 3.2. ADVISORY, MANAGEMETN OR ADMINISTRATIVE CONTRACTS. The Trustees
may in their discretion from time to time enter into one or more investment
advisory, management or administrative contracts whereby the other party(ies) to
such contract(s) shall undertake to furnish to the Trust or to one or more of
its series such management, investment advisory, administrative, statistical and
research facilities and services and such other facilities and services, if any,
and all upon such terms and conditions as the Trustees may in their discretion
determine, including the grant of authority to such other party to recommend or
to determine what securities shall be purchased or sold by the Trust or a series
and what portion of assets shall be uninvested, which authority shall include
the power to make changes in investments, and to recommend or to select the
brokers or dealers to be used for such transactions.
SECTION 3.3. OTHER SERVICE CONTRACTS. The Trustees are also empowered, at
any time and from time to time, to contract with any corporations, trusts,
associations, or other organizations, appointing it or them the Business
Manager, Custodian(s), Transfer Agent(s) and/or shareholder servicing agent(s)
and/or other agents for the Trust or one or more of the series. Every such
contract shall comply with such requirements and restrictions as may be set
forth in the By-laws or stipulated by resolution of the Trustees.
SECTION 3.4. AFFILIATIONS OF TRUSTEES OR OFFICERS, ETC.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of
any organization, with which a contract of the character described in
Sections 3.1, 3.2 or 3.3 above may have been or may hereafter be made, or
that any such organization, or any parent or affiliate thereof, is a
Shareholder of or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in Sections
3.1, 3.2 or 3.3 above may have been or may hereafter be made also has any
one or more of such contracts with one or more other partnerships,
corporations, trusts, associations or other organizations, or has other
businesses or interests, shall not affect the validity of any such contract
or disqualify any Shareholder, Trustee or officer of the Trust from voting
upon or executing the same or create any liability or accountability to the
Trust or its Shareholders. SECTION 3.5. COMPLIANCE WITH 1940 ACT. Any
contract
entered into by the Trust shall be consistent with applicable requirements of
the 1940 Act or other applicable law.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
SECTION 4.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust is made
a party to any suit or proceeding to enforce any such liability of the Trust, he
shall not, on account thereof, be held to any personal liability. The Trust
shall indemnify and hold each Shareholder harmless from and against all claims
and liabilities, to which such Shareholder may become subject by reason of his
being or having been a Shareholder, and shall reimburse such Shareholder for all
legal and other expenses reasonably incurred by him in connection with any such
claim or liability, provided that any such expenses shall be paid solely out of
the funds and property of the series
of the Trust with respect to which such Shareholder's Shares are issued. The
rights accruing to a Shareholder under this Section 4.1 shall not exclude any
other right to which such Shareholder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided for herein.
SECTION 4.2. NON LIABILITY OF TRUSTEES, ETC. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, agent or service provider thereof for
any action or failure to act by him (her) or any other such Trustee, officer,
employee, agent or service provider (including without limitation the failure to
compel in any way any former or acting Trustee to redress any breach of trust)
except for his own bad faith, willful misfeasance, gross negligence or reckless
disregard of the duties involved in the conduct of his office. The term "service
provider," as used in this Section 4.2, shall include any investment adviser,
principal underwriter, transfer agent, business manager or other person with
whom the Trust has an agreement for provision of services.
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the Trust
to the fullest extent permitted by law against all liability and
against all expenses reasonably incurred or paid by him in connection
with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been
a Trustee or officer and against amounts paid or incurred by him in
the settlement thereof;
(ii) the words "claim", "action", "suit", or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust or the Shareholders by
reason of a final adjudication by the court or other body before
which the proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action
was in the best interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in
paragraph (b)(i) resulting in a payment by a Trustee or officer,
unless there has been a determination that such Trustee or officer
did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office:
(A) by the court or other body approving
the settlement or other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (1) vote of a majority
of the Disinterested Trustees acting on the matter (provided that
a majority of the Disinterested Trustees then in office act on
the matter) or (2) written opinion of independent legal counsel.
(c) To the extent permitted by law, the rights of indemnification herein
provided may be insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any Trustee or officer may
now or hereafter be entitled, shall continue as to a person who has ceased to be
such Trustee or officer and shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing contained herein shall
affect any rights
to indemnification to which personnel of the Trust other than Trustees and
officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is not
(i) an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), or (ii)
involved in the claim, action, suit or proceeding.
SECTION 4.4. NO BOND REQUIRED OF TRUSTEES. No Trustee
shall be obligated to give any bond or other security for the
performance of any of his duties hereunder.
SECTION 4.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC.
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the estate of
the Trust or series, as applicable, and may contain any
further recital which they or he may deem appropriate, but the omission of such
recital shall not operate to bind the Trustees individually. The Trustees may
maintain insurance for the protection of the Trust Property, its Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
SECTION 4.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Business Manager, Transfer Agent, selected dealers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or expert
may also be a Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
SECTION 5.1. BENEFICIAL INTEREST. The interest of the
beneficiaries hereunder shall be divided into transferable Shares
which may be divided into one or more separate and distinct
series, or classes thereof, as the Trustees shall from time to time create and
establish. The number of shares of beneficial interest authorized hereunder is
unlimited and each Share shall have a par value of $0.01. All Shares issued
hereunder including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and non-assessable.
SECTION 5.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust Property
and the property of each series of the Trust of every description and the right
to conduct any business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other than the
beneficial interest conferred by their Shares, and they shall have no right to
call for any partition or division of any property, profits, rights or interests
of the Trust nor can they be called upon to share or assume any losses of the
Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the rights in this
Declaration specifically set forth. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights, except as the
Trustees may determine with respect to any series of Shares or class thereof.
SECTION 5.3. TRUST ONLY. It is the intention of the
Trustees to create only the relationship of trustee and
beneficiary between the Trustees and each Shareholder from time
to time. It is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association, corporation, bailment
or any form of legal relationship other than a trust. Nothing in this
Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
SECTION 5.4. ISSUANCE OF SHARES. The Trustees in their discretion may, from
time to time without vote of the Shareholders, issue Shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury, and Shares may be issued in
separate series as provided in Section 5.11 hereof. The Trustees may from time
to time divide or combine the Shares into a greater or lesser number wthout
thereby changing the proportionate beneficial interests in the Trust or any
series. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or 1/1,000ths of a Share or integral multiples
thereof. The Trustees, the Distributor or any other person the
Trustees may authorize for the purpose may, in their discretion, reject any
application for the issuance of Shares.
SECTION 5.5. REGISTER OF SHARES. A register shall be kept at the principal
office of the Trust or an office of the Transfer Agent which shall contain the
names and addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
SECTION 5.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such
delivery the transfer shall be recorded on the register of the Trust. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the Trustees nor any Transfer
Agent or registrar nor any officer, employee or agent of the Trust shall be
affected by any notice of the proposed transfer.
Any Person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
SECTION 5.7. NOTICES. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage pre-paid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 5.8. TREASURY SHARES. Shares held in the treasury
shall, until reissued pursuant to Section 5.4, not confer any
voting rights on the Trustees, nor shall such Shares be entitled
to any dividends or other distributions declared with respect to
the Shares.
SECTION 5.9. VOTING POWERS. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Section 2.12; (ii) with respect
to any investment advisory or investment management contract entered into
pursuant to Section 3.2; (iii) with respect to termination of the Trust as
provided in Section 8.2; (iv) with respect to any amendment of this Declaration
to the extent and as provided in Section 8.3; (v) with respect to any merger,
consolidation or sale of assets as provided in Section 8.4; (vi) with respect to
incorporation of the Trust or series to the extent and as provided in Section
8.5; (vii) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or any series or class thereof or the Shareholders; and (viii) with
respect to such additional matters relating to the Trust as may be required by
this Declaration, the By-laws or any registration of the Trust as an investment
company under the 1940 Act with the Commission (or any successor agency) or as
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that the Trustees may, in conjunction with the establishment of any series or
class of Shares, establish conditions under which the several series or
classes shall have separate voting rights or no voting rights. There shall be no
cumulative voting in the election of Trustees. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration or the By-laws to be taken by Shareholders.
The Bylaws may include further provisions for Shareholders' votes and meetings
and related matters.
SECTION 5.10. MEETINGS OF SHAREHOLDERS. A meeting of the Shareholders shall
be held at such times, on such day and at such hour as the Trustees may from
time to time determine, either at the principal office of the Trust, or at such
other place as may be designated by the Trustees, for the purposes specified in
Section 2.12 or 2.13 and for such other purposes as may be specified by the
Trustees.
SECTION 5.11. SERIES DESIGNATION. The Trustees, in their discretion, may
authorize the division of Shares into two or more series, and the different
series shall be established and designated, and the variations in the relative
rights and preferences as between the different series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different series as
to investment objective, purchase price, allocation of expenses, right of
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several series shall have
separate voting rights. All references to Shares in
this Declaration shall be deemed to be Shares of any or all
series as the context may require.
If the Trustees shall divide the Shares of the Trust into two or more
series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply equally to each
series of the Trust except as the context requires otherwise.
(b) The number of authorized Shares and the number of Shares of each series
that may be issued shall be unlimited. The Trustees may classify or reclassify
any unissued Shares or any Shares previously issued and reacquired of any series
into one or more series that may be established and designated from time to
time. The Trustees may hold as treasury shares (of the same or some other
series), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any series reacquired by the Trust at their discretion
from time to time.
(c) All consideration received by the Trust for the issue or sale of Shares
of a particular series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that series for
all purposes, subject only to the rights of creditors of such series and except
as may otherwise be required by applicable tax laws, and shall be so
recorded upon the books of account of the Trust. In the event that there are any
assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular series, the
Trustees shall allocate them among any one or more of the series established and
designated from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all series for all
purposes.
(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series and all expenses, costs,
charges and reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable and no series shall be
liable to any person except for its allocated share. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items are capital; and each such determination
and allocation shall be conclusive and binding upon the Shareholders. The assets
of a particular series of the Trust shall, under no circumstances, be charged
with liabilities attributable to any other series of the Trust. All persons
extending credit to, or contracting with or having any claim against a
particular series of the Trust shall look only to the assets of that particular
series for payment of such credit, contract or claim. No Shareholder or former
Shareholder of any series shall have any claim on or right to any assets
allocated or belonging to any other series.
(e) Each Share of a series of the Trust shall represent a beneficial
interest in the net assets of such series. Each holder of Shares of a series
shall be entitled to receive his pro rata share of distributions of income and
capital gains made with respect to such series. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his being or having been a
Shareholder of a series, such Shareholder shall be paid solely out of the funds
and property of such series of the Trust. Upon liquidation or termination of a
series of the Trust, Shareholders of such series shall be entitled to receive a
pro rata share of the net assets of such series. A Shareholder of a particular
series of the Trust shall not be entitled to participate in a derivative or
class action on behalf of any other series or the Shareholders of any other
series of the Trust.
(f) The establishment and designation of any series of
Shares shall be effective upon the execution by a majority of the Trustees of an
instrument setting forth such establishment and designation and the relative
rights and preferences of such series, or as otherwise provided in such
instrument. The Trustees may by an instrument executed by a majority of their
number abolish any series and the establishment and designation thereof. Except
as otherwise provided in this Article V, the Trustees shall have the power to
determine the designations, preferences, privileges, limitations and rights, of
each class and series of Shares. Each instrument referred to in this paragraph
shall have the status of an amendment to this Declaration.
SECTION 5.12. CLASS DESIGNATION. The Trustees, in their discretion, may
authorize the division of the Shares of the Trust, or, if any series be
established, the Shares of any series, into two or more classes, and the
different classes shall be established and designated, and the variations in the
relative rights and preferences as between the different classes shall be fixed
and determined, by the Trustees; provided, that all Shares of the Trust or of
any series shall be identical to all other Shares of the Trust or the same
series, as the case may be, except that there may be variations between
different classes as to allocation of expenses, right of redemption, special and
relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several classes shall have separate voting rights.
All references to Shares in this
Declaration shall be deemed to be Shares of any or all classes as the context
may require.
If the Trustees shall divide the Shares of the Trust or any series into two
or more classes, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust, or any series of the
Trust, shall apply equally to each class of Shares of the Trust or of any series
of the Trust, except as the context requires otherwise.
(b) The number of Shares of each class that may be issued shall be
unlimited. The Trustees may classify or reclassify any unissued Shares of the
Trust or any series or any Shares previously issued and reacquired of any class
of the Trust or of any series into one or more classes that may be established
and designated from time to time. The Trustees may hold as treasury Shares (of
the same or some other class), reissue for such consideration and on such terms
as they may determine, or cancel any Shares of any class reacquired by the Trust
at their discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular class may be charged to and borne solely by such
class and the bearing of expenses solely by a class of Shares may be
appropriately reflected (in a manner determined by the Trustees) and cause
differences in the net asset value
attributable to, and the dividend, redemption and liquidation rights of, the
Shares of different classes. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon the
Shareholders of all classes for all purposes.
(d) The establishment and designation of any class of Shares shall be
effective upon the execution of a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such class, or as otherwise provided in such instrument. The
Trustees may, by an instrument executed by a majority of their number, abolish
any class and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration.
SECTION 5.13. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING TO SHARES.
Notwithstanding any other provision of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust, provided that beforeadopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair
and equitable treatment of all Shareholders or that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law.
Without limiting the generality of the foregoing, the Trustees may, for the
above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series of Shares (in addition to any Series already
existing or otherwise) with such rights and preferences and such eligibility
requirements for investment therein as the Trustees shall determine and
reclassify any or all outstanding Shares as shares of particular Series in
accordance with such eligibility requirements;
(b) amend any of the provisions set forth in Section 5.11 of
this Article V;
(c) combine one or more Series of Shares into a single Series, upon
approval of a majority of the outstanding Shares of the affected Series, and on
such terms and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series, including without limitation, to provide for the issue of
Shares of any Series in connection with any merger or consolidation of the Trust
with another Trust or company or any acquisition by the Trust of part or all of
the assets of another trust or investment company;
(e) change the designation of any Series of Shares;
(f) change the method of allocating dividends among the
various Series of Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series of Shares
or classes thereof;
(h) specifically allocate assets to any or all Series of Shares or create
one or more additional Series of Shares which are preferred over all other
Series of Shares in respect of assets specifically allocated thereto or any
dividends paid by the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so allocated or
otherwise and provide for any special voting or other rights with respect to
such Series.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
SECTION 6.1. REDEMPTION OF SHARES. All Shares of the Trust
shall be redeemable at the redemption price determined in the
manner set out in this Declaration. Redeemed or repurchased
Shares may be resold by the Trust.
The Trust shall redeem the Shares at the price determined as hereinafter
set forth, upon the appropriately verified written application of the record
holder thereof (or upon such other form of request as the Trustees may
determine) at such office or agency as may be designated from time to time for
that purpose by the Trustees. The Trustees may from time to time specify
additional conditions, not inconsistent with the 1940 Act,
regarding the redemption of Shares in the Trust's then effective registration
statement or prospectus under the Securities Act of 1933.
SECTION 6.2. PRICE. Shares will be redeemed at their net asset value
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
SECTION 6.3. PAYMENT. Payment for such Shares shall be made in cash or in
property out of the assets of the relevant series of the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in the
Trust's then effective registration statement or prospectus under the Securities
Act of 1933, subject to the provisions of Section 6.4 hereof.
SECTION 6.4. EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET VALUE. If,
pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of the
determination of net asset value, the rights of Shareholders (including those
who shall have applied for redemption pursuant to Section 6.1 hereof but who
shall not yet have received payment) to have Shares redeemed and paid for by the
Trust shall be suspended until the termination of such suspension is declared.
Any record holder who shall have
his redemption right so suspended may, during the period of such suspension, by
appropriate written notice of revocation at the office or agency where
application was made, revoke any application for redemption not honored and
withdraw any certificates on deposit. The redemption price of Shares for which
redemption applications have not been revoked shall be the net asset value of
such Shares next determined as set forth in Section 7.1 after the termination of
such suspension, and payment shall be made within seven (7) days after the date
upon which the application was made plus the period after such application
during which the determination of net asset value was suspended.
SECTION 6.5. REPURCHASE BY AGREEMENT. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
SECTION 6.6. REDEMPTION OF SHAREHOLDER'S INTEREST. The Trust shall have the
right at any time to redeem Shares of any Shareholder in accordance with
applicable law, subject to such terms and conditions as the Trustees may
approve.
SECTION 6.7. REDEMPTION OF SHARES IN ORDER TO QUALIFY AS
REGULATED INVESTMENT COMPANY; DISCLOSURE OF HOLDING. If the
Trustees shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify any series of the
Trust as a regulated investment company under the Internal Revenue Code, then
the Trustees shall have the power by lot or other means deemed equitable by them
(i) to call for redemption by any such Person of a number, or principal amount,
of Shares or other securities of the Trust sufficient to maintain or bring the
direct or indirect ownership of Shares or other securities of the Trust into
conformity with the requirements for such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in question would
result in such disqualification. The redemption shall be effected at the
redemption price and in the manner provided in Section 6.1.
The holders of Shares of the Trust shall upon demand disclose to the
Trustees in writing such information with respect to direct and indirect
ownership of Shares of the Trust as the Trustees may deem necessary to comply
with the provisions of the Internal Revenue Code, or to comply with the
requirements of any other taxing authority.
SECTION 6.8. REDUCTIONS IN NUMBER OF OUTSTANDING SHARES
PURSUANT TO NET ASSET VALUE FORMULA. The Trust may also reduce
the number of outstanding Shares pursuant to the provisions of
Section 7.3.
SECTION 6.9. SUSPENSION OF RIGHT OF REDEMPTION. The Trustees may adopt
procedures under which the Trust may declare a suspension of the right of
redemption or postpone the date of payment or redemption for the whole or any
part of any period (i) during which the New York Stock Exchange is closed other
than customary weekend and holiday closings, (ii) during which trading on the
New York Stock Exchange is restricted, (iii) during which an emergency exists as
a result of which disposal by the Trust of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust fairly
to determine the value of its net assets, or (iv) during any other period when
the Commission may for the protection of security holders of the Trust by order
permit suspension of the right of redemption or postponement of the date of
payment or redemption; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (ii), (iii),
or (iv) exist. To the extent permitted by the Commission, (i) and (ii) above may
be expanded to include other securities exchanges. Such suspension shall take
effect at such time as the Trust shall specify and there shall be no right of
redemption or payment on redemption until the Trust shall declare the suspension
at an
end.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
SECTION 7.1. NET ASSET VALUE. The value of the assets of any series of the
Trust shall be determined by appraisal of the securities allocated to such
series, such appraisal to be on the basis of the market value of such securities
or, consistent with the rules and regulations of the Commission, by such other
method as shall be deemed to reflect the fair value thereof, determined in good
faith by or under the direction of the Trustees. Money market instruments with
remaining maturities of less than sixty days shall be valued on an amortized
cost basis. From the total value of said assets, there shall be deducted all
indebtedness, interest, taxes, payable or accrued, including estimated taxes on
unrealized book profits, expenses and management charges accrued to the
appraisal date, net income determined and declared as a distribution and all
other items in the nature of liabilities attributable to such series which shall
be deemed appropriate. The resulting amount which shall represent the total net
assets of the series shall be divided by the number of Shares of such series
outstanding at the time and the quotient so obtained shall be deemed to be the
net asset value of the Shares of such series (which may be rounded to the
nearest whole cent). The net asset value of the Shares shall be determined at
least once daily on such days and in accordance with the requirements provided
for in applicable rules of the Commission, at such time or times as the Trustees
shall determine. The power and duty to make the daily calculations may be
delegated by the Trustees to the Investment
Adviser, the Custodian, the Business Manager, the Transfer Agent or such other
Person as the Trustees may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
SECTION 7.2. DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall from time to
time distribute ratably among the Shareholders of a series such proportion of
the net profits, surplus (including paid-in surplus), capital, or assets of such
series held by the Trustees as they may deem proper. Such distributions may be
made in cash or property (including without limitation any type of obligations
of such series or any assets thereof), and the Trustees may distribute ratably
among the Shareholders additional Shares of such series issuable hereunder in
such manner, at such times, and on such terms as the Trustees may deem proper.
Such distributions may be among the Shareholders of record at the time of
declaring a distribution or among the Shareholders of record at such other date
or time or dates or times as the Trustees shall determine. The Trustees may in
their discretion determine that, solely for the purposes of such distributions,
Outstanding Shares shall exclude Shares for which orders have been placed
subsequent to a specified time on the date the distribution is declared or on
the next preceding day if the distribution is declared as of a day on which the
Transfer Agent for the Trust or applicable series is not open for business. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or
expenses of the series or to meet obligations of the series, or as they may deem
desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional or lesser amounts
sufficient to enable the Trust or the series to avoid or reduce liability for
taxes.
SECTION 7.3. DETERMINATION OF NET INCOME. The net income of any series may
consist of (i) all dividend and interest income accrued on portfolio assets of
the series, less (ii) all actual and accrued liabilities determined in
accordance with generally accepted accounting principles and plus or minus (iii)
net realized or net unrealized gains and losses on the assets of the series.
Interest income may include discount earned (including both original issue and
market discount) on discount paper accrued ratably to the date of maturity or
determined in such other manner as the Trustees may determine. Expenses of the
series, including the advisory or management fee, shall be accrued each day.
Such net income may be determined by or under the direction of the Trustees as
of such time or times as the Trustees shall determine, and all the net income of
the series,
so determined, may be declared as a dividend on the Outstanding Shares of such
series. If, for any reason, the net income of the series determined at any time
is a negative amount, the Trustees shall have the power (i) to offset each
Shareholder's pro rata share of such negative amount from the accrued dividend
account of such Shareholder, or (ii) to reduce the number of Outstanding Shares
of the series by reducing the number of Shares in the account of such
Shareholder by that number of full and fractional Shares which represents the
amount of such excess negative net income, or (iii) to cause to be recorded on
the books of the series an asset account in the amount of such negative net
income, which account may be reduced by the amount, provided that the same shall
thereupon become the property of the series and shall not be paid to any
Shareholder, of dividends declared thereafter upon the Outstanding Shares on the
day such negative net income is experienced, until such asset account is reduced
to zero; or (iv) to combine the methods described in clauses (i) and (ii) and
(iii) of this sentence, in order to cause the net asset
value per Share of the series to remain at a constant amount per Outstanding
Share immediately after each such determination and declaration. The Trustees
shall also have the power to omit to declare a dividend out of net income for
the purpose of causing the net asset value per Share of the series to be
increased to a constant amount. The Trustees shall not be required to adopt, but
may at any time adopt, discontinue or amend a practice of maintaining the net
asset value per Share of a series at a
constant amount, in accordance with applicable rules under the
1940 Act.
SECTION 7.4. ALLOCATION BETWEEN PRINCIPAL AND INCOME. The Trustees shall
have full discretion to determine whether any cash or property received shall be
treated as income or as principal and whether any item of expense shall be
charged to the income or the principal account, and their determination made in
good faith shall be conclusive. In the case of stock dividends received, the
Trustees shall have full discretion to determine, in the light of the particular
circumstances, how much if any of the value thereof shall be treated as income,
the balance, if any, to be treated as principal.
SECTION 7.5. POWER TO MODIFY FOREGOING PROCEDRUES. Notwithstanding any of
the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the series' Shares or net income, or the declaration
and payment of dividends and distributions as they may deem necessary or
desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
SECTION 8.1. DURATION. The Trust or any series of the
Trust shall continue without limitation of time but subject to
the provisions of this Article VIII.
SECTION 8.2. TERMINATION OF TRUST OR SERIES OF THE TRUST.
(a) The Trust or any series of the Trust may be
terminated by the affirmative vote of the holders of not less than two-thirds of
the Shares outstanding and entitled to vote, at any meeting of Shareholders or
by an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than two-thirds of such
Shares, or by such other vote as may be established by the Trustees with respect
to any series of Shares. Upon the termination of the Trust or any series of the
Trust,
(i) The Trust or the series of the Trust shall carry
on no business except for the purpose of winding up its
affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
the series of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or the series of
the Trust shall have been wound up, including the power to fulfill or
discharge the contracts of the Trustees on behalf of the Trust or any
series of the Trust, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the remaining Trust
Property or property of the series of the Trust to one or more persons at
public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay
its liabilities, and do all other
acts appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property or property of the series of the Trust
shall require Shareholder approval in accordance with Section 8.4 hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(b) After termination of the Trust or any series of the Trust and
distribution to the Shareholders as herein provided, a majority of the Trustees
shall execute and lodge among the records of the Trust or the series of the
Trust an instrument in writing setting forth the fact of such termination, and
the Trustees shall thereupon be discharged from all further liabilities and
duties hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
SECTION 8.3. AMENDMENT PROCEDURES. (a) This Declaration
may be amended by a vote of the holders of a majority of the
Shares outstanding and entitled to vote or by any instrument in
writing, without a meeting, signed by a majority of the Trustees
and consented to by the holders of a majority of the Shares
outstanding and entitled to vote. The Trustees may also amend this Declaration
without the vote or consent of Shareholders to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made under this Section 8.3 which would change
any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the Shares outstanding and entitled to vote, or by such
other vote as may be established by the Trustees with respect to any series of
Shares. Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth
an amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall become effective,
this Declaration may be terminated or amended in any respect by the affirmative
vote of a majority of the Trustees or by an instrument signed by a majority of
the Trustees.
SECTION 8.4. MERGER, CONSOLIDATION AND SALES OF ASSETS. The Trust may merge
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for the purpose by the affirmative vote of the holders of two-thirds of the
Shares outstanding and entitled to vote, or by an instrument or instruments in
writing without a meeting, consented to by the holders of two-thirds of the
Shares or by such other vote as may be established by the Trustees with respect
to any series of Shares; provided, however, that, if such merger, consolidation,
sale, lease or exchange is recommended by the Trustees, the vote or written
consent of the holders of a majority of the Shares outstanding and entitled to
vote, or such other vote or written consent as may be established by the
Trustees with respect to any series of Shares, shall be sufficient
authorization; and any such merger, consolidation,
sale, lease or exchange shall be deemed for all purposes to have been
accomplished under and pursuant to the statutes of the Commonwealth of
Massachusetts.
SECTION 8.5. INCORPORATION. With the approval of the holders of a majority
of the Shares outstanding and entitled to vote, or by such other vote as may be
established by the Trustees with respect to any series of Shares, the Trustees
may cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for the Shares or securities thereof or
otherwise, and to lend money to, subscribe for the Shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire shares or any
other interest. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property for value to such organizations or entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus, of
the transactions of the Trust, including financial statements which shall at
least annually be certified by independent public accountants.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. FILING. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein, and unless such amendment or such certificate sets forth some
later time for the
effectiveness of such amendment, such amendment shall be effective upon its
filing. A restated Declaration, integrating into a single instrument all of the
provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of the Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may hereafter be referred to in lieu of
the original Declaration and the various amendments thereto.
SECTION 10.2. GOVERNING LAW. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State.
SECTION 10.3. COUNTERPARTS. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
SECTION 10.4. RELIANCE BY THIRD PARTIES. Any certificate
executed by an individual who, according to the records of the
Trust appears to be a Trustee hereunder, certifying to: (a) the
number or identity of Trustees or Shareholders, (b) the due
authorization of the execution of any instrument or writing,
(c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person entitled to rely
upon such certificates in dealing with the Trustees and their successors.
SECTION 10.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the Internal Revenue Code or with other applicable
laws and regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
SECTION 10.6. NAME RESERVATION. The Trustees on behalf of
the Trust acknowledge that Templeton Investment Counsel, Inc.
("TICI") licensed to the Trust the non-exclusive right to use the
name "Templeton" as part of the name of the Trust, and has
reserved the right to grant the non-exclusive use of the name
"Templeton" or any derivative thereof to any other party. In addition, TICI
reserves the right to grant the non-exclusive use of the name Templeton to, and
to withdraw such right from, any other business or other enterprise. TICI
reserves the right to withdraw from the Trust the right to use said name
Templeton and will withdraw such right if the Trust ceases to employ, for any
reason, TICI, an affiliate or any successor as adviser of the Trust.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
9th day of December, 1992.
------------------------------
John M. Templeton
------------------------------
William Young Boyd II
------------------------------
Constantine Dean Tseretopoulos
------------------------------
Frank J. Crothers
------------------------------
Harris J. Ashton
------------------------------
S. Joseph Fortunato
------------------------------
Fred R. Millsaps
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby
acknowledges and certifies that this Amended and Restated Declaration of Trust
of Templeton Developing Markets Trust is made in accordance with the provisions
of the Declaration, and shall be effective upon its filing with the Secretary of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th
day of December, 1992.
/s/JOHN M. TEMPLETON
John M. Templeton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby
acknowledges and certifies that this Amended and Restated Declaration of Trust
of Templeton Developing Markets Trust is made in accordance with the provisions
of the Declaration, and shall be effective upon its filing with the Secretary of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th
day of December, 1992.
/s/WILLIAM YOUNG BOYD II
William Young Boyd II
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby
acknowledges and certifies that this Amended and Restated Declaration of Trust
of Templeton Developing Markets Trust is made in accordance with the provisions
of the Declaration, and shall be effective upon its filing with the Secretary of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th
day of December, 1992.
/s/CONSTANTINE DEAN TSERETOPOULOS
Constantine Dean Tseretopoulos
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby
acknowledges and certifies that this Amended and Restated Declaration of Trust
of Templeton Developing Markets Trust is made in accordance with the provisions
of the Declaration, and shall be effective upon its filing with the Secretary of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th
day of December, 1992.
/s/FRANK J. CROTHERS
Frank J. Crothers
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby
acknowledges and certifies that this Amended and Restated Declaration of Trust
of Templeton Developing Markets Trust is made in accordance with the provisions
of the Declaration, and shall be effective upon its filing with the Secretary of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th
day of December, 1992.
/s/HARRIS J. ASHTON
Harris J. Ashton
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby
acknowledges and certifies that this Amended and Restated Declaration of Trust
of Templeton Developing Markets Trust is made in accordance with the provisions
of the Declaration, and shall be effective upon its filing with the Secretary of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th
day of December, 1992.
/s/S. JOSEPH FORTUNATOR
S. Joseph Fortunato
CERTIFICATE
Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby
acknowledges and certifies that this Amended and Restated Declaration of Trust
of Templeton Developing Markets Trust is made in accordance with the provisions
of the Declaration, and shall be effective upon its filing with the Secretary of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th
day of December, 1992.
/s/FRED R. MILLSAPS\
Fred R. Millsaps
BY-LAWS
OF
TEMPLETON DEVELOPING MARKETS TRUST
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITIONS 1
ARTICLE II - OFFICES 1
Section 1. Resident Agent 1
Section 2. Offices 1
ARTICLE III - SHAREHOLDERS 2
Section 1. Meetings 2
Section 2. Notice of Meetings 2
Section 3. Record Date for Meetings
and Other Purposes 2
Section 4. Proxies 3
Section 5. Action without Meeting 4
ARTICLE IV - TRUSTEES 4
Section 1. Meetings of the Trustees 4
Section 2. Quorum and Manner of Acting 6
ARTICLE V - COMMITTEES 6
Section 1. Executive and Other Committees 6
Section 2. Meetings, Quorum and Manner of Acting 7
ARTICLE VI - OFFICERS 8
Section 1. General Provisions 8
Section 2. Term of Office and Qualifications 8
Section 3. Removal 9
Section 4. Powers and Duties of the President 9
Section 5. Powers and Duties of Vice Presidents 9
Section 6. Powers and Duties of the Treasurer 10
Section 7. Powers and Duties of the Secretary 11
Section 8. Powers and Duties of Assistant
Treasurers 11
Section 9. Powers and Duties of Assistant
Secretaries 11
Section 10. Compensation of Officers and Trustees
and Members of the Advisory Board 11
ARTICLE VII - FISCAL YEAR 12
ARTICLE VIII - SEAL 12
ARTICLE IX - WAIVERS OF NOTICE 12
TABLE OF CONTENTS (continued)
PAGE
ARTICLE X - CUSTODY OF SECURITIES 13
Section 1. Employment of a Custodian 13
Section 2. Action Upon Termination of
Custodian Agreement 13
Section 3. Provisions of Custodian Agreement 14
Section 4. Central Certificate System 15
Section 5. Acceptance of Receipts in Lieu of
Certificates 15
ARTICLE XI - AMENDMENTS 16
ARTICLE XII - INSPECTION OF BOOKS 16
ARTICLE XIII - MISCELLANEOUS 17
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BY-LAWS
OF
TEMPLETON DEVELOPING MARKETS TRUST
AMENDED AND RESTATED AS OF JULY 29, 1992
ARTICLE I
DEFINITIONS
Any terms defined in the Declaration of Trust of Templeton
Developing Markets Trust dated August 9, 1991, as amended from time to time,
shall have the same meaning when used
herein.
ARTICLE II
OFFICES
SECTION 1. RESIDENT AGENT. The Trust shall maintain a resident
agent in the Commonwealth of Massachusetts, which agent shall initially be CT
Corporation System, 2 Oliver Street, Boston, Massachusetts 02109. The Trustees
may designate a successor resident agent, provided, however, that such
appointment shall not become effective until written notice thereof is delivered
to the office of the Secretary of the Commonwealth.
SECTION 2. OFFICES. The Trust may have its principal
office and other offices in such places within as well as without
the Commonwealth as the Trustees may from time to time determine.
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ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders shall be
held as provided in the Declaration of Trust at such place within or without the
Commonwealth of Massachusetts as the Trustees shall designate. The holders of a
majority of outstanding Shares present in person or by proxy shall constitute a
quorum at any meeting of the Shareholders.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his address as recorded on
the register of the Trust mailed at least ten (10) days and not more than sixty
(60) days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice. No notice need be given to any Shareholder
who shall have failed to inform the Trust of his current address or if a written
waiver of notice, executed before or after the meeting by the Shareholder or his
attorney thereunto authorized, is filed with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS AND OTHER
PURPOSES. For the purpose of determining the Shareholders who
are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other
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action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, subject to
the provisions of the Declaration.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder
of Shares entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote
- 3 -
shall not be received in respect of such Share. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. If the holder of any such Share is a minor or
legally incompetent, and subject to guardianship or the legal control of any
other person as regards the charge or management of such Share, he may vote by
his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
SECTION 5. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may
in their discretion provide for regular or stated meetings of the
Trustees. Notice of regular or stated meetings need not be
- 4 -
given. Meetings of the Trustees other than regular or stated meetings shall be
held whenever called by the President, or by any one of the Trustees, at the
time being in office. Notice of the time and place of each meeting other than
regular or stated meetings shall be given by the Secretary or an Assistant
Secretary or by the officer or Trustee calling the meeting and shall be mailed
to each Trustee at least two days before the meeting, or shall be telegraphed,
cabled, or wirelessed to each Trustee at his business address, or personally
delivered to him at least one day before the meeting. Such notice may, however,
be waived by any Trustee. Notice of a meeting need not be given to any Trustee
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A notice or waiver of notice need not specify the purpose of any meeting.
The Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting shall be deemed to have been held at a place designated by the Trustees
at the meeting. Participation in a telephone conference meeting shall constitute
presence in person at such meeting. Any action required or permitted to be taken
at any meeting of the Trustees may be taken by the Trustees without a meeting if
all the Trustees consent to the action in writing and the written
- 5 -
consents are filed with the records of the Trustees' meetings.
Such consents shall be treated as a vote for all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the
Trustees shall be present in person at any regular or special meeting of the
Trustees in order to constitute a quorum for the transaction of business at such
meeting and (except as otherwise required by law, the Declaration or these
By-Laws) the act of a majority of the Trustees present at any such meeting, at
which a quorum is present, shall be the act of the Trustees. In the absence of a
quorum, a majority of the Trustees present may adjourn the meeting from time to
time until a quorum shall be present. Notice of an adjourned meeting need not be
given.
ARTICLE V
COMMITTEES
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by
vote of a majority of all the Trustees may elect from their own number an
Executive Committee to consist of not less than three (3) to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by
- 6 -
law, the Declaration or these By-Laws they are prohibited from delegating. The
Trustees may also elect from their own number other Committees from time to
time, the number composing such Committees, the powers conferred upon the same
(subject to the same limitations as with respect to the Executive Committee) and
the term of membership on such Committees to be determined by the Trustees. The
Trustees may designate a chairman of any such Committee. In the absence of such
designation, the Committee may elect its own Chairman.
SECTION 2. MEETINGS, QUORUM AND MANNER OF ACTING. The Trustees
may (1) provide for stated meetings of any Committee, (2) specify the manner of
calling and notice required for special meetings of any Committee, (3) specify
the number of members of a Committee required to constitute a quorum and the
number of members of a Committee required to exercise specified powers delegated
to such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its
meetings and records of decisions taken without a meeting and cause them to be
recorded in a book designated for that purpose and kept in the Office of the
Trust.
- 7 -
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall
be a President, a Treasurer and a Secretary, who shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Executive Vice
Presidents, one or more Vice Presidents, one or more Assistant Secretaries, and
one or more Assistant Treasurers. The Trustees may delegate to any officer or
Committee the power to appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as
otherwise provided by law, the Declaration or these By-Laws, the President, the
Treasurer and the Secretary shall each hold office until his successor shall
have been duly elected and qualified, and all other officers shall hold office
at the pleasure of the Trustees. The Secretary and Treasurer may be the same
person. A Vice President and the Treasurer or Assistant Treasurer or a Vice
President and the Secretary or Assistant Secretary may be the same person, but
the offices of Vice President and Secretary and Treasurer shall not be held by
the same person. The President shall hold no other office. Except as above
provided, any two offices may be held by the same person. Any officer may be,
but none need be, a Trustee or Shareholder.
- 8 -
SECTION 3. REMOVAL. The Trustees, at any regular or special
meeting of the Trustees, may remove any officer without cause, by a vote of a
majority of the Trustees then in office. Any officer or agent appointed by an
officer or Committee may be removed with or without cause by such appointing
officer or Committee.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President
may call meetings of the Trustees and of any Committee thereof when he deems it
necessary and shall preside at all meetings of the Shareholders. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres, as provided by the Trustees, he shall at all
times exercise a general supervision and direction over the affairs of the
Trust. He shall have the power to employ attorneys and counsel for the Trust and
to employ such subordinate officers, agents, clerks and employees as he may find
necessary to transact the business of the Trust. He shall also have the power to
grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties as
from time to time may be conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In
the absence or disability of the President, any Vice President
designated by the Trustees shall perform all the duties and may
- 9 -
exercise any of the powers of the President, subject to the control of the
Trustees. Each Vice President shall perform such other duties as may be assigned
to him from time to time by the Trustees and the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer
shall be the principal financial and accounting officer of the Trust. He shall
deliver all funds of the Trust which may come into his hands to such Custodian
as the Trustees may employ pursuant to Article X of these By-Laws. He shall in
general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Trustees.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary
shall keep the minutes of all meetings of the Trustees and of the Shareholders
in proper books provided for that purpose; he shall have custody of the seal of
the Trust; he shall have charge of the Share transfer books, lists and records
unless the same are in the charge of the Transfer Agent. He shall attend to the
giving and serving of all notices by the Trust in accordance with the provisions
of these By-Laws and as required by law; and subject to these By-Laws, he shall
in general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
- 10 -
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the
absence or disability of the Treasurer, any Assistant Treasurer designated by
the Trustees shall perform all the duties, and may exercise any of the powers,
of the Treasurer. Each Assistant Treasurer shall perform such other duties as
from time to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the
absence or disability of the Secretary, any Assistant Secretary designated by
the Trustees shall perform all the duties, and may exercise any of the powers,
of the Secretary. Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS
OF THE ADVISORY BOARD. Subject to any applicable provisions of the Declaration,
the compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
- 11 -
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of
January in each year and shall end on the 31st day of December in each year,
provided, however, that the Trustees may from time to time change the fiscal
year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and
shall have such inscription thereon as the Trustees may from time to time
prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the
Declaration or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or wirelessed for the purposes of these By-Laws when it
has been delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled or wirelessed.
- 12 -
ARTICLE X
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall place
and at all times maintain in the custody of a Custodian (including any
sub-custodian for the Custodian, which may be a foreign bank which meets
applicable requirements of law) all trusts, securities and similar investments
included in the Trust Property. The Custodian (and any sub-custodian) shall be a
bank having not less than $2,000,000 aggregate capital, surplus and undivided
profits and shall be appointed from time to time by the Trustees, who shall fix
its remuneration.
SECTION 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT.
Upon termination of a Custodian Agreement or inability of the Custodian to
continue to serve, the Trustees shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated. If so directed by
vote of the holders of a majority of the outstanding voting securities, the
Custodian shall deliver and pay over all Trust Property held by it as specified
in such vote.
- 13 -
SECTION 3. PROVISIONS OF CUSTODIAN AGREEMENT. The following
provisions shall apply to the employment of a Custodian
and to any contract entered into with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all
securities included in the Trust Property or to which the
Trust may become entitled, and shall order the same to be
delivered by the Custodian only in completion of a sale,
exchange, transfer, pledge, loan of portfolio securities to
another person, or other disposition thereof, all as the
Trustees may generally or from time to time require or approve
or to a successor Custodian; and the Trustees shall cause all
trusts included in the Trust Property or to which it may
become entitled to be paid to the Custodian, and shall order
the same disbursed only for investment against delivery of the
securities acquired, or the return of cash held as collateral
for loans of portfolio securities, or in payment of expenses,
including management compensation, and liabilities of the
Trust, including distributions to shareholders, or to a
successor Custodian. In connection with the Trust's purchase
or sale of futures contracts, the Custodian shall transmit,
prior to receipt on behalf of the Trust of any securities or
other property, funds from the Trust's custodian account in
order to furnish
- 14 -
to and maintain funds with brokers as margin to guarantee the performance of
the Trust's futures obligations in accordance with the applicable
requirements of commodities exchanges and brokers.
SECTION 4. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
SECTION 5. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES.
Subject to such rules, regulations and orders as the Commission may adopt, the
Trustees may direct the Custodian to accept written receipts or other written
evidences indicating purchases of securities held in book-entry form in the
Federal Reserve System in accordance with regulations promulgated by the
- 15 -
Board of Governors of the Federal Reserve System and the local Federal Reserve
Banks in lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or
repealed, or new By-Laws may be adopted by (a) vote of a majority of the Shares
outstanding and entitled to vote or (b) the Trustees, provided, however, that no
By-Law may be amended, adopted or repealed by the Trustees if such amendment,
adoption or repeal requires, pursuant to law, the Declaration or these ByLaws, a
vote of the Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to
what extent, and at what times and places, and under what conditions and
regulations the accounts and books of the Trust or any of them shall be open to
the inspection of the shareholders; and no shareholder shall have any right of
inspecting any account or book or document of the Trust except as conferred by
laws or authorized by the Trustees or by resolution of the shareholders.
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ARTICLE XIII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of
the Trust and no partner, officer, director or shareholder of the Investment
Adviser of the Trust or of the Distributor of the Trust, and no Investment
Adviser or Distributor of the Trust, shall take long or short positions in the
securities issued by the Trust.
(1) The foregoing provisions shall not prevent the
Distributor from purchasing Shares from the Trust if such purchases are
limited (except for reasonable allowances for clerical errors, delays
and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for such Shares received by the Distributor,
and provided that orders to purchase from the Trust are entered with
the Trust or the Custodian promptly upon receipt by the Distributor of
purchase orders for such Shares, unless the Distributor is otherwise
instructed by its customer.
(2) The foregoing provision shall not prevent the
Distributor from purchasing Shares of the Trust as agent for the
account of the Trust.
(3) The foregoing provision shall not prevent the
purchase from the Trust or from the Distributor of Shares
- 17 -
issued by the Trust, by any officer, or Trustee of the Trust or by
any partner, officer, director or shareholder of the Investment
Adviser of the Trust or of the Distributor of the Trust at the
price available to the public generally at the moment of such
purchase, or as described in the then currently effective
Prospectus of the Trust.
(4) The foregoing shall not prevent the Distributor, or any
affiliate thereof, of the Trust from purchasing Shares prior to the
effectiveness of the first registration statement relating to the
Shares under the Securities Act of 1933. (B) The Trust shall not
lend assets of the Trust to any
officer or Trustee of the Trust, or to any partner, officer, director or
shareholder of, or person financially interested in, the Investment Adviser of
the Trust, or the Distributor of the Trust, or to the Investment Adviser of the
Trust or to the Distributor of the Trust.
(C) The Trust shall not impose any restrictions upon the transfer
of the Shares of the Trust except as provided in the Declaration, but this
requirement shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust,
or any partner, officer or director of the Investment Adviser or Distributor of
the Trust to deal for or on behalf of
- 18 -
the Trust with himself as principal or agent, or with any partnership,
association or corporation in which he has a financial interest; provided that
the foregoing provisions shall not prevent (a) officers and Trustees of the
Trust or partners, officers or directors of the Investment Adviser or
Distributor of the Trust from buying, holding or selling shares in the Trust, or
from being partners, officers or directors or otherwise financially interested
in the Investment Adviser or Distributor of the Trust; (b) purchases or sales of
securities or other property by the Trust from or to an affiliated person or to
the Investment Adviser or Distributor of the Trust if such transaction is exempt
from the applicable provisions of the 1940 Act; (c) purchases of investments for
the portfolio of the Trust or sales of investments owned by the Trust through a
security dealer who is, or one or more of whose partners, shareholders, officers
or directors is, an officer or Trustee of the Trust, or a partner, officer or
director of the Investment Adviser or Distributor of the Trust, if such
transactions are handled in the capacity of broker only and commissions charged
do not exceed customary brokerage charges for such services; (d) employment of
legal counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian
who is, or has a partner, shareholder, officer, or director who is, an officer
or Trustee of the Trust, or a partner, officer or director of the Investment
Adviser or Distributor of the Trust, if only customary fees are charged for
- 19 -
services to the Trust; (e) sharing statistical research, legal and management
expenses and office hire and expenses with any other investment company in which
an officer or Trustee of the Trust, or a partner, officer or director of the
Investment Adviser or Distributor of the Trust, is an officer or director or
otherwise financially interested.
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INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of the 30th day of October, 1992, and
amended and restated as of the 25th day of February, 1994 and the 23rd day of
November, 1995, between TEMPLETON DEVELOPING MARKETS TRUST (hereinafter referred
to as the "Trust"), and TEMPLETON ASSET MANAGEMENT LTD. (hereinafter referred to
as the "Investment Manager").
In consideration of the mutual agreements herein made, the
Trust and the Investment Manager understand and agree as follows:
(1) The Investment Manager agrees, during the life of this
Agreement, to manage the investment and reinvestment of the Trust's assets
consistent with the provisions of the Declaration of Trust of the Trust and the
investment policies adopted declared by the Trust's Board of Trustees. In
pursuance of the foregoing, the Investment Manager shall make all with respect
to the investment of the Trust's assets and purchase and sale of its investment
securities, and shall take all such steps as may be necessary to implement those
determinations. It is understood that all acts of the Investment Manager in
performing this Agreement are performed by it the United States.
(2) The Investment Manager is not required to furnish any
personnel, overhead items or facilities for the Trust, including trading desk
facilities or daily pricing of the Trust's portfolio.
(3) The Investment Manager shall be responsible for selecting
members of securities exchanges, brokers and dealers (such members, brokers and
dealers being hereinafter referred as "brokers") for the execution of the
Trust's portfolio transactions consistent with the Trust's brokerage policies
and, when applicable, the negotiation of commissions in connection therewith.
All decisions and placements shall be made in accordance with
the following principles:
A. Purchase and sale orders will usually be placed with
brokers which are selected by the Investment Manager
as able to achieve "best
execution" of such orders. "Best execution" shall
mean prompt and reliable execution at the most
security price, taking into account the other
provisions hereinafter set forth. determination of
what may constitute execution and price in the
execution of a securities transaction by a broker
involves a number of considerations, including,
without limitation, the overall direct net economic
result to the Trust (involving both price paid or
received and any commissions and other costs paid),
the efficiency with which the transaction is
effected, the ability to effect the transaction at
all where a large block is involved, availability of
the broker to stand ready to execute possibly
difficult transactions in the future, and the
financial strength and stability of the broker. Such
considerations are judgmental and are weighed by the
Investment Manager in determining the overall
reasonableness of brokerage commissions.
B. In selecting brokers for portfolio transactions, the
Investment Manager shall take into account its past
experience as to brokers qualified to achieve "best
execution," including brokers who specialize in any
foreign securities held by the Trust.
C. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services
are defined in Section 28(e) of the Securities
Exchange Act of 1934 (the "1934 Act"), for the Trust
and/or other accounts, if any, for which Investment
Manager exercises investment discretion (as
defined in Section 3(a)(35) of the 1934 Act) and,
as to transactions for which fixed minimum
commission rates are not applicable, to cause the
Trust to pay a commission for effecting a
securities transaction in excess of the amount
another broker would have charged for effecting
that transaction, if the Investment Manager
determined
in good faith that such amount of commission is
reasonable in relation to the value of the brokerage
and research services provided by such broker,
viewed
in terms of either that particular transaction or the
Investment Manager's overall responsibilities with
respect to the Trust and the other accounts, if any,
as to which it exercises investment discretion.
In reaching such determination, the Investment
Manager will not be required to place or attempt to
place a specific dollar value on the research or
execution services of a broker or on the portion of
any commission reflecting either of said services.
In demonstrating that such determinations were
made in good faith, the Investment Manager shall
be prepared to show that all commissions were
allocated and paid for purposes contemplated by the
Trust's brokerage policy; that the research ser-
vices provide lawful and appropriate assistance
to the Investment Manager in the performance of its
investment decision-making responsibilities; and that
the commissions paid were within a reasonable range.
Whether commissions were within a reasonable range
shall be based on any information as to the level of
commission known to be charged by other brokers on
comparable transactions, but there shall be taken
account the Trust's policies that (i) obtaining
a low commission is deemed secondary to obtaining a
favorable securities price, since it is recognized
that usually it is more beneficial to the Trust
obtain a favorable price than to pay the lowest
commission; and (ii) the quality, comprehensiveness
and frequency of research studies that are provided
for the Investment Manager are useful to the
Investment Manager in performing its advisory
services under this Agreement. Research services
provided by brokers to the Investment Manager are
considered to be in addition to, and not in lieu of,
services required to be performed by the Investment
Manager under this Agreement. Research furnished by
through which the Trust effects securities
transactions may be used by the Investment for any of
its accounts, and not all research be used by the
Investment Manager for the Trust. When execution of
portfolio transactions allocated to brokers trading
on exchanges with fixed brokerage commission rates,
account may be taken of various services provided by
the broker.
D. Purchases and sales of portfolio securities within
the United States other than on a securities exchange
shall be executed with primary market makers acting
as principal, except where, in the judgment of the
Investment Manager, better prices and execution may
be obtained on a commission basis or from other
sources.
E. Sales of the Trust's shares (which shall be to
include also shares of other registered investment
companies which have either the same adviser or an
investment adviser affiliated the Investment Manager)
by a broker are one factor among others to be taken
into account in deciding to allocate portfolio
transactions (including agency transactions,
principal transactions, purchases in underwritings or
tenders in response to tender offers) for the
account
of the Trust to that broker; provided that the
broker shall furnish "best execution," as defined
subparagraph A above, and that such allocation shall
shall be within the scope of the Trust's as stated
above; provided further, that in every allocation
made to a broker in which the sale of Trust shares
is taken into account, there shall be no increase in
the amount of the commissions or other compensation
paid to such broker beyond a reasonable commission or
other compensation determined, as set forth in
subparagraph C above, on the basis of best
execution alone or best execution plus research
services, without taking account of or placing
placing any value upon such sale of the Trust's
shares.
(4) The Trust agrees to pay to the Investment a monthly fee in
dollars at an annual rate of 1.25% of the Trust's average daily net assets,
payable at the end of calendar month.
Notwithstanding the foregoing, if the total expenses of the
Trust (including the fee to the Investment Manager) in any fiscal year of the
Trust exceed any expense limitation imposed by applicable State law, the
Investment Manager shall reimburse the Trust for such excess in the manner and
to the extent required by applicable State law. The term "total expenses," as
used in this paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs acquiring or
disposing of any of the Trust's portfolio securities or any costs or expenses
incurred or arising other than in the ordinary and necessary course of the
Trust's business. When the accrued amount of such expenses exceeds this limit,
the monthly payment of the Investment Manager's fee will be reduced by the
amount of such excess, subject to adjustment month by month during the balance
of the Trust's fiscal year if accrued expenses thereafter fall below the limit.
(5) This Agreement is amended and restated as of November 23,
1995 and shall continue in effect until April 30, 1996. If not sooner
terminated, this Agreement shall continue in effect for successive periods of 12
months each thereafter, provided that each such continuance shall be
specifically approved annually by the vote of a majority of the Trust's Board of
Trustees who are not parties to this Agreement or "interested persons" (as
defined in Investment Company Act of 1940 (the "1940 Act")) of any such party,
cast in person at a meeting called for the purpose of voting on such approval
and either the vote of (a) a majority of the outstanding voting securities of
the Trust, as defined in the 1940 Act, or (b) a majority of the Trust's Board of
Trustees as a whole.
(6) Notwithstanding the foregoing, this Agreement may be
terminated by either party at any time, without the payment of any penalty, on
sixty (60) days' written notice to the other party, provided that termination by
the Trust is approved by vote of a majority of the Trust's Board of Trustees in
office at the time or by vote of a majority of the outstanding voting securities
of the Trust (as defined by the 1940 Act).
(7) This Agreement will terminate automatically and
immediately in the event of its assignment (as defined in the 1940 Act).
(8) In the event this Agreement is terminated and the
Investment Manager no longer acts as Investment Manager to the Trust, the
Investment Manager reserves the right to withdraw from the Trust the use of the
name "Templeton" or any name misleadingly implying a continuing relationship
between the Trust and the Investment Manager or any of its affiliates.
(9) Except as may otherwise be provided by the 1940 Act,
neither the Investment Manager nor its officers, directors, employees or agents
shall be subject to any liability for any error of judgment, mistake of law, or
any loss arising out of any investment or other act or omission in the
performance by the Investment Manager of its duties under the Agreement or for
any loss or damage resulting from the imposition by any government of exchange
control restrictions which might affect the liquidity of the Trust's assets, or
from acts or omissions of custodians, or securities depositories, or from any
war or political act of any foreign government to which such assets might be
exposed, or for failure, on the part of the custodian or otherwise, timely to
collect payments, except for any liability, loss or damage resulting from
willful misfeasance, bad faith or gross negligence on the Investment Manager's
part or by reason of reckless disregard of the Investment Manager's duties under
this Agreement. It is hereby understood and acknowledged by the Trust that the
value of the investments made for the Trust may increase as well as decrease and
are not guaranteed by the Investment Manager. It is further understood and
acknowledged by the Trust that investment decisions made on behalf of the Trust
by the Investment Manager are subject to a variety of factors which may affect
the values and income generated by the Trust's portfolio of securities,
including general economic conditions, market factors and currency exchange
rates, and that investment decisions made by the Investment Manager will not
always be profitable or prove to have been correct.
(10) It is understood that the services of the Investment
Manager are not deemed to be exclusive, and nothing in this Agreement shall
prevent the Investment Manager, or any affiliate thereof, from providing similar
services to other investment companies and other clients, including clients
which may invest in the same types of securities as the Trust, or, in providing
such services, from using information furnished by others. When the Investment
Manager determines to buy or sell the same security for the Trust that the
Investment Manager or one or more of its affiliates has selected for clients of
the Investment Manager or its affiliates, the orders for all such security
transactions shall be placed for execution by methods determined by the
Investment Manager, with approval by the Trust's Board of Trustees, to be
impartial and fair.
(11) This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts, provided that nothing herein shall be
construed as being inconsistent with applicable Federal and state securities
laws and any rules, regulations and orders thereunder.
(12) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
(13) Nothing herein shall be construed as constituting
the Investment Manager an agent of the Trust.
(14) It is understood and expressly stipulated that neither
the holders of shares of the Trust nor any Trustee, officer, agent or employee
of the Trust shall be personally liable hereunder, nor shall any resort be had
to other private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and their
respective corporate seals to be hereunto duly affixed and attested.
TEMPLETON DEVELOPING MARKETS TRUST
By:/s/JOHN R. KAY
John R. Kay
Vice President
TEMPLETON ASSET MANAGEMENT LTD.
By:/s/CHARLES E. JOHNSON
Charles E. Johnson
Director
TEMPLETON DEVELOPING MARKETS TRUST
700 Central Avenue
St. Petersburg, Florida 33701-3628
Franklin Templeton Distributors, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Re: Amended and Restated Distribution Agreement
Gentlemen:
We, TEMPLETON DEVELOPING MARKETS TRUST (the "Trust") are a Massachusetts
business trust operating as an open-end management investment company or "mutual
fund", which is registered under the Investment Company Act of 1940 (the "1940
Act") and whose shares are registered under the Securities Act of 1933 (the
"1933 Act"). We desire to issue one or more series or classes of our authorized
but unissued shares of capital stock or beneficial interest (the "Shares") to
authorized persons in accordance with applicable Federal and State securities
laws. The Trust's Shares may be made available in one or more separate series,
each of which may have one or more classes.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Board of Trustees
("Board") passed at a meeting at which a majority of Board members, including a
majority who are not otherwise interested persons of the Trust and who are not
interested persons of our investment adviser, its related organizations or with
you or your related organizations, were present and voted in favor of the said
resolution approving this Agreement.
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and
in consideration of the agreements on your part herein expressed and upon the
terms and conditions set forth herein, we hereby appoint you as the exclusive
sales agent for our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of Shares, but are
not obligated to sell any specific number of Shares.
However, the Trust and each series retain the right to make direct
sales of its Shares without sales charges consistent with the terms of the then
current prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Trust or any series or class and its shareholders only,
transactions involving the reorganization of the Trust or any series, and
transactions involving the merger or combination of the Trust or any series with
another corporation or trust.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.
3. OFFERING PRICE. Shares shall be offered for sale at a price
equivalent to the net asset value per share of that series and class plus any
applicable percentage of the public offering price as sales commission or as
otherwise set forth in our then current prospectus. On each business day on
which the New York Stock Exchange is open for business, we will furnish you with
the net asset value of the Shares of each available series and class which shall
be determined in accordance with our then effective prospectus. All Shares will
be sold in the manner set forth in our then effective prospectus and statement
of additional information, and in compliance with applicable law.
4. COMPENSATION.
A. SALES COMMISSION. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class
of each Trust's Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Trust or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.
B. DISTRIBUTION PLANS. You shall also be entitled
to compensation for your services as provided in any Distribution Plan adopted
as to any series and class of any Trust's Shares pursuant to Rule
12b-1 under the 1940 Act.
5. TERMS AND CONDITIONS OF SALES. Shares shall be offered for sale only
in those jurisdictions where they have been properly registered or are exempt
from registration, and only to those groups of people which the Board may from
time to time determine to be eligible to purchase such shares.
6. ORDERS AND PAYMENT FOR SHARES. Orders for Shares shall be directed
to the Trust's shareholder services agent, for acceptance on behalf of the
Trust. At or prior to the time of delivery of any of our Shares you will pay or
cause to be paid to the custodian of the Trust's assets, for our account, an
amount in cash equal to the net asset value of such Shares. Sales of Shares
shall be deemed to be made when and where accepted by the Trust's shareholder
services agent. The Trust's custodian and shareholder services agent shall be
identified in its prospectus.
7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our Shares
for your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. SALE OF SHARES TO AFFILIATES. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. ALLOCATION OF EXPENSES. We will pay the expenses:
(a) Of the preparation of the audited and certified
financial statements of our company to be included in
any Post-Effective Amendments ("Amendments") to our
Registration Statement under the 1933 Act or 1940
Act, including the prospectus and statement of
additional information included therein;
(b) Of the preparation, including legal fees, and
printing of all Amendments or supplements filed with
the Securities and Exchange Commission, including the
copies of the prospectuses included in the Amendments
and the first 10 copies of the definitive
prospectuses or supplements thereto, other than those
necessitated by your (including your "Parent's")
activities or Rules and Regulations related to your
activities where such Amendments or supplements
result in expenses which we would not otherwise have
incurred;
(c) Of the preparation, printing and distribution of any
reports or communications which we send to our
existing shareholders; and
(d) Of filing and other fees to Federal and State
securities regulatory authorities necessary to
continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to offer
our Shares;
(b) Of the preparation, excluding legal fees, and
printing of all Amendments and supplements to our
prospectuses and statements of additional information
if the Amendment or supplement arises from your
(including your "Parent's") activities or Rules and
Regulations related to your activities and those
expenses would not otherwise have been incurred by
us;
(c) Of printing additional copies, for use by you as
sales literature, of reports or other communications
which we have prepared for distribution to our
existing shareholders; and
(d) Incurred by you in advertising, promoting and selling
our Shares.
10. FURNISHING OF INFORMATION. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
11. CONDUCT OF BUSINESS. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws
and regulations where our Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
12. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If Shares are tendered
to us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. OTHER ACTIVITIES. Your services pursuant to this Agreement
shall not be deemed to be exclusive, and you may render similar services and
act as an underwriter, distributor or dealer for other investment companies in
the offering of their shares.
14. TERM OF AGREEMENT. This Agreement shall become effective on the
date of its execution, and shall remain in effect for a period of two (2) years.
The Agreement is renewable annually thereafter, with respect to the Trust or, if
the Trust has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Trust or, if the Trust has more than one
series, of each series, or (b) by a vote of the Board, AND (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.
This Agreement may at any time be terminated by the Trust or
by any series without the payment of any penalty, (i) either by vote of the
Board or by vote of a majority of the outstanding voting securities of the Trust
or any series on 90 days' written notice to you; or (ii) by you on 90 days'
written notice to the Trust; and shall immediately terminate with respect to the
Trust and each series in the event of its assignment.
15. SUSPENSION OF SALES. We reserve the right at all times to
suspend or limit the public offering of Shares upon two days' written notice to
you.
16. MISCELLANEOUS. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Trust as an open-end investment company. This Agreement
shall supersede all Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset Value," "Offering
Price," "Investment Company," "Open-End Investment Company," "Assignment,"
"Principal Underwriter," "Interested Person," "Parent," "Affiliated Person," and
"Majority of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
Templeton Developing Markets Trust
By:/s/THOMAS M. MISTELE
Thomas M. Mistele
Accepted:
Franklin Templeton Distributors, Inc.
By:/s/PETER D. JONES
Peter D. Jones
DATED: May 1, 1995
CUSTODY AGREEMENT
AGREEMENT dated as of October 16, 1991, between THE CHASE
MANHATTAN BANK, N.A. ("Chase"), having its principal place of business at 1
Chase Manhattan Plaza, New York, New York 10081, and TEMPLETON DEVELOPING
MARKETS TRUST (the "Trust"), an investment company registered under the
Investment Company Act of 1940 ("Act of 1940"), having its principal place of
business at 700 Central Avenue, St. Petersburg, Florida 33701.
WHEREAS, the Trust wishes to appoint Chase as custodian to the
securities and assets of the Trust and Chase is willing to act as custodian
under the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Trust and its successors and assigns and
Chase and its successors and assigns, hereby agree as follows:
1. APPOINTMENT AS CUSTODIAN. Chase agrees to act as custodian
for the Trust, as provided herein, in connection with (a) cash ("Cash") received
from time to time from, or for the account of, the Trust for credit to the
Trust's deposit account or accounts administered by Chase, Chase Branches and
Domestic Securities Depositories (as hereinafter defined), and/or Foreign Banks
and Foreign Securities Depositories (as hereinafter defined) (the "Deposit
Account"); (b) all stocks, shares, bonds, debentures, notes, mortgages, or other
obligations for the payment of money and any certificates, receipts, warrants,
or other instruments representing rights to receive, purchase, or subscribe for
the same or evidencing or representing any other
rights or interests therein and other similar property ("Securities") from time
to time received by Chase and/or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository for the account of the
Trust (the "Custody Account"); and (c) original margin and variation margin
payments in a segregated account for futures contracts (the "Segregated
Account").
All Cash held in the Deposit Account or in the Segregated
Account in connection with which Chase agrees to act as custodian is hereby
denominated as a special deposit which shall be held in trust for the benefit of
the Trust and to which Chase, Chase Branches and Domestic Securities
Depositories and/or Foreign Banks and Foreign Securities Depositories shall have
no ownership rights, and Chase will so indicate on its books and records
pertaining to the Deposit Account and the Segregated Account. All cash held in
auxiliary accounts that may be carried for the Trust with Chase (including a
Money Market Account, Redemption Account, Distribution Account and Imprest
Account) is not so denominated as a special deposit and title thereto is held by
Chase subject to the claims of creditors.
2. AUTHORIZATION TO USE BOOK-ENTRY SYSTEM, DOMESTIC
SECURITIES DEPOSITORIES, BRANCH OFFICES, FOREIGN BANKS AND
FOREIGN SECURITIES DEPOSITORIES. Chase is hereby authorized to
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appoint and utilize, subject to the provisions of Sections 4 and
5 hereof:
A. The Book Entry System and The Depository Trust
Fund; and also such other Domestic Securities Depositories
selected by Chase and as to which Chase has received a
certified copy of a resolution of the Trust's Board of
Trustees authorizing deposits therein;
B. Chase's foreign branch offices in the United
Kingdom, Hong Kong, Singapore, and Tokyo, and such other
foreign branch offices of Chase located in countries approved
by the Board of Trustees of the Trust as to which Chase shall
have given prior notice to the Trust;
C. Foreign Banks which Chase shall have
selected, which are located in countries approved by
the Board of Trustees of the Trust, and as to which
banks Chase shall have given prior notice to the Trust;
and
D. Foreign Securities Depositories which Chase
shall have selected and as to which Chase has received
a certified copy of a resolution of the Trust's Board
of Trustees authorizing deposits therein;
to hold Securities and Cash at any time owned by the Trust, it being understood
that no such appointment or utilization shall in any way relieve Chase of its
responsibilities as provided for in
- 3 -
this Agreement. Foreign branch offices of Chase appointed and utilized by Chase
are herein referred to as "Chase Branches." Unless otherwise agreed to in
writing, (a) each Chase Branch, each Foreign Bank and each Foreign Securities
Depository shall be selected by Chase to hold only Securities as to which the
principal trading market or principal location as to which such Securities are
to be presented for payment is located outside the United States; and (b) Chase
and each Chase Branch, Foreign Bank and Foreign Securities Depository will
promptly transfer or cause to be transferred to Chase, to be held in the United
States, Securities and/or Cash that are then being held outside the United
States upon request of the Trust and/or of the Securities and Exchange
Commission. Utilization by Chase of Chase Branches, Domestic Securities
Depositories, Foreign Banks and Foreign Securities Depositories shall be in
accordance with provisions as from time to time amended, of an operating
agreement to be entered into between Chase and the Trust (the "Operating
Agreement").
3. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
(a) "Authorized Persons of the Trust" shall mean such
officers or employees of the Trust or any other person or
persons as shall have been designated by a resolution of the
Board of Trustees of the Trust, a certified copy of which has
been filed with Chase, to
- 4 -
act as Authorized Persons hereunder. Such persons shall
continue to be Authorized Persons of the Trust, authorized to
act either singly or together with one or more other of such
persons as provided in such resolution, until such time as the
Trust shall have filed with Chase a written notice of the
Trust supplementing, amending, or revoking the authority of
such persons.
(b) "Book-Entry system" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and its
nominee or nominees.
(c) "Domestic Securities Depository" shall mean The
Depository Trust Fund, a clearing agency registered with the
Securities and Exchange Commission, its successor or
successors and its nominee or nominees; and (subject to the
receipt by Chase of a certified copy of a resolution of the
Trust's Board of Trustees specifically approving deposits
therein as provided in Section 2(a) of this Agreement) any
other person authorized to act as a depository under the Act
of 1940, its successor or successors and its nominee or
nominees.
- 5 -
(d) "Foreign Bank" shall mean any banking institution
organized under the laws of a jurisdiction other than the
United States or of any state thereof.
(e) A "Foreign Securities Depository" shall mean any
system for the central handling of securities abroad where all
securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping without physical
delivery of the securities by any Chase Branch or Foreign
Bank.
(f) "Written Instructions" shall mean
instructions in writing signed by Authorized Persons of
the Trust giving such instructions, and/or such other
forms of communications as from time to time shall be
agreed upon in writing between the Trust and Chase.
4. SELECTION OF COUNTRIES IN WHICH SECURITIES MAY BE
HELD. Chase shall not cause Securities and Cash to be held in any country
outside the United States until the Trust has directed the holding of Trust
assets in such country. Chase will be provided with a copy of a resolution of
the Trust's Board of Trustees authorizing such custody in any country outside of
the United States, which resolution shall be based upon, among other factors,
the following:
(a) comparative operational efficiencies of
custody;
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(b) clearance and settlement and the costs
thereof; and
(c) political and other risks, other than those
risks specifically assumed by Chase.
5. RESPONSIBILITY OF CHASE TO SELECT CUSTODIANS IN INDIVIDUAL
FOREIGN COUNTRIES. The responsibility for selecting the Chase Branch, Foreign
Bank or Foreign Securities Depository to hold the Trust's Securities and Cash in
individual countries authorized by the Trust shall be that of Chase. Chase
generally shall utilize Chase Branches where available. In locations where there
are no Chase Branches providing custodial services, Chase shall select as its
agent a Foreign Bank, which may be an affiliate or subsidiary of Chase. To
facilitate the clearance and settlement of securities transactions, Chase
represents that, subject to the approval of the Trust, it may deposit Securities
in a Foreign Securities Depository in which Chase is a participant. In
situations in which Chase is not a participant in a Foreign Securities
Depository, Chase may, subject to the approval of the Trust, authorize a Foreign
Bank acting as its subcustodian to deposit the Securities in a Foreign
Securities Depository in which the Foreign Bank is a participant.
Notwithstanding the foregoing, such selection by Chase of a Foreign Bank or
Foreign Securities Depository shall not become effective until Chase has been
advised by the Trust that a majority of its Board of Trustees:
- 7 -
(a) Has approved Chase's selection of the particular
Foreign Bank or Foreign Securities Depository, as the case may
be, as consistent with the best interests of the Trust and its
Shareholders; and
(b) Has approved as consistent with the best
interests of the Trust and its Shareholders a written
contract prepared by Chase which will govern the manner
in which such Foreign Bank will maintain the Trust's
assets.
6. CONDITIONS ON SELECTION OF FOREIGN BANK OR FOREIGN
SECURITIES DEPOSITORY. Chase shall authorize the holding of
Securities and Cash by a Chase Branch, Foreign Bank or Foreign
Securities Depository only:
(a) to the extent that the Securities and Cash are
not subject to any right, charge, security interest, lien or
claim of any kind in favor of any such Foreign Bank or Foreign
Securities Depository, except for their safe custody or
administration; and
(b) to the extent that the beneficial ownership
of Securities is freely transferable without the
payment of money or value other than for safe custody
or administration.
7. CHASE BRANCHES AND FOREIGN BANKS NOT AGENTS OF THE
TRUST. Chase Branches, Foreign Banks and Foreign Securities
Depositories shall be subject to the instructions of Chase and/or
- 8 -
the Foreign Bank, and not to those of the Trust. Chase warrants and represents
that all such instructions shall afford protection to the Trust at least equal
to that afforded for Securities held directly by Chase. Any Chase Branch,
Foreign Bank or Foreign Securities Depository shall act solely as agent of Chase
or of such Foreign Bank.
8. CUSTODY ACCOUNT. Securities held in the Custody
Account shall be physically segregated at all times from those of
any other person or persons except that (a) with respect to
Securities held by Chase Branches, such Securities may be placed
in an omnibus account for the customers of Chase, and Chase shall
maintain separate book entry records for each such omnibus
account, and such Securities shall be deemed for the purpose of
this Agreement to be held by Chase in the Custody Account; (b)
with respect to Securities deposited by Chase with a Foreign
Bank, a Domestic Securities Depository or a Foreign Securities
Depository, Chase shall identify on its books as belonging to the
Trust the Securities shown on Chase's account on the books of the
Foreign Bank, Domestic Securities Depository or Foreign
Securities Depository; and (c) with respect to Securities
deposited by a Foreign Bank with a Foreign Securities Depository,
Chase shall cause the Foreign Bank to identify on its books as
belonging to Chase, as agent, the Securities shown on the Foreign
Bank's account on the books of the Foreign Securities Depository.
All Securities of the Trust maintained by Chase pursuant to this
- 9 -
Agreement shall be subject only to the instructions of Chase, Chase Branches or
their agents. Chase shall only deposit Securities with a Foreign Bank in
accounts that include only assets held by Chase for its customers.
8a. SEGREGATED ACCOUNT FOR FUTURES CONTRACTS. With
respect to every futures contract purchased, sold or cleared for
the Custody Account, Chase agrees, pursuant to Written
Instructions, to:
(a) deposit original margin and variation margin
payments in a segregated account maintained by Chase;
and
(b) perform all other obligations attendant to
transactions or positions in such futures contracts, as
such payments or performance may be required by law or
the executing broker.
8b. SEGREGATED ACCOUNT FOR REPURCHASE AGREEMENTS.
With respect to purchases for the Custody Account from banks (including Chase)
or broker-dealers, of United States or foreign government obligations subject to
repurchase agreements, Chase agrees, pursuant to Written Instructions, to:
(a) deposit such securities and repurchase
agreements in a segregated account maintained by Chase;
and
(b) promptly show on Chase's records that such
securities and repurchase agreements are being held on
- 10 -
behalf of the Trust and deliver to the Trust a written
confirmation to that effect.
8c. SEGREGATED ACCOUNTS FOR DEPOSITS OF COLLATERAL.
Chase agrees, with respect to (i) cash or high quality debt securities to secure
the Trust's commitments to purchase new issues of debt obligations offered on a
when-issued basis; (ii) cash, U.S. government securities, or irrevocable letters
of credit of borrowers of the Trust's portfolio securities to secure the loan to
them of such securities; and/or (iii) cash, securities or any other property
delivered to secure any other obligations; (all of such items being hereinafter
referred to as "collateral"), pursuant to Written Instructions, to:
(a) deposit the collateral for each such
obligation in a separate segregated account maintained
by Chase; and
(b) promptly to show on Chase's records that
such collateral is being held on behalf of the Trust and
deliver to the Trust a written confirmation to that
effect.
9. DEPOSIT ACCOUNT. Subject to the provisions of
this Agreement, the Trust authorizes Chase to establish and maintain in each
country or other jurisdiction in which the principal trading market for any
Securities is located or in which any Securities are to be presented for
payment, an account or accounts, which may include nostro accounts with Chase
- 11 -
Branches and omnibus accounts of Chase at Foreign Banks, for receipt of cash in
the Deposit Account, in such currencies as directed by Written Instructions. For
purposes of this Agreement, cash so held in any such account shall be evidenced
by separate book entries maintained by Chase at its office in London and shall
be deemed to be Cash held by Chase in the Deposit Account. Unless Chase receives
Written Instructions to the contrary, cash received or credited by Chase or any
other Chase Branch, Foreign Bank or Foreign Securities Depository for the
Deposit Account in a currency other than United States dollars shall be
converted promptly into United States dollars whenever it is practicable to do
so through customary banking channels (including without limitation the
effecting of such conversions at Chase's preferred rates through Chase, its
affiliates or Chase Branches), and shall be automatically transmitted back to
Chase in the United States.
10. SETTLEMENT PROCEDURES. Settlement procedures for
transactions in Securities delivered to, held in, or to be
delivered from the Custody Account in Chase Branches, Domestic
Securities Depositories, Foreign Banks and Foreign Securities
Depositories, including receipts and payments of cash held in any
nostro account or omnibus account for the Deposit Account as
described in Section 9, shall be carried out in accordance with
the provisions of the Operating Agreement. It is understood that
such settlement procedures may vary, as provided in the Operating
- 12 -
Agreement, from securities market to securities market, to reflect particular
settlement practices in such markets.
Chase shall make or cause the appropriate Chase Branch or
Foreign Bank to move payments of Cash held in the Deposit Account only:
(a) in connection with the purchase of Securities for
the account of the Trust and only against the receipt of such
Securities by Chase or by another appropriate Chase Branch,
Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository, or otherwise as provided in the
Operating Agreement, each such payment to be made at prices
confirmed by Written Instructions, or
(b) in connection with any dividend, interim
dividend or other distribution declared by the Trust,
or
(c) as directed by the Fund by Written Instructions
setting forth the name and address of the person to whom the
payment is to be made and the purpose for which the payment is
to be made.
Upon the receipt by Chase of Written Instructions specifying
the Securities to be so transferred or delivered, which instructions shall name
the person or persons to whom transfers or deliveries of such Securities shall
be made and
- 13 -
shall indicate the time(s) for such transfers or deliveries, Securities held in
the Custody Account shall be transferred, exchanged, or delivered by Chase, any
Chase Branch, Domestic Securities Depository, Foreign Bank, or Foreign
Securities Depository, as the case may be, against payment in Cash or
Securities, or otherwise as provided in the Operating Agreement, only:
(a) upon sale of such Securities for the account of
the Trust and receipt of such payment in the amount shown in a
broker's confirmation of sale of the Securities or other
proper authorization received by Chase before such payment is
made, as confirmed by Written Instructions;
(b) in exchange for or upon conversion into other
Securities alone or other Securities and Cash pursuant to any
plan of merger, consolidation, reorganization,
recapitalization, readjustment, or tender offer;
(c) upon exercise of conversion, subscription,
purchase, or other similar rights represented by such
Securities; or
(d) otherwise as directed by the Trust by Written
Instructions which shall set forth the amount and
purpose of such transfer or delivery.
Until Chase receives Written Instructions to the contrary,
Chase shall, and shall cause each Chase Branch,
- 14 -
Domestic Securities Depository, Foreign Bank and Foreign Securities Depository
holding Securities or Cash to, take the following actions in accordance with
procedures established in the Operating Agreement:
(a) collect and timely deposit in the Deposit Account
all income due or payable with respect to any Securities and
take any action which may be necessary and proper in
connection with the collection and receipt of such income;
(b) present timely for payment all Securities in the
Custody Account which are called, redeemed or retired or
otherwise become payable and all coupons and other income
items which call for payment upon presentation and to receive
and credit to the Deposit Account Cash so paid for the account
of the Trust except that, if such Securities are convertible,
such Securities shall not be presented for payment until two
business days preceding the date on which such conversion
rights would expire unless Chase previously shall have
received Written Instructions with respect thereto;
(c) present for exchange all Securities in the
Custody Account converted pursuant to their terms into
other Securities;
- 15 -
(d) in respect of securities in the Custody Account,
execute in the name of the Trust such ownership and other
certificates as may be required to obtain payments in respect
thereto, provided that Chase shall have requested and the
Trust shall have furnished to Chase any information necessary
in connection with such certificates;
(e) exchange interim receipts or temporary
Securities in the Custody Account for definitive
Securities; and
(f) receive and hold in the Custody Account all
Securities received as a distribution on Securities
held in the Custody Account as a result of a stock
dividend, share split-up or reorganization,
recapitalization, readjustment or other rearrangement
or distribution of rights or similar Securities issued
with respect to any Securities held in the Custody
Account.
11. RECORDS. Chase hereby agrees that Chase and any
Chase Branch or Foreign Bank shall create, maintain, and retain all records
relating to their activities and obligations as custodian for the Trust under
this Agreement in such manner as will meet the obligations of the Trust under
the Act of 1940, particularly Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and Federal, state and foreign tax laws and other
- 16 -
legal or administrative rules or procedures, in each case as currently in effect
and applicable to the Trust. All records so maintained in connection with the
performance of its duties under this Agreement shall, in the event of
termination of this Agreement, be preserved and maintained by Chase as required
by regulation, and shall be made available to the Trust or its agent upon
request, in accordance with the provisions of Section 19.
Chase hereby agrees, subject to restrictions under applicable
laws, that the books and records of Chase and any Chase Branch pertaining to
their actions under this Agreement shall be open to the physical, on-premises
inspection and audit at reasonable times by the independent accountants
("Accountants") employed by, or other representatives of, the Trust. Chase
hereby agrees that, subject to restrictions under applicable laws, access shall
be afforded to the Accountants to such of the books and records of any Foreign
Bank, Domestic Securities Depository or Foreign Securities Depository with
respect to Securities and Cash as shall be required by the Accountants in
connection with their examination of the books and records pertaining to the
affairs of the Trust. Chase also agrees that as the Trust may reasonably request
from time to time, Chase shall provide the Accountants with information with
respect to Chase's and Chase Branches' systems of internal accounting controls
as they relate to the services provided under this Agreement, and Chase shall
use its best efforts to obtain
- 17 -
and furnish similar information with respect to each Domestic
Securities Depository, Foreign Bank and Foreign Securities
Depository holding Securities and Cash.
12. REPORTS. Chase shall supply periodically, upon the
reasonable request of the Trust, such statements, reports, and advices with
respect to Cash in the Deposit Account and the Securities in the Custody Account
and transactions in Securities from time to time received and/or delivered for
or from the Custody Account, as the case may be, as the Trust shall require.
Such statements, reports and advices shall include an identification of the
Chase Branch, Domestic Securities Depository, Foreign Bank and Foreign
Securities Depository having custody of the Securities and Cash, and
descriptions thereof.
13. REGISTRATION OF SECURITIES. Securities in the Custody
Account which are issued or issuable only in bearer form (except such securities
as are held in the Book-Entry System) shall be held by Chase, Chase Branches,
Domestic Securities Depositories, Foreign Banks or Foreign Securities
Depositories in that form. All other Securities in the Custody Account shall be
held in registered form in the name of Chase, or any Chase Branch, the
Book-Entry System, Domestic Securities Depository, Foreign Bank or Foreign
Securities Depository and their nominees, as custodian or nominee.
- 18 -
14. STANDARD OF CARE.
(a) GENERAL. Chase shall assume entire responsibility
for all Securities held in the Custody Account, Cash held in
the Deposit Account, Cash or Securities held in the Segregated
Account and any of the Securities and Cash while in the
possession of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository, or
in the possession or control of any employees, agents or other
personnel of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository; and
shall be liable to the Trust for any loss to the Trust
occasioned by any destruction of the Securities or Cash so
held or while in such possession, by any robbery, burglary,
larceny, theft or embezzlement by any employees, agents or
personnel of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository,
and/or by virtue of the disappearance of any of the Securities
or Cash so held or while in such possession, with or without
any fault attributable to Chase ("fault attributable to Chase"
for the purposes of this Agreement being deemed to mean any
negligent act or omission, robbery, burglary, larceny, theft
or embezzlement by any employees or
- 19 -
agents of Chase or any Chase Branch, Domestic Securities
Depository, Foreign Bank or Foreign Securities Depository). In
the event of Chase's discovery or notification of any such
loss of Securities or Cash, Chase shall promptly notify the
Trust and shall reimburse the Trust to the extent of the
market value of the missing Securities or Cash as at the date
of the discovery of such loss. The Trust shall not be
obligated to establish any negligence, misfeasance or
malfeasance on Chase's part from which such loss resulted, but
Chase shall be obligated hereunder to make such reimbursement
to the Trust after the discovery or notice of such loss,
destruction or theft of such Securities or Cash. Chase may at
its option insure itself against loss from any cause but shall
be under no obligation to insure for the benefit of the Trust.
(b) COLLECTIONS. All collections of funds or other
property paid or distributed in respect of Securities held in
the Custody Account shall be made at the risk of the Trust.
Chase shall have no liability for any loss occasioned by delay
in the actual receipt of notice by Chase (or by any Chase
Branch or Foreign Bank in the case of Securities or Cash held
outside of the United States) of any payment, redemption or
other
- 20 -
transaction regarding Securities held in the Custody Account
or Cash held in the Deposit Account in respect of which Chase
has agreed to take action in the absence of Written
Instructions to the contrary as provided in Section 10 of this
Agreement, which does not appear in any of the publications
referred to in Section 16 of this Agreement.
(c) EXCLUSIONS. Notwithstanding any other provision
in this Agreement to the contrary, Chase shall not be
responsible for (i) losses resulting from war or from the
imposition of exchange control restrictions, confiscation,
expropriation, or nationalization of any securities or assets
of the issuer of such securities, or (ii) losses resulting
from any negligent act or omission of the Trust or any of its
affiliates, or any robbery, theft, embezzlement or fraudulent
act by any employee or agent of the Trust or any of its
affiliates. Chase shall not be liable for any action taken in
good faith upon Written Instructions of Authorized Persons of
the Trust or upon any certified copy of any resolution of the
Board of Directors of the Trust, and may rely on the
genuineness of any such documents which it may in good faith
believe to be validly executed.
- 21 -
(d) LIMITATION ON LIABILITY UNDER SECTION 14(A).
Notwithstanding any other provision in this Agreement to the
contrary, it is agreed that Chase's sole responsibility with
respect to losses under Section 14(a) shall be to pay the
Trust the amount of any such loss as provided in Section 14(a)
(subject to the limitation provided in Section 14(e) of this
Agreement). This limitation does not apply to any liability of
Chase under Section 14(f) of this Agreement.
(e) ANNUAL ADJUSTMENT OF LIMITATION OF LIABILITY. As
soon as practicable after June 1 of every year, the Trust
shall provide Chase with the amount of its total net assets as
of the close of business on such date (or if the New York
Stock Exchange is closed on such date, then in that event as
of the close of business on the next day on which the New York
Stock Exchange is open for business).
It is understood by the parties to this Agreement (1)
that Chase has entered into substantially similar custody
agreements with other Templeton Funds, all of which Trusts
have as their investment adviser either the Investment Manager
of the Trust or companies which are affiliated with the
Investment Manager; and (2) that Chase may enter into
substantially similar custody
- 22 -
agreements with additional mutual funds under Templeton
management which may hereafter be organized. Each of such
custody agreements with each of such other Templeton Funds
contains (or will contain) a "Standard of Care" section
similar to this Section 14, except that the limit of Chase's
liability is (or will be) in varying amounts for each Trust,
with the aggregate limits of liability in all of such
agreements, including this Agreement, amounting to
$150,000,000.
On each June 1, Chase will total the net assets
reported by each one of the Templeton Funds, and will
calculate the percentage of the aggregate net assets of all
the Templeton Funds that is represented by the net asset value
of this Trust. Thereupon Chase shall allocate to this
Agreement with this Trust that proportion of its total of
$150,000,000 responsibility undertaking which is substantially
equal to the proportion which this Trust's net assets bears to
the total net assets of all such Templeton Funds subject to
adjustments for claims paid as follows: all claims previously
paid to this Trust shall first be deducted from its
proportionate allocable share of the $150,000,000 Chase
responsibility, and if the claims paid to this Trust amount to
more than its allocable share of the Chase responsibility,
then the excess of
- 23 -
such claims paid to this Trust shall diminish the balance of
the $150,000,000 Chase responsibility available for the
proportionate shares of all of the other Templeton Funds
having similar custody agreements with Chase. Based on such
calculation, and on such adjustment for claims paid, if any,
Chase thereupon shall notify the Trust of such limit of
liability under this Section 14 which will be available to the
Trust with respect to (1) losses in excess of payment
allocations for previous years and (2) losses discovered
during the next year this Agreement remains in effect and
until a new determination of such limit of responsibility is
made on the next succeeding June 1.
(f) OTHER LIABILITY. Independently of Chase's
liability to the Trust as provided in Section 14(a) above (it
being understood that the limitations in Sections 14(d) and
14(e) do not apply to the provisions of this Section 14(f)),
Chase shall be responsible for the performance of only such
duties as are set forth in this Agreement or contained in
express instructions given to Chase which are not contrary to
the provisions of this Agreement. Chase will use and require
the same care with respect to the safekeeping of all
Securities held in the Custody Account, Cash held in the
Deposit Account, and Securities or Cash held in the Segregated
- 24 -
Account as it uses in respect of its own similar property, but
it need not maintain any insurance for the benefit of the
Trust. With respect to Securities and Cash held outside of the
United States, Chase will be liable to the Trust for any loss
to the Trust resulting from any disappearance or destruction
of such Securities or Cash while in the possession of Chase or
any Chase Branch, Foreign Bank or Foreign Securities
Depository, to the same extent it would be liable to the Trust
if Chase had retained physical possession of such Securities
and Cash in New York. It is specifically agreed that Chase's
liability under this Section 14(f) is entirely independent of
Chase's liability under Section 14(a). Notwithstanding any
other provision in this Agreement to the contrary, in the
event of any loss giving rise to liability under this Section
14(f) that would also give rise to liability under Section
14(a), the amount of such liability shall not be charged
against the amount of the limitation on liability provided in
Section 14(d).
(g) COUNSEL; LEGAL EXPENSES. Chase shall be
entitled to the advice of counsel (who may be counsel
for the Trust) at the expense of the Trust, in
connection with carrying out Chase's duties hereunder
and in no event shall Chase be liable for any action
- 25 -
taken or omitted to be taken by it in good faith
pursuant to advice of such counsel. If, in the absence
of fault attributable to Chase and in the course of or
in connection with carrying out its duties and
obligations hereunder, any claims or legal proceedings
are instituted against Chase or any Chase Branch by
third parties, the Trust will hold Chase harmless
against any claims, liabilities, costs, damages or
expenses incurred in connection therewith and, if the
Trust so elects, the Trust may assume the defense
thereof with counsel satisfactory to Chase, and
thereafter shall not be responsible for any further
legal fees that may be incurred by Chase, provided,
however, that all of the foregoing is conditioned upon
the Trust's receipt from Chase of prompt and due notice
of any such claim or proceeding.
15. EXPROPRIATION INSURANCE. Chase represents that it
does not intend to obtain any insurance for the benefit of the Trust which
protects against the imposition of exchange control restrictions on the transfer
from any foreign jurisdiction of the proceeds of sale of any Securities or
against confiscation, expropriation or nationalization of any securities or the
assets of the issuer of such securities by a government of any foreign country
in which the issuer of such securities is organized or in which securities are
held for safekeeping either by Chase, or any
- 26 -
Chase Branch, Foreign Bank or Foreign Securities Depository in such country.
Chase has discussed the availability of expropriation insurance with the Trust,
and has advised the Trust as to its understanding of the position of the staff
of the Securities and Exchange Commission that any investment company investing
in securities of foreign issuers has the responsibility for reviewing the
possibility of the imposition of exchange control restrictions which would
affect the liquidity of such investment company's assets and the possibility of
exposure to political risk, including the appropriateness of insuring against
such risk. The Trust has acknowledged that it has the responsibility to review
the possibility of such risks and what, if any, action should be taken.
16. PROXY, NOTICES, REPORTS, ETC. Chase shall watch for the
dates of expiration of (a) all purchase or sale rights (including warrants,
puts, calls and the like) attached to or inherent in any of the Securities held
in the Custody Account and (b) conversion rights and conversion price changes
for each convertible Security held in the Custody Account as published in
Telstat Services, Inc., Standard & Poor's Financial Inc. and/or any other
publications listed in the Operating Agreement (it being understood that Chase
may give notice to the Trust as provided in Section 21 as to any change,
addition and/or omission in the publications watched by Chase for these
purposes). If Chase or any Chase Branch, Foreign Bank or Foreign Securities
- 27 -
Depository shall receive any proxies, notices, reports, or other communications
relative to any of the Securities held in the Custody Account, Chase shall, on
its behalf or on behalf of a Chase Branch, Foreign Bank or Foreign Securities
Depository, promptly transmit in writing any such communication to the Trust. In
addition, Chase shall notify the Trust by person-to-person collect telephone
concerning any such notices relating to any matters specified in the first
sentence of this Section 16.
As specifically requested by the Trust, Chase shall execute or
deliver or shall cause the nominee in whose name Securities are registered to
execute and deliver to such person as may be designated by the Trust proxies,
consents, authorizations and any other instruments whereby the authority of the
Trust as owner of any Securities in the Custody Account registered in the name
of Chase or such nominee, as the case may be, may be exercised. Chase shall vote
Securities in accordance with Written Instructions timely received by Chase, or
such other person or persons as designated in or pursuant to the Operating
Agreement.
Chase and any Chase Branch shall have no liability for any
loss or liability occasioned by delay in the actual receipt by them or any
Foreign Bank or Foreign Securities Depository of notice of any payment or
redemption which does not appear in any of the publications referred to in the
first sentence of this Section 16.
- 28 -
17. COMPENSATION. The Trust agrees to pay to Chase from time
to time such compensation for its services pursuant to this Agreement as may be
mutually agreed upon in writing from time to time and Chase's out-of-pocket or
incidental expenses, as from time to time shall be mutually agreed upon by Chase
and the Trust. The Trust shall have no responsibility for the payment of
services provided by any Domestic Securities Depository, such fees being paid
directly by Chase. In the event of any advance of Cash for any purpose made by
Chase pursuant to any Written Instruction, or in the event that Chase or any
nominee of Chase shall incur or be assessed any taxes in connection with the
performance of this Agreement, the Trust shall indemnify and reimburse Chase
therefor, except such assessment of taxes as results from the negligence, fraud,
or willful misconduct of Chase, any Domestic Securities Depository, Chase
Branch, Foreign Bank or Foreign Securities Depository, or as constitutes a tax
on income, gross receipts or the like of any one or more of them. Chase shall
have a lien on Securities in the Custody Account and on Cash in the Deposit
Account for any amount owing to Chase from time to time under this Agreement
upon due notice to the Trust.
18. AGREEMENT SUBJECT TO APPROVAL OF THE TRUST. It is
understood that this Agreement and any amendments shall be
subject to the approval of the Trust.
19. TERM. This Agreement shall remain in effect until
terminated by either party upon 60 days' written notice to the
- 29 -
other, sent by registered mail. Notwithstanding the preceding sentence, however,
if at any time after the execution of this Agreement Chase shall provide written
notice to the Trust, by registered mail, of the amount needed to meet a
substantial increase in the cost of maintaining its present type and level of
bonding and insurance coverage in connection with Chase's undertakings in
Section 14(a), (d) and (e) of this Agreement, said Section 14(a), (d) and (e) of
this Agreement shall cease to apply 60 days after the providing of such notice
by Chase, unless prior to the expiration of such 60 days the Trust agrees in
writing to assume the amount needed for such purpose. Chase, upon the date this
Agreement terminates pursuant to notice which has been given in a timely
fashion, shall, and/or shall cause each Domestic Securities Depository to,
deliver the Securities in the Custody Account, pay the Cash in the Deposit
Account, and deliver and pay Securities and Cash in the Segregated Account to
the Trust unless Chase has received from the Trust 60 days prior to the date on
which this Agreement is to be terminated Written Instructions specifying the
name(s) of the person(s) to whom the Securities in the Custody Account shall be
delivered, the Cash in the Deposit Account shall be paid, and Securities and
Cash in the Segregated Account shall be delivered and paid. Concurrently with
the delivery of such Securities, Chase shall deliver to the Trust, or such other
person as the Trust shall instruct, the records referred to in Section 11 which
are in the possession or control
- 30 -
of Chase, any Chase Branch, or any Domestic Securities Depository, or any
Foreign Bank or Foreign Securities Depository, or in the event that Chase is
unable to obtain such records in their original form Chase shall deliver true
copies of such records.
20. AUTHORIZATION OF CHASE TO EXECUTE NECESSARY DOCUMENTS. In
connection with the performance of its duties hereunder, the Trust hereby
authorizes and directs Chase and each Chase Branch acting on behalf of Chase,
and Chase hereby agrees, to execute and deliver in the name of the Trust, or
cause such other Chase Branch to execute and deliver in the name of the Trust,
such certificates, instruments, and other documents as shall be reasonably
necessary in connection with such performance, provided that the Trust shall
have furnished to Chase any information necessary in connection therewith.
21. NOTICES. Any notice or other communication
authorized or required by this Agreement to be given to the
parties shall be sufficiently given (except to the extent
otherwise specifically provided) if addressed and mailed postage
prepaid or delivered to it at its office at the address set forth
below:
If to the Trust, then to
Templeton Developing Markets Trust
700 Central Avenue, P.O. Box 33030
St. Petersburg, Florida 33733
Attention: Thomas M. Mistele, Secretary
- 31 -
If to Chase, then to
The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
33rd Floor
New York, New York 10036
Attention: Global Custody Division Executive
or such other person or such other address as any party shall have furnished to
the other party in writing.
22. NON-ASSIGNABILITY OF AGREEMENT. This Agreement shall not
be assignable by either party hereto; provided, however, that any corporation
into which the Trust, the Trust or Chase, as the case may be, may be merged or
converted or with which it may be consolidated, or any corporation succeeding to
all or substantially all of the trust business of Chase, shall succeed to the
respective rights and shall assume the respective duties of the Trust or of
Chase, as the case may be, hereunder.
23. GOVERNING LAW. This Agreement shall be governed
by the laws of the State of New York.
THE CHASE MANHATTAN BANK, N.A.
By:/s/RICHARD SAMUELS__________
Vice President
TEMPLETON DEVELOPING MARKETS TRUST
By:/s/DANIEL CALABRIA
Daniel Calabria
Vice President
- 32 -
TRANSFER AGENT AGREEMENT BETWEEN
TEMPLETON DEVELOPING MARKETS TRUST AND
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
AGREEMENT dated as of September 1, 1993, and amended and restated as of
August 10, 1995, between TEMPLETON DEVELOPING MARKETS TRUST, a registered
open-end investment company with offices at 700 Central Avenue, St. Petersburg,
Florida 33701 (the "Trust"), and FRANKLIN TEMPLETON INVESTOR SERVICES, INC., a
registered transfer agent with offices at 700 Central Avenue, St. Petersburg,
Florida 33701 ("FTIS").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Trust and FTIS agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
(a) "Declaration of Trust" shall mean the Declaration of
Trust of the Trust as the same may be amended from time to time;
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Trust, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Trust as indicated in a certificate furnished to FTIS pursuant to Section 4(c)
hereof as may be received by FTIS from time to time;
(c) "Custodian" refers to the custodian and any sub-custodian
of all securities and other property which the Trust may from time to time
deposit, or cause to be deposited or held under the name or account of such
custodian pursuant to the Custody Agreement;
(d) "Oral Instructions" shall mean instructions, other than
written instructions, actually received by FTIS from a person reasonably
believed by FTIS to be an Authorized Person;
(e) "Shares" refers to shares of beneficial interest, par
value $.01 per share, of the
Trust; and
(f) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FTIS to be an Authorized Person and
actually received by FTIS.
2. APPOINTMENT OF FTIS. The Trust hereby appoints and constitutes FTIS
as transfer agent for Shares of the Trust and as shareholder servicing agent for
the Trust, and FTIS accepts such appointment and agrees to perform the duties
hereinafter set forth.
3. COMPENSATION.
(a) The Trust will compensate or cause FTIS to be compensated
for the performance of its obligations hereunder in accordance with the fees set
forth in the written schedule of fees annexed hereto as Schedule A and
incorporated herein. Schedule A does not include out-of-pocket disbursements of
FTIS for which FTIS shall be entitled to bill the Trust separately. FTIS will
bill the Trust as soon as practicable after the end of each calendar month, and
said billings will be detailed in accordance with Schedule A. The Trust will
promptly pay to FTIS the amount of such billing.
Out-of-pocket disbursements shall include, but shall not be
limited to, the items specified in the written schedule of out-of-pocket
expenses annexed hereto as Schedule B and incorporated herein. Schedule B may be
modified by FTIS upon not less than 30 days' prior written notice to the Trust.
Unspecified out-of-pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by FTIS in the performance of its obligations
hereunder. Reimbursement by the Trust for expenses incurred by FTIS in any month
shall be made as soon as practicable after the receipt of an itemized bill from
FTIS.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A of this Agreement a revised Fee
Schedule.
4. DOCUMENTS. In connection with the appointment of FTIS, the Trust
shall, on or before the date this Agreement goes into effect, but in any case,
within a reasonable period of time for FTIS to prepare to perform its duties
hereunder, deliver or cause to be delivered to FTIS the following documents:
(a) If applicable, specimens of the certificates for
Shares of the Trust;
(b) All account application forms and other documents
relating to Shareholder accounts or to any plan, program or service offered by
the Trust;
(c) A certificate identifying the Authorized Persons and
specimen signatures of Authorized Persons who will sign Written Instructions;
and
(d) All documents and papers necessary under the laws of
Florida, under the Trust's Declaration of Trust, and as may be required for the
due performance of FTIS's duties under this Agreement or for the due performance
of additional duties as may from time to time be agreed upon between the Trust
and FTIS.
5. DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of
Trustees of the Trust shall declare a distribution payable in Shares, the Trust
shall deliver or cause to be delivered to FTIS written notice of such
declaration signed on behalf of the Trust by an officer thereof, upon which FTIS
shall be entitled to rely for all purposes, certifying (i) the number of Shares
involved, and (ii) that all appropriate action has been taken.
6. DUTIES OF THE TRANSFER AGENT. FTIS shall be responsible for
administering and/or performing transfer agent functions; for acting as service
agent in connection with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection with the
issuance, transfer and redemption or repurchase (including coordination with the
Custodian) of Shares. The operating standards and procedures to be followed
shall be determined from time to time by agreement between the Trust and FTIS.
Without limiting the generality of the foregoing, FTIS agrees to perform the
specific duties listed on Schedule C.
7. RECORDKEEPING AND OTHER INFORMATION. FTIS shall create and
maintain all necessary records in accordance with all applicable laws, rules
and regulations.
8. OTHER DUTIES. In addition, FTIS shall perform such other duties and
functions, and shall be paid such amounts therefor, as may from time to time be
agreed upon in writing between the Trust and FTIS. Such other duties and
functions shall be reflected in a written amendment to Schedule C, and the
compensation for such other duties and functions shall be reflected in a written
amendment to Schedule A.
9. RELIANCE BY TRANSFER AGENT; INSTRUCTIONS.
(a) FTIS will be protected in acting upon Written or Oral
Instructions reasonably believed to have been executed or orally communicated by
an Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from an
officer of the Trust. FTIS will also be protected in processing Share
certificates which it reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Trust and the proper countersignature of FTIS.
(b) At any time FTIS may apply to any Authorized Person of the
Trust for Written Instructions and may seek advice at the Trust's expense from
legal counsel for the Trust or from its own legal counsel, with respect to any
matter arising in connection with this Agreement, and it shall not be liable for
any action taken or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of counsel for the
Trust or for FTIS. Written Instructions requested by FTIS will be provided by
the Trust within a reasonable period of time. In addition, FTIS, or its
officers, agents or employees, shall accept Oral Instructions or Written
Instructions given to them by any person representing or acting on behalf of the
Trust only if said representative is known by FTIS, or its officers, agents or
employees, to be an Authorized Person.
10. ACTS OF GOD, ETC. FTIS will not be liable or responsible for delays
or errors by reason of circumstances beyond its control, including acts of civil
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply.
11. DUTY OF CARE AND INDEMNIFICATION. The Fund will indemnify FTIS
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit not resulting from willful
misfeasance, bad faith or gross negligence on the part of FTIS, and arising out
of, or in connection with, its duties hereunder. In addition, the Fund will
indemnify FTIS against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any claim, demand, action or suit as a result of: (i)
any action taken in accordance with Written or Oral Instructions, or any other
instructions or Share certificates reasonably believed by FTIS to be genuine and
to be signed, countersigned or executed, or orally communicated by an Authorized
Person; (ii) any action taken in accordance with written or oral advice
reasonably believed by FTIS to have been given by counsel for the Fund or by its
own counsel; (iii) any action taken as a result of any error or omission in any
record (including but not limited to magnetic tapes, computer printouts, hard
copies and microfilm copies) delivered, or caused to be delivered by the Fund to
FTIS in connection with this Agreement; or (iv) any action taken in accordance
with oral instructions given under the Telephone Exchange and Redemption
Privileges, as described in the Fund's current prospectus, when believed by FTIS
to be genuine.
In any case in which the Fund may be asked to indemnify or hold FTIS
harmless, the Fund shall be advised of all pertinent facts concerning the
situation in question and FTIS will use reasonable care to identify and notify
the Fund promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the Fund. The Fund shall have the
option to defend FTIS against any claim which may be the subject of this
indemnification, and, in the event that the Fund so elects, such defense shall
be conducted by counsel chosen by the Fund and satisfactory to FTIS, and
thereupon the Fund shall take over complete defense of the claim and FTIS shall
sustain no further legal or other expenses in such situation for which it seeks
indemnification under this Section 11. FTIS will not confess any claim or make
any compromise in any case in which the Fund will be asked to provide
indemnification, except with the Fund's prior written consent. The obligations
of the parties hereto under this Section shall survive the termination of this
Agreement.
12. TERM AND TERMINATION.
(a) This Agreement shall be effective as of the date first
written above and shall continue until April 30, 1994 and thereafter shall
continue automatically for successive annual periods ending on April 30 of each
year, provided such continuance is specifically approved at least annually by
(i) the Trust's Board of Trustees or (ii) a vote of a "majority" (as defined in
the Investment Company Act of 1940 (the "1940 Act")) of the Trust's outstanding
voting securities, provided that in either event the continuance is also
approved by a majority of the Board of Trustees who are not "interested persons"
(as defined in the 1940 Act) of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting such approval.
(b) Either party hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Trust, it shall be accompanied by a
resolution of the Board of Trustees of the Trust, certified by the Secretary of
the Trust, designating a successor transfer agent or transfer agents. Upon such
termination and at the expense of the Trust, FTIS will deliver to such successor
a certified list of Shareholders of the Trust (with names and addresses), an
historical record of the account of each Shareholder and the status thereof, and
all other relevant books, records, correspondence, and other data established or
maintained by FTIS under this Agreement in a form reasonably acceptable to the
Trust, and will cooperate in the transfer of such duties and responsibilities,
including provisions for assistance from FTIS's personnel in the establishment
of books, records and other data by such successor or successors.
13. AMENDMENT. This Agreement may not be amended or modified in
any manner except by a written agreement executed by both parties.
14. SUBCONTRACTING. The Trust agrees that FTIS may, in its
discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
agent shall not relieve FTIS of its responsibilities hereunder.
15. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Trust or FTIS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Trust:
Templeton Developing Markets Trust
700 Central Avenue
St. Petersburg, Florida 33701
To FTIS:
Franklin Templeton Investor Services, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
(b) This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with the
laws of the State of California.
(d) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers thereunder duly authorized as of
the day and year first above written.
TEMPLETON DEVELOPING MARKETS TRUST
BY:/s/JOHN R. KAY
John R. Kay
Vice President
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
BY:/s/THOMAS M. MISTLE
Thomas M. Mistele
Vice President
A-1
A-1
Schedule A
FEES
Shareholder account maintenance $14.08, adjusted as of
(per annum, prorated payable February 1 of each year
monthly) to reflect changes in the Depart-
ment of Labor Consumer Price Index.
Cash withdrawal program No charge to the Trust.
Retirement plans No charge to the Trust.
Wire orders or express mailings of
redemption proceeds $15.00 fee
may be charged for each wire
order and each express mailing.
February 1, 1996
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Trust shall reimburse FTIS monthly for the following out-of-pocket
expenses:
o postage and mailing
o forms
o outgoing wire charges
o telephone
o Federal Reserve charges for check clearance
o if applicable, magnetic tape and freight
o retention of records
o microfilm/microfiche
o stationery
o insurance
o if applicable, terminals, transmitting lines and any expenses
incurred in connection with such terminals and lines
o all other miscellaneous expenses reasonably incurred by FTIS
The Trust agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FTIS. In addition, the Trust will
promptly reimburse FTIS for any other expenses incurred by FTIS as to which the
Trust and FTIS mutually agree that such expenses are not otherwise properly
borne by FTIS as part of its duties and obligations under the Agreement.
C-5
C-1
Schedule C
DUTIES
AS TRANSFER AGENT FOR INVESTORS IN THE TRUST, FTIS WILL:
o Record in its transfer record, countersign as transfer agent,
and deliver certificates signed manually or by facsimile, by
the President or a Vice-President and by the Secretary or the
Assistant Secretary of the Trust, in such names and for such
number of authorized but hitherto unissued Shares of the Trust
as to which FTIS shall receive instructions; and
o Transfer on its records from time to time, when presented to
it for that purpose, certificates of said Shares, whether now
outstanding or hereafter issued, when countersigned by a duly
authorized transfer agent, and upon the cancellation of the
old certificates, record and countersign new certificates for
a corresponding aggregate number of Shares and deliver said
new certificates.
AS SHAREHOLDER SERVICE AGENT FOR INVESTORS IN THE TRUST, FTIS WILL:
o Receive from the Trust, from the Trust's Principal Underwriter
or from a Shareholder, on a form acceptable to FTIS,
information necessary to record sales and redemptions and to
generate sale and/or redemption confirmations;
o Mail sale and/or redemption confirmations using standard
forms;
o Accept and process cash payments from investors, and clear
checks which represent payments for the purchase of Shares;
o Requisition Shares in accordance with instructions of the
Principal Underwriter of the Shares of the Trust;
o Produce periodic reports reflecting the accounts receivable
and the paid pending (free stock) items;
o Open, maintain and close Shareholder accounts;
o Establish registration of ownership of Shares in accordance
with generally accepted form;
o Maintain monthly records of (i) issued Shares and (ii) number
of Shareholders and their aggregate Shareholdings classified
according to their residence in each State of the United
States or foreign country;
o Accept and process telephone exchanges and redemptions for
Shares in accordance with a Trust's Telephone Exchange and
Redemption Privileges as described in the Trust's current
prospectus;
o Maintain and safeguard records for each Shareholder showing
name(s), address, number of any certificates issued, and
number of Shares registered in such name(s), together with
continuous proof of the outstanding Shares, and dealer
identification, and reflecting all current changes; on
request, provide information as to an investor's qualification
for Cumulative Quantity Discount; and provide all accounts
with confirmation statements reflecting the most recent
transactions, and also provide year-end historical
confirmation statements;
o Provide on request a duplicate set of records for file
maintenance in the Trust's office in St.Petersburg, Florida;
o Out of money received in payment for Share sales, pay to the
Trust's Custodian Account with the Custodian, the net asset
value per Share and pay to the Principal Underwriter its
commission;
o Redeem Shares and prepare and mail(or wire)liquidation
proceeds;
o Pass upon the adequacy of documents submitted by a
Shareholder or his legal representative to substantiate the
transfer of ownership of Shares from the registered owner
to transferees;
o From time to time, make transfers upon the books of the Trust
in accordance with properly executed transfer instructions
furnished to FTIS and make transfers of certificates for such
Shares as may be surrendered for transfer properly endorsed,
and countersign new certificates issued in lieu thereof;
o Upon receipt of proper documentation, place stop transfers,
obtain necessary insurance forms, and reissue replacement
certificates against lost, stolen or destroyed Share
certificates;
o Check surrendered certificates for stop transfer restrictions.
Although FTIS cannot insure the genuineness of certificates
surrendered for cancellation, it will employ all due
reasonable care in deciding the genuineness of such
certificates and the guarantor of the signature(s) thereon;
o Cancel surrendered certificates and record and countersign
new certificates;
o Certify outstanding Shares to auditors;
o In connection with any meeting of Shareholders, upon receiving
appropriate detailed instructions and written materials
prepared by the Trust and proxy proofs checked by the Trust,
print proxy cards; deliver to Shareholders all reports,
prospectuses, proxy cards and related proxy materials of
suitable design for enclosing; receive and tabulate executed
proxies; and furnish a list of Shareholders for the meeting;
o Answer routine correspondence and telephone inquiries about
individual accounts; prepare monthly reports for
correspondence volume and correspondence data necessary for
the Trust's Semi-Annual Report on Form N-SAR;
o Prepare and mail dealer commission statements and checks;
o Maintain and furnish the Trust and its Shareholders with such
information as the Trust may reasonably request for the
purpose of compliance by the Trust with the applicable tax and
securities laws of applicable jurisdictions;
o Mail confirmations of transactions to investors and dealers in
a timely fashion;
o Pay or reinvest income dividends and/or capital gains
distributions to Shareholders of record, in accordance with
the Trust's and/or Shareholder's instructions, provided that:
(a) The Trust shall notify FTIS in writing
promptly upon declaration of any such
dividend and/or distribution, and in any
event at least forty-eight (48) hours before
the record date;
(b) Such notification shall include the
declaration date, the record date, the
payable date, the rate, and, if applicable,
the reinvestment date and the reinvestment
price to be used; and
(c) Prior to the payable date, the Trust shall
furnish FTIS with sufficient fully and
finally collected funds to make such
distribution.
o Prepare and file annual United States information returns of
dividends and capital gains distributions (Form 1099) and mail
payee copies to Shareholders; report and pay United States
income taxes withheld from distributions made to nonresidents
of the United States; and prepare and mail to Shareholders the
notice required by the U.S. Internal Revenue Code as to
realized capital gains distributed and/or retained, and their
proportionate share of any foreign taxes paid by the Trust;
o Prepare transfer journals;
o Set up wire order trades on file;
o Receive payment for trades and update the trade file;
o Produce delinquency and other trade file reports;
o Provide dealer commission statements and payments thereof for
the Principal Underwriter;
o Sort and print Shareholder information by state, social code,
price break, etc.; and
o Mail promptly the Statement of Additional Information of a
Trust to each Shareholder who requests it, at no cost to the
Shareholder.
In connection with the Trust's Cash Withdrawal Program, FTIS will:
o Make payment of amounts withdrawn periodically by the
Shareholder pursuant to the Program by redeeming Shares, and
confirm such redemptions to the Shareholder; and
o Provide confirmations of all redemptions, reinvestment of
dividends and distributions, and any additional investments in
the Program, including a summary confirmation at the year-end.
In connection with Tax Deferred Retirement Plans involving the Trust,
FTIS will:
o Receive and process applications, accept contributions,
record Shares issued and dividends reinvested;
o Make distributions when properly requested; and
o Furnish reports to regulatory authorities as required.
BUSINESS MANAGEMENT AGREEMENT BETWEEN
TEMPLETON DEVELOPING MARKETS TRUST AND
TEMPLETON GLOBAL INVESTORS, INC.
AGREEMENT dated as of April 1, 1993, between Templeton
Developing Markets Trust, a Massachusetts business trust which is a registered
open-end investment company (the "Trust"), and Templeton Global Investors, Inc.
("TGII").
In consideration of the mutual promises herein made, the
parties hereby agree as follows:
(1) TGII agrees, during the life of this Agreement, to
be responsible for:
(a) providing office space, telephone, office
equipment and supplies for the Trust;
(b) paying compensation of the Trust's officers for
services rendered as such;
(c) authorizing expenditures and approving bills for
payment on behalf of the Trust;
(d) supervising preparation of annual and semiannual
reports to Shareholders, notices of dividends,
capital gains distributions and tax credits, and
attending to routine correspondence and other
communications with individual Shareholders;
(e) daily pricing of the Trust's investment portfolio and
preparing and supervising publication of daily
quotations of the bid and asked prices of the Trust's
Shares, earnings reports and other financial data;
(f) monitoring relationships with organizations
serving the Trust, including custodians, transfer
agents and printers;
(g) providing trading desk facilities for the Trust;
(h) supervising compliance by the Trust with
recordkeeping requirements under the Investment
Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder, with state regulatory
requirements, maintenance of books and records for
the Trust (other than those maintained by the
custodian and transfer agent), preparing and
filing of tax reports other than the Trust's
income tax returns;
(i) monitoring the qualifications of tax deferred
retirement plans providing for investment in
Shares of the Trust; and
(j) providing executive, clerical and secretarial
personnel needed to carry out the above
responsibilities.
(2) The Trust agrees, during the life of this Agreement, to
pay to TGII as compensation for the foregoing a monthly fee equal on an annual
basis to 0.15% of the first $200 million of the aggregate average daily net
assets of the Trust during the month preceding each payment, reduced as follows:
on such net assets in excess of $200 million up to $700 million, a monthly fee
equal on an annual basis to 0.135%; on such net assets in excess of $700 million
up to $1.2 billion, a monthly fee equal on an annual basis to 0.1%; and on such
net assets in excess of $1.2 billion, a monthly fee equal on an annual basis to
0.075%.
(3) This Agreement shall remain in full force and effect
through April 30, 1994 and thereafter from year to year to the extent
continuance is approved annually by the Board of Trustees of the Trust.
(4) This Agreement may be terminated by the Trust at any time
on sixty (60) days' written notice without payment of penalty, provided that
such termination by the Trust shall be directed or approved by the vote of a
majority of the Trustees of the Trust in office at the time or by the vote of a
majority of the outstanding voting securities of the Trust (as defined by the
1940 Act); and shall automatically and immediately terminate in the event of its
assignment (as defined by the 1940 Act).
(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of TGII, or of reckless disregard of its duties and
obligations hereunder, TGII shall not be subject to liability for any act or
omission in the course of, or connected with, rendering services hereunder.
(6) TGII has advanced for the account of the Trust all
organizational expenses of the Trust, all of which expenses are being deferred
by the Trust and amortized ratably over a five-year period commencing on October
16, 1991; and during the amortization period, the proceeds of any redemption of
the original Shares will be reduced by a pro rata portion of any then
unamortized organizational expenses based on the ratio of the Shares redeemed to
the total initial Shares outstanding immediately prior to the redemption.
- 2 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers and their
respective corporate seals to be hereunto duly affixed and attested.
TEMPLETON DEVELOPING MARKETS TRUST
By:/s/HAROLD F. MCELRAFT
Harold F. McElraft
Vice President
ATTEST:
/s/THOMAS M. MISELE
Thomas M. Mistele
Secretary
TEMPLETON GLOBAL INVESTORS, INC.
By:/s/THOMAS L. HANSBERGER
Thomas L. Hansberger
President
ATTEST:
/s/GREGORY E. MCGOWAN
Gregory E. McGowan
Secretary
- 3 -
SHAREHOLDER SUB-ACCOUNTING SERVICES AGREEMENT
Agreement made as of the 1st day of May, 1991 by and between (i) each
of the investment companies listed (collectively the "Templeton Funds"), as such
Schedule may be amended from time to time; (ii) Templeton Funds Trust Company
("Templeton Funds Trust Company"); (iii) Financial Data Service, Inc. ("FDS"), a
New Jersey corporation; and (iv) Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), a Delaware corporation.
WITNESSETH:
WHEREAS, the Templeton Funds are investment companies registered under
the Investment Company Act of 1940, as amended (the"Act"); and
WHEREAS, Templeton Funds Trust Company, is the transfer agent, dividend
disbursing agent and shareholder servicing agent for the Templeton Funds; and
WHEREAS, Templeton Funds and Templeton Funds Trust Company have entered
into a separate agreement pursuant to which Templeton Funds Trust Company agreed
to arrange for the performance of certain administrative services for
shareholders of the Templeton Funds who maintain shares of any of such Funds in
a brokerage account with MLPF&S, a broker-dealer affiliated with FDS; and
WHEREAS, Templeton Funds Trust Company desires to retain MLPF&S to
perform such services and MLPF&S is willing and able to furnish such services on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agree, as follows:
1. MLPF&S agrees to perform the administrative services and functions
specified in Exhibit A hereto (the "Services") for the benefit of the
shareholders of the Templeton Funds who maintain shares of any of such Funds in
brokerage accounts with MLPF&S and whose shares are included in the master
account referred to in paragraph 1 of Exhibit A (collectively, the "MLPF&S
customers").
2. MLPF&S agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing the
services, and will other wise comply with all law, rules and regulations
applicable to the services. Upon the request of Templeton Funds Trust Company,
MLPF&S shall provide copies of all the historical records relating to
transactions involving any Templeton Fund and MLPF&S customers, written
communication regarding that Fund to or from such customers and other materials,
in each case as amy reasonably be requested to enable any of the Funds or its
representatives, including without limitation its auditors, investment adviser,
Templeton Funds Trust Company or successor transfer agent or distributor, to
monitor and
review the Services, or to comply with any request of the board of directors,
trustees or general partners (collectively, the "Directors") of Templeton Funds
or of a governmental body, self-regulatory organization or a shareholder. MLPF&S
agrees that it will permit Templeton Funds Trust Company, and any Templeton Fund
or their representatives to have reasonable access to its personnel and records
in order to facilitate the monitoring of the quality of the services. It is
understood that notwithstanding anything herein to the contrary, neither FDS nor
MLPF&S shall be required to provide the names and addresses of MLPF&S customers
to Templeton Funds Trust Company, any Templeton Fund of their representatives,
unless applicable laws otherwise require.
3. MLPF&S may contract with or establish relationships with
FDS or other parties for the provision of services or activities of
MLPF&S required by the Agreement.
4. Each of MLPF&S and FDS hereby agrees to notify promptly Templeton
Funds Trust Company if for any reason either of them is unable to perform fully
and promptly any of its obligations under this Agreement.
5. Each of MLPF&S and FDS hereby represent that neither of them now
owns or holds with power to vote any shares of the Templeton Funds which are
registered in the name of MLPF&S or the name of its nominee and which are
maintained in MLPF&S brokerage accounts.
6. The provisions of the Agreement shall in no way limit the authority
of Templeton Funds Trust Company or any Templeton Fund to take such action as it
may deem appropriate or advisable in connection with all matters relating to the
operations of such Fund and/or sale of its shares.
7. In consideration of the performance of the services by MLPF&S and
FDS, hereunder, each Templeton Fund severally agrees to compensate FDS at the
rate of $6.00 annually per shareholder account which rate may change pursuant to
a written amendment to this Agreement executed by and amount the parties hereto.
Payment shall be made monthly based upon the number of shareholders of a Fund
who hold shares of such Fund in a MLPF&S brokerage account for any part of the
subject month. MLPF&S agrees that, notwithstanding anything herein to the
contrary, it will not request any increase in its compensation hereunder prior
to May 3, 1993. In the event MLPF&S or FDS as it's agent where to mail any such
Fund's proxy materials, reports, prospectuses and other information to
shareholders of any Templeton Fund who are Merrill Lynch customers pursuant to
paragraph 4 of Exhibit A, Templeton Funds Trust Company or any such Templeton
Funds agrees to reimburse MLPF&S or FDS, as the case by be, for postage,
handling fees and reasonable costs of supplies used by it in such mailings in an
amount to be determined in accordance with the rates set forth in Rule 451.90 of
the New York Stock Exchange, Inc.
The accuracy of the account charges and the expenses for postage, handling fees
and reasonable costs of suppliers billed pursuant to this paragraph shall be
certified once each year by independent public accountants of MLPF&S as of a
month selected by Templeton Funds Trust Company, such certification to be at the
expense of MLPF&S.
8. FDS shall indemnify and hold harmless each Templeton Fund and
Templeton Funds Trust Company, from and against any all losses or liabilities
that any one or more of them may incur, including without limitation reasonable
attorneys' fees, expenses and cost, arising out of or related to the performance
or non-performance of MLPF&S or FDS or its responsibilities under this
Agreement, EXCLUDING, HOWEVER, any such claims, suits, loss, damage or cost
caused by, contributed to or arising from any noncompliance by Templeton Funds
Trust Company or any of the Templeton Funds with its obligations under this
Agreement, as to which Templeton Funds Trust Company and the Templeton Funds
shall indemnify, hold harmless and defend FDS and MLPF&S on the same basis as
set forth above.
9. This Agreement may be terminated at any time by each of MLPF&S, FDS
and Templeton Funds Trust Company or by any Templeton Fund as to itself upon 30
days written notice to FDS. This Agreement may also be terminated at any time
without penalty upon 30 days written notice to FDS that a majority of the
Directors of any Templeton Fund have determined to terminate its agreement(s)
with Templeton Funds Trust Company pertaining to the service hereunder.The
provisions of paragraph 2 and 8 shall continue in full force and effect after
termination of this Agreement. Notwithstanding the foregoing, this Agreement
shall require MLPF&S to preserve any records relating to this Agreement beyond
the time periods otherwise required by the laws to which MLPF&S is subject.
10. Any other Templeton Fund for which Templeton Funds Trust Company
serves as transfer agent may become a party to this Agreement by giving written
notice to MLPF&S or FDS that it has elected to become party hereto and by having
this Agreement executed on its behalf.
11. Each of MLPF&S and FDS understand and agree that the obligations of
the Templeton Funds under this Agreement are not binding upon any shareholder of
any of the Funds personally, but bind only each Fund and each Fund's property;
each of MLPF&S and FDS represents that it has notice of the provisions of the
Declaration of trust of each of the Templeton Funds disclaiming shareholder
liability for acts or obligations of the Funds.
12. It is understood and agreed that in performing the services under
this Agreement, neither MLPF&S nor FDS shall be acting as an agent for any of
the Templeton Funds.
IN WITNESS HEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH, PIERCE, FENNER FINANCIAL DATA SERVICES, INC.
& SMITH INC.
By: /s/HARRY P. ALLEX By: /s/ROBERT C. DOAN
Print Name: Harry P. Allex Print Name: Robert C. Doan
Title: Sr. Vice President Title: President
Templeton Funds Trust Company Templeton Income
Templeton Growth Fund, Inc.
Templeton Smaller Companies Growth
Fund
Templeton Foreign Fund
Templeton World Fund
Templeton Real Estate Securities Fund
Templeton Global Opportunities Trust
Templeton American Trust, Inc.
By:/s/DAN CALABRIA By: /s/DAN CALABRIA
Print Name: Dan Calabria Print Name: Dan Calabria
Title: President Title: Vice President
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, MLPF&S shall
perform the following services:
1. Maintain separate records for each shareholder of any of the
Templeton Funds who hold shares of a Fund in a brokerage account with MLPF&S
("MLPF&S customers"), which records shall reflect shares purchased and redeemed
and share balances. MLPF&S shall maintain a single master account with the
transfer agent of the Fund on behalf of MLPF&S customers and such account shall
be in the name of MLPF&S or its nominee as the record owner of the shares owned
by such customers.
2. Disburse or credit to MLPF&S customers all proceeds of
redemptions of share of the Funds and all dividends and other
distributions not reinvested in shares of the Funds.
3. Prepare and transmit to MLPF&S customers periodic account statements
showing the total number of shares owned by the customer as of the statement
closing date, purchases and redemptions of Templeton Funds shares by the
customer during the period covered by the statement and the dividends and other
distributions paid to the customer during the statement period (whether paid in
cash or reinvested in Fund shares).
4. Transit to MLPF&S customers proxy materials and reports and other
information received by MLPF&S from any of the Templeton Funds and required to
be sent to shareholders under the federal securities laws, and, upon request of
the Fund's transfer agent transmit to MLPF&S customers material fund
communications deemed by the fund, through its Board of Directors or other
similar governing body, to be necessary and proper for receipt by all Fund
beneficial shareholders.
5. Transmit to the Fund's transfer agent purchase and redemption orders
on behalf of Merrill Lynch customers in accordance with the commission schedule
(front and rear rend) in the Fund's then current prospectus.
6. Provide to Templeton Funds Trust Company, or the Fund, or any of the
agents designated by any of the, such periodic reports as Templeton Funds Trust
Company shall reasonably conclude is necessary to enable any of the Templeton
Funds and its distributor to comply with State Blue Sky requirements.
7. Prepare and transmit to MLPF&S customers annually all tax
information reports or statements required to be furnished to shareholders of
the Templeton Funds with respect to their Fund shares by the Internal Revenue
Code and the Regulations promulgated thereunder.
SUB-TRANSFER AGENT SERVICES AGREEMENT
AGREEMENT made as of March 1, 1992 by and between (i) each of the investment
companies listed herein (collectively the "FUNDS"); (ii) Templeton Funds Trust
Company ("TFTC"); and (iii) THE SHAREHOLDER SERVICES GROUP, INC. ("TSSG").
WITNESSETH
WHEREAS, the FUNDS are investment companies registered under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the FUNDS have engaged TFTC to act as their transfer agent,
dividend disbursing agent and shareholder servicing agent; and
WHEREAS, the FUNDS and TFTC have entered into a separate agreements
pursuant to which TFTC agreed to arrange for the performance of certain
administrative services for shareholders of the FUNDS who maintain shares of
such Funds; and
WHEREAS, TSSG, a transfer agent registered under the Securities
Exchange Act of 1934, has presented to the FUNDS the various shareholder
administrative services that may be performed by TSSG; and
WHEREAS, the FUNDS desire to retain TSSG in a sub-transfer agent
capacity to perform such services and TSSG is willing and able to furnish such
services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees, as follows:
1. TSSG agrees to perform the shareholder administrative services and
functions specified in Exhibit A hereto (the "Services") for the benefit of the
shareholders of the FUNDS who maintain shares of any such FUND in brokerage
accounts with Shearson Lehman Brothers (the "Broker"), where the shareholders'
shares are included in the master account referred to in Exhibit A
(collectively, the "Broker Customers").
2. TSSG agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing the
services, and will otherwise comply with the law, rules and regulations
applicable to the services. Upon the written authorization of the Broker and the
FUND, TSSG shall provide copies of all the historical records relating to
transactions involving the FUNDS and Broker Customers, data formats for written
communication regarding that FUND to or from such customers and other materials,
in each case as may reasonably be requested to enable the FUND or its
representatives, including without limitation its auditors, investment advisor,
transfer agent or successor transfer agent or distributor, to monitor and review
the Services, or to copmly with any request of the board of directors, trustees
or general partners (collectively, the "Directors") of the FUNDS or of a
governmental body, self-regulatory organization or a shareholder. TSSG agrees
that it will permit the FUNDS to have reasonable access to its personnel and
records in order to facilitate the monitoring of the quality of the services. It
is understood that notwithstanding anything herein to the contrary, TSSG shall
not be required to provide the names, addresses and account numbers of Broker
Customers to the TFTC, the FUNDS or their representatives, unless applicable
laws or regulations otherwise require.
3. TSSG may contract with or establish relationships with third
parties, including, without limitation, the Broker, for the provision of
services or activities of TSSG required by the Agreement.
4. TSSG hereby agrees to notify promptly TFTC and the FUNDS if for any
reason TSSG is unable to perform fully and promptly any of its obligations under
this Agreement.
5. The provisions of this Agreement shall in no way limit the authority
of any of the FUNDS to take such actions as it may deem appropriate or advisable
in connection with all matters relating to the operations of such FUND and/or
sale of its shares.
6. In consideration of the performance of the services by TSSG,
hereunder, the FUNDS severally agree to compensate TSSG at the rate specified in
Schedule A, which rate may change pursuant to a written amendment to this
Agreement executed by and among the parties hereto. Payment shall be made
monthly based upon the number of shareholders of a FUND who hold shares of such
FUND in a broker's account for any part of the subject month. This number shall
be certified each year by independent public accountants of TSSG. The FUNDS also
agree to reimburse TSSG or its designated agent for postage and handling
expenses associated with teh distribution of proxies, prospectuses, reports and
other communications to shareholders prepared by the FUNDS or necessitated by
the actions of the FUNDS.
7. TSSG shall indemnify and hold harmless TFTC and the FUNDS from and
against any and all losses or liabilities that any one or more of them may
incur, including without limitation reasonable attorneys' fees, expenses and
cost, arising out of or related to the perofrmance or non-performance of TSSG of
its responsibilities under this Agreement, excluding, however, any such claims,
suits, loss, damage or cost caused by, materially contributed to or arising from
any noncompliance by TFTC or a FUND with its obligations under this Agreement,
as to which TFTC and each of the FUNDS shall indemnify, hold harmless and defend
TSSG on the same basis as set forth above.
8. This Agreement may be terminated at any time by each of TSSG, TFTC
or by any FUNDS as to itself upon 30 days written notice to TSSG. The provisions
of paragraphs 2 and 7 shall continue in full force and effect after termination
of this Agreement. Notwithstanding the foregoing, this Agreement shall not
require TSSG to preserve any records relating to this Agreement beyond the time
periods otherwise required by the laws to which TSSG is subject.
9. Any other investment company affiliated with the FUNDS may become a
party to this Agreement by giving written notice to TSSG that it has elected to
become a party hereto and by having this Agreement executed on its behalf.
10. TSSG understands and agrees that the obligations of each FUND under
this Agreement are not binding upon any shareholder of the FUND personally, but
bind only each FUND and each FUND'S property; TSSG represents that it has notice
of the provisions of the Declaration of Trust, if applicable, of each FUND
disclaiming shareholder liability for acts or obligations of the FUNDS.
11. The parties agree that they are independent contractors and not
partners or co-venturers.
12. No amendment of any provision of this Agreement shall in any event
be effective unless the same shall be in writing and signed by both parties. Any
failure of any party to comply with any obligation, agreement or condition
hereunder may only be waived in writing by the other party, but such waiver
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. No failure by any party to take any action against any breach of
this Agreement of default by any other party shall constitute a waiver of such
party's right to enforce any provision hereof or to take such action.
13. All notices, demands and other communications hereunder shall be in
writing and shall be sent by personal delivery or registered or certified mail,
postage prepaid, or by telecopier confirmed in writing within three business
days as follows:
(a) if to the FUNDS:
Templeton Funds Management, Inc.
700 Central Avenue
St. Petersburg, FL 33701
Attention: President
(b) if to TFTC:
Templeton Funds Trust Company
700 Central Avenue
St. Petersburg, FL 33701
Attention: President
(c) if to TSSG:
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Attention: President
With a copy to:
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Attention: General Counsel
Any party may change its address for receiving notices by written notice given
to the others named above. All notices shall be effective upon the earlier of
actual delivery or when deposited in the mail addressed as set forth above.
14. This agreement shall be governed by and construed in accordance
with the law of the State of New York, without regard to its conflicts of laws
doctrine, and the parties hereby consent to the jurisdiction of New York courts
over all matter relating to this Agreement and irrevocably waive any objection,
including without limitation, any objection of the laying of venue or based on
the grounds of forum non conveniens, which they may now have or may hereafter
have to bringing of any action or proceeding in such jurisdiction.
IN WITNESS HEREOF, the parties hereto have executed and delivered this
agreement as of the date first above written.
THE SHAREHOLDER SERVICES GROUP, INC.
By:_________________________
Title:_____________________________
Templeton Funds Trust Company Templeton Income
Templeton Growth Fund, Inc.
Templeton Smaller Companies Growth Fund,
Templeton Foreign Fund
Templeton World Fund
Templeton Global Opportunities Trust
Templeton Insured Tax Free Fund
Templeton Value Fund, Inc.
Templeton American Trust, Inc.
Templeton Developing Markets Trust
By:/s/HAROLD F. MCELRAFT By:________________________
Print Name: Harold F. McElraft Print Name:________________
Title:____________________ Title:_____________________
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, TSSG shall,
upon the effective date of this Agreement, perform or cause to be performed, the
following services, as well as telephonic and personal shareholder services
related to the following services:
1. Transmit to TFTC purchase and redemption order placements and
registration instructions. Collect and remit to TFTC payments for all purchase
orders placed on behalf of Broker Customers.
2. Maintain separate records for each shareholder of any of the FUNDS
who hold shares of a FUND in a brokerage account with Broker Customers, which
records shall reflect shares purchased and redeemed, as well as account and
share balances. Process transactions versus master accounts maintained by TFTC
on behalf of Broker Customers and such account shall be in the name of the
Broker or its nominee as the record owner of the shares owned by such customers.
3. Disburse or credit to the Broker Customers all proceeds of
redemptions of shares of the FUNDS and all dividends and other distributions not
reinvested in shares of the FUNDS.
4. Prepare and transmit to Broker Customers:
(a) Periodic account statements which show the total number of FUND
shares owned by the Broker Customer in that account as of the closing date, as
well as purchases, redemption dividends (cash and reinvested) and other
distributions in the account during the period covered by the statement;
(b) Proxy materials and reports and other information received by TSSG
or its agent from any of the FUNDS and required to be sent to shareholders under
the federal securities laws, and, upon request of TFTC transmit to Broker
Customers material fund communications deemed by the FUND, through its Directors
or other similar governing body, to be necessary and proper for receipt by all
FUND beneficial shareholders.
(c) Provide to TFTC, or the FUNDS, or any of the agents designated by
any of them, such information as shall reasonably conclude is necessary to
enable any of the FUNDS and its distributor to comply with State Blue Sky
requirements.
(d) All tax information reports or statements required to be furnished
to shareholders of the FUNDS with respect to their FUND shares by the Internal
Revenue Code and the Regulations promulgated thereunder.
The following fees shall be billed by TSSG monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all accounts that are open
during such month.
Upon execution of this Agreement, the FUND shall pay TSSG an annualized
fee of $6.00 for each Broker Customer account in the FUND that is open during
any monthly period effective March 1, 1992.
MCGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated January 31, 1996
on the financial statements of Templeton Developoing Markets Trust referred to
therein, which appears in the 1995 Annual Report to Shareholders and which is
incorporated herein by reference, in Post-Effective Amendment No. 5 to the
registration Statement on Form N1-A, File No. 33-42163, as filed with the
Securities and Exchange Commission.
We also consent to the reference to our firm in the Prospectus
under the caption "Financial Highlights" and the Statement of Additional
Information under the caption "Independent Accountants".
/s/McGladrey & Pullen, LLP
New York, New York
April 22, 1996
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The schedule contains summary financial information extracted from the
Templeton Developing Markets Trust December 31, 1995 annual report and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000878087
<NAME> TEMPLETON DEVELOPING MARKETS TRUST
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<NAME> CLASS 1
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<PERIOD-TYPE> YEAR
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<NUMBER-OF-SHARES-SOLD> 48470874
<NUMBER-OF-SHARES-REDEEMED> (37809132)
<SHARES-REINVESTED> 4711716
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<ACCUMULATED-NII-PRIOR> 2848467
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<GROSS-EXPENSE> 44361017
<AVERAGE-NET-ASSETS> 2092926672
<PER-SHARE-NAV-BEGIN> 13.42
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> (.18)
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<PER-SHARE-DISTRIBUTIONS> (.24)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.01
<EXPENSE-RATIO> 2.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
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qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000878087
<NAME> TEMPLETON DEVELOPING MARKETS TRUST
<SERIES>
<NUMBER> 002
<NAME> CLASS 2
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<PERIOD-TYPE> YEAR
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<OTHER-ITEMS-ASSETS> 2194680
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<NUMBER-OF-SHARES-SOLD> 3421478
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