TEMPLETON
DEVELOPING
MARKETS TRUST -
ADVISOR CLASS
MAY 1, 1997
AS AMENDED OCTOBER 13, 1997
WHEN READING THIS PROSPECTUS, YOU WILL SEE CERTAIN TERMS BEGINNING WITH CAPITAL
LETTERS. THIS MEANS THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
1-800/DIAL BEN
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TABLE OF CONTENTS
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ABOUT THE FUND
Expense Summary.......................................... 2
Financial Highlights..................................... 2
How does the Fund Invest its Assets?..................... 3
What are the Fund's Potential Risks?..................... 9
Who Manages the Fund?.................................... 13
How does the Fund Measure Performance?................... 15
How Taxation Affects the Fund and its Shareholders....... 15
How is the Fund Organized?............................... 16
ABOUT YOUR ACCOUNT
How Do I Buy Shares?..................................... 17
May I Exchange Shares for Shares of Another Fund?........ 18
How Do I Sell Shares?.................................... 19
What Distributions Might I Receive from the Fund?........ 21
Transaction Procedures and Special Requirements.......... 22
Services to Help You Manage Your Account................. 26
What If I Have Questions About My Account?............... 28
GLOSSARY
Useful Terms and Definitions............................. 29
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ABOUT THE FUND
Expense Summary
This table is designed to help you understand the costs of investing in the
Fund. Since Advisor Class shares were not offered until January 1, 1997, the
table is based on the historical expenses of the Fund's Class I shares for the
fiscal year ended December 31, 1996. The Fund's actual expenses may vary.
A. Shareholder Transaction Expenses*
Maximum Sales Charge Imposed on Purchases NONE
B. Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 1.25%
Rule 12b-1 Fees NONE
Other Expenses .49%
Total Fund Operating Expenses 1.74%
C. Example
Assume the annual return for the class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in the
Fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$18 $ 55 $ 94 $ 205
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of the class and are not
directly charged to your account.
*IF YOUR TRANSACTION IS PROCESSED THROUGH YOUR SECURITIES DEALER, YOU MAY BE
CHARGED A FEE BY YOUR SECURITIES DEALER FOR THIS SERVICE.
FINANCIAL HIGHLIGHTS
Financial information regarding Advisor Class shares will be included in this
prospectus after the shares have been offered to the public for a reasonable
period of time. The Fund's 1996 Annual Report to Shareholders contains financial
information about the Fund, including performance information, and is available
to shareholders upon request and without charge.
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation, which it
seeks to achieve by investing primarily in equity securities of issuers in
countries having developing markets. The objective is a fundamental policy of
the Fund and may not be changed without shareholder approval. Of course, there
is no assurance that the Fund's objective will be achieved.
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 TAML 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 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 U.S.,
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 TAML based on publicly available information and
inquiries made to the companies. (See "What Are the Fund's Potential Risks?" 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 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 or C by
S&P or unrated debt securities deemed to be of comparable quality by TAML. See
"What Are the Fund's Potential Risks?" As an operating policy, which may be
changed by the Board, 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 exchange contracts, and futures contracts
and related options. When deemed appropriate by TAML, 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 "How Does
the Fund Invest Its Assets?" in the SAI.
When TAML 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 "Types of Securities in which the Fund May Invest - Temporary
Investments."
The Fund does not emphasize short-term trading profits and usually expects to
have an annual portfolio turnover rate not exceeding 50%.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
The Fund is authorized to use the various securities and 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 U.S. 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 by S&P or, if unrated,
of comparable quality as determined by TAML; 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.
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 or gains 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 U.S. 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 EXCHANGE 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 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 TAML 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
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
"How Does the Fund Invest Its Assets? - 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 its ability to dispose of the
underlying security and might incur a loss if the value of the security
declines, as well as incur disposition costs in liquidating the security.
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 U.S. corporation. Generally, depositary receipts in registered form
are designed for use in the U.S. securities market and depositary receipts in
bearer form are designed for use in securities markets outside the U.S.
Depositary receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. Depositary receipts
may be issued pursuant to sponsored or unsponsored programs. In sponsored
programs, an issuer has made arrangements to have its securities traded in the
form of depositary receipts. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the depositary receipts.
Depositary receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of the Fund's investment policies,
the Fund's investments in depositary receipts will be deemed to be investments
in the underlying securities.
OTHER INVESTMENT POLICIES OF THE FUND
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How does the Fund Invest its Assets?" and "Investment Restrictions" in the
SAI.
Each of the Fund's policies and restrictions discussed in this prospectus and in
the SAI is considered at the time the Fund makes an investment. The Fund is
generally not required to sell a security because of a change in circumstances.
What Are the Fund's Potential Risks?
You 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, you 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 occur
unpredictably in the future. The value of debt securities held by the Fund
generally will vary inversely with changes in prevailing interest rates.
Additionally, investment decisions made by TAML 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. You 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. See "What Are
the Fund's Potential Risks?" 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 U.S. 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.
Brokerage commissions, custodial services, and other costs relating to
investment in developing markets are generally more expensive than in the U.S.
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.
Prior governmental approval of non-domestic investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations. Repatriation of
investment income, capital and proceeds of sales by foreign investors may
require governmental registration and/or approval in some developing countries.
The 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 U.S. There is an increased risk, therefore, of uninsured
loss due to lost, stolen, or counterfeit stock certificates. In addition, the
foreign securities markets of many of the countries in which the Fund may invest
may also be smaller, less liquid, and subject to greater price volatility than
those in the U.S. For a discussion of special risks, see "What Are the Fund's
Potential Risks?" in the SAI.
As a non-fundamental policy, the Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody. For more information on these risks and other
risks associated with Russian securities, please see "What Are the Fund's
Potential Risks?" in the SAI.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market or other developments in Hong Kong, China or other countries
that could affect the value of Fund investments.
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 C by S&P, and between Baa and C
by Moody's or, if unrated, are of equivalent investment quality as determined by
TAML. As an operating policy, which may be changed by the Board 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 "How Does the Fund Invest Its Assets? - 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 known as junk bonds,
are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation and may be in default.
Unrated debt securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers. Regardless of
rating levels, all debt securities considered for purchase (whether rated or
unrated) will be carefully analyzed by TAML 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 TAML, 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 or gains 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 TAML's
ability to correctly predict movements in the securities or foreign currency
markets and no assurance can be given that its judgment will be correct.
Successful use of options on securities or securities 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.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist between the
Fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. TAML manages the Fund's assets and makes its investment
decisions. TAML also performs similar services for other funds. It is wholly
owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, TAML and its affiliates
manage over $188 billion in assets. The Templeton organization has been
investing globally since 1940. TAML and its affiliates have offices in
Argentina, Australia, Bahamas, Canada, France, Germany, Hong Kong, India, Italy,
Korea, Luxembourg, Poland, Russia, Singapore, South Africa, Taiwan, United
Kingdom, U.S., and Vietnam. Please see "Investment Management and Other
Services" and "Miscellaneous Information" in the SAI for information on
securities transactions and a summary of the Fund's Code of Ethics.
PORTFOLIO MANAGEMENT. The lead portfolio manager for the Fund since its
inception is Dr. J. Mark Mobius. Dr. Mobius is managing director of TAML. In
addition, Dr. Mobius serves as a director and/or officer of many other funds
within the Franklin Templeton Group of Funds and many investment advisory
subsidiaries of Resources. He holds a BA in fine arts from Boston University, an
MA in mass communications from Boston University, and a 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.
Allan Lam and Tom Wu exercise secondary portfolio management responsibilities
for 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 is a director of TAML. He holds a BSS in economics
from the University of Hong Kong and an MBA in finance from the University of
Oregon. Prior to joining the Templeton organization in 1987, Mr. Wu worked as an
investment analyst, specializing in Hong Kong companies, with Vickers da Costa.
Further information concerning TAML is included under the heading "Investment
Management and Other Services" in the SAI.
MANAGEMENT FEES. During the fiscal year ended December 31, 1996, management fees
totaling 1.25% of the average daily net assets of the Fund were paid to TAML.
PORTFOLIO TRANSACTIONS. TAML tries to obtain the best execution on all
transactions. If TAML believes more than one broker or dealer can provide the
best execution, it may consider research and related services and the sale of
Fund shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, when selecting a broker or dealer. Please see "How does the Fund Buy
Securities for its Portfolio?" in the SAI for more information.
ADMINISTRATIVE SERVICES. FT Services provides certain administrative services
and facilities for the Fund. Prior to October 1, 1996, the Fund's Administrator
was Templeton Global Investors, Inc. During the fiscal year ended December 31,
1996, administration fees totaling 0.09% of the average daily net assets of the
Fund were paid. These fees are included in the amount of total expenses shown
above. Please see "Investment Management and Other Services" in the SAI for more
information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the Advisor Class of the Fund advertises its performance. The
more commonly used measure of performance is total return. Performance figures
are usually calculated using the maximum sales charges, but certain figures may
not include sales charges.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
The investment results of the Advisor Class will vary. Performance figures are
always based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How does the Fund Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. A regulated investment
company generally is not subject to Federal income tax on income and gains
distributed in a timely manner to its shareholders. The Fund intends to
distribute to shareholders substantially all of its net investment income and
net realized capital gains, which generally will be taxable income or capital
gains in their hands. Distributions declared in October, November or December to
shareholders of record on a date in such month and paid during the following
January will be treated as having been received by shareholders on December 31
in the year such distributions were declared. The 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.
HOW IS THE FUND ORGANIZED?
The Fund is a diversified, open-end management investment company, commonly
called a mutual fund. It was organized as a Massachusetts business trust on
August 9, 1991, and is registered with the SEC under the 1940 Act. As of January
1, 1997, the Fund began offering a new class of shares designated Templeton
Developing Markets Trust - Advisor Class. All shares outstanding before the
offering of Advisor Class shares have been designated Templeton Developing
Markets Trust - Class I and Templeton Developing Markets Trust - Class II.
Additional classes of shares may be offered in the future. As of April 1, 1997,
Franklin Templeton Trust Company, trustee for Valuselect, owned 67% of the
outstanding Advisor Class shares of the Fund.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
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.
The Fund has noncumulative voting rights. This gives holders of more than 50% of
the shares voting the ability to elect all of the members of the Board. If this
happens, holders of the remaining shares voting will not be able to elect anyone
to the Board.
The Fund does not intend to hold annual shareholder meetings. It may hold
special meetings, however, for matters requiring shareholder approval under the
1940 Act. A meeting may also be called by the Board in its discretion or for the
purpose of considering the removal of a Board member if requested in writing to
do so by shareholders holding at least 10% of the outstanding shares. The 1940
Act requires that we help you communicate with other shareholders in connection
with removing members of the Board.
<PAGE>
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
Shares of the Fund may be purchased without a sales charge. To open your
account, contact your investment representative or complete and sign the
enclosed shareholder application and return it to the Fund with your check.
Currently, the Fund does not allow investments by Market Timers.
MINIMUM
INVESTMENTS*
To Open Your Account......... None
To Add to Your Account....... $ 25
*Certain investors may be subject to different minimums as described below. We
may also refuse any order to buy shares.
The Fund's Advisor Class shares are only available to:
1. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs;
2. Qualified registered investment advisors or certified financial planners
who have clients invested in the Franklin Mutual Series Fund Inc. on
October 31, 1996, or who buy through a broker-dealer or service agent
who has entered into an agreement with Distributors;
3. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group and their immediate
family members, subject to a $100 minimum investment requirement;
4. Accounts managed by the Franklin Templeton Group;
5. The Franklin Templeton Profit Sharing 401(k) Plan; and
6. Each series of the Franklin Templeton Fund Allocator Series, subject to
a $1,000 minimum initial and subsequent investment requirement.
PAYMENTS TO SECURITIES DEALERS
Securities Dealers who initiate and are responsible for purchases of Advisor
Class shares may receive up to 0.25% of the purchase price. The payment is
subject to the sole discretion of Distributors, and is paid by Distributors or
one of its affiliates and not by the Fund or its shareholders.
For information on additional compensation payable to Securities Dealers in
connection with the sale of Fund shares, please see "How Do I Buy, Sell and
Exchange Shares? - Other Payments to Securities Dealers" in the SAI.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and some do not offer Advisor
Class shares.
METHOD STEPS TO FOLLOW
BY MAIL 1. Send us written instructions signed by all account
owners
2. Include any outstanding share certificates for the
shares you're exchanging
BY PHONE Call Shareholder Services
If you do not want the ability to exchange by phone to
apply to your account, please let us know.
THROUGH YOUR DEALER Call your investment representative
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class, except as noted below.
o The accounts must be identically registered. You may, however, exchange shares
from a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.
PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON
YOUR ACCOUNT(S). Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Currently, the Fund does not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
If you want to exchange into a fund that does not currently offer an Advisor
Class, you may exchange your Advisor Class shares for Class I shares of that
fund at Net Asset Value. If you do so and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your Class I
shares for Advisor Class shares of that fund. You may also exchange your Advisor
Class shares for Class Z shares of Franklin Mutual Series Fund Inc.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
BY MAIL 1. Send us written instructions signed by all account
owners. If you would like your redemption proceeds
wired to a bank account, your instructions should
include:
o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and the
account number
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under court
jurisdiction may have other requirements.
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank acount, other
than an escrow account, you must first sign up for the
wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
and delay in processing, the instructions should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $50,000 or less. Institutional
accounts may exceed $50,000 by completing a
separate agreement. Call Institutional Services to
receive a copy.
o If there are no share certificates issued for
the shares you want to sell or you have already
returned them to the Fund
o Unless the address on your account was changed
by phone within the last 15 days
If you do not want the ability to redeem by phone to
apply to your account, please let us know.
THROUGH YOUR DEALER Call your investment representative
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check to be sent to an address
other than the address of record or to be made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, however, the Fund is not
bound to meet any redemption request in less than the seven day period
prescribed by law. Neither the Fund nor its agents shall be liable to you or any
other person if, for any reason, a redemption request by wire is not processed
as described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
What Distributions Might I Receive from the Fund?
The Fund intends to pay a dividend at least annually representing substantially
all of its net investment income and any net realized capital gains.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution and you will then receive a portion of the price you paid back in
the form of a taxable distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same
class of the Fund by reinvesting capital gain distributions, dividend
distributions, or both. This is a convenient way to accumulate additional shares
and maintain or increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy the same class of shares of another Franklin Templeton
Fund. You may also direct your distributions to buy Class I shares of another
Franklin Templeton Fund. Many shareholders find this a convenient way to
diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive capital gain distributions,
dividend distributions, or both in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee.
To select one of these options, please complete sections 6 and 7 of the
shareholder application included with this prospectus or tell your investment
representative which option you prefer. If you do not select an option, we will
automatically reinvest dividend and capital gain distributions in the same class
of the Fund. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days before the record date for us
to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 4:00 p.m.
Eastern time. You can find the prior day's closing Net Asset Value in many
newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy and sell Advisor Class shares at the Net Asset Value per share. We
calculate it to two decimal places using standard rounding criteria. The Net
Asset Value we use when you buy or sell shares is the one next calculated after
we receive your transaction request in proper form. If you buy or sell shares
through your Securities Dealer, however, we will use the Net Asset Value next
calculated after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time we receive the order from your dealer and the time we receive any
required documents.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. YOU SHOULD BE
ABLE TO OBTAIN A SIGNATURE GUARANTEE FROM A BANK, BROKER, CREDIT UNION, SAVINGS
ASSOCIATION, CLEARING AGENCY, OR SECURITIES EXCHANGE OR ASSOCIATION. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. For your protection, we may delay a transaction or not
implement one if we are not reasonably satisfied that the instructions are
genuine. If this occurs, we will not be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by telephone, we will not be liable for any loss.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, we cannot accept
instructions to change owners on the account unless all owners agree in writing.
If you would like another person or owner to sign for you, please send us a
current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
CORPORATION Corporate Resolution
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
TRUST 1. The pages from the trust document that identify
the trustees, or
2. A certification for trust
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We will accept electronic instructions directly from your dealer
or representative without further inquiry. Electronic instructions may be
processed through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades IITM System.
TAX IDENTIFICATION NUMBER
The IRS requires us to have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.
These minimums do not apply if you fall within categories 4, 5, or 6 under "How
Do I Buy Shares? - Opening Your Account."
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the shareholder application included with this
prospectus or contact your investment representative. The market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may discontinue the program
at any time by notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, Florida 33733-8030. The
Fund and Distributors are also located at this address. TAML is located at Two
Exchange Square, Hong Kong. You may also contact us by phone at one of the
numbers listed below.
<TABLE>
<CAPTION>
HOURS OF OPERATION (EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
<S> <C> <C>
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
<PAGE>
GLOSSARY
Useful Terms and Definitions
1940 ACT - Investment Company Act of 1940, as amended
BOARD - The Board of Trustees of the Fund
CD - Certificate of deposit
CLASS I, CLASS II AND ADVISOR CLASS - The Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. They differ, however, primarily
in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc.
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TAML - Templeton Asset Management Ltd. - Hong Kong Branch, the Fund's investment
manager
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
Substitute W-9 Instructions Information
GENERAL. Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number or you do not know your SSN/TIN, you must obtain Form SS-5
or Form SS-4 from your local Social Security or IRS office and apply for one. If
you have checked the "Awaiting TIN" box and signed the certification,
withholding will apply to payments relating to your account unless you provide a
certified TIN within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE EMPLOYER ID# OF
<S> <C> <C> <C>
o Individual Individual o Trust, Estate,or Trust, Estate, or
Pension Plan Pension Plan Trust
Trust
o Joint Individual Owner who will o Corporation, Corporation,
be paying tax or Partnership, Partnership, or
first-named or other other organization
individual organization
o Unif. Gift/ Minor o Broker nominee Broker nominee
Transfer to
Minor
o Sole Proprietor Owner of
business
o Legal Guardian Ward, Minor,
or Incompetent
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient" box
if you are an exempt recipient. Except recipients include:
A corporation A real estate investment trust
A financial institution A common trust fund operated
by a bank under section 584(a)
An organization exempt from An exempt charitable remainder
tax under section 501(a), or an trust or a non-exempt trust
individual retirement plan described in section 4947(a)(1)
A registered dealer in securities An entity registered at all times
or commodities registered in the under the Investment Company
U.S. or a U.S. possession Act of 1940
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject to
an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income tax
return, you will be treated as negligent and subject to an IRS 20% penalty on
any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith. If
you falsify information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, you may be subject to an IRS $500 penalty and certain criminal
penalties including fines and imprisonment.
Substitute W-8 Instructions Information
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as a
non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. You are an "Exempt
Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a
U.S. corporation, partnership, estate, or trust. In the case of an individual,
an "Exempt Foreign Person" is one who has been physically present in the U.S.
for less than 31 days during the current calendar year. An individual who is
physically present in the U.S. for at least 31 days during the current calendar
year will still be treated as an "Exempt Foreign Person," provided that the
total number of days physically present in the current calendar year and the two
preceding calendar years does not exceed 183 days (counting all of the days in
the current calendar year, only one-third of the days in the first preceding
calendar year and only one-sixth of the days in the second preceding calendar
year). In addition, lawful permanent residents or green card holders may not be
treated as "Exempt Foreign Persons." If you are an individual or an entity, you
must not now be, or at this time expect to be, engaged in a U.S. trade or
business with respect to which any gain derived from transactions effected by
the Fund/Payer during the calendar year is effectively connected to the U.S. (or
your transactions are exempt form U.S. taxes under a tax treaty.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual, provide
your permanent address. If you are a partnership or corporation, provide the
address of your principal office. If you are an estate or trust, provide the
address of your permanent residence or the principal office of any fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and backup
withholding may also begin unless you certify to the Fund/Payer that (1) the tax
payer identification number you have given is correct, and (2) the Internal
Revenue Service has not notified you that you are subject to backup withholding
because you failed to report certain interested or dividend income. You may use
Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer active,
you do not have to notify a Fund/Payer or broker of your change in status unless
you also have another account with the same Fund/Payer that is still active. If
you receive interest from more than one Fund/Payer or have dealings with more
than one broker or barter exchange, file a certificate with each. If you have
more than one account with the same Fund/Payer, the Fund/Payer may require you
to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for three
calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
<PAGE>
RESOLUTION SUPPORTING AUTHORITY OF CORPORATE/ASSOCIATION SHAREHOLDER
Instruction:
It will be necessary for corporate/association shareholders to provide a
certified copy of a resolution or other certificate of authority supporting the
authority of designated officers of the corporation/association to issue oral
and written instruction on behalf of the corporation/association for the
purchase, sale (redemption), transfer and/or exchange of Franklin Templeton Fund
shares.
You may use the following form of resolution or you may prefer to use your own.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
of a
Title
Corporate Name
Type of Organization
organized under the laws of the State of and that the
State
following is a true and correct copy of a resolution adopted by the Board of
Directors by unanimous written consent (a copy of which is attached) or at a
meeting duly called and held on , 19 .
"RESOLVED that
Name of Corporation/Association
(the "Company") is authorized to invest the Company's assets in one or more
investment companies (mutual funds) whose shares are distributed by
Franklin/Templeton Distributors, Inc. ("Distributors"). Each such
investment company, or series thereof, is referred to as a "Franklin
Templeton Fund" or "Fund."
FURTHER RESOLVED, that any (enter number) of the
following officers of this Company (acting alone, if one, or acting
together, if more than one) is/are authorized to issue oral or written
instructions (including the signing of drafts in the case of draft
accessed money fund accounts) on behalf of the Company for the purchase,
sale (redemption), transfer and/or exchange of Fund shares and to execute
any Fund application(s) and agreements pertaining to Fund shares
registered or to be registered to the Company (referred to as a "Company
Instruction"); and, that this authority shall continue until Franklin/
Templeton Investor Services, Inc. ("Investor Services") receives written
notice of revocation or amendment delivered by registered mail. The
Company's officers authorized to act on behalf of the Company under this
resolution are (enter officers titles only):
(referred to as the "Authorized Officers").
FURTHER RESOLVED, that Investor Services may rely on the most recently
provided incumbency certificate delivered by the Company to Investor
Services to identify those individuals who are the incumbent Authorized
Officers and that Investor Services shall have no independent duty to
determine if there has been any change in the individuals serving
as incumbent Authorized Officers.
FURTHER RESOLVED, that the Company ("Indemnitor") undertakes
and agrees to indemnify and hold harmless Distributors, each affiliate of
Distributors, each Franklin Templeton Fund and their officers, employees
and agents (referred to hereafter collectively as the "Indemnitees") from
and against any and all liability, loss, suits, claims, costs, damages and
expenses of whatever amount and whatever nature (including without
limitation reasonable attorneys' fees, whether for consultation and advice
or representation in litigation at both the trial and appellate level) any
Indemnitee may sustain or incur by reason of, in consequence of, or
arising from or in connection with any action taken or not taken by an
Indemnitee in good faith reliance on a Company Instruction given as
authorized under this resolution."
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names, are the incumbent Authorized Officers
(as that term is defined in the above resolution) who have been duly elected to
the office identified beside their name(s) (attach additional list if
necessary).
X
Name/title (please print or type)
Signature
X
Name/title (please print or type)
Signature
X
Name/title (please print or type)
Signature
X
Name/title (please print or type)
Signature
Certified from minutes
X
Signature
Name/title (please print or type)
CORPORATE SEAL (if appropriate)
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FRANKLIN TEMPLETON GROUP OF FUNDS
Literature Request - Call 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German Government Bond Fund
Franklin Templeton
Global Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
GLOBAL INCOME
Franklin Global Government Income Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High
Income Currency Fund
Templeton Americas
Government Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet Investment Fund
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
PAGE
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
INCOME
Franklin Adjustable Rate Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment
Grade Income Fund
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin U.S. Government Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FOR CORPORATIONS
Franklin Corporate Qualified Dividend Fund
FRANKLIN FUNDS SEEKING TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
VARIABLE ANNUITIES^
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
^Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.
FGF09/97
LOGO Printed on recycled paper
711 PZ 10/97
TL711 PZ
