Registration No. 33-42163 and 811-6378
As filed with the Securities and Exchange Commission on April 28, 2000
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. 12 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 14 X
TEMPLETON DEVELOPING MARKETS TRUST
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(Exact Name of Registrant as Specified in Charter)
500 E BROWARD BOULEVARD, FORT LAUDERDALE, FLORIDA 33394
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(Address of Principal Executive Offices) (Zip Code)
(954) 527-7500
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(Registrant's Telephone Number, Including Area Code)
Murray L. Simpson, 777 Mariners Island Blvd., San Mateo, CA 94404
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(Name and Address of Agent for Service of Process)
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, 2000 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
PAGE
PART A
CLASS A, B & C
PROSPECTUS
PAGE
Prospectus
Templeton Developing Markets Trust
CLASS A, B & C
INVESTMENT STRATEGY Global Growth
MAY 1, 2000
[Insert Franklin Templeton "Butterball" logo]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUND
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Goal and Strategies
4 Main Risks
8 Performance
10 Fees and Expenses
12 Management
13 Distributions and Taxes
14 Financial Highlights
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
16 Choosing a Share Class
21 Buying Shares
23 Investor Services
26 Selling Shares
28 Account Policies
31 Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
THE FUND
GOAL AND STRATEGIES
[INSERT GRAPHIC OF BULLSEYE AND ARROW]
GOAL The fund's investment goal is long-term capital appreciation.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the fund invests
at least 65% of its total assets in equity securities of developing market
companies.
For purposes of the fund's investments, developing market companies are
those:
o whose securities trade in developing markets or that have a significant
portion of their assets in developing market countries;
o that derive a significant share of their total revenue from goods or
services produced or sold in developing market countries;
o linked to currencies of developing market countries; or
o organized under the laws of, or with principal offices in, developing
market countries.
Developing market countries include those considered to be developing by the
World Bank, the International Finance Corporation, the United Nations, or the
countries' authorities, or countries with a stock market capitalization of
less than 3% of the Morgan Stanley Capital International World Index. These
countries typically are located in the Asia-Pacific region, Eastern Europe,
Central and South America, and Africa. Developing market countries are
described more fully in the fund's Statement of Additional Information (SAI).
An equity security, or stock, represents a proportionate share of the
ownership of a company. Its value is based on the success of the company's
business, any income paid to stockholders, the value of the company's assets,
and general market conditions. Common stocks and preferred stocks are
examples of equity securities. The fund also invests in American, Global,
and European Depositary Receipts, which are certificates typically issued by
a bank or trust company that give their holders the right to receive
securities issued by a foreign or domestic corporation. The fund, from time
to time, may have significant investments in one or more countries or in
particular sectors such as technology (including computer hardware and
software, electronics, and telecommunications) and financial institutions.
[Begin Callout]
The fund invests primarily in the common stocks of developing market
companies.
[End Callout]
In addition to its main investments, the fund may invest a portion of its
assets in the equity securities of issuers in developed market countries.
The fund may invest up to 10% of its total assets in restricted securities
and securities with a limited trading market.
When choosing equity investments for this fund, the manager applies a "bottom
up", value-oriented, long-term approach, focusing on the market price of a
company's securities relative to its evaluation of the company's long-term
earnings, asset value and cash flow potential. The manager also considers a
company's price/earnings ratio, profit margins and liquidation value. In
choosing investments, the fund's manager strongly believes in onsite visits
to issuers of prospective investments to assess critical factors such as
management strength and local conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, the manager may invest up to 100%
of the fund's assets in a temporary defensive manner or hold a substantial
portion of the fund's portfolio in cash. Temporary defensive investments
generally may include money market securities, short-term and medium-term
U.S. and foreign government securities, short-term corporate obligations,
bank obligations, and repurchase agreements denominated in the currency of
any nation. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the fund may be unable to achieve its
investment goal.
MAIN RISKS
[INSERT GRAPHIC OF CHART WITH LINES GOING UP AND DOWN]
STOCKS While this may not be the case in foreign markets, in the U.S.,
stocks historically have outperformed other asset classes over the long term
(over the short term they tend to go up and down more dramatically). These
price movements may result from factors affecting individual companies,
industries or the securities market as a whole. Value stock prices are
considered "cheap" relative to the company's perceived value. They may not
increase in value, as anticipated by the manager, if other investors fail to
recognize the company's value and bid up the price or in markets favoring
faster-growing companies. The fund should be thought of as a long-term
investment for the aggressive portion of a well diversified portfolio.
[Begin Callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End Callout]
FOREIGN SECURITIES Investing in foreign securities, including securities of
foreign governments and depositary receipts, typically involves more risks
than investing in U.S. securities. Certain of these risks also may apply to
securities of U.S. companies with significant foreign operations. These risks
can increase the potential for losses in the fund and affect its share price.
CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in
foreign currencies. As a result, their values may be affected by changes in
exchange rates between foreign currencies and the U.S. dollar, as well as
between currencies of countries other than the U.S. For example, if the value
of the U.S. dollar goes up compared to a foreign currency, an investment
traded in that foreign currency will go down in value because it will be
worth less U.S. dollars. The impact of the euro, a relatively new currency
adopted by certain European countries to replace their national currencies,
is unclear at this time. Restrictions on currency trading that may be imposed
by developing market countries will have an adverse affect on the value of
the securities of companies that trade or operate in such countries.
POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile
than those in the U.S. Investments in these countries may be subject to the
risks of internal and external conflicts, currency devaluations, foreign
ownership limitations and tax increases. It is possible that a government may
take over the assets or operations of a company or impose restrictions on the
exchange or export of currency or other assets. Some countries also may have
different legal systems that may make it difficult for the fund to vote
proxies, exercise shareholder rights, and pursue legal remedies with respect
to its foreign investments.
TRADING PRACTICES. Brokerage commissions and other fees generally are higher
for foreign securities. Government supervision and regulation of foreign
stock exchanges, currency markets, trading systems and brokers may be less
than in the U.S. The procedures and rules governing foreign transactions and
custody (holding of the fund's assets) also may involve delays in payment,
delivery or recovery of money or investments.
AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Thus, there may be less information publicly
available about foreign companies than about most U.S. companies.
LIMITED MARKETS. Certain foreign securities may be less liquid (harder to
sell) and more volatile than many U.S. securities. This means the fund may at
times be unable to sell foreign securities at favorable prices. In developing
markets, a previously established liquid securities market may become
illiquid (temporarily or for longer periods of time) due to
economic or political conditions.
DEVELOPING MARKETS. The fund's investments in developing markets are subject
to all of the risks of foreign investing generally, and have additional
heightened risks due to a lack of established legal, political, business and
social frameworks to support securities markets. Some of the additional
significant risks, include:
o Political and social uncertainty (for example, regional conflicts and
risk of war)
o Currency exchange rate volatility
o Pervasiveness of corruption and crime
o Delays in settling portfolio transactions
o Risk of loss arising out of systems of share registration and custody
o Markets that are comparatively smaller and less liquid than developed
markets. Short-term volatility in these markets and declines of more than
50% are not unusual. Markets which are generally considered to be liquid
may become illiquid for short or extended periods.
o Less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S.
o Currency and capital controls
o Greater sensitivity to interest rate changes
ALL OF THESE FACTORS MAKE DEVELOPING MARKET EQUITY SECURITIES' PRICES
GENERALLY MORE VOLATILE THAN EQUITY SECURITIES OF COMPANIES IN DEVELOPED
MARKETS, AND INCREASE THE RISK OF LOSS TO THE FUND.
The definition of developing markets or countries as used in this prospectus
may differ from the definition of the same terms as used in other Franklin
Templeton fund prospectuses.
COUNTRY, SECTOR OR INDUSTRY FOCUS To the extent the fund invests a
significant portion of its assets in one or more countries, sectors or
industries at any time, the fund will face a greater risk of loss due to
factors affecting a single country, sector or industry than if the fund
always maintained wide diversity among the countries, sectors and industries
in which it invests. For example, technology companies involve risks due to
factors such as the rapid pace of product change, technological developments
and new competition. Their stocks historically have been volatile in price,
especially over the short term, often without regard to the merits of
individual companies. Banks and financial institutions are subject to
potentially restrictive governmental controls and regulations that may limit
or adversely affect profitability and share price. In addition, securities
in that sector may be very sensitive to interest rate changes throughout the
world.
LIQUIDITY Reduced liquidity affecting an individual security or an entire
market may have an adverse impact on market price and the fund's ability to
sell particular securities when necessary to meet the fund's liquidity needs
or in response to a specific economic event.
More detailed information about the fund, its policies and risks can be found
in the fund's SAI.
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 8 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS/1/
[Insert bar graph]
- -9.75% 74.49% -8.58% 0.36% 22.51% -9.41% -18.72% 51.56%
92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST QUARTER:
Q4 '99 26.50%
WORST QUARTER:
Q4 '97 -24.88%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
1 YEAR 5 YEARS INCEPTION
(10/17/91)
- ----------------------------------------------------------------
Templeton Developing Markets
Trust - Class A/2/ 42.82% 5.27% 7.91%
MSCI Emerging Markets Free
Index/3/ 66.41% 2.00% 10.25%
IFC Investable Composite 67.11% 2.17% 9.33%
Index/4/
- ----------------------------------------------------------------
SINCE
INCEPTION
1 YEAR (1/1/98)
- ----------------------------------------------------------------
Templeton Developing Markets
Trust - Class B/2/ 46.19% 46.19%
MSCI Emerging Markets Free 66.41% 66.41%
Index/3/
IFC Investable Composite 67.11% 67.11%
Index/4/
- ----------------------------------------------------------------
SINCE
INCEPTION
1 YEAR (5/1/95)
- ----------------------------------------------------------------
Templeton Developing Markets
Trust - Class C/2/ 47.99% 6.43%
MSCI Emerging Markets Free
Index/3/ 66.41% 4.09%
IFC Investable Composite 67.11% 4.94%
Index/4/
- ----------------------------------------------------------------
1. Figures do not reflect sales charges. If they did, returns would be lower.
As of March 31, 2000, the fund's year-to-date return was -7.16% for Class A.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. This unmanaged MSCI Emerging Markets
Free Index measures the performance of securities located in 25 emerging
market countries such as Brazil, China, Korea and Poland. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
4. Source: Standard & Poor's Micropal. This unmanaged IFC Investable
Composite Index measures the performance of emerging market stocks. The index
tracks approximately 2000 stocks in countries such as Brazil, Mexico, China
and South Korea. It includes reinvested dividends. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B/1/ CLASS C
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Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge None/2/ 4.00%/3/ 0.99%/4/
(load)
Exchange fee None None None
Please see "Choosing a Share Class" on page 15 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B/1/ CLASS C
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Management fees 1.25% 1.25% 1.25%
Distribution and service
(12b-1) fees/5/ 0.28% 1.00% 0.99%
Other expenses 0.49% 0.51% 0.49%
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Total annual fund operating expenses 2.02% 2.76% 2.73%
-------------------------------
1. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses for Class B are annualized.
2. Except for investments of $1 million or more (see page 15)and purchases by
certain retirement plans without an initial sales charge.
3. Declines to zero after six years.
4. This is equivalent to a charge of 1% based on net asset value.
5. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $768/1/ $1,172 $1,600 $2,788
CLASS B $679 $1,156 $1,659 $2,913/2/
CLASS C $472 $939 $1,530 $3,130
If you do not sell your
shares:
CLASS B $279 $856 $1,459 $2,913/2/
CLASS C $373 $939 $1,530 $3,130
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
[Insert graphic of briefcase] MANAGEMENT
Templeton Asset Management Ltd. - Hong Kong branch (Asset Management Hong
Kong), Two Exchange Square, Hong Kong, is the fund's investment manager.
Together, Asset Management Hong Kong and its affiliates manage over $229
billion in assets.
The fund's lead portfolio manager is:
DR. J. MARK MOBIUS, MANAGING DIRECTOR OF TEMPLETON ASSET MANAGEMENT LTD
Dr. Mobius has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.
The following individuals have secondary portfolio management
responsibilities:
TOM WU, DIRECTOR OF TEMPLETON ASSET MANAGEMENT LTD
Mr. Wu has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.
H. ALLAN LAM, PORTFOLIO MANAGER OF TEMPLETON ASSET MANAGEMENT LTD
Mr. Lam has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.
The fund pays Asset Management Hong Kong a fee for managing the fund's
assets. For the fiscal year ended December 31, 1999, the fund paid 1.25% of
its average daily net assets to the manager for its services.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS 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. The amount of this distribution will vary
and there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that
if you invest in the fund shortly before the record date of a distribution,
any distribution will lower the value of the fund's shares by the amount of
the distribution and you will receive some of your investment back in the
form of a taxable distribution. If you would like information on upcoming
record dates for the fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional fund shares or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and
redemption proceeds if you do not provide your correct social security or
taxpayer identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or loss.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale.
Fund distributions and gains from the sale or exchange of your shares
generally will be subject to state and local taxes. Any foreign taxes the
fund pays on its investments may be passed through to you as a foreign tax
credit. Non-U.S. investors may be subject to U.S. withholding and estate tax.
You should consult your tax advisor about the federal, state, local or
foreign tax consequences of your investment in the fund.
[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP for the
fiscal year ended December 31, 1999, and by other auditors for the fiscal
years before December 31, 1999.
CLASS A YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------
1999/2/,/4/ 1998 1997 1996 1995
- -------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 10.30 12.94 15.40 13.01 13.42
---------------------------------------------
Net investment income .06 .17 .16 .16 .21
Net realized and
unrealized 5.25 (2.57) (1.62) 2.75 (.18)
gains (losses)
---------------------------------------------
Total from investment
operations 5.31 (2.40) (1.46) 2.91 .03
---------------------------------------------
Dividends from net
investment income -- (.19) (.16) (.17) (.20)
In excess of net
investment -- -- -- (.01) --
income
Dividends from net
realized gains -- (.05) (.53) (.34) (.24)
In excess of net
realized -- -- (.31) -- --
gains
---------------------------------------------
Total distributions -- (.24) (1.00) (.52) (.44)
---------------------------------------------
Net asset value, end of 15.61 10.30 12.94 15.40 13.01
year
---------------------------------------------
Total return (%)/1 / 51.55 (18.72) (9.41) 22.51 .36
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 2,958,324 2,172,954 3,444,029 3,308,753 2,147,664
Ratios to average net
assets: (%)
Expenses 2.02 2.11 1.96 2.03 2.10
Net investment income .45 1.40 0.99 1.16 1.66
Portfolio turnover rate (%) 48.82 37.51 30.06 12.47 9.76
CLASS B
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PER SHARE DATA ($)
Net asset value,
beginning of year 10.30
---------------------------------------------
Net investment income
(loss) (.06)
Net realized and
unrealized gains 5.23
---------------------------------------------
Total from investment
operations 5.17
---------------------------------------------
Net asset value, end of 15.47
year
---------------------------------------------
Total return (%)/1/ 50.19
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 13,862
Ratios to average net
assets: (%)
Expenses 2.76/3/
Net investment income
(loss) (.47)/3/
Portfolio turnover rate (%) 45.82
CLASS C YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------
1999/2/ 1998 1997 1996 1995/5/
- -------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 10.21 12.81 15.27 12.95 13.10
---------------------------------------------
Net investment income
(loss) (.03) .07 .09 .17 .02
Net realized and
unrealized gains (losses) 5.18 (2.51) (1.64) 2.60 .19
---------------------------------------------
Total from investment
operations 5.15 (2.44) (1.55) 2.77 .21
---------------------------------------------
Dividends from net
investment income -- (.11) (.07) (.10) (.18)
In excess of net
investment income -- -- -- (.01) --
Distributions from net
realized gains -- (.05) (.53) (.34) (.18)
In excess of net realized
gains -- -- (.31) -- --
---------------------------------------------
Total distributions -- (.16) (.91) (.45) (.36)
---------------------------------------------
Net asset value, end of 15.36 10.21 12.81 15.27 12.95
year
---------------------------------------------
Total return (%)/1/ 50.44 (19.20) (10.10) 21.58 1.70
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 385,584 294,588 402,542 226,629 41,012
Ratios to average net
assets: (%)
Expenses 2.73 2.78 2.69 2.74 2.73/3/
Net investment income (.26) .76 0.21 0.33 0.19/3/
Portfolio turnover rate (%) 45.82 37.51 30.06 12.47 9.76
1. Total return does not include sales charges, and is not annualized.
2. Based on average weighted shares outstanding.
3. Annualized.
4. Effective date of Class B shares was January 1, 1999.
5. For the period May 1, 1995 (effective date) to December 31, 1995 for
Class C shares.
YOUR ACCOUNT
[Insert graphic of pencil marking an "X"] CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment
representative can help you decide.
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------
o Initial sales o No initial o Initial
charge of 5.75% sales charge sales charge of
or less 1%
o Deferred sales o Deferred o Deferred
charge of 1% on sales charge of sales charge of
purchases of $1 4% on shares you 1% on shares
million or more sell within the you sell within
sold within 12 first year, 18 months
months declining to 1%
within six years
and eliminated
after that
o Lower annual o Higher annual o Higher
expenses than expenses than annual expenses
Class B or C due Class A (same as than Class A
to lower Class C) due to (same as Class
distribution fees higher B) due to
distribution higher
fees. Automatic distribution
conversion to fees. No
Class A shares conversion to
after eight Class A shares,
years, reducing so annual
future annual expenses do not
expenses. decrease.
SALES CHARGES - CLASS A
THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING % OF YOUR NET
PRICE INVESTMENT
- --------------------------------------------------------------------
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 2.00 2.04
million
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either
as a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 18), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC
is the same for each class (please see page 17).
DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution fees of up to 0.35% per year to those who sell and distribute
Class A shares and provide other services to shareholders. Because these fees
are paid out of Class A's assets on an on-going basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
SALES CHARGES - CLASS B
IF YOU SELL YOUR SHARES
WITHIN THIS MANY YEARS AFTER THIS % IS DEDUCTED
BUYING THEM FROM YOUR PROCEEDS
AS A CDSC
- ------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 17). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We place any investment of $250,000 or more in Class
A shares, since a reduced initial sales charge is available and Class A's
annual expenses are lower.
RETIREMENT PLANS Class B shares are available to certain retirement plans,
including IRAs (of any type), Franklin Templeton Trust Company 403(b) plans,
and Franklin Templeton Trust Company qualified plans with participant or
earmarked accounts.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 1.00% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SALES CHARGES - CLASS C
THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING % OF YOUR NET
PRICE INVESTMENT
- --------------------------------------------------------------------
Under $1 million 1.00 1.01
WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please see below).
DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 1.00% per year for the sale of Class C
shares and for services provided to shareholders. Because these fees are paid
out of Class C's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C
The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends or capital gains
distributions.
[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
[End callout]
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton Fund (please see
page 23 for exchange information).
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases
in the Franklin Templeton Funds to take advantage of the lower sales charges
for large purchases of Class A shares.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]
o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in
the Franklin Templeton Funds for purposes of calculating the sales charge.
You also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.
o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR
ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.
SALES CHARGE WAIVERS Class A shares may be purchased without an initial
sales charge or CDSC by various individuals, institutions and retirement
plans or by investors who reinvest certain distributions and proceeds within
365 days. Certain investors also may buy Class C shares without an initial
sales charge. The CDSC for each class may be waived for certain redemptions
and distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. For information about retirement plans, you may call
Retirement Services at 1-800/527-2020. A list of available sales charge
waivers also may be found in the Statement of Additional Information (SAI).
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors
to invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying fund shares at a discount.
[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
MINIMUM INVESTMENTS
- ----------------------------------------------------------------
INITIAL ADDITIONAL
- ----------------------------------------------------------------
Regular accounts $1,000 $50
- ----------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- ----------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs)
- ----------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or
Roth IRAs $250 $50
- ----------------------------------------------------------------
Broker-dealer sponsored wrap account
programs $250 $50
- ----------------------------------------------------------------
Full-time employees, officers,
trustees and directors of Franklin
Templeton entities, and their
immediate family members $100 $50
- ----------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see the next page).
BUYING SHARES
- ----------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------
[Insert graphic
of hands shaking]
Contact your investment Contact your investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------------------
Make your check payable Make your check payable
[Insert graphic to Templeton Developing to Templeton Developing
of envelope] Markets Trust. Markets Trust. Include
your account number on
BY MAIL Mail the check and your the check.
signed application to
Investor Services. Fill out the deposit
slip from your account
statement. If you do
not have a slip,
include a note with
your name, the fund
name, and your account
number.
Mail the check and
deposit slip or note to
Investor Services.
- ----------------------------------------------------------------------
[Insert graphic Call to receive a wire Call to receive a wire
of three control number and wire control number and wire
lightning bolts] instructions. instructions.
Wire the funds and mail To make a same day wire
your signed application investment, please call
BY WIRE to Investor Services. us by 1:00 p.m. Pacific
Please include the wire time and make sure your
1-800/632-2301 control number or your wire arrives by 3:00
(or new account number on p.m.
1-650/312-2000 the application.
collect)
To make a same day wire
investment, please call
us by 1:00 p.m. Pacific
time and make sure your
wire arrives by 3:00
p.m.
- ----------------------------------------------------------------------
[Insert graphic Call Shareholder Call Shareholder
of two arrows Services at the number Services at the number
pointing in below, or send signed below or our automated
opposite written instructions. TeleFACTS system, or
directions] The TeleFACTS system send signed written
cannot be used to open a instructions.
BY EXCHANGE new account.
(Please see page 23 for (Please see page 23 for
TeleFACTS(R) information on information on
1-800/247-1753 exchanges.) exchanges.)
(around-the-clock
access)
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. To sign up, complete the
appropriate section of your account application and mail it to Investor
Services. If you are opening a new account, please include the minimum
initial investment of $50 ($25 for an Education IRA) with your application.
AUTOMATIC PAYROLL DEDUCTION You may invest in the fund automatically by
transferring money from your paycheck to the fund by electronic funds
transfer. If you are interested, indicate on your application that you would
like to receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
fund in an existing account in the same share class* of the fund or another
Franklin Templeton Fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Services at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton Fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class*, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%. If you exchange shares from a
money fund, a sales charge may apply no matter how long you have held the
shares.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 28).
*Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
Class A without any sales charge. Advisor Class shareholders of another
Franklin Templeton Fund who do not qualify to buy the fund's Advisor Class
also may exchange into Class A without any sales charge. Advisor Class
shareholders who exchange their shares for Class A shares and later decide
they would like to exchange into another fund that offers Advisor Class may
do so.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.
[Insert graphic of a certificate] SELLING SHARES
You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud.
You can obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Services at
1-800/527-2020 for details.
SELLING SHARES
- ---------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ---------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- ---------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed
envelope] share certificates (if you hold share
certificates) to Investor Services.
BY MAIL Corporate, partnership or trust
accounts may need to send additional
documents.
Specify the fund, the account number
and the dollar value or number of
shares you wish to sell. If you own
both Class A and B shares, also specify
the class of shares, otherwise we will
sell your Class A shares first. Be sure
to include all necessary signatures and
any additional documents, as well as
signature guarantees if required.
A check will be mailed to the name(s)
and address on the account, or
otherwise according to your written
instructions.
- ---------------------------------------------------------------
[Insert graphic of As long as your transaction is for
phone] $100,000 or less, you do not hold share
certificates and you have not changed
BY PHONE your address by phone within the last
15 days, you can sell your shares by
1-800/632-2301 phone.
A check will be mailed to the name(s)
and address on the account. Written
instructions, with a signature
guarantee, are required to send the
check to another address or to make it
payable to another person.
- ---------------------------------------------------------------
[Insert graphic of You can call or write to have
three lightning redemption proceeds sent to a bank
bolts] account. See the policies above for
selling shares by mail or phone.
Before requesting to have redemption
proceeds sent to a bank account, please
BY ELECTRONIC FUNDS make sure we have your bank account
TRANSFER (ACH) information on file. If we do not have
this information, you will need to send
written instructions with your bank's
name and address, a voided check or
savings account deposit slip, and a
signature guarantee if the ownership of
the bank and fund accounts is different.
If we receive your request in proper
form by 1:00 p.m. Pacific time,
proceeds sent by ACH generally will be
available within two to three business
days.
- ---------------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the
two arrows pointing fund you are considering.
in opposite
directions] Call Shareholder Services at the number
below or our automated TeleFACTS
BY EXCHANGE system, or send signed written
instructions. See the policies above
TeleFACTS(R) for selling shares by mail or phone.
1-800/247-1753
(around-the-clock If you hold share certificates, you
access) will need to return them to the fund
before your exchange can be processed.
- ---------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee and UGMA/UTMA accounts) because you sell some of your
shares, we may mail you a notice asking you to bring the account back up to
its applicable minimum investment amount. If you choose not to do so within
30 days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the fund's financial reports every six months. To reduce
fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The fund does not allow investments by market timers. You will
be considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (ii) exchanged
shares out of the fund more than twice in a calendar quarter, or (iii)
exchanged shares equal to at least $5 million, or more than 1% of the fund's
net assets, or (iv) otherwise seem to follow a timing pattern. Shares under
common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase
under the exchange privilege.
o At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive
sales commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------
COMMISSION (%) --- 4.00 2.00
Investment under $50,000 5.00 --- ---
$50,000 but under $100,000 3.75 --- ---
$100,000 but under $250,000 2.80 --- ---
$250,000 but under $500,000 2.00 --- ---
$500,000 but under $1 1.60 --- ---
million
$1 million or more up to 1.001 --- ---
12B-1 FEE TO DEALER 0.35 0.252 1.003
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs. For certain retirement plans that do not qualify to buy Class A
shares at NAV but that qualify to buy Class A shares with a maximum initial
sales charge of 4%, a dealer commission of 3.2% may be paid.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
[Insert graphic of question mark]QUESTIONS
If you have any questions about the fund or your account, you can write to us
at P.O. Box 33030, St. Petersburg, FL 33733-8030. You also can call us at one
of the following numbers. For your protection and to help ensure we provide
you with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- -----------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m.
(Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Services
1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You also can obtain information about the fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR
Database on the SEC's Internet site at http://www.sec.gov. You can obtain
copies of this information, after paying a duplicating fee, by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request at the following E-mail address: [email protected].
Investment Company Act file # 811-6378 711 P 08/99
PAGE
PART A
ADVISOR CLASS
PROSPECTUS
PAGE
Prospectus
Templeton Developing Markets Trust
ADVISOR CLASS
INVESTMENT STRATEGY Global Growth
MAY 1, 2000
[Insert Franklin Templeton "Butterball" logo]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUND
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Goal and Strategies
4 Main Risks
7 Performance
8 Fees and Expenses
9 Management
10 Distributions and Taxes
11 Financial Highlights
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
12 Choosing a Share Class
13 Buying Shares
14 Investor Services
16 Selling Shares
18 Account Policies
20 Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
THE FUND
GOAL AND STRATEGIES
[INSERT GRAPHIC OF BULLSEYE AND ARROW]
GOAL The fund's investment goal is long-term capital appreciation.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the fund invests
at least 65% of its total assets in equity securities of developing market
companies.
For purposes of the fund's investments, developing market companies are
those:
o whose securities trade in developing markets or that have a significant
portion of their assets in developing market countries;
o that derive a significant share of their total revenue from goods or
services produced or sold in developing market countries;
o linked to currencies of developing market countries; or
o organized under the laws of, or with principal offices in, developing
market countries.
Developing market countries include those considered to be developing by the
World Bank, the International Finance Corporation, the United Nations, or the
countries' authorities, or countries with a stock market capitalization of
less than 3% of the Morgan Stanley Capital International World Index. These
countries typically are located in the Asia-Pacific region, Eastern Europe,
Central and South America, and Africa. Developing market countries are
described more fully in the fund's Statement of Additional Information (SAI).
An equity security, or stock, represents a proportionate share of the
ownership of a company. Its value is based on the success of the company's
business, any income paid to stockholders, the value of the company's assets,
and general market conditions. Common stocks and preferred stocks are
examples of equity securities. The fund also invests in American, Global,
and European Depositary Receipts, which are certificates typically issued by
a bank or trust company that give their holders the right to receive
securities issued by a foreign or domestic corporation. The fund, from time
to time, may have significant investments in one or more countries or in
particular sectors such as technology (including computer hardware and
software, electronics, and telecommunications) and financial institutions.
[Begin Callout]
The fund invests primarily in the common stocks of developing market
companies.
[End Callout]
In addition to its main investments, the fund may invest a portion of its
assets in the equity securities of issuers in developed market countries.
The fund may invest up to 10% of its total assets in restricted securities
and securities with a limited trading market.
When choosing equity investments for this fund, the manager applies a "bottom
up", value-oriented, long-term approach, focusing on the market price of a
company's securities relative to its evaluation of the company's long-term
earnings, asset value and cash flow potential. The manager also considers a
company's price/earnings ratio, profit margins and liquidation value. In
choosing investments, the fund's manager strongly believes in onsite visits
to issuers of prospective investments to assess critical factors such as
management strength and local conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, the manager may invest up to 100%
of the fund's assets in a temporary defensive manner or hold a substantial
portion of the fund's portfolio in cash. Temporary defensive investments
generally may include money market securities, short-term and medium-term
U.S. and foreign government securities, short-term corporate obligations,
bank obligations, and repurchase agreements denominated in the currency of
any nation. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the fund may be unable to achieve its
investment goal.
MAIN RISKS
[INSERT GRAPHIC OF CHART WITH LINES GOING UP AND DOWN]
STOCKS While this may not be the case in foreign markets, in the U.S.,
stocks historically have outperformed other asset classes over the long term
(over the short term they tend to go up and down more dramatically). These
price movements may result from factors affecting individual companies,
industries or the securities market as a whole. Value stock prices are
considered "cheap" relative to the company's perceived value. They may not
increase in value, as anticipated by the manager, if other investors fail to
recognize the company's value and bid up the price or in markets favoring
faster-growing companies. The fund should be thought of as a long-term
investment for the aggressive portion of a well diversified portfolio.
[Begin Callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End Callout]
FOREIGN SECURITIES Investing in foreign securities, including securities of
foreign governments and depositary receipts, typically involves more risks
than investing in U.S. securities. Certain of these risks also may apply to
securities of U.S. companies with significant foreign operations. These risks
can increase the potential for losses in the fund and affect its share price.
CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in
foreign currencies. As a result, their values may be affected by changes in
exchange rates between foreign currencies and the U.S. dollar, as well as
between currencies of countries other than the U.S. For example, if the value
of the U.S. dollar goes up compared to a foreign currency, an investment
traded in that foreign currency will go down in value because it will be
worth less U.S. dollars. The impact of the euro, a relatively new currency
adopted by certain European countries to replace their national currencies,
is unclear at this time. Restrictions on currency trading that may be imposed
by developing market countries will have an adverse affect on the value of
the securities of companies that trade or operate in such countries.
POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile
than those in the U.S. Investments in these countries may be subject to the
risks of internal and external conflicts, currency devaluations, foreign
ownership limitations and tax increases. It is possible that a government may
take over the assets or operations of a company or impose restrictions on the
exchange or export of currency or other assets. Some countries also may have
different legal systems that may make it difficult for the fund to vote
proxies, exercise shareholder rights, and pursue legal remedies with respect
to its foreign investments.
TRADING PRACTICES. Brokerage commissions and other fees generally are higher
for foreign securities. Government supervision and regulation of foreign
stock exchanges, currency markets, trading systems and brokers may be less
than in the U.S. The procedures and rules governing foreign transactions and
custody (holding of the fund's assets) also may involve delays in payment,
delivery or recovery of money or investments.
AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Thus, there may be less information publicly
available about foreign companies than about most U.S. companies.
LIMITED MARKETS. Certain foreign securities may be less liquid (harder to
sell) and more volatile than many U.S. securities. This means the fund may at
times be unable to sell foreign securities at favorable prices. In developing
markets, a previously established liquid securities market may become
illiquid (temporarily or for longer periods of time) due to
economic or political conditions.
DEVELOPING MARKETS. The fund's investments in developing markets are subject
to all of the risks of foreign investing generally, and have additional
heightened risks due to a lack of established legal, political, business and
social frameworks to support securities markets. Some of the additional
significant risks, include:
o Political and social uncertainty (for example, regional conflicts and
risk of war)
o Currency exchange rate volatility
o Pervasiveness of corruption and crime
o Delays in settling portfolio transactions
o Risk of loss arising out of systems of share registration and custody
o Markets that are comparatively smaller and less liquid than developed
markets. Short-term volatility in these markets and declines of more than
50% are not unusual. Markets which are generally considered to be liquid
may become illiquid for short or extended periods.
o Less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S.
o Currency and capital controls
o Greater sensitivity to interest rate changes
ALL OF THESE FACTORS MAKE DEVELOPING MARKET EQUITY SECURITIES' PRICES
GENERALLY MORE VOLATILE THAN EQUITY SECURITIES OF COMPANIES IN DEVELOPED
MARKETS, AND INCREASE THE RISK OF LOSS TO THE FUND.
The definition of developing markets or countries as used in this prospectus
may differ from the definition of the same terms as used in other Franklin
Templeton fund prospectuses.
COUNTRY, SECTOR OR INDUSTRY FOCUS To the extent the fund invests a
significant portion of its assets in one or more countries, sectors or
industries at any time, the fund will face a greater risk of loss due to
factors affecting a single country, sector or industry than if the fund
always maintained wide diversity among the countries, sectors and industries
in which it invests. For example, technology companies involve risks due to
factors such as the rapid pace of product change, technological developments
and new competition. Their stocks historically have been volatile in price,
especially over the short term, often without regard to the merits of
individual companies. Banks and financial institutions are subject to
potentially restrictive governmental controls and regulations that may limit
or adversely affect profitability and share price. In addition, securities
in that sector may be very sensitive to interest rate changes throughout the
world.
LIQUIDITY Reduced liquidity affecting an individual security or an entire
market may have an adverse impact on market price and the fund's ability to
sell particular securities when necessary to meet the fund's liquidity needs
or in response to a specific economic event.
More detailed information about the fund, its policies and risks can be found
in the fund's SAI.
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 8 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
ADVISOR CLASS ANNUAL TOTAL RETURNS/1/,/2/
[Insert bar graph]
- -9.75% 74.49% -8.58% 0.36% 22.51% -9.18% -18.74% 51.95%
92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST QUARTER:
Q4 '99 26.58%
WORST QUARTER:
Q4 '97 -24.81%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
1 YEAR 5 YEARS INCEPTION
(10/17/91)
- --------------------------------------------------------------------
Templeton Developing Markets Trust
- - Advisor Class/2/ 51.95% 6.66% 8.78%
MSCI Emerging Markets Free Index/3/ 66.41% 2.00% 10.25%
IFC Investable Composite Index/4/ 67.11% 2.17% 9.33%
1. As of March 31, 2000, the fund's year-to-date return was -7.11%
2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect
of Class A's maximum initial sales charge and including the effect of the
Class A distribution and service (12b-1) fees; and (b) for periods after
January 1, 1997, an actual Advisor Class figure is used reflecting a
deduction of all applicable charges and fees for that class. This blended
figure assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. This unmanaged MSCI Emerging Markets
Free Index measures the performance of securities located in 25 emerging
market countries such as Brazil, China, Korea and Poland. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
4. Source: Standard & Poor's Micropal. This unmanaged IFC Investable
Composite Index measures the performance of emerging market stocks. The index
tracks approximately 2000 stocks in countries such as Brazil, Mexico, China
and South Korea. It includes reinvested dividends. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
- --------------------------------------------------------------------
Maximum sales charge (load) imposed on None
purchases
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
ADVISOR CLASS
- --------------------------------------------------------------------
Management fees 1.25%
Distribution and service (12b-1) fees None
Other expenses 0.49%
----------------------
Total annual fund operating expenses 1.74%
----------------------
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------
$177 $548 $944 $2,052
[Insert graphic of briefcase] MANAGEMENT
Templeton Asset Management Ltd. - Hong Kong branch (Asset Management Hong
Kong), Two Exchange Square, Hong Kong, is the fund's investment manager.
Together, Asset Management Hong Kong and its affiliates manage over $229
billion in assets.
The fund's lead portfolio manager is:
DR. J. MARK MOBIUS, MANAGING DIRECTOR OF TEMPLETON ASSET MANAGEMENT LTD
Dr. Mobius has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.
The following individuals have secondary portfolio management
responsibilities:
TOM WU, DIRECTOR OF TEMPLETON ASSET MANAGEMENT LTD
Mr. Wu has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.
H. ALLAN LAM, PORTFOLIO MANAGER OF TEMPLETON ASSET MANAGEMENT LTD
Mr. Lam has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.
The fund pays Asset Management Hong Kong a fee for managing the fund's
assets. For the fiscal year ended December 31, 1999, the fund paid 1.25% of
its average daily net assets to the manager for its services.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS 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. The amount of this distribution will vary
and there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that
if you invest in the fund shortly before the record date of a distribution,
any distribution will lower the value of the fund's shares by the amount of
the distribution and you will receive some of your investment back in the
form of a taxable distribution. If you would like information on upcoming
record dates for the fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional fund shares or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and
redemption proceeds if you do not provide your correct social security or
taxpayer identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or loss.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale.
Fund distributions and gains from the sale or exchange of your shares
generally will be subject to state and local taxes. Any foreign taxes the
fund pays on its investments may be passed through to you as a foreign tax
credit. Non-U.S. investors may be subject to U.S. withholding and estate tax.
You should consult your tax advisor about the federal, state, local or
foreign tax consequences of your investment in the fund.
[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP
for the fiscal year ended December 31, 1999, and by other auditors for the
fiscal years before December 31, 1999.
ADVISOR CLASS YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------
1999/2/,/4/ 1998 1997
- ---------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 10.28 12.93 15.43
-----------------------------------------
Net investment income .09 .23 .17
Net realized and
unrealized gains 5.25 (2.60) (1.63)
-----------------------------------------
Total from investment
operations 5.34 (2.37) (1.46)
-----------------------------------------
Less distributions from
net investment income -- (.23) (.20)
Net realized gains -- (.05) (.53)
In excess of net realized
gains -- -- (.31)
-----------------------------------------
Total distributions -- (.28) (1.04)
-----------------------------------------
Net asset value, end of 15.62 10.28 12.93
year
-----------------------------------------
Total return (%)/1/ 51.95 (18.47) (9.36)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($
x 1,000) 190,341 115,494 98,101
Ratios to average net
assets: (%)
Expenses 1.74 1.78 1.69/3/
Net investment income .72 1.82 1.04/3/
Portfolio turnover rate (%) 45.82 37.51 30.06
1. Total return is not annualized.
2. Based on average weighted shares outstanding.
3. Annualized.
4. For the period January 1, 1997 (effective date) to December 31, 1997.
Based on average weighted shares outstanding.
YOUR ACCOUNT
[Insert graphic of pencil marking an "X"]QUALIFIED INVESTORS
The following investors may qualify to buy Advisor Class shares of the fund.
o Qualified registered investment advisors with clients invested in any
series of Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy
through a broker-dealer or service agent who has an agreement with Franklin
Templeton Distributors, Inc. (Distributors). Minimum investments: $1,000
initial and $50 additional.
o Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients participating
in comprehensive fee programs. Minimum investments: $250,000 initial
($100,000 initial for an individual client) and $50 additional.
o Officers, trustees, directors and full-time employees of Franklin
Templeton and their immediate family members. Minimum investments: $100
initial ($50 for accounts with an automatic investment plan) and $50
additional.
o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.
o Accounts managed by the Franklin Templeton Group. Minimum investments:
No initial minimum and $50 additional.
o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments:
No initial or additional minimums.
[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. To save time, you can sign up now for
services you may want on your account by completing the appropriate sections
of the application (see the next page).
BUYING SHARES
- ---------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ---------------------------------------------------------------------
[Insert graphic
of hands
shaking] Contact your investment Contact your investment
representative representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- ---------------------------------------------------------------------
Make your check payable Make your check payable
[Insert graphic to Templeton Developing to Templeton Developing
of envelope] Markets Trust. Markets Trust. Include
your account number on
BY MAIL Mail the check and your the check.
signed application to
Investor Services. Fill out the deposit
slip from your account
statement. If you do not
have a slip, include a
note with your name, the
fund name, and your
account number.
Mail the check and
deposit slip or note to
Investor Services.
- ---------------------------------------------------------------------
[Insert graphic Call to receive a wire Call to receive a wire
of three control number and wire control number and wire
lightning bolts] instructions. instructions.
Wire the funds and mail To make a same day wire
your signed application investment, please call
BY WIRE to Investor Services. us by 1:00 p.m. Pacific
Please include the wire time and make sure your
1-800/632-2301 control number or your wire arrives by 3:00
(or new account number on p.m.
1-650/312-2000 the application.
collect)
To make a same day wire
investment, please call
us by 1:00 p.m. Pacific
time and make sure your
wire arrives by 3:00
p.m.
- ---------------------------------------------------------------------
[Insert graphic Call Shareholder Call Shareholder
of two arrows Services at the number Services at the number
pointing in below, or send signed below, or send signed
opposite written instructions. written instructions.
directions] (Please see page 15 for (Please see page 15 for
information on information on
BY EXCHANGE exchanges.) exchanges.)
- ---------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. To sign up, complete the
appropriate section of your account application and mail it to Investor
Services. If you are opening a new account, please include your minimum
initial investment with your application.
AUTOMATIC PAYROLL DEDUCTION You may invest in the fund automatically by
transferring money from your paycheck to the fund by electronic funds
transfer. If you are interested, indicate on your application that you would
like to receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
fund in an existing account in the same share class of the fund or in Advisor
Class or Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial
sales charges and contingent deferred sales charges (CDSCs) will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton Fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class. You also may exchange your Advisor Class shares
for Class A shares of a fund that does not currently offer an Advisor Class
(without any sales charge)* or for Class Z shares of Franklin Mutual Series
Fund Inc.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 19).
*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your
Class A shares for Advisor Class shares if you otherwise qualify to buy the
fund's Advisor Class shares.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.
[Insert graphic of a certificate] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud.
You can obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
SELLING SHARES
- ----------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ----------------------------------------------------------
[Insert graphic
of hands
shaking] Contact your investment representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------
[Insert Send written instructions and endorsed
graphic of share certificates (if you hold share
envelope] certificates) to Investor Services.
Corporate, partnership or trust
BY MAIL accounts may need to send additional
documents.
Specify the fund, the account number
and the dollar value or number of
shares you wish to sell. Be sure to
include all necessary signatures and
any additional documents, as well as
signature guarantees if required.
A check will be mailed to the name(s)
and address on the account, or
otherwise according to your written
instructions.
- ----------------------------------------------------------
[Insert graphic As long as your transaction is for
of phone] $100,000 or less, you do not hold share
certificates and you have not changed
BY PHONE your address by phone within the last
15 days, you can sell your shares by
1-800/632-2301 phone.
A check will be mailed to the name(s)
and address on the account. Written
instructions, with a signature
guarantee, are required to send the
check to another address or to make it
payable to another person.
- ----------------------------------------------------------
[Insert You can call or write to have
graphic of redemption proceeds sent to a bank
three lightning account. See the policies above for
bolts] selling shares by mail or phone.
Before requesting to have redemption
proceeds sent to a bank account, please
make sure we have your bank account
BY ELECTRONIC information on file. If we do not have
FUNDS TRANSFER this information, you will need to send
(ACH) written instructions with your bank's
name and address, a voided check or
savings account deposit slip, and a
signature guarantee if the ownership of
the bank and fund accounts is different.
If we receive your request in proper
form by 1:00 p.m. Pacific time,
proceeds sent by ACH generally will be
available within two to three business
days.
- ----------------------------------------------------------
[Insert graphic Obtain a current prospectus for the
of two arrows fund you are considering.
pointing in
opposite Call Shareholder Services at the number
directions] below, or send signed written
instructions. See the policies above
BY EXCHANGE for selling shares by mail or phone.
If you hold share certificates, you
will need to return them to the fund
before your exchange can be processed.
- ----------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). The NAV for Advisor Class is
calculated by dividing its net assets by the number of its shares
outstanding.
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee accounts) because you sell some of your shares, we may mail
you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record.
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the fund's financial reports every six months. To reduce
fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The fund does not allow investments by market timers. You will
be considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (ii) exchanged
shares out of the fund more than twice in a calendar quarter, or (iii)
exchanged shares equal to at least $5 million, or more than 1% of the fund's
net assets, or (iv) otherwise seem to follow a timing pattern. Shares under
common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase
under the exchange privilege.
o At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws
o For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may
receive up to 0.25% of the amount invested. This amount is paid by Franklin
Templeton Distributors, Inc. from its own resources.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at P.O. Box 33030, St. Petersburg, FL 33733-8030. You also can call us at one
of the following numbers. For your protection and to help ensure we provide
you with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME, MONDAY
DEPARTMENT NAME TELEPHONE NUMBER THROUGH FRIDAY)
- ----------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You also can obtain information about the fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR
Database on the SEC's Internet site at http://www.sec.gov. You can obtain
copies of this information, after paying a duplicating fee, by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request at the following E-mail address: [email protected].
Investment Company Act file #811-6378 711 PA 05/00
PAGE
PART B
CLASS A, B & C
STATEMENT OF
ADDITIONAL INFORMATION
PAGE
TEMPLETON DEVELOPING MARKETS TRUST
CLASS A, B & C
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
[Insert Franklin Templeton "Butterball" logo]
P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN(R)
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund's prospectus.
The fund's prospectus, dated May 1, 2000, which we may amend from time to
time, contains the basic information you should know before investing in the
fund. You should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended December 31, 1999, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies 2
Risks 8
Officers and Trustees 11
Management and Other Services 15
Portfolio Transactions 16
Distributions and Taxes 17
Organization, Voting Rights
and Principal Holders 18
Buying and Selling Shares 19
Pricing Shares 25
The Underwriter 26
Performance 28
Miscellaneous Information 30
Description of Ratings 30
- -------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- -------------------------------------------------------------------------------
o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- -------------------------------------------------------------------------------
GOAL AND STRATEGIES
The fund's investment goal is long-term capital appreciation. This goal is
fundamental, which means it may not be changed without shareholder approval.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities of emerging market companies.
For purposes of the fund's investments, developing or emerging market
countries include:
o countries that are generally considered low or middle income countries
by the International Bank of Reconstruction and Development (commonly known
as the World Bank) and the International Finance Corporation; or
o countries that are classified by the United Nations or otherwise
regarding by their authorities as developing; or
o countries with a stock market capitalization of less than 3% of the
Morgan Stanley Capital International World Index.
In addition, developing or emerging markets equity securities means those
issued by:
o companies whose principal securities trading markets are in developing or
emerging market countries; or
o companies that derive a significant share of their total revenue from
either goods or services produced or sales made in developing or emerging
market countries; or
o companies that have a significant portion of their assets in developing or
emerging market countries; or
o companies that are linked to currencies of developing or emerging market
countries; or
o companies that are organized under the laws of, or with principal offices
in, developing or emerging market countries.
GENERAL The fund may invest up to 100% of its total assets in developing or
emerging markets, including up to 5% of its total assets in Russian
securities. The fund normally will invest in at least three developing or
emerging market countries. With respect to 75% of its total assets, the fund
may invest up to 5% of its total assets in securities issued by any one
company or foreign government. The fund may invest any amount of its assets
in U.S. government securities. The fund may invest in any industry although
it will not concentrate (invest more than 25% of its total assets) in any one
industry. 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 those instruments. The fund will generally
have a portion of its assets in cash or cash equivalents for a variety of
reasons, including waiting for a special investment opportunity or taking a
defensive position. To earn income on this portion of its assets, the fund
may enter into repurchase agreements with certain banks and broker-dealers.
EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner
of an equity security may participate in a company's success through the
receipt of dividends which are distributions of earnings by the company to
its owners. Equity security owners also may participate in a company's
success or lack of success through increases or decreases in the value of the
company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive
less appreciation than common stockholders and may have greater voting rights
as well. Equity securities also may include convertible securities, warrants
or rights. Convertible securities typically are debt securities or preferred
stocks which are convertible into common stock after certain time periods or
under certain circumstances. Warrants or rights give the holder the right to
purchase a common stock at a given time for a specified price.
DEPOSITARY RECEIPTS Depositary receipts are certificates that give their
holders the right to receive securities (a) of a foreign issuer deposited in
a U.S. bank or trust company (American Depositary Receipts or "ADRs"); or (b)
of a foreign or U.S. issuer deposited in a foreign bank or trust company
(Global Depositary Receipts or "GDRs" or European Depositary Receipts or
"EDRs").
DEBT SECURITIES A debt security typically has a fixed payment schedule which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it
declares and pays any dividend to holders of its equity securities. Bonds,
notes, debentures and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.
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.
The fund may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the
financial soundness of the issuer. Generally, a lower rating indicates higher
risk. The fund may invest up to 35% of its total assets in debt securities
which are rated C or better by Moody's Investors Services, Inc. (Moody's) or
Standard & Poor's Corporation (S&P) or unrated debt which it determines to be
of comparable quality. At present, the fund does not intend to invest more
than 5% of its total assets in non-investment grade securities (rated lower
than BBB by S&P or Baa by Moody's).
The fund may, from time to time purchase defaulted debt securities if, in the
opinion of the 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.
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 flows 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 flows 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 leveraged 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 Investment Company Act of 1940, as amended (the
"1940 Act"). As a result, the fund's investment in these structured
investments may be limited by the restrictions contained in the 1940 Act.
Structured investments are typically sold in private placement transactions,
and there currently is no active trading market for structured investments.
To the extent such investments are illiquid, they will be subject to the
fund's restrictions on investments in illiquid securities.
CLOSED-END INVESTMENT COMPANIES To encourage indirect foreign investment in
their capital markets, some countries, including South Korea, Chile and
India, have permitted the creation of closed-end investment companies. The
fund may invest up to 10% of its total assets in securities of these
companies. 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.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the fund may enter into repurchase
agreements. Under a repurchase agreement, the fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
fund in each repurchase agreement. The 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 bank or broker-dealer, including possible delays or restrictions upon
the fund's ability to sell the underlying securities. The fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may
lend certain of its portfolio securities to qualified securities dealers or
other institutional investors. These loans may not exceed 331/3% of the value
of the fund's total assets, measured at the time of the most recent loan.
Each loan must be secured with collateral (consisting of any combination of
cash, securities issued by the U.S. government and its agencies and
instrumentalities, or irrevocable letters of credit) in an amount at least
equal (on a daily market to market basis) of the current market value of the
loaned securities. The fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the borrower. The
fund also effectively receives any distributions paid on the loaned
securities. The fund may terminate a loan at any time and obtain the return
of the securities loaned within the normal settlement period for the security
involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities
to vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in
the event of default or insolvency of the borrower.
The fund will loan its securities only to parties who meet creditworthiness
standards approved by the fund's board of trustees, i.e., banks or
broker-dealers that the manager has determined present no serious risk of
becoming involved in bankruptcy proceedings within the time frame
contemplated by the loan.
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.
FUTURES CONTRACTS Although the fund has the authority to buy and sell
financial futures contracts, it presently has no intention of entering into
such transactions. 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 also may 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.
The fund may not commit more than 5% of its total assets to initial margin
deposits on futures contracts and related options. In addition, the value of
the securities on which the futures contracts are based will not exceed 25%
of the fund's total assets.
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 Although the fund has the authority to write
covered call and put options and purchase call and put options on securities or
stock indices that are traded on U.S. and foreign exchanges and in the
over-the-counter markets, it presently has no intention of entering into such
transactions. 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 will limit the sale of
options on its securities to 15% or less of its total assets. The fund may only
buy options if the total premiums it paid for such options is 5% or less of its
total assets.
The fund may write a call or put option to generate income 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 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 also may 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 To help protect its portfolio against
adverse changes in foreign currency exchange rates, the fund may: (1) buy and
sell foreign currency at the prevailing rate in the foreign currency exchange
market; (2) enter into forward foreign currency contracts which are
agreements to buy or sell a specific currency at a set price on a future date
(generally within one year); and (3) buy and sell put and call options on
foreign currencies. The fund may only commit up to 20% of its total assets to
forward foreign currency contracts. 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 reduce 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, it 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 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.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the
fund's assets in a temporary defensive manner or hold a substantial portion
of the fund's portfolio in cash. Unfavorable market or economic conditions
may include excessive volatility or a prolonged general decline in the
securities markets, the securities in which the fund normally invests, or the
economies of the countries where the fund invests.
Temporary defensive investments generally may include:
o short-term (maturities of less than 12 months) and medium-term (maturities
up to 5 years) securities issued or guaranteed by the U.S. or a foreign
government, their agencies or instrumentalities;
o finance company and corporate commercial paper, and other short-term
corporate obligations, rated A by S&P or Prime-1 by Moody's or, if unrated,
determined to be of comparable quality;
o bank obligations (including CDs, time deposits and bankers' acceptances),
and
o repurchase agreements with banks and broker-dealers.
To the extent allowed by exemptions granted under the 1940 Act, and the
fund's other investment policies and restrictions, the manager also may
invest the fund's assets in shares of one or more money market funds managed
by the manager or its affiliates. The manager also may invest in these types
of securities or hold cash while looking for suitable investment
opportunities or to maintain liquidity.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
The fund may 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 statement of additional information);
or invest in other open-end investment companies except as permitted by the
1940 Act./1/
2. Purchase or retain securities of any company in which trustees or officers
of the fund or of the manager, individually own more than one-half of 1% of
the securities of such company or, 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./1/
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 purposes, except to secure borrowings and then only to an extent not
greater than 15% of the fund's total assts. 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 Stock Exchange (NYSE) or the 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 "Portfolio Transactions" as to transactions in the same
securities for the fund, other clients and/or other mutual funds within the
Franklin Templeton Group of Funds.
11. Invest more than 15% of the fund's total assets in securities of foreign
issuers that are not listed on a recognized U.S. 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.
The fund also may be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund
is not required to sell a security because circumstances change and the
security no longer meets one or more of the fund's policies or restrictions.
If a percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
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.
RISKS
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FOREIGN SECURITIES You 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 U.S. Foreign
companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The 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 NYSE and securities of some foreign
companies are less liquid and more volatile than securities of comparable
U.S. companies. Commission rates in foreign countries, which are generally
fixed rather than subject to negotiation as in the U.S., 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 U.S.
DEVELOPING OR EMERGING MARKETS. 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 that 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 legal structures governing private or foreign investment
or allowing for judicial redress for injury to private property; (vi) the
absence, until recently in many developing countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in some developing countries 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 U.S. 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 developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, 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 certain developing
countries. Finally, even though the currencies of some developing countries,
such as certain Eastern European countries 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.
RUSSIAN SECURITIES. Investing in Russian companies involves a high degree of
risk and special considerations not typically associated with investing in
the U.S. securities markets, and should be considered highly speculative.
Such risks include, together with Russia's continuing political and economic
instability and the slow-paced development of its market economy, the
following: (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, insider
trading, 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, a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with substantially less liquidity and in issuers having
significantly smaller market capitalizations, when compared to securities and
issuers in more developed markets; (i) the difficulties associated in
obtaining accurate market valuations of many Russian securities, based partly
on the limited amount of publicly available information; (j) the financial
condition of Russian companies, including large amounts of inter-company debt
which may create a payments crisis on a national scale; (k) dependency on
exports and the corresponding importance of international trade; (l) the risk
that the Russian tax system will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation or, in the alternative, the risk that
a reformed tax system may result in the inconsistent and unpredictable
enforcement of the new tax laws; (m) possible difficulty in identifying a
purchaser of securities held by the fund due to the underdeveloped nature of
the securities markets; (n) the possibility that pending legislation could
restrict the levels of foreign investment in certain industries, thereby
limiting the number of investment opportunities in Russia; (o) the risk that
pending legislation would confer to Russian courts the exclusive jurisdiction
to resolve disputes between foreign investors and the Russian government,
instead of bringing such disputes before an internationally-accepted
third-country arbitrator; and (p) the difficulty in obtaining information
about the financial condition of Russian issuers, in light of the different
disclosure and accounting standards applicable to Russian companies.
There is little long-term 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 nor are they licensed with any governmental entity 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 500 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. In addition, so-called
"financial-industrial groups" have emerged in recent years that seek to deter
outside investors from interfering in the management of companies they
control. These practices may prevent the fund from investing in the
securities of certain Russian companies deemed suitable by the 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.
CURRENCY The fund's management 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. There is the possibility of
cessation of trading on national exchanges, expropriation, nationalization or
confiscatory taxation, withholding and other foreign tax on income or other
amounts, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments 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 also may have
fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be internationally traded.
Certain of these 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.
EURO On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national
currencies of the following member countries: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available
for non-cash transactions. The participating countries currently issue
sovereign debt exclusively in euro. By July 1, 2002, euro-denominated bills
and coins will replace the bills and coins of the above countries.
The new European Central Bank has control over each country's monetary
policies. Therefore, the participating countries no longer control their own
monetary policies by directing independent interest rates for their
currencies. The national governments of the participating countries,
however, have retained the authority to set tax and spending policies and
public debt levels.
It is uncertain how eleven different economies will adjust to a unified
monetary system and the loss of exchange rate flexibility. In the first six
months of the euro's existence, the exchange rates of the euro versus many of
the world's major currencies steadily declined. In this environment, U.S.
and other foreign investors experienced erosion of their investment returns
on their euro-denominated securities. The transition and the elimination of
currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets.
While the implementation of the euro could have a negative effect on the
fund, the fund's manager and its affiliated service providers are taking
steps they believe are reasonably designed to address the euro issue.
INTEREST RATE To the extent the fund invests in debt securities, changes in
interest rates in any country where the fund is invested will affect the
value of the fund's portfolio and, consequently, its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to cause the face value of a debt security to decrease,
having a negative effect on the value of the fund's shares. Of course,
interest rates have increased and decreased, sometimes very dramatically, in
the past. These changes are likely to occur again in the future at
unpredictable times.
LOW-RATED SECURITIES 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 also may 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 goal may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be
less sensitive to interest rate changes than higher rated investments, but
more sensitive to adverse economic downturns or individual corporate
developments. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in low rated debt
securities prices because the advent of a recession could lessen the ability
of a highly leveraged company to make principal and interest payments on its
debt securities. If the issuer of low rated debt securities defaults, the
fund may incur additional expenses to seek recovery.
The purchase of defaulted debt securities involves significant additional
risks, such as the possibility of complete loss of the investment in the
event the issuer does not restructure or reorganize to enable it to resume
paying interest and principal to holders.
DERIVATIVE SECURITIES 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 manager's ability to predict
correctly movements in the direction of the market, as to which no assurance
can be given.
OFFICERS AND TRUSTEES
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The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of the
fund's investment activities. The board, in turn, elects the officers of the
trust who are responsible for administering the trust's day-to-day
operations. The board also monitors the fund to ensure no material conflicts
exist among share classes. While none is expected, the board will act
appropriately to resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the trust, and principal occupations during
the past five years are shown below.
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 48 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
*Nicholas F. Brady (70)
16 North Washington Street, Easton, MD 21601
TRUSTEE
Chairman, Templeton Emerging Markets Investment Trust PLC, Templeton Latin
America Investment Trust PLC, Darby Overseas Investments, Ltd. and Darby
Emerging Markets Investments LDC (investment firms) (1994-present); Director,
Templeton Global Strategy Funds, Amerada Hess Corporation (exploration and
refining of oil and gas), C2, Inc. (operating and investment business), and
H.J. Heinz Company (processed foods and allied products); director or
trustee, as the case may be, of 19 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Secretary of the United
States Department of the Treasury (1988-1993), Chairman of the Board, Dillon,
Read & Co., Inc. (investment banking) (until 1988) and U.S. Senator, New
Jersey (April 1982-December 1982).
Frank J. Crothers (55)
P.O. Box N-3238, Nassau, Bahamas
TRUSTEE
Chairman, Caribbean Electric Utility Services Corporation and Atlantic
Equipment & Power Ltd.; Vice Chairman, Caribbean Utilities Co., Ltd.;
President, Provo Power Corporation; director of various other business and
non-profit organizations; and director or trustee, as the case may be, of 11
of the investment companies in the Franklin Templeton Group of Funds.
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 50 of the investment companies in the
Franklin Templeton Group of Funds.
John Wm. Galbraith (78)
360 Central Avenue, Suite 1300, St. Petersburg, FL 33701
TRUSTEE
President, Galbraith Properties, Inc. (personal investment company); Director
Emeritus, Gulf West Banks, Inc. (bank holding company) (1995-present);
director or trustee, as the case may be, of 18 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Director, Mercantile
Bank (1991-1995), Vice Chairman, Templeton, Galbraith & Hansberger Ltd.
(1986-1992), and Chairman, Templeton Funds Management, Inc. (1974-1991).
Andrew H. Hines, Jr. (77)
One Progress Plaza, Suite 290, St. Petersburg, FL 33701
TRUSTEE
Consultant, Triangle Consulting Group; Executive-in-Residence, Eckerd College
(1991-present); director or trustee, as the case may be, of 20 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Director, Precise Power Corporation (1990-1997), Director,
Checkers Drive-In Restaurant, Inc. (1994-1997), and Chairman of the Board and
Chief Executive Officer, Florida Progress Corporation (holding company in the
energy area) (1982-1990) and director of various of its subsidiaries.
Edith E. Holiday (48)
3239 38th Street, N.W., Washington, DC 20016
TRUSTEE
Director, Amerada Hess Corporation (exploration and refining of oil and gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present), H.J.
Heinz Company (processed foods and allied products) (1994-present) and RTI
International Metals, Inc. (manufacture and distribution of titanium) (July
1999-present); director or trustee, as the case may be, of 25 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Assistant to the President of the United States and Secretary of the Cabinet
(1990-1993), General Counsel to the United States Treasury Department
(1989-1990), and Counselor to the Secretary and Assistant Secretary for Public
Affairs and Public Liaison-United States Treasury Department (1988-1989).
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Trustee
Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Investment Advisory Services, Inc.; Chairman of the Board,
Franklin Advisers, Inc.; Vice President, Franklin Templeton Distributors,
Inc.; Director, Franklin/Templeton Investor Services, Inc. and Franklin
Templeton Services, Inc.; officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 49
of the investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (43)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.;
Director, Templeton Investment Counsel, Inc.; President, Franklin Investment
Advisory Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 33 of the investment companies in the
Franklin Templeton Group of Funds.
Betty P. Krahmer (70)
2201 Kentmere Parkway, Wilmington, DE 19806
TRUSTEE
Director or trustee of various civic associations; director or trustee, as
the case may be, of 19 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Economic Analyst, U.S. government.
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Martek Biosciences Corporation, MCI WorldCom, Inc. (information
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 48 of the investment companies in the Franklin Templeton Group of Funds;
and FORMERLY, Chairman, White River Corporation (financial services) (until
1998) and Hambrecht & Quist Group (investment banking) (until 1992), and
President, National Association of Securities Dealers, Inc. (until 1987).
Fred R. Millsaps (71)
2665 NE 37th Drive, Fort Lauderdale, FL 33308
TRUSTEE
Manager of personal investments (1978-present); director of various business
and nonprofit organizations; director or trustee, as the case may be, of 20
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman and Chief Executive Officer, Landmark Banking Corporation
(1969-1978), Financial Vice President, Florida Power and Light (1965-1969),
and Vice President, Federal Reserve Bank of Atlanta (1958-1965).
Constantine Dean Tseretopoulos (46)
Lyford Cay Hospital, P.O. Box N-7776, Nassau Bahamas
TRUSTEE
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit
organizations; director or trustee, as the case may be, of 11 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Cardiology Fellow, University of Maryland (1985-1987) and Internal Medicine
Intern, Greater Baltimore Medical Center (1982-1985).
James R. Baio (46)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
TREASURER
Certified Public Accountant; Senior Vice President, Templeton Worldwide,
Inc., Templeton Global Investors, Inc. and Templeton Funds Trust Company;
officer of 20 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Senior Tax Manager, Ernst & Young (certified public
accountants) (1977-1989).
Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc. and Franklin Templeton Services, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc. and Franklin/Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Member - Office of the President, Chief Financial Officer and
Chief Operating Officer, Franklin Resources, Inc.; Senior Vice President,
Chief Financial Officer and Director, Franklin/Templeton Investor Services,
Inc.; Senior Vice President and Chief Financial Officer, Franklin Mutual
Advisers, LLC; Executive Vice President, Chief Financial Officer and
Director, Templeton Worldwide, Inc.; Executive Vice President, Chief
Operating Officer and Director, Templeton Investment Counsel, Inc.; Executive
Vice President and Chief Financial Officer, Franklin Advisers, Inc.; Chief
Financial Officer, Franklin Advisory Services, LLC and Franklin Investment
Advisory Services, Inc.; Director, Franklin Templeton Services, Inc.; officer
and/or director of some of the other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 51 of
the investment companies in the Franklin Templeton Group of Funds.
David P. Goss (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Chief Executive Officer and Director, Franklin Select Realty
Trust, Property Resources, Inc., Property Resources Equity Trust and Franklin
Real Estate Management, Inc., and Franklin Properties, Inc.; officer and
director of some of the other subsidiaries of Franklin Resources, Inc.;
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds; and formerly, President, Chief Executive Officer and Director,
Franklin Real Estate Income Fund and Franklin Advantage Real Estate Income
Fund (until 1996).
Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc.
and of 53 of the investment companies in the Franklin Templeton Group of
Funds; and formerly, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor to the
Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995), Attorney, Rogers & Wells, and Judicial Clerk, U.S.
District Court (District of Massachusetts).
Mark G. Holowesko (40)
Lyford Cay, Nassau, Bahamas
VICE PRESIDENT
President, Templeton Global Advisors Limited; Chief Investment Officer,
Global Equity Group; Executive Vice President and Director, Templeton
Worldwide, Inc.; officer of 19 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Investment Administrator, RoyWest
Trust Corporation (Bahamas) Limited (1984-1985).
Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services,
LLC; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 52 of the investment companies in the
Franklin Templeton Group of Funds.
John R. Kay (59)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; officer of 24 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Vice President and
Controller, Keystone Group, Inc.
Elizabeth M. Knoblock (45)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT - COMPLIANCE
General Counsel, Secretary and Senior Vice President, Templeton Investment
Counsel, Inc.; Senior Vice President, Templeton Global Investors, Inc.;
officer of other subsidiaries of Franklin Resources, Inc. and of 23 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Vice President and Associate General Counsel, Kidder Peabody & Co. Inc.
(1989-1990), Assistant General Counsel, Gruntal & Co., Inc. (1988), Vice
President and Associate General Counsel, Shearson Lehman Hutton Inc. (1988),
Vice President and Assistant General Counsel, E.F. Hutton & Co. Inc.
(1986-1988), and Special Counsel, Division of Investment Management, U.S.
Securities and Exchange Commission (1984-1986).
J. Mark Mobius (63)
Two Exchange Square, 39th Floor, Suite 3905-08 Hong Kong
PRESIDENT
Portfolio Manager of various Templeton advisory affiliates; Managing
Director, Templeton Asset Management Ltd.; Executive Vice President and
Director, Templeton Global Advisors Limited; officer of eight of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, International Investment Trust Company Limited (investment manager
of Taiwan R.O.C. Fund) (1986-1987) and Director, Vickers da Costa, Hong Kong
(1983-1986).
Murray L. Simpson (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; officer of 53 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until January 2000)
and Director, Templeton Asset Management Ltd. (until 1999).
*This board member is considered an "interested person" under federal
securities laws. Mr. Brady's status as an interested person results from his
business affiliations with Franklin Resources, Inc. and Templeton Global
Advisors Limited. Mr. Brady and Franklin Resources, Inc. are both limited
partners of Darby Overseas Partners, L.P. (Darby Overseas). In addition,
Darby Overseas and Templeton Global Advisors Limited are limited partners of
Darby Emerging Markets Fund, L.P.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
The fund pays noninterested board members and Mr. Brady an annual retainer of
$12,000 and a fee of $900 per board meeting attended. Board members who serve
on the audit committee of the fund and other funds in the Franklin Templeton
Group of Funds receive a flat fee of $2,000 per committee meeting attended, a
portion of which is allocated to the fund. Members of a committee are not
compensated for any committee meeting held on the day of a board meeting.
Noninterested board members also may serve as directors or trustees of other
funds in the Franklin Templeton Group of Funds and may receive fees from
these funds for their services. The following table provides the total fees
paid to noninterested board members and Mr. Brady by the fund and by the
Franklin Templeton Group of Funds.
NUMBER OF BOARDS
TOTAL FEES TOTAL FEES IN THE FRANKLIN
RECEIVED RECEIVED FROM TEMPLETON GROUP
FROM THE THE FRANKLIN OF FUNDS ON
NAME FUND1 ($) TEMPLETON GROUP WHICH EACH
OF FUNDS2 ($) Serves3
- -----------------------------------------------------------------------
Harris J. Ashton 16,500 363,165 48
Nicholas F. Brady 16,500 138,700 19
Frank J. Crothers 19,005 72,400 11
S. Joseph Fortunato 16,500 363,238 50
John Wm. Galbraith 16,751 144,200 18
Andrew H. Hines, Jr. 16,739 203,700 20
Edith E. Holiday 16,500 237,265 24
Betty P. Krahmer 16,500 138,700 19
Gordon S. Macklin 16,500 363,165 48
Fred R. Millsaps 16,952 201,700 20
Constatine Dean
Tseretopoulos 18,521 70,400 11
1. For the fiscal year ended December 31, 1999.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the board members are responsible. The Franklin Templeton Group of
Funds currently includes 53 registered investment companies, with
approximately 155 U.S. based funds or series.
Noninterested board members and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each
fund in the Franklin Templeton Group of Funds for which they serve as
director or trustee. No officer or board member received any other
compensation, including pension or retirement benefits, directly or
indirectly from the fund or other funds in the Franklin Templeton Group of
Funds. Certain officers or board members who are shareholders of Franklin
Resources, Inc. may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such board
member. Investments in the name of family members or entities controlled by a
board member constitute fund holdings of such board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
- -------------------------------------------------------------------------------
MANAGER AND SERVICES PROVIDED The fund's manager is Templeton Asset
Management Ltd. - Hong Kong branch. The manager is a wholly owned subsidiary
of Franklin Resources, Inc. (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.
The manager provides investment research and portfolio management services,
and selects the securities for the fund to buy, hold or sell. The manager
also selects the brokers who execute the fund's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The Templeton organization has been investing globally since 1940. The
manager and its affiliates have offices in Argentina, Australia, Bahamas,
Belgium, Bermuda, Brazil, Canada, China, Cyprus, France, Germany, Hong Kong,
India, Italy, Japan, Korea, Luxembourg, Mauritius, the Netherlands, Poland,
Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, United
Kingdom, Venezuela and the U.S.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the fund. Similarly, with respect to
the fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the fund or other funds it manages.
The fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the fund or that are currently held by the fund, subject
to certain general restrictions and procedures. The personal securities
transactions of access persons of the fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).
MANAGEMENT FEES The fund pays the manager a fee equal to an annual rate of
1.25% of its average daily net assets. The fee is computed according to the
terms of the management agreement. Each class of the fund's shares pays its
proportionate share of the fee.
For the last three fiscal years ended December 31, the fund paid the
following management fees:
MANAGEMENT FEES PAID ($)
- -------------------------------------------
1999 37,123,994
1998 40,577,627
1997 57,060,597
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the fund to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by
Resources and is an affiliate of the fund's manager and principal
underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The fund pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended December 31, the fund paid FT
Services the following administration fees:
ADMINISTRATION FEES PAID ($)
------------------------------------------
1999 2,802,440
1998 3,009,659
1997 3,998,636
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the fund's shareholder servicing agent
and acts as the fund's transfer agent and dividend-paying agent. Investor
Services is located at 100 Fountain Parkway, St. Petersburg, FL 33733-8030.
Please send all correspondence to Investor Services to P.O. Box 33030, St.
Petersburg, FL 33733-8030.
For its services, Investor Services receives a fixed fee per account. The
fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
fund. The amount of reimbursements for these services per benefit plan
participant fund account per year will not exceed the per account fee payable
by the fund to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of the fund's assets. As foreign
custody manager, the bank selects and monitors foreign sub-custodian banks,
selects and evaluates non-compulsory foreign depositories, and furnishes
information relevant to the selection of compulsory depositories.
AUDITOR PricewaterhouseCoopers LLP 1177 Avenue of the Americas, New York, NY
10036, is the fund's independent auditor. The auditor gives an opinion on the
financial statements included in the fund's Annual Report to Shareholders and
reviews the fund's registration statement filed with the SEC.
PORTFOLIO TRANSACTIONS
- -------------------------------------------------------------------------------
The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of the manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the fund. They must, however, be of value to the manager in carrying
out its overall responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions to
obtain additional research services allows the manager to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the fund's officers are satisfied that the best execution is obtained, the
sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, also may be considered a factor in the selection of
broker-dealers to execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the
fund, any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to the manager will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection with the tender.
If purchases or sales of securities of the fund and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the fund is concerned. In other cases it is possible that
the ability to participate in volume transactions may improve execution and
reduce transaction costs to the fund.
During the last three fiscal years ended December 31, the fund paid the
following brokerage commissions:
BROKERAGE COMMISSIONS ($)
------------------------------------------
1999 10,329,465
1998 7,249,891
1997 15,736,940
For the fiscal year ended December 31, 1999, the fund paid brokerage
commissions of $10,325,301 from aggregate portfolio transactions of
$2,885,204,647 to brokers who provided research services.
As of December 31, 1999, the fund did not own securities of its regular
broker-dealers.
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
The fund calculates dividends and capital gains the same way for each class.
The amount of any income dividends per share will differ, however, generally
due to the difference in the distribution and service (Rule 12b-1) fees of
each class. Distributions are subject to approval by the board. The fund does
not pay "interest" or guarantee any fixed rate of return on an investment in
its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the fund, constitutes the fund's net
investment income from which dividends may be paid to you. Any distributions
by the fund from such income will be taxable to you as ordinary income,
whether you receive them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the fund. Any net capital gains realized by the fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, to reduce or eliminate excise or income taxes on
the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized on the sale of debt
securities generally are treated as ordinary losses. These gains when
distributed will be taxable to you as ordinary income, and any losses will
reduce the fund's ordinary income otherwise available for distribution to
you. This treatment could increase or decrease the fund's ordinary income
distributions to you, and may cause some or all of the fund's previously
distributed income to be classified as a return of capital.
The fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce ordinary income distributions
to you. If more than 50% of the fund's total assets at the end of the fiscal
year are invested in securities of foreign corporations, the fund may elect
to pass-through to you your pro rata share of foreign taxes paid by the fund.
If this election is made, the year-end statement you receive from the fund
will show more taxable income than was actually distributed to you. However,
you will be entitled to either deduct your share of such taxes in computing
your taxable income or (subject to limitations) claim a foreign tax credit
for such taxes against your U.S. federal income tax. The fund will provide
you with the information necessary to complete your individual income tax
return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you
of the amount of your ordinary income dividends and capital gains
distributions at the time they are paid, and will advise you of their tax
status for federal income tax purposes shortly after the close of each
calendar year. If you have not held fund shares for a full year, the fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code. The fund has qualified as a registered investment
company for its most recent fiscal year, and intends to continue to qualify
during the current fiscal year. As a regulated investment company, the fund
generally pays no federal income tax on the income and gains it distributes
to you. The board reserves the right not to maintain the qualification of the
fund as a regulated investment company if it determines such course of action
to be beneficial to shareholders. In such case, the fund will be subject to
federal, and possibly state, corporate taxes on its taxable income and gains,
and distributions to you will be taxed as ordinary dividend income to the
extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires the fund to distribute to you by December 31
of each year, at a minimum, the following amounts: 98% of its taxable
ordinary income earned during the calendar year; 98% of its capital gain net
income earned during the twelve month period ending October 31; and 100% of
any undistributed amounts from the prior year. The fund intends to declare
and pay these distributions in December (or to pay them in January, in which
case you must treat them as received in December) but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of fund shares are taxable transactions for federal and state
income tax purposes. If you redeem your fund shares, or exchange your fund
shares for shares of a different Franklin Templeton Fund, the IRS will
require that you report any gain or loss on your redemption or exchange. If
you hold your shares as a capital asset, the gain or loss that you realize
will be capital gain or loss and will be long-term or short-term, generally
depending on how long you hold your shares.
Beginning after the year 2005 (2000 for certain shareholders), gains from the
sale of fund shares held for more than five years may be subject to a reduced
tax rate.
Any loss incurred on the redemption or exchange of shares held for six months
or less will be treated as a long-term capital loss to the extent of any
long-term capital gains distributed to you by the fund on those shares. All
or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you buy other shares in the fund
(through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in the fund, and
then reinvest the sales proceeds in the fund or in another Franklin Templeton
Fund within 90 days of buying the original shares, the sales charge that
would otherwise apply to your reinvestment may be reduced or eliminated. The
IRS will require you to report any gain or loss on the redemption of your
original shares in the fund. In doing so, all or a portion of the sales
charge that you paid for your original shares in the fund will be excluded
from your tax basis in the shares sold (for the purpose of determining gain
or loss upon the sale of such shares). The portion of the sales charge
excluded will equal the amount that the sales charge is reduced on your
reinvestment. Any portion of the sales charge excluded from your tax basis in
the shares sold will be added to the tax basis of the shares you acquire from
your reinvestment.
U.S. GOVERNMENT SECURITIES States grant tax-free status to dividends paid to
you from interest earned on certain of the U.S. government securities,
subject in some states to minimum investment or reporting requirements that
must be met by the fund. Investments in Government National Mortgage
Association or Federal National Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities generally do not qualify for tax-free treatment.
The rules on exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because the fund's income is
derived primarily from investments in foreign rather than domestic
securities, generally none of its distributions will be eligible for the
corporate dividends-received deduction.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to the fund (possibly causing the fund to sell securities to raise the
cash for necessary distributions) and/or defer the fund's ability to
recognize losses, and, in limited cases, subject the fund to U.S. federal
income tax on income from certain foreign securities. These rules may affect
the amount, timing or character of the income distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- -------------------------------------------------------------------------------
The fund is a diversified series of Templeton Developing Markets Trust, an
open-end management investment company, commonly called a mutual fund. The
fund was organized as a Massachusetts business trust on August 9, 1991, and
is registered with the SEC.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations.
The Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the fund's assets if you are held personally liable for
obligations of the fund. The Declaration of Trust provides that the fund
shall, upon request, assume the defense of any claim made against you for any
act or obligation of the fund and satisfy any judgment thereon. All such
rights are limited to the assets of the fund. The Declaration of Trust
further provides that the fund may maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the
protection of the fund, its shareholders, trustees, officers, employees and
agents to cover possible tort and other liabilities. Furthermore, the
activities of the fund as an investment company, as distinguished from an
operating company, would not likely give rise to liabilities in excess of the
fund's total assets. Thus, the risk that you would incur financial loss on
account of shareholder liability is limited to the unlikely circumstance in
which both inadequate insurance exists and the fund itself is unable to meet
its obligations.
The fund currently offers four classes of shares, Class A, Class B, Class C
and Advisor Class. The fund began offering Class B shares on January 1,
1999. The fund may offer additional classes of shares in the future. The full
title of each class is:
o Templeton Developing Markets Trust - Class A
o Templeton Developing Markets Trust - Class B
o Templeton Developing Markets Trust - Class C
o Templeton Developing Markets Trust - Advisor Class
Shares of each class represent proportionate interests in the fund's assets.
On matters that affect the fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law.
The fund has noncumulative voting rights. For board member elections, 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. The fund may
hold special meetings, however, for matters requiring shareholder approval. A
meeting may be called by the board to consider the removal of a board member
if requested in writing by shareholders holding at least 10% of the
outstanding shares. In certain circumstances, we are required to help you
communicate with other shareholders about the removal of a board member. A
special meeting also may be called by the board in its discretion.
As of April 3, 2000, the principal shareholders of the fund, beneficial or of
record, were:
NAME AND ADDRESS SHARE CLASS PERCENTAGE
(%)
- -------------------------------------------------------
FTTC TTEE For ValuSelect Adv 7.40
Franklin Templeton 401k
P.O. Box 2438
Rancho Cordova, CA
95741-2438
Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and
trustees of the trust, serve on the administrative committee of the Franklin
Templeton Profit Sharing 401(k) Plan, which owns shares of the fund. In that
capacity, they participate in the voting of such shares. Charles B. Johnson
and Rupert H. Johnson, Jr. disclaim beneficial ownership of any share of the
fund owned by the Franklin Templeton Profit Sharing 401(k) Plan.
From time to time, the number of fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.
As of April 3, 2000, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in the Franklin Templeton
Group of Funds.
BUYING AND SELLING SHARES
- -------------------------------------------------------------------------------
The fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any 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. Banks and financial
institutions that sell shares of the fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the fund must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.
INITIAL SALES CHARGES The maximum initial sales charge is 5.75% for Class A
and 1% for Class C. There is no initial sales charge for Class B.
The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in the Franklin Templeton Funds to take advantage of
the lower sales charges for large purchases. The Franklin Templeton Funds
include the U.S. registered mutual funds in the Franklin Group of Funds(R) and
the Templeton Group of Funds except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds. You also may combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you also may add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge
by completing the letter of intent section of your account application. A
letter of intent is a commitment by you to invest a specified dollar amount
during a 13 month period. The amount you agree to invest determines the sales
charge you pay. By completing the letter of intent section of the
application, you acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase in
Class A shares registered in your name until you fulfill your LOI. Your
periodic statements will include the reserved shares in the total shares
you own, and we will pay or reinvest dividend and capital gain
distributions on the reserved shares according to the distribution option
you have chosen.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the LOI or pay the higher sales charge.
After you file your LOI with the fund, you may buy Class A shares at the
sales charge applicable to the amount specified in your LOI. Sales charge
reductions based on purchases in more than one Franklin Templeton Fund will
be effective only after notification to Distributors that the investment
qualifies for a discount. Any Class A purchases you made within 90 days
before you filed your LOI also may qualify for a retroactive reduction in the
sales charge. If you file your LOI with the fund before a change in the
fund's sales charge, you may complete the LOI at the lower of the new sales
charge or the sales charge in effect when the LOI was filed.
Your holdings in the Franklin Templeton Funds acquired more than 90 days
before you filed your LOI will be counted towards the completion of the LOI,
but they will not be entitled to a retroactive reduction in the sales charge.
Any redemptions you make during the 13 month period, except in the case of
certain retirement plans, will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of
your total purchases, less redemptions, is more than the amount specified in
your LOI and is an amount that would qualify for a further sales charge
reduction, a retroactive price adjustment will be made by Distributors and
the securities dealer through whom purchases were made. The price adjustment
will be made on purchases made within 90 days before and on those made after
you filed your LOI and will be applied towards the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases.
If the amount of your total purchases, less redemptions, is less than the
amount specified in your LOI, the sales charge will be adjusted upward,
depending on the actual amount purchased (less redemptions) during the
period. You will need to send Distributors an amount equal to the difference
in the actual dollar amount of sales charge paid and the amount of sales
charge that would have applied to the total purchases if the total of the
purchases had been made at one time. Upon payment of this amount, the
reserved shares held for your account will be deposited to an account in your
name or delivered to you or as you direct. If within 20 days after written
request the difference in sales charge is not paid, we will redeem an
appropriate number of reserved shares to realize the difference. If you
redeem the total amount in your account before you fulfill your LOI, we will
deduct the additional sales charge due from the sale proceeds and forward the
balance to you.
For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the LOI. These plans are not subject to the requirement to reserve 5%
of the total intended purchase or to the policy on upward adjustments in
sales charges described above, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the LOI.
GROUP PURCHASES. If you are a member of a qualified group, you may buy Class
A shares at a reduced sales charge that applies to the group as a whole. The
sales charge is based on the combined dollar value of the group members'
existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased the
fund's Class A shares at a reduced sales charge under the group purchase
privilege before February 1, 1998, may continue to do so.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be
purchased without an initial sales charge or contingent deferred sales charge
(CDSC) by investors who reinvest within 365 days:
o Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same share class.
Certain exceptions apply, however, to Class C shareholders who chose to
reinvest their distributions in Class A shares of the fund before November
17, 1997, and to Advisor Class or Class Z shareholders of a Franklin
Templeton Fund who may reinvest their distributions in the fund's Class A
shares. This waiver category also applies to Class B and C shares.
o Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment option
the Franklin Templeton Variable Insurance Products Trust or the Templeton
Variable Products Series Fund. You should contact your tax advisor for
information on any tax consequences that may apply.
o Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank CD or
a Franklin Templeton money fund, you may reinvest them as described above.
The proceeds must be reinvested within 365 days from the date the CD
matures, including any rollover, or the date you redeem your money fund
shares.
o Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.
If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of fund shares
and the CDSC holding period will begin again. We will, however, credit your
fund account with additional shares based on the CDSC you previously paid
and the amount of the redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
o Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without
an initial sales charge or CDSC by various individuals and institutions due
to anticipated economies in sales efforts and expenses, including:
o Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held
in a fiduciary, agency, advisory, custodial or similar capacity and over
which the trust companies and bank trust departments or other plan
fiduciaries or participants, in the case of certain retirement plans, have
full or shared investment discretion. We may accept orders for these
accounts 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 the order.
Effective June 1, 2000, the requirement to agree to invest at least $1
million in Franklin Templeton Funds over a 13 month period will no longer
apply.
o Any state or local government or any instrumentality, department, authority
or agency thereof that has determined the fund is a legally permissible
investment and that can only buy fund shares without paying sales charges.
Please consult your legal and investment advisors to determine if an
investment in the fund is permissible and suitable for you and the effect,
if any, of payments by the fund on arbitrage rebate calculations.
o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
o Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors
o Registered securities dealers and their affiliates, for their investment
accounts only
o Current employees of securities dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
o Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
o Any investor who is currently a Class Z shareholder of Franklin Mutual
Series Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31,
1996, or who sold his or her shares of Mutual Series Class Z within the
past 365 days
o Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
o Accounts managed by the Franklin Templeton Group
o Certain unit investment trusts and their holders reinvesting distributions
from the trusts
o Group annuity separate accounts offered to retirement plans
o Chilean retirement plans that meet the requirements described under
"Retirement plans" below
o German insurance companies that publicly offer variable annuities or unit
linked life policies in Germany and that have entered into an agreement
with Templeton Global Strategic Services (Deutschland) GmbH
In addition, Class C shares may be purchased without an initial sales charge
by any investor who buys Class C shares through an omnibus account with
Merrill Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the
shares are sold within 18 months of purchase.
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without an initial sales
charge. Retirement plans that are not qualified retirement plans (employer
sponsored pension or profit-sharing plans that qualify under section 401 of
the Internal Revenue Code, including 401(k), money purchase pension, profit
sharing and defined benefit plans), SIMPLEs (savings incentive match plans
for employees) or SEPs (employer sponsored simplified employee pension plans
established under section 408(k) of the Internal Revenue Code) must also meet
the group purchase requirements described above to be able to buy Class A
shares without an initial sales charge. We may enter into a special
arrangement with a securities dealer, based on criteria established by the
fund, to add together certain small qualified retirement plan accounts for
the purpose of meeting these requirements.
For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply
if the retirement plan is transferred out of the Franklin Templeton Funds or
terminated within 365 days of the retirement plan account's initial purchase
in the Franklin Templeton Funds.
Any retirement plan that does not meet the requirements to buy Class A shares
without an initial sales charge and that was a shareholder of the fund on or
before February 1, 1995, may buy shares of the fund subject to a maximum
initial sales charge of 4% of the offering price, 3.2% of which will be
retained by securities dealers.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the fund's shares are available to these banks' trust accounts without
a sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining
a service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.
The fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE (%)
- ------------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $50,000 2.5
$50,000 but less than $100,000 2.0
$100,000 but less than $200,000 1.5
$200,000 but less than $400,000 1.0
$400,000 or more 0
DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may
be deemed an underwriter under the Securities Act of 1933, as amended.
Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated in the dealer compensation table
in the fund's prospectus.
Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million to $2 million, plus
0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.
These breakpoints are reset every 12 months for purposes of additional
purchases.
Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for
purchases of Class A shares by certain retirement plans without an initial
sales charge. These payments may be made in the form of contingent advance
payments, which may be recovered from the securities dealer or set off
against other payments due to the dealer if shares are sold within 12 months
of the calendar month of purchase. Other conditions may apply. All terms and
conditions may be imposed by an agreement between Distributors, or one of its
affiliates, and the securities dealer.
In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of the
Franklin Templeton Group of Funds. This support is based primarily on the
amount of sales of fund shares and/or total assets with the Franklin
Templeton Group of Funds. The amount of support may be affected by: total
sales; net sales; levels of redemptions; the proportion of a securities
dealer's sales and marketing efforts in the Franklin Templeton Group of
Funds; a securities dealer's support of, and participation in, Distributors'
marketing programs; a securities dealer's compensation programs for its
registered representatives; and the extent of a securities dealer's marketing
programs relating to the Franklin Templeton Group of Funds. Financial support
to securities dealers may be made by payments from Distributors' resources,
from Distributors' retention of underwriting concessions and, in the case of
funds that have Rule 12b-1 plans, from payments to Distributors under such
plans. In addition, certain securities dealers may receive brokerage
commissions generated by fund portfolio transactions in accordance with the
rules of the National Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity
discount or letter of intent programs, a CDSC may apply on any shares you
sell within 12 months of purchase. For Class C shares, a CDSC may apply if
you sell your shares within 18 months of purchase. The CDSC is 1% of the
value of the shares sold or the net asset value at the time of purchase,
whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of the Franklin
Templeton Funds or terminated within 365 days of the account's initial
purchase in the Franklin Templeton Funds.
For Class B shares, there is a CDSC if you sell your shares within six years,
as described in the table below. The charge is based on the value of the
shares sold or the net asset value at the time of purchase, whichever is less.
IF YOU SELL YOUR CLASS B
SHARES WITHIN THIS MANY YEARS THIS % IS DEDUCTED
AFTER BUYING THEM FROM YOUR PROCEEDS
AS A CDSC
- ------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
CDSC WAIVERS. The CDSC for any share class generally will be waived for:
o Account fees
o Sales of Class A shares purchased without an initial sales charge by
certain retirement plan accounts if (i) the account was opened before May
1, 1997, or (ii) the securities dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any
payment in connection with the purchase, or (iv) the securities dealer of
record has entered into a supplemental agreement with Distributors
o Redemptions of Class A shares by investors who purchased $1 million or more
without an initial sales charge if the securities dealer of record waived
its commission in connection with the purchase
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's net asset value depending on the frequency of
your plan
o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R) (not applicable to Class
B)
o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy (for
Class B, this applies to all retirement plan accounts, not only IRAs)
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
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
occurs, it is the fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with the fund's
investment goal exist immediately. This money will then be withdrawn from the
short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
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. There are no service charges
for establishing or maintaining a systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account, generally on the 25th day of the month. If
the 25th falls on a weekend or holiday, we will process the redemption on the
next business day. Beginning June 1, 2000, you may request to change the
processing date to the 1st, 5th, 10th, 15th or 20th of the month. For plans
set up on or after June 1, 2000, we will process redemptions on the day of
the month you have indicated on your account application or, if no day is
indicated, on the 20th day of the month (or next business day). When you sell
your shares under a systematic withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan also
may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will automatically discontinue a systematic withdrawal plan automatically if
all shares in your account are withdrawn or if the fund receives notification
of the shareholder's death or incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (SEC). In the case of redemption requests in excess
of these amounts, the board reserves the right to make payments in whole or
in part in securities or other assets of the fund, in case of an emergency,
or if the payment of such a redemption in cash would be detrimental to the
existing shareholders of the fund. In these circumstances, the securities
distributed would be valued at the price used to compute the fund's net
assets and you may incur brokerage fees in converting the securities to cash.
The fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
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 and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, 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 or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the fund
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the fund may reimburse Investor Services an amount not to
exceed the per account fee that the fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the fund in a timely fashion. 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. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, the fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
- -------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the
net asset value (NAV) per share plus any applicable sales charge, calculated
to two decimal places using standard rounding criteria. When you sell shares,
you receive the NAV minus any applicable CDSC.
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.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. The fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the fund values them according to the broadest and most
representative market as determined by the manager.
The fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the fund holds is its last sale price on the relevant exchange before
the fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the fund values options within
the range of the current closing bid and ask prices if the fund believes the
valuation fairly reflects the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business of the NYSE on each day that the NYSE is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every NYSE business day. Furthermore, trading takes
place in various foreign markets on days that are not business days for the
NYSE and on which the fund's NAV is not calculated. Thus, the calculation of
the fund's NAV does not take place contemporaneously with the determination
of the prices of many of the portfolio securities used in the calculation
and, if events materially affecting the values of these foreign securities
occur, the securities will be valued at fair value as determined by
management and approved in good faith by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the board. With the approval of
the board, the fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
- -------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances
to dealers, and the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended
December 31:
AMOUNT RECEIVED IN
CONNECTION WITH
TOTAL AMOUNT RETAINED BY REDEMPTIONS AND
COMMISSIONS DISTRIBUTORS ($) REPURCHASES ($)
RECEIVED ($)
--------------------------------------------------------------------
1999 3,827,266 512,560 243,308
1998 10,228,075 834,223 491,803
1997 2,257,338 293,215 293,215
Distributors may be entitled to reimbursement under the Rule 12b-1 plans, as
discussed below. Except as noted, Distributors received no other compensation
from the fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the fund and its
shareholders. The plans are expected to, among other things, increase
advertising of the fund, encourage sales of the fund and service to its
shareholders, and increase or maintain assets of the fund so that certain
fixed expenses may be spread over a broader asset base, resulting in lower
per share expense ratios. In addition, a positive cash flow into the fund is
useful in managing the fund because the manager has more flexibility in
taking advantage of new investment opportunities and handling shareholder
redemptions.
Under each plan, the fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others
who have executed a servicing agreement with the fund, Distributors or its
affiliates who provide service or account maintenance to shareholders
(service fees); the expenses of printing prospectuses and reports used for
sales purposes, and of preparing and distributing sales literature and
advertisements; and a prorated portion of Distributors' overhead expenses
related to these activities. Together, these expenses, including the service
fees, are "eligible expenses." The distribution and service (12b-1) fees
charged to each class are based only on the fees attributable to that
particular class.
THE CLASS A PLAN. The fund may pay up to 0.35% per year of Class A's average
daily net assets. The Class A plan is a reimbursement plan. It allows the
fund to reimburse Distributors for eligible expenses that Distributors has
shown it has incurred. The fund will not reimburse more than the maximum
amount allowed under the plan. Any unreimbursed expenses from one year may
not be carried over to or reimbursed in later years. Any unreimbursed
expenses from one quarter, however, may be reimbursed in future quarters or
years. This includes expenses not reimbursed because they had exceeded the
applicable limit under the plan. As of December 31, 1999, there were no
unreimbursed expenses under the plan.
For the fiscal year ended December 31, 1999, the amounts paid by the fund
pursuant to the plan were:
($)
- ----------------------------------------------
Advertising 517,293
Printing and mailing
prospectuses 160,927
other than to current
shareholders
Payments to underwriters 258,909
Payments to broker-dealers 5,510,462
Other 1,632,878
------------
Total 8,080,469
------------
THE CLASS B AND C PLANS. The fund pays Distributors up to 1% per year of the
class's average daily net assets, out of which 0.25% may be used for service
fees. The Class B and C plans also may be used to pay Distributors for
advancing commissions to securities dealers with respect to the initial sale
of Class B and C shares. Class B plan fees payable to Distributors are used
by Distributors to pay third party financing entities that have provided
financing to Distributors in connection with advancing commissions to
securities dealers.
The Class B and C plans are compensation plans. They allow the fund to pay a
fee to Distributors that may be more than the eligible expenses Distributors
has incurred at the time of the payment. Distributors must, however,
demonstrate to the board that it has spent or has immediate plans to spend
the amount received on eligible expenses. The fund will not pay more than the
maximum amount allowed under the plans.
In addition to the payments that Distributors or others are entitled to under
each plan, each plan also provides that to the extent the fund, the manager
or Distributors or other parties on behalf of the fund, the manager or
Distributors make payments that are deemed to be for the financing of any
activity primarily intended to result in the sale of fund shares within the
context of Rule 12b-1 under the Investment Company Act of 1940, as amended,
then such payments shall be deemed to have been made pursuant to the plan.
Under the Class B plan, the amounts paid by the fund pursuant to the plan for
the fiscal year ended December 31, 1999, were:
($)
- ----------------------------------------------
Advertising 611
Printing and mailing
prospectuses 181
other than to current
shareholders
Payments to underwriters 5,738
Payments to broker-dealers 402,377
Other 17,201
------------
Total 426,108
------------
Under the Class C plan, the amounts paid by the fund pursuant to the plan for
the fiscal year ended December 31, 1999, were:
($)
- ----------------------------------------------
Advertising 226
Printing and mailing
prospectuses 1,419
other than to current
shareholders
Payments to underwriters 32,488
Payments to broker-dealers 3,129,572
Other 145,227
------------
Total 3,308,932
------------
THE CLASS A, B AND C PLANS. To the extent fees are for distribution or
marketing functions, as distinguished from administrative servicing or agency
transactions, certain banks may not participate in the plans because of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. These banks, however, are allowed to
receive fees under the plans for administrative servicing or for agency
transactions.
Distributors must provide written reports to the board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board
may reasonably request to enable it to make an informed determination of
whether the plans should be continued.
Each plan has been approved according to the provisions of Rule 12b-1. The
terms and provisions of each plan also are consistent with Rule 12b-1.
PERFORMANCE
- -------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC.
Performance figures reflect Rule 12b-1 fees from the date of the plan's
implementation. An explanation of these and other methods used by the fund to
compute or express performance follows. Regardless of the method used, past
performance does not guarantee future results, and is an indication of the
return to shareholders only for the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum initial sales charge is
deducted from the initial $1,000 purchase, and income dividends and capital
gain distributions are reinvested at net asset value. The quotation assumes
the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. If a change is made to the
sales charge structure, historical performance information will be restated
to reflect the maximum initial sales charge currently in effect.
When considering the average annual total return quotations for Class A and C
shares, you should keep in mind that the maximum initial sales charge
reflected in each quotation is a one time fee charged on all direct
purchases, which will have its greatest impact during the early stages of
your investment. This charge will affect actual performance less the longer
you retain your investment in the fund. The average annual total returns for
the indicated periods ended December 31, 1999, were:
1 YEAR (%) 5 YEARS (%) SINCE
INCEPTION
(10/16/91)
(%)
- ------------------------------------------------------------------
Class A 42.82 5.27 7.91
SINCE INCEPTION
1 YEAR (%) (1/1/99) (%)
- ----------------------------------------------------
Class B 46.19 46.19
SINCE INCEPTION
1 YEAR (%) (5/1/95) (%)
- ----------------------------------------------------
Class C 47.99 6.43
The following SEC formula was used to calculate these figures:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are
reinvested at net asset value, the account was completely redeemed at the end
of each period and the deduction of all applicable charges and fees.
Cumulative total return, however, is based on the actual return for a
specified period rather than on the average return over the periods indicated
above. The cumulative total returns for the indicated periods ended December
31, 1999, were:
1 YEAR (%) 5 YEARS (%) SINCE
INCEPTION
(10/16/91)
(%)
- ------------------------------------------------------------------
Class A 42.82 29.30 86.83
SINCE INCEPTION
1 YEAR (%) (1/1/99) (%)
- ----------------------------------------------------
Class B 46.19 46.19
SINCE INCEPTION
1 YEAR (%) (5/1/95) (%)
- ----------------------------------------------------
Class C 47.99 33.80
The following SEC formula was used to calculate these figures:
Yield = 2 [(A-B + 1)6 - 1]
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
VOLATILITY Occasionally statistics may be used to show the fund's volatility
or risk. Measures of volatility or risk are generally used to compare the
fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS The fund also may quote the performance of
shares without a sales charge. Sales literature and advertising may quote a
cumulative total return, average annual total return and other measures of
performance with the substitution of net asset value for the public offering
price.
Sales literature referring to the use of the fund as a potential investment
for IRAs, business retirement plans, and other tax-advantaged retirement
plans may quote a total return based upon compounding of dividends on which
it is presumed no federal income tax applies.
The fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
the Franklin Templeton Group of Funds. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of the Franklin Templeton Group of
Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the
fund may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
(i) unmanaged indices so that you 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(R) Inc., a widely used independent research firm
that ranks mutual funds by overall performance, investment goals 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 for inflation) to assess the real rate of return from an
investment in the fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
From time to time, the fund and the manager also may refer to the following
information:
o The 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.
o 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.
o 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.
o The geographic and industry distribution of the fund's portfolio and the
fund's top ten holdings.
o 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.
o 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 Capital International EAFE(R)
Index).
o The major industries located in various jurisdictions as published by the
Morgan Stanley Index.
o Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder
services.
o Allegorical stories illustrating the importance of persistent long-term
investing.
o The fund's portfolio turnover rate and its ranking relative to industry
standards as published by Lipper(R) Inc. or Morningstar, Inc.
o 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.
o Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions.
o Quotations from the Templeton organization's founder, Sir John Templeton,*
advocating the virtues of diversification and long-term investing.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information also may compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. CDs are frequently insured by an agency of the U.S.
government. An investment in the fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the fund to calculate its figures. In
addition, there can be no assurance that the fund will continue its
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
- -------------------------------------------------------------------------------
The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by
the College Board.) The Franklin Retirement Planning Guide leads you through
the steps to start a retirement savings program. Of course, an investment in
the fund cannot guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of
the oldest mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together, the
Franklin Templeton Group has over $229 billion in assets under management for
more than 5 million U.S. based mutual fund shareholder and other accounts.
The Franklin Templeton Group of Funds offers 103 U.S. based open-end
investment companies to the public. The fund may identify itself by its
Nasdaq symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
You will receive the fund's financial reports every six months. If you would
like to receive an interim report of the fund's portfolio holdings, please
call 1-800/DIAL BEN(R).
DESCRIPTION OF RATINGS
- -------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
INVESTMENT GRADE
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
BELOW INVESTMENT GRADE
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S RATINGS GROUP (S&P(R))
INVESTMENT GRADE
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BELOW INVESTMENT GRADE
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations for both short-term
debt and commercial paper, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
- --------
1 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 board on April 16,
1995. He is no longer involved with the investment management process.
PAGE
PART B
ADVISOR CLASS
STATEMENT OF
ADDITIONAL INFORMATION
PAGE
TEMPLETON DEVELOPING MARKETS TRUST
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
[Insert Franklin Templeton "Butterball" logo]
P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN(R)
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund's prospectus.
The fund's prospectus, dated May 1, 2000, which we may amend from time
to time, contains the basic information you should know before investing in
the fund. You should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended December 31, 2000, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies 2
Risks 8
Officers and Trustees 11
Management and Other Services 15
Portfolio Transactions 16
Distributions and Taxes 17
Organization, Voting Rights
and Principal Holders 18
Buying and Selling Shares 19
Pricing Shares 21
The Underwriter 22
Performance 22
Miscellaneous Information 24
Description of Ratings 25
- -------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- -------------------------------------------------------------------------------
o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- -------------------------------------------------------------------------------
GOAL AND STRATEGIES
The fund's investment goal is long-term capital appreciation. This goal is
fundamental, which means it may not be changed without shareholder approval.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities of emerging market companies.
For purposes of the fund's investments, developing or emerging market
countries include:
o countries that are generally considered low or middle income countries
by the International Bank of Reconstruction and Development (commonly known
as the World Bank) and the International Finance Corporation; or
o countries that are classified by the United Nations or otherwise
regarding by their authorities as developing; or
o countries with a stock market capitalization of less than 3% of the
Morgan Stanley Capital International World Index.
In addition, developing or emerging markets equity securities means those
issued by:
o companies whose principal securities trading markets are in developing
or emerging market countries; or
o companies that derive a significant share of their total revenue from
either goods or services produced or sales made in developing or emerging
market countries; or
o companies that have a significant portion of their assets in developing
or emerging market countries; or
o companies that are linked to currencies of developing or emerging market
countries; or
o companies that are organized under the laws of, or with principal
offices in, developing or emerging market countries.
GENERAL The fund may invest up to 100% of its total assets in developing or
emerging markets, including up to 5% of its total assets in Russian
securities. The fund normally will invest in at least three developing or
emerging market countries. With respect to 75% of its total assets, the fund
may invest up to 5% of its total assets in securities issued by any one
company or foreign government. The fund may invest any amount of its assets
in U.S. government securities. The fund may invest in any industry although
it will not concentrate (invest more than 25% of its total assets) in any one
industry. 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 those instruments. The fund will generally
have a portion of its assets in cash or cash equivalents for a variety of
reasons, including waiting for a special investment opportunity or taking a
defensive position. To earn income on this portion of its assets, the fund
may enter into repurchase agreements with certain banks and broker-dealers.
EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner
of an equity security may participate in a company's success through the
receipt of dividends which are distributions of earnings by the company to
its owners. Equity security owners also may participate in a company's
success or lack of success through increases or decreases in the value of the
company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive
less appreciation than common stockholders and may have greater voting rights
as well. Equity securities also may include convertible securities, warrants
or rights. Convertible securities typically are debt securities or preferred
stocks which are convertible into common stock after certain time periods or
under certain circumstances. Warrants or rights give the holder the right to
purchase a common stock at a given time for a specified price.
DEPOSITARY RECEIPTS Depositary receipts are certificates that give their
holders the right to receive securities (a) of a foreign issuer deposited in
a U.S. bank or trust company (American Depositary Receipts or "ADRs"); or (b)
of a foreign or U.S. issuer deposited in a foreign bank or trust company
(Global Depositary Receipts or "GDRs" or European Depositary Receipts or
"EDRs").
DEBT SECURITIES A debt security typically has a fixed payment schedule which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it
declares and pays any dividend to holders of its equity securities. Bonds,
notes, debentures and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.
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.
The fund may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the
financial soundness of the issuer. Generally, a lower rating indicates higher
risk. The fund may invest up to 35% of its total assets in debt securities
which are rated C or better by Moody's Investors Services, Inc. (Moody's) or
Standard & Poor's Corporation (S&P) or unrated debt which it determines to be
of comparable quality. At present, the fund does not intend to invest more
than 5% of its total assets in non-investment grade securities (rated lower
than BBB by S&P or Baa by Moody's).
The fund may, from time to time purchase defaulted debt securities if, in the
opinion of the 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.
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 flows 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 flows 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 leveraged 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 Investment Company Act of 1940, as amended (the
"1940 Act"). As a result, the fund's investment in these structured
investments may be limited by the restrictions contained in the 1940 Act.
Structured investments are typically sold in private placement transactions,
and there currently is no active trading market for structured investments.
To the extent such investments are illiquid, they will be subject to the
fund's restrictions on investments in illiquid securities.
CLOSED-END INVESTMENT COMPANIES To encourage indirect foreign investment in
their capital markets, some countries, including South Korea, Chile and
India, have permitted the creation of closed-end investment companies. The
fund may invest up to 10% of its total assets in securities of these
companies. 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.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the fund may enter into repurchase
agreements. Under a repurchase agreement, the fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
fund in each repurchase agreement. The 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 bank or broker-dealer, including possible delays or restrictions upon
the fund's ability to sell the underlying securities. The fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may
lend certain of its portfolio securities to qualified securities dealers or
other institutional investors. These loans may not exceed 331/3% of the value
of the fund's total assets, measured at the time of the most recent loan.
Each loan must be secured with collateral (consisting of any combination of
cash, securities issued by the U.S. government and its agencies and
instrumentalities, or irrevocable letters of credit) in an amount at least
equal (on a daily market to market basis) of the current market value of the
loaned securities. The fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the borrower. The
fund also effectively receives any distributions paid on the loaned
securities. The fund may terminate a loan at any time and obtain the return
of the securities loaned within the normal settlement period for the security
involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities
to vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in
the event of default or insolvency of the borrower.
The fund will loan its securities only to parties who meet creditworthiness
standards approved by the fund's board of trustees, i.e., banks or
broker-dealers that the manager has determined present no serious risk of
becoming involved in bankruptcy proceedings within the time frame
contemplated by the loan.
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.
FUTURES CONTRACTS Although the fund has the authority to buy and sell
financial futures contracts, it presently has no intention of entering into
such transactions. 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 also may 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.
The fund may not commit more than 5% of its total assets to initial margin
deposits on futures contracts and related options. In addition, the value of
the securities on which the futures contracts are based will not exceed 25%
of the fund's total assets.
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 Although the fund has the authority to write
covered call and put options and purchase call and put options on securities
or stock indices that are traded on U.S. and foreign exchanges and in the
over-the-counter markets, it presently has no intention of entering into such
transactions.
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 will limit the sale of options on its securities to 15% or less of
its total assets. The fund may only buy options if the total premiums it paid
for such options is 5% or less of its total assets.
The fund may write a call or put option to generate income 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 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 also may 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 To help protect its portfolio against
adverse changes in foreign currency exchange rates, the fund may: (1) buy and
sell foreign currency at the prevailing rate in the foreign currency exchange
market; (2) enter into forward foreign currency contracts which are
agreements to buy or sell a specific currency at a set price on a future date
(generally within one year); and (3) buy and sell put and call options on
foreign currencies. The fund may only commit up to 20% of its total assets to
forward foreign currency contracts. 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 reduce 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, it 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 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.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the
fund's assets in a temporary defensive manner or hold a substantial portion
of the fund's portfolio in cash. Unfavorable market or economic conditions
may include excessive volatility or a prolonged general decline in the
securities markets, the securities in which the fund normally invests, or the
economies of the countries where the fund invests.
Temporary defensive investments generally may include:
o short-term (maturities of less than 12 months) and medium-term
(maturities up to 5 years) securities issued or guaranteed by the U.S. or a
foreign government, their agencies or instrumentalities;
o finance company and corporate commercial paper, and other short-term
corporate obligations, rated A by S&P or Prime-1 by Moody's or, if unrated,
determined to be of comparable quality;
o bank obligations (including CDs, time deposits and bankers'
acceptances), and
o repurchase agreements with banks and broker-dealers.
To the extent allowed by exemptions granted under the 1940 Act, and the
fund's other investment policies and restrictions, the manager also may
invest the fund's assets in shares of one or more money market funds managed
by the manager or its affiliates. The manager also may invest in these types
of securities or hold cash while looking for suitable investment
opportunities or to maintain liquidity.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
The fund may 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 statement of additional information);
or invest in other open-end investment companies except as permitted by the
1940 Act./1/
2. Purchase or retain securities of any company in which trustees or officers
of the fund or of the manager, individually own more than one-half of 1% of
the securities of such company or, 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./1/
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.
5. Borrow money, except that the fund may borrow money from banks in an
amount not exceeding 331/3% of the value of the fund's total assets
(including the amount borrowed), or pledge, mortgage or hypothecate its
assets for any purposes, 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.
6. 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.
7. Invest more than 5% of the fund's total assets in warrants, whether or
not listed on the New York Stock Exchange (NYSE) or the 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.
8. Invest more than 25% of the fund's total assets in a single industry.
9. Participate on a joint or a joint and several basis in any trading
account in securities. See "Portfolio Transactions" as to transactions in
the same securities for the fund, other clients and/or other mutual funds
within the Franklin Templeton Group of Funds.
10.Invest more than 15% of the fund's total assets in securities of foreign
issuers that are not listed on a recognized U.S. 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.
The fund also may be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund
is not required to sell a security because circumstances change and the
security no longer meets one or more of the fund's policies or restrictions.
If a percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
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.
RISKS
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FOREIGN SECURITIES You 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 U.S. Foreign
companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The 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 NYSE and securities of some foreign
companies are less liquid and more volatile than securities of comparable
U.S. companies. Commission rates in foreign countries, which are generally
fixed rather than subject to negotiation as in the U.S., 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 U.S.
DEVELOPING OR EMERGING MARKETS. 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 that 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 legal structures governing private or foreign investment
or allowing for judicial redress for injury to private property; (vi) the
absence, until recently in many developing countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in some developing countries 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 U.S. 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 developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, 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 certain developing
countries. Finally, even though the currencies of some developing countries,
such as certain Eastern European countries 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.
RUSSIAN SECURITIES. Investing in Russian companies involves a high degree of
risk and special considerations not typically associated with investing in
the U.S. securities markets, and should be considered highly speculative.
Such risks include, together with Russia's continuing political and economic
instability and the slow-paced development of its market economy, the
following: (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, insider
trading, 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, a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with substantially less liquidity and in issuers having
significantly smaller market capitalizations, when compared to securities and
issuers in more developed markets; (i) the difficulties associated in
obtaining accurate market valuations of many Russian securities, based partly
on the limited amount of publicly available information; (j) the financial
condition of Russian companies, including large amounts of inter-company debt
which may create a payments crisis on a national scale; (k) dependency on
exports and the corresponding importance of international trade; (l) the risk
that the Russian tax system will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation or, in the alternative, the risk that
a reformed tax system may result in the inconsistent and unpredictable
enforcement of the new tax laws; (m) possible difficulty in identifying a
purchaser of securities held by the fund due to the underdeveloped nature of
the securities markets; (n) the possibility that pending legislation could
restrict the levels of foreign investment in certain industries, thereby
limiting the number of investment opportunities in Russia; (o) the risk that
pending legislation would confer to Russian courts the exclusive jurisdiction
to resolve disputes between foreign investors and the Russian government,
instead of bringing such disputes before an internationally-accepted
third-country arbitrator; and (p) the difficulty in obtaining information
about the financial condition of Russian issuers, in light of the different
disclosure and accounting standards applicable to Russian companies.
There is little long-term 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 nor are they licensed with any governmental entity 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 500 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. In addition, so-called
"financial-industrial groups" have emerged in recent years that seek to deter
outside investors from interfering in the management of companies they
control. These practices may prevent the fund from investing in the
securities of certain Russian companies deemed suitable by the 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.
CURRENCY The fund's management 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. There is the possibility of
cessation of trading on national exchanges, expropriation, nationalization or
confiscatory taxation, withholding and other foreign tax on income or other
amounts, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments 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 also may have
fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be internationally traded.
Certain of these 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.
EURO On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national
currencies of the following member countries: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available
for non-cash transactions. The participating countries currently issue
sovereign debt exclusively in euro. By July 1, 2002, euro-denominated bills
and coins will replace the bills and coins of the above countries.
The new European Central Bank has control over each country's monetary
policies. Therefore, the participating countries no longer control their own
monetary policies by directing independent interest rates for their
currencies. The national governments of the participating countries,
however, have retained the authority to set tax and spending policies and
public debt levels.
It is uncertain how eleven different economies will adjust to a unified
monetary system and the loss of exchange rate flexibility. In the first six
months of the euro's existence, the exchange rates of the euro versus many of
the world's major currencies steadily declined. In this environment, U.S.
and other foreign investors experienced erosion of their investment returns
on their euro-denominated securities. The transition and the elimination of
currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets.
While the implementation of the euro could have a negative effect on the
fund, the fund's manager and its affiliated service providers are taking
steps they believe are reasonably designed to address the euro issue.
INTEREST RATE To the extent the fund invests in debt securities, changes in
interest rates in any country where the fund is invested will affect the
value of the fund's portfolio and, consequently, its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to cause the face value of a debt security to decrease,
having a negative effect on the value of the fund's shares. Of course,
interest rates have increased and decreased, sometimes very dramatically, in
the past. These changes are likely to occur again in the future at
unpredictable times.
LOW-RATED SECURITIES 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 also may 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 goal may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be
less sensitive to interest rate changes than higher rated investments, but
more sensitive to adverse economic downturns or individual corporate
developments. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in low rated debt
securities prices because the advent of a recession could lessen the ability
of a highly leveraged company to make principal and interest payments on its
debt securities. If the issuer of low rated debt securities defaults, the
fund may incur additional expenses to seek recovery.
The purchase of defaulted debt securities involves significant additional
risks, such as the possibility of complete loss of the investment in the
event the issuer does not restructure or reorganize to enable it to resume
paying interest and principal to holders.
DERIVATIVE SECURITIES 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 manager's ability to predict
correctly movements in the direction of the market, as to which no assurance
can be given.
OFFICERS AND TRUSTEES
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The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of the
fund's investment activities. The board, in turn, elects the officers of the
trust who are responsible for administering the trust's day-to-day
operations. The board also monitors the fund to ensure no material conflicts
exist among share classes. While none is expected, the board will act
appropriately to resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the trust, and principal occupations during
the past five years are shown below.
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 48 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
*Nicholas F. Brady (70)
16 North Washington Street, Easton, MD 21601
TRUSTEE
Chairman, Templeton Emerging Markets Investment Trust PLC, Templeton Latin
America Investment Trust PLC, Darby Overseas Investments, Ltd. and Darby
Emerging Markets Investments LDC (investment firms) (1994-present); Director,
Templeton Global Strategy Funds, Amerada Hess Corporation (exploration and
refining of oil and gas), C2, Inc. (operating and investment business), and
H.J. Heinz Company (processed foods and allied products); director or
trustee, as the case may be, of 19 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Secretary of the United
States Department of the Treasury (1988-1993), Chairman of the Board, Dillon,
Read & Co., Inc. (investment banking) (until 1988) and U.S. Senator, New
Jersey (April 1982-December 1982).
Frank J. Crothers (55)
P.O. Box N-3238, Nassau, Bahamas
TRUSTEE
Chairman, Caribbean Electric Utility Services Corporation and Atlantic
Equipment & Power Ltd.; Vice Chairman, Caribbean Utilities Co., Ltd.;
President, Provo Power Corporation; director of various other business and
non-profit organizations; and director or trustee, as the case may be, of 11
of the investment companies in the Franklin Templeton Group of Funds.
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 50 of the investment companies in the
Franklin Templeton Group of Funds.
John Wm. Galbraith (78)
360 Central Avenue, Suite 1300, St. Petersburg, FL 33701
TRUSTEE
President, Galbraith Properties, Inc. (personal investment company); Director
Emeritus, Gulf West Banks, Inc. (bank holding company) (1995-present);
director or trustee, as the case may be, of 18 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Director, Mercantile
Bank (1991-1995), Vice Chairman, Templeton, Galbraith & Hansberger Ltd.
(1986-1992), and Chairman, Templeton Funds Management, Inc. (1974-1991).
Andrew H. Hines, Jr. (77)
One Progress Plaza, Suite 290, St. Petersburg, FL 33701
TRUSTEE
Consultant, Triangle Consulting Group; Executive-in-Residence, Eckerd College
(1991-present); director or trustee, as the case may be, of 20 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Director, Precise Power Corporation (1990-1997), Director,
Checkers Drive-In Restaurant, Inc. (1994-1997), and Chairman of the Board and
Chief Executive Officer, Florida Progress Corporation (holding company in the
energy area) (1982-1990) and director of various of its subsidiaries.
Edith E. Holiday (48)
3239 38th Street, N.W., Washington, DC 20016
TRUSTEE
Director, Amerada Hess Corporation (exploration and refining of oil and gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present), H.J.
Heinz Company (processed foods and allied products) (1994-present) and RTI
International Metals, Inc. (manufacture and distribution of titanium) (July
1999-present); director or trustee, as the case may be, of 25 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Assistant to the President of the United States and Secretary of the Cabinet
(1990-1993), General Counsel to the United States Treasury Department
(1989-1990), and Counselor to the Secretary and Assistant Secretary for Public
Affairs and Public Liaison-United States Treasury Department (1988-1989).
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President and Trustee
Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Investment Advisory Services, Inc.; Chairman of the Board,
Franklin Advisers, Inc.; Vice President, Franklin Templeton Distributors,
Inc.; Director, Franklin/Templeton Investor Services, Inc. and Franklin
Templeton Services, Inc.; officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 49
of the investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (43)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.;
Director, Templeton Investment Counsel, Inc.; President, Franklin Investment
Advisory Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 33 of the investment companies in the
Franklin Templeton Group of Funds.
Betty P. Krahmer (70)
2201 Kentmere Parkway, Wilmington, DE 19806
TRUSTEE
Director or trustee of various civic associations; director or trustee, as
the case may be, of 19 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Economic Analyst, U.S. government.
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Martek Biosciences Corporation, MCI WorldCom, Inc. (information
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 48 of the investment companies in the Franklin Templeton Group of Funds;
and FORMERLY, Chairman, White River Corporation (financial services) (until
1998) and Hambrecht & Quist Group (investment banking) (until 1992), and
President, National Association of Securities Dealers, Inc. (until 1987).
Fred R. Millsaps (71)
2665 NE 37th Drive, Fort Lauderdale, FL 33308
TRUSTEE
Manager of personal investments (1978-present); director of various business
and nonprofit organizations; director or trustee, as the case may be, of 20
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman and Chief Executive Officer, Landmark Banking Corporation
(1969-1978), Financial Vice President, Florida Power and Light (1965-1969),
and Vice President, Federal Reserve Bank of Atlanta (1958-1965).
Constantine Dean Tseretopoulos (46)
Lyford Cay Hospital, P.O. Box N-7776, Nassau Bahamas
TRUSTEE
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit
organizations; director or trustee, as the case may be, of 11 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Cardiology Fellow, University of Maryland (1985-1987) and Internal Medicine
Intern, Greater Baltimore Medical Center (1982-1985).
James R. Baio (46)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
TREASURER
Certified Public Accountant; Senior Vice President, Templeton Worldwide,
Inc., Templeton Global Investors, Inc. and Templeton Funds Trust Company;
officer of 20 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Senior Tax Manager, Ernst & Young (certified public
accountants) (1977-1989).
Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc. and Franklin Templeton Services, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc. and Franklin/Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Member - Office of the President, Chief Financial Officer and
Chief Operating Officer, Franklin Resources, Inc.; Senior Vice President,
Chief Financial Officer and Director, Franklin/Templeton Investor Services,
Inc.; Senior Vice President and Chief Financial Officer, Franklin Mutual
Advisers, LLC; Executive Vice President, Chief Financial Officer and
Director, Templeton Worldwide, Inc.; Executive Vice President, Chief
Operating Officer and Director, Templeton Investment Counsel, Inc.; Executive
Vice President and Chief Financial Officer, Franklin Advisers, Inc.; Chief
Financial Officer, Franklin Advisory Services, LLC and Franklin Investment
Advisory Services, Inc.; Director, Franklin Templeton Services, Inc.; officer
and/or director of some of the other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 52 of
the investment companies in the Franklin Templeton Group of Funds.
David P. Goss (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Chief Executive Officer and Director, Franklin Select Realty
Trust, Property Resources, Inc., Property Resources Equity Trust and Franklin
Real Estate Management, Inc., and Franklin Properties, Inc.; officer and
director of some of the other subsidiaries of Franklin Resources, Inc.;
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds; and formerly, President, Chief Executive Officer and Director,
Franklin Real Estate Income Fund and Franklin Advantage Real Estate Income
Fund (until 1996).
Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc.
and of 53 of the investment companies in the Franklin Templeton Group of
Funds; and formerly, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor to the
Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995), Attorney, Rogers & Wells, and Judicial Clerk, U.S.
District Court (District of Massachusetts).
Mark G. Holowesko (40)
Lyford Cay, Nassau, Bahamas
VICE PRESIDENT
President, Templeton Global Advisors Limited; Chief Investment Officer,
Global Equity Group; Executive Vice President and Director, Templeton
Worldwide, Inc.; officer of 19 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Investment Administrator, RoyWest
Trust Corporation (Bahamas) Limited (1984-1985).
Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services,
LLC; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 52 of the investment companies in the
Franklin Templeton Group of Funds.
John R. Kay (59)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; officer of 24 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Vice President and
Controller, Keystone Group, Inc.
Elizabeth M. Knoblock (45)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT - COMPLIANCE
General Counsel, Secretary and Senior Vice President, Templeton Investment
Counsel, Inc.; Senior Vice President, Templeton Global Investors, Inc.;
officer of other subsidiaries of Franklin Resources, Inc. and of 23 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Vice President and Associate General Counsel, Kidder Peabody & Co. Inc.
(1989-1990), Assistant General Counsel, Gruntal & Co., Inc. (1988), Vice
President and Associate General Counsel, Shearson Lehman Hutton Inc. (1988),
Vice President and Assistant General Counsel, E.F. Hutton & Co. Inc.
(1986-1988), and Special Counsel, Division of Investment Management, U.S.
Securities and Exchange Commission (1984-1986).
J. Mark Mobius (63)
Two Exchange Square, 39th Floor, Suite 3905-08 Hong Kong
PRESIDENT
Portfolio Manager of various Templeton advisory affiliates; Managing
Director, Templeton Asset Management Ltd.; Executive Vice President and
Director, Templeton Global Advisors Limited; officer of eight of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, International Investment Trust Company Limited (investment manager
of Taiwan R.O.C. Fund) (1986-1987) and Director, Vickers da Costa, Hong Kong
(1983-1986).
Murray L. Simpson (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; officer of 53 of the investment companies in the Franklin Templeton
Group of Funds; and formerly, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until January 2000)
and Director, Templeton Asset Management Ltd. (until 1999).
*This board member is considered an "interested person" under federal
securities laws. Mr. Brady's status as an interested person results from his
business affiliations with Franklin Resources, Inc. and Templeton Global
Advisors Limited. Mr. Brady and Franklin Resources, Inc. are both limited
partners of Darby Overseas Partners, L.P. (Darby Overseas). In addition,
Darby Overseas and Templeton Global Advisors Limited are limited partners of
Darby Emerging Markets Fund, L.P.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
The fund pays noninterested board members and Mr. Brady an annual retainer of
$12,000 and a fee of $900 per board meeting attended. Board members who serve
on the audit committee of the fund and other funds in the Franklin Templeton
Group of Funds receive a flat fee of $2,000 per committee meeting attended, a
portion of which is allocated to the fund. Members of a committee are not
compensated for any committee meeting held on the day of a board meeting.
Noninterested board members also may serve as directors or trustees of other
funds in the Franklin Templeton Group of Funds and may receive fees from
these funds for their services. The following table provides the total fees
paid to noninterested board members and Mr. Brady by the fund and by the
Franklin Templeton Group of Funds.
NUMBER OF BOARDS
TOTAL FEES TOTAL FEES IN THE FRANKLIN
RECEIVED RECEIVED FROM TEMPLETON GROUP
FROM THE THE FRANKLIN OF FUNDS ON
NAME FUND1 ($) TEMPLETON GROUP WHICH EACH
OF FUNDS2 ($) Serves3
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Harris J. Ashton 16,500 363,165 48
Nicholas F. Brady 16,500 138,700 19
Frank J. Crothers 19,005 72,400 11
S. Joseph Fortunato 16,500 363,238 50
John Wm. Galbraith 16,751 144,200 18
Andrew H. Hines, 16,739 203,700 20
Jr.
Edith E. Holiday 16,500 237,265 24
Betty P. Krahmer 16,500 138,700 19
Gordon S. Macklin 16,500 363,165 48
Fred R. Millsaps 16,952 201,700 20
Constantine Dean
Tseretopoulos 18,521 70,400 11
1. For the fiscal year ended December 31, 1999.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the board members are responsible. The Franklin Templeton Group of
Funds currently includes 53 registered investment companies, with
approximately 155 U.S. based funds or series.
Noninterested board members and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each
fund in the Franklin Templeton Group of Funds for which they serve as
director or trustee. No officer or board member received any other
compensation, including pension or retirement benefits, directly or
indirectly from the fund or other funds in the Franklin Templeton Group of
Funds. Certain officers or board members who are shareholders of Franklin
Resources, Inc. may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such board
member. Investments in the name of family members or entities controlled by a
board member constitute fund holdings of such board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
- -------------------------------------------------------------------------------
MANAGER AND SERVICES PROVIDED The fund's manager is Templeton Asset
Management Ltd. - Hong Kong branch. The manager is a wholly owned subsidiary
of Franklin Resources, Inc. (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.
The manager provides investment research and portfolio management services,
and selects the securities for the fund to buy, hold or sell. The manager
also selects the brokers who execute the fund's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The Templeton organization has been investing globally since 1940. The
manager and its affiliates have offices in Argentina, Australia, Bahamas,
Belgium, Bermuda, Brazil, Canada, China, Cyprus, France, Germany, Hong Kong,
India, Italy, Japan, Korea, Luxembourg, Mauritius, the Netherlands, Poland,
Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, United
Kingdom, Venezuela and the U.S.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the fund. Similarly, with respect to
the fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the fund or other funds it manages.
The fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the fund or that are currently held by the fund, subject
to certain general restrictions and procedures. The personal securities
transactions of access persons of the fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).
MANAGEMENT FEES The fund pays the manager a fee equal to an annual rate of
1.25% of its average daily net assets. The fee is computed according to the
terms of the management agreement. Each class of the fund's shares pays its
proportionate share of the fee.
For the last three fiscal years ended December 31, the fund paid the
following management fees:
MANAGEMENT FEES PAID ($)
- -------------------------------------------
1999 37,123,994
1998 40,577,627
1997 57,060,597
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the fund to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by
Resources and is an affiliate of the fund's manager and principal
underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The fund pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended December 31, the fund paid FT
Services the following administration fees:
ADMINISTRATION FEES PAID ($)
------------------------------------------
1999 2,802,440
1998 3,009,659
1997 3,998,636
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the fund's shareholder servicing agent
and acts as the fund's transfer agent and dividend-paying agent. Investor
Services is located at 100 Fountain Parkway, St. Petersburg, FL 33733-8030.
Please send all correspondence to Investor Services to P.O. Box 33030, St.
Petersburg, FL 33733-8030.
For its services, Investor Services receives a fixed fee per account. The
fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
fund. The amount of reimbursements for these services per benefit plan
participant fund account per year will not exceed the per account fee payable
by the fund to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of the fund's assets. As foreign
custody manager, the bank selects and monitors foreign sub-custodian banks,
selects and evaluates non-compulsory foreign depositories, and furnishes
information relevant to the selection of compulsory depositories.
AUDITOR PricewaterhouseCoopers LLP 1177 Avenue of the Americas, New York, NY
10036, is the fund's independent auditor. The auditor gives an opinion on the
financial statements included in the fund's Annual Report to Shareholders and
reviews the fund's registration statement filed with the SEC.
PORTFOLIO TRANSACTIONS
- -------------------------------------------------------------------------------
The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of the manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the fund. They must, however, be of value to the manager in carrying
out its overall responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions to
obtain additional research services allows the manager to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the fund's officers are satisfied that the best execution is obtained, the
sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, also may be considered a factor in the selection of
broker-dealers to execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the
fund, any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to the manager will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection with the tender.
If purchases or sales of securities of the fund and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the fund is concerned. In other cases it is possible that
the ability to participate in volume transactions may improve execution and
reduce transaction costs to the fund.
During the last three fiscal years ended December 31, the fund paid the
following brokerage commissions:
BROKERAGE COMMISSIONS ($)
------------------------------------------
1999 10,329,465
1998 7,249,891
1997 15,736,940
For the fiscal year ended December 31, 1999, the fund paid brokerage
commissions of $10,325,301 from aggregate portfolio transactions of
$2,885,204,647 to brokers who provided research services.
As of December 31, 1999, the fund did not own securities of its regular
broker-dealers.
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
The fund calculates dividends and capital gains the same way for each class.
The amount of any income dividends per share will differ, however, generally
due to the difference in the distribution and service (Rule 12b-1) fees of
each class. Distributions are subject to approval by the board. The fund does
not pay "interest" or guarantee any fixed rate of return on an investment in
its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the fund, constitutes the fund's net
investment income from which dividends may be paid to you. Any distributions
by the fund from such income will be taxable to you as ordinary income,
whether you receive them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the fund. Any net capital gains realized by the fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, to reduce or eliminate excise or income taxes on
the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized on the sale of debt
securities generally are treated as ordinary losses. These gains when
distributed will be taxable to you as ordinary income, and any losses will
reduce the fund's ordinary income otherwise available for distribution to
you. This treatment could increase or decrease the fund's ordinary income
distributions to you, and may cause some or all of the fund's previously
distributed income to be classified as a return of capital.
The fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce ordinary income distributions
to you. If more than 50% of the fund's total assets at the end of the fiscal
year are invested in securities of foreign corporations, the fund may elect
to pass-through to you your pro rata share of foreign taxes paid by the fund.
If this election is made, the year-end statement you receive from the fund
will show more taxable income than was actually distributed to you. However,
you will be entitled to either deduct your share of such taxes in computing
your taxable income or (subject to limitations) claim a foreign tax credit
for such taxes against your U.S. federal income tax. The fund will provide
you with the information necessary to complete your individual income tax
return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you
of the amount of your ordinary income dividends and capital gains
distributions at the time they are paid, and will advise you of their tax
status for federal income tax purposes shortly after the close of each
calendar year. If you have not held fund shares for a full year, the fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code. The fund has qualified as a registered investment
company for its most recent fiscal year, and intends to continue to qualify
during the current fiscal year. As a regulated investment company, the fund
generally pays no federal income tax on the income and gains it distributes
to you. The board reserves the right not to maintain the qualification of the
fund as a regulated investment company if it determines such course of action
to be beneficial to shareholders. In such case, the fund will be subject to
federal, and possibly state, corporate taxes on its taxable income and gains,
and distributions to you will be taxed as ordinary dividend income to the
extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires the fund to distribute to you by December 31
of each year, at a minimum, the following amounts: 98% of its taxable
ordinary income earned during the calendar year; 98% of its capital gain net
income earned during the twelve month period ending October 31; and 100% of
any undistributed amounts from the prior year. The fund intends to declare
and pay these distributions in December (or to pay them in January, in which
case you must treat them as received in December) but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of fund shares are taxable transactions for federal and state
income tax purposes. If you redeem your fund shares, or exchange your fund
shares for shares of a different Franklin Templeton Fund, the IRS will
require that you report any gain or loss on your redemption or exchange. If
you hold your shares as a capital asset, the gain or loss that you realize
will be capital gain or loss and will be long-term or short-term, generally
depending on how long you hold your shares.
Beginning after the year 2005 (2000 for certain shareholders), gains from the
sale of fund shares held for more than five years may be subject to a reduced
tax rate.
Any loss incurred on the redemption or exchange of shares held for six months
or less will be treated as a long-term capital loss to the extent of any
long-term capital gains distributed to you by the fund on those shares. All
or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you buy other shares in the fund
(through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
U.S. GOVERNMENT SECURITIES States grant tax-free status to dividends paid to
you from interest earned on certain of the U.S. government securities,
subject in some states to minimum investment or reporting requirements that
must be met by the fund. Investments in Government National Mortgage
Association or Federal National Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities generally do not qualify for tax-free treatment.
The rules on exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because the fund's income is
derived primarily from investments in foreign rather than domestic
securities, generally none of its distributions will be eligible for the
corporate dividends-received deduction.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to the fund (possibly causing the fund to sell securities to raise the
cash for necessary distributions) and/or defer the fund's ability to
recognize losses, and, in limited cases, subject the fund to U.S. federal
income tax on income from certain foreign securities. These rules may affect
the amount, timing or character of the income distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- -------------------------------------------------------------------------------
The fund is a diversified series of Templeton Developing Markets Trust, an
open-end management investment company, commonly called a mutual fund. The
fund was organized as a Massachusetts business trust on August 9, 1991, and
is registered with the SEC.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations.
The Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the fund's assets if you are held personally liable for
obligations of the fund. The Declaration of Trust provides that the fund
shall, upon request, assume the defense of any claim made against you for any
act or obligation of the fund and satisfy any judgment thereon. All such
rights are limited to the assets of the fund. The Declaration of Trust
further provides that the fund may maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the
protection of the fund, its shareholders, trustees, officers, employees and
agents to cover possible tort and other liabilities. Furthermore, the
activities of the fund as an investment company, as distinguished from an
operating company, would not likely give rise to liabilities in excess of the
fund's total assets. Thus, the risk that you would incur financial loss on
account of shareholder liability is limited to the unlikely circumstance in
which both inadequate insurance exists and the fund itself is unable to meet
its obligations.
The fund currently offers four classes of shares, Class A, Class B, Class C
and Advisor Class. The fund began offering Class B shares on January 1,
1999. The fund may offer additional classes of shares in the future. The full
title of each class is:
o Templeton Developing Markets Trust - Class A
o Templeton Developing Markets Trust - Class B
o Templeton Developing Markets Trust - Class C
o Templeton Developing Markets Trust - Advisor Class
Shares of each class represent proportionate interests in the fund's assets.
On matters that affect the fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law.
The fund has noncumulative voting rights. For board member elections, 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. The fund may
hold special meetings, however, for matters requiring shareholder approval. A
meeting may be called by the board to consider the removal of a board member
if requested in writing by shareholders holding at least 10% of the
outstanding shares. In certain circumstances, we are required to help you
communicate with other shareholders about the removal of a board member. A
special meeting also may be called by the board in its discretion.
As of April 3, 2000, the principal shareholders of the fund, beneficial or of
record, were:
NAME AND ADDRESS SHARE CLASS PERCENTAGE
(%)
- -------------------------------------------------------
FTTC TTEE For ValuSelect Adv 7.40
Franklin Templeton 401k
P.O. Box 2438
Rancho Cordova, CA
95741-2438
Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and
trustees of the trust, serve on the administrative committee of the Franklin
Templeton Profit Sharing 401(k) Plan, which owns shares of the fund. In that
capacity, they participate in the voting of such shares. Charles B. Johnson
and Rupert H. Johnson, Jr. disclaim beneficial ownership of any share of the
fund owned by the Franklin Templeton Profit Sharing 401(k) Plan.
From time to time, the number of fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.
As of April 3, 2000, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in the Franklin Templeton
Group of Funds.
BUYING AND SELLING SHARES
- -------------------------------------------------------------------------------
The fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any 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. Banks and financial
institutions that sell shares of the fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the fund must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.
DEALER COMPENSATION Distributors and/or its affiliates may provide financial
support to securities dealers that sell shares of the Franklin Templeton
Group of Funds. This support is based primarily on the amount of sales of
fund shares and/or total assets with the Franklin Templeton Group of Funds.
The amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing
efforts in the Franklin Templeton Group of Funds; a securities dealer's
support of, and participation in, Distributors' marketing programs; a
securities dealer's compensation programs for its registered representatives;
and the extent of a securities dealer's marketing programs relating to the
Franklin Templeton Group of Funds. Financial support to securities dealers
may be made by payments from Distributors' resources, from Distributors'
retention of underwriting concessions and, in the case of funds that have
Rule 12b-1 plans, from payments to Distributors under such plans. In
addition, certain securities dealers may receive brokerage commissions
generated by fund portfolio transactions in accordance with the rules of the
National Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
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
occurs, it is the fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with the fund's
investment goal[s] exist immediately. This money will then be withdrawn from
the short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
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. There are no service charges for establishing or maintaining a
systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account, generally on the 25th day of the month. If
the 25th falls on a weekend or holiday, we will process the redemption on the
next business day. Beginning June 1, 2000, you may request to change the
processing date to the 1st, 5th, 10th, 15th or 20th of the month. For plans
set up on or after June 1, 2000, we will process redemptions on the day of
the month you have indicated on your account application or, if no day is
indicated, on the 20th day of the month (or next business day). When you sell
your shares under a systematic withdrawal plan, it is a taxable transaction.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will automatically discontinue a systematic withdrawal plan automatically if
all shares in your account are withdrawn or if the fund receives notification
of the shareholder's death or incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (SEC). In the case of redemption requests [in excess
of these amounts], the board reserves the right to make payments in whole or
in part in securities or other assets of the fund, in case of an emergency,
or if the payment of such a redemption in cash would be detrimental to the
existing shareholders of the fund. In these circumstances, the securities
distributed would be valued at the price used to compute the fund's net
assets and you may incur brokerage fees in converting the securities to cash.
The fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
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 and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, 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 or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the fund
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the fund may reimburse Investor Services an amount not to
exceed the per account fee that the fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the fund in a timely fashion. 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. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, the fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
- -------------------------------------------------------------------------------
When you buy and sell shares, you pay the net asset value (NAV) per share.
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.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. The fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the fund values them according to the broadest and most
representative market as determined by the manager.
The fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the fund holds is its last sale price on the relevant exchange before
the fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the fund values options within
the range of the current closing bid and ask prices if the fund believes the
valuation fairly reflects the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business of the NYSE on each day that the NYSE is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every NYSE business day. Furthermore, trading takes
place in various foreign markets on days that are not business days for the
NYSE and on which the fund's NAV is not calculated. Thus, the calculation of
the fund's NAV does not take place contemporaneously with the determination
of the prices of many of the portfolio securities used in the calculation
and, if events materially affecting the values of these foreign securities
occur, the securities will be valued at fair value as determined by
management and approved in good faith by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the board. With the approval of
the board, the fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
- -------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
Distributors does not receive compensation from the fund for acting as
underwriter of the fund's Advisor Class shares.
PERFORMANCE
- -------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC.
For periods before January 1, 1997, Advisor Class standardized performance
quotations are calculated by substituting Class A performance for the
relevant time period, excluding the effect of Class A's maximum initial sales
charge, and including the effect of the distribution and service (Rule 12b-1)
fees applicable to the fund's Class A shares. For periods after January 1,
1997, Advisor Class standardized performance quotations are calculated as
described below.
An explanation of these and other methods used by the fund to compute or
express performance follows. Regardless of the method used, past performance
does not guarantee future results, and is an indication of the return to
shareholders only for the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes income dividends and capital gain
distributions are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each period and the deduction
of all applicable charges and fees. If a change is made to the sales charge
structure, historical performance information will be restated to reflect the
maximum initial sales charge currently in effect.
The average annual total returns for the indicated periods ended December 31,
1999, were:
SINCE
1 YEAR 5 YEARS (%) INCEPTION
(%) (10/17/91)
(%)
- ---------------------------------------------------------
Advisor Class 51.95 6.66 8.78
The following SEC formula was used to calculate these figures:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of each period at the end of
each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested
at net asset value, the account was completely redeemed at the end of each
period and the deduction of all applicable charges and fees. Cumulative total
return, however, is based on the actual return for a specified period rather
than on the average return over the periods indicated above. The cumulative
total returns for the indicated periods ended December 31, 1999, were:
SINCE
1 YEAR 5 YEARS (%) INCEPTION
(%) (10/17/91)
(%)
- ---------------------------------------------------------
Advisor Class 51.95 38.06 99.47
VOLATILITY Occasionally statistics may be used to show the fund's volatility
or risk. Measures of volatility or risk are generally used to compare the
fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the
fund may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
(i) unmanaged indices so that you 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(R) Inc., a widely used independent research firm
that ranks mutual funds by overall performance, investment goals 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 for inflation) to assess the real rate of return from an
investment in the fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
From time to time, the fund and the manager also may refer to the following
information:
o The 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.
o 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.
o 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.
o The geographic and industry distribution of the fund's portfolio and the
fund's top ten holdings.
o 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.
o 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 Capital International EAFE(R)
Index).
o The major industries located in various jurisdictions as published by the
Morgan Stanley Index.
o Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder
services.
o Allegorical stories illustrating the importance of persistent long-term
investing.
o The fund's portfolio turnover rate and its ranking relative to industry
standards as published by Lipper(R) Inc. or Morningstar, Inc.
o 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.
o Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions.
o Quotations from the Templeton organization's founder, Sir John Templeton,*
advocating the virtues of diversification and long-term investing.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information also may compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. CDs are frequently insured by an agency of the U.S.
government. An investment in the fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the fund to calculate its figures. In
addition, there can be no assurance that the fund will continue its
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
- -------------------------------------------------------------------------------
The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by
the College Board.) The Franklin Retirement Planning Guide leads you through
the steps to start a retirement savings program. Of course, an investment in
the fund cannot guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of
the oldest mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together, the
Franklin Templeton Group has over $229 billion in assets under management for
more than 5 million U.S. based mutual fund shareholder and other accounts.
The Franklin Templeton Group of Funds offers 103 U.S. based open-end
investment companies to the public. The fund may identify itself by its
Nasdaq symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
You will receive the fund's financial reports every six months. If you would
like to receive an interim report of the fund's portfolio holdings, please
call 1-800/DIAL BEN(R).
DESCRIPTION OF RATINGS
- -------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
INVESTMENT GRADE
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
BELOW INVESTMENT GRADE
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S RATINGS GROUP (S&P(R))
INVESTMENT GRADE
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BELOW INVESTMENT GRADE
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations for both short-term
debt and commercial paper, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
- --------
1 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 board on April 16,
1995. He is no longer involved with the investment management process.
PAGE
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
The following exhibits are incorporated by reference to the previously filed
documents indicated below, except as noted:
(A) DECLARATION OF TRUST
( i) Amended and Restated Declaration of Trust /2/
(ii) Establishment and Designation of Classes of Shares of
Beneficial Interest /2/
(iii) Establishment and Designation of Classes of Shares of
Beneficial Interest /4/
(B) BY-LAWS
(i) By-Laws /3/
(C) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
Not Applicable
(D) INVESTMENT ADVISORY CONTRACTS
( i) Amended and Restated Investment Management
Agreement /3/
(ii) Addendum dated December 2, 1997 to the Investment
Management Agreement /7/
(E) UNDERWRITING CONTRACTS
( i) Distribution Agreement /3/
( ii) Form of Dealer Agreement between Registrant and
Franklin Templeton Distributors, Inc. and Securities
Dealers dated March 1, 1998 /7/
(iii) Amendment of Dealer Agreement dated May 15, 1998 /7/
(F) BONUS OR PROFIT SHARING CONTRACTS
Not Applicable
(G) CUSTODIAN AGREEMENTS
( i) Custody Agreement /3/
( ii) Amendment dated March 2, 1998 to the Custody
Agreement /7/
(iii) Amendment No. 2 dated July 23, 1998 to the Custody
Agreement /7/
PAGE
(H) OTHER MATERIAL CONTRACTS
( i) Amended and Restated Transfer Agent Agreement /5/
( ii) Fund Administration Agreement /4/
(iii) Shareholder Sub-Accounting Services Agreement /3/
( iv) Sub-Transfer Agent Services Agreement /3/
(I) LEGAL OPINION
(i) Opinion and Consent of Counsel /6/
(J) OTHER OPINION
( i) Consent of Independent Auditors -
PricewaterhouseCoopers LLP
(ii) Consent of Independent Auditors -
McGladrey & Pullen, LLP
(K) OMITTED FINANCIAL STATEMENTS
Not Applicable
(L) INITIAL CAPITAL AGREEMENTS
( i) Letter concerning initial capital1
(ii) Investment Letter /2/
(M) RULE 12B-1 PLAN
( i) Distribution Plan -- Class A Shares /2/
( ii) Distribution Plan -- Class C Shares /2/
(iii) Form of Distribution Plan -- Class B Shares /7/
(O) RULE 18F-3 PLAN
( i) Form of Multi Class Plan /5/
(ii) Form of Multi Class Plan - Class B Shares /7/
(P) POWER OF ATTORNEY
(i) Powers of Attorney dated December 11, 1998 /7/
(Q) CODE OF ETHICS
(i) Code of Ethics
PAGE
- ---------------------
1. Previously filed with Pre-Effective Amendment No. 1 to the Registration
Statement on September 19, 1991.
2. Previously filed with Post-Effective Amendment No. 4 to the Registration
Statement on April 28, 1995.
3. Previously filed with Post-Effective Amendment No. 5 to the Registration
Statement on April 29, 1996.
4. Previously filed with Post-Effective Amendment No. 7 to the Registration
Statement on December 31, 1996.
5. Previously filed with Post-Effective Amendment No. 8 to the Registration
Statement on April 30, 1997.
6. Previously filed with Post-Effective Amendment No. 9 to the Registration
Statement on February 27, 1998.
7. Previously filed with Post-Effective Amendment No. 10 to the Registration
Statement on December 30, 1998.
PAGE
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
NONE.
ITEM 25. 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
(a) Templeton Asset Management Ltd.
The officers and directors of the Registrant's manager also serve as
officers and/or directors for (1) the manager's corporate parent,
Franklin Resources, Inc., and/or (2) other investment companies in the
Franklin Templeton Group of Funds.
For additional information please see Part B and Schedules A and D of
Form ADV of the Fund's Investment Manager (SEC File 801-46997),
incorporated herein by reference, which sets forth the officers and
directors of the investment manager and information as to any
business, profession, vocation or employment of a substantial nature
engaged in by those officers and directors during the past two years.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Franklin Templeton Distributors, Inc.("Distributors") also acts
as principal underwriter of shares of:
Templeton Capital Accumulator Fund, Inc.
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Franklin Asset Allocation 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 Floating Rate Trust
Franklin Gold and Precious Metals Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Templeton Variable Insurance Products Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
(b) The information required by this Item 27 with respect to each director
and officer of Distributors is incorporated by reference to Part B of this
Form N-1A and Schedule A of Form BD filed by Distributors with the
Securities and Exchange Commission pursuant to the Securities Act of 1934
(SEC File No. 8-5889)
(c) Registrant's principal underwriter is an affiliated person of
Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Certain 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 thereunder are located at 500 East Broward Boulevard. Fort
Lauderdale, Florida 33394. Other records are maintained at the offices of
Franklin Templeton Investor Services, Inc., 100 Fountain Parkway, St.
Petersburg, Florida 33716-1205 and Franklin Resources, Inc., 777 Mariners
Island Boulevard, San Mateo, California 94404.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A
or Part B.
ITEM 30. UNDERTAKINGS.
Not Applicable.
PAGE
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended and
the Investment Company Act of 1940, as amended 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 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Mateo and the State of California,
on the 28th day of April 2000.
TEMPLETON DEVELOPING MARKETS TRUST
By:/s/BARBARA J. GREEN
---------------------------------
Barbara J. Green, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
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 28, 2000
J. Mark Mobius* Executive Officer)
____________________ Treasurer (Chief April 28, 2000
James R. Baio* Financial and
Accounting Officer)
____________________ Trustee April 28, 2000
Charles B. Johnson*
____________________ Trustee April 28, 2000
Charles E. Johnson*
____________________ Trustee April 28, 2000
Nicholas F. Brady*
____________________ Trustee April 28, 2000
Fred R. Millsaps*
</TABLE>
PAGE
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -----------------------------------------------------------------------------
<S> <C> <C>
_____________________ Trustee April 28, 2000
Betty P. Krahmer*
___________________ Trustee April 28, 2000
Constantine Dean
Tseretopoulos*
____________________ Trustee April 28, 2000
Frank J. Crothers*
_____________________
Harris J. Ashton* Trustee April 28, 2000
____________________ Trustee April 28, 2000
S. Joseph Fortunato*
____________________ Trustee April 28, 2000
Andrew H. Hines, Jr.*
____________________ Trustee April 28, 2000
John Wm. Galbraith*
____________________ Trustee April 28, 2000
Edith E. Holiday*
____________________ Trustee April 28, 2000
Gordon S. Macklin*
</TABLE>
*By: /s/BARBARA J. GREEN
--------------------------
Barbara J. Green
Attorney-in-Fact
(Pursuant to Powers of Attorney previously filed).
PAGE
TEMPLETON DEVELOPING MARKETS TRUST
REGISTRATION STATEMENT
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION LOCATION
<S> <C> <C>
EX-99.(a)(i) Amended and Restated Declaration of Trust *
EX-99.(a)(ii) Establishment and Designation of Classes of Shares of *
Beneficial Interest
EX-99.(a)(iii) Establishment and Designation of Classes of Shares of *
Beneficial Interest
EX-99.(b)(i) By-Laws of Templeton Developing Markets Trust *
EX-99.(d)(i) Amended and Restated Investment Management Agreement *
EX-99.(d)(ii) Addendum dated December 2, 1997 to the Investment *
Management Agreement
EX-99.(e)(i) Distribution Agreement *
EX-99.(e)(ii) Form of Dealer Agreement between Registrant and *
Franklin Templeton Distributors, Inc. and Securities
Dealers
EX-99.(e)(iii) Amendment of Dealer Agreement *
EX-99.(g)(i) Custody Agreement *
EX-99.(g)(ii) Amendment dated March 2, 1998 to the Custody
Agreement *
EX-99.(g)(iii) Amendment No.2 dated July 23, 1998 to the Custody *
Agreement
EX-99.(h)(i) Amended and Restated Transfer Agent Agreement *
EX-99.(h)(ii) Fund Administration Agreement *
EX-99.(h)(iii) Shareholder Sub-Accounting Services Agreement *
EX-99.(h)(iv) Sub-Transfer Agent Services Agreement *
EX-99.(i)(i) Opinion and Consent Counsel *
EX-99.(j)(i) Consent of Independent Auditors-PricewaterhouseCoopers LLP Attached
EX-99.(j)(ii) Consent of Independent Auditors-McGladrey & Pullen, LLP Attached
EX-99.(l)(i) Letter concerning initial capital *
EX-99.(l)(ii) Investment Letter *
EX-99.(m)(i) Distribution Plan - Class A Shares *
EX-99.(m)(ii) Distribution Plan - Class C Shares *
EX-99.(m)(iii) Form of Distribution Plan - Class B Shares *
EX-99.(o)(i) Form of Multi-Class Plan *
EX-99.(o)(ii) Form of Multi-Class Plan - Class B Shares *
EX-99.(p)(i) Power of Attorney dated December 11, 1998 *
EX-99.(q)(i) Code of Ethics Attached
</TABLE>
* Incorporated by reference.
PRICEWATERHOUSECOOPERS LLP
CONSENT OF INDEPENDENT AUDITORS
We herby consent to the incorporation by reference in Post-Effective Amendment
No. 12 to the Registration Statement of Templeton Developing Markets Trust on
Form N-1A, File No. 33-42163 of our report dated January 28, 2000, relating to
the financial statements and financial highlights, which appears in the December
31, 1999 Annual Report to Shareholders of Templeton Developing Markets Trust,
which is also incorporated by reference into the Registration Statement. We also
consent to the reference of our firm under the headings "Financial Highlights"
and "Auditors".
/s/PRICEWATERHOUSECOOPERS LLP
Ft. Lauderdale, Florida
April 24, 2000
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated January 28, 1999 on the
financial statements for the year ended December 31, 1998 and financial
highlights for each of the four years in the period ended December 31, 1998 of
Templeton Developing Markets Trust referred to in Post-Effective Amendment No.
12 to the Registration Statement on Form N-1A, File No.33-42163, as filed with
the Securities and Exchange Commission.
/s/MCGLADREY & PULLEN, LLP
New York, New York
April 24, 2000
PAGE
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders
Templeton Developing Markets Trust
We have audited the accompanying statement of changes in net assets for the year
ended December 31, 1998 and financial highlights for each of the four years in
the period ended December 31 1998, of the Templeton Developing Markets Trust.
This financial statement and the financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
financial statement and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material respects, the changes in net assets and
financial highlights of the Templeton Developing Markets Trust for the periods
indicated, in conformity with generally accepted accounting principles.
/s/MCGLADREY & PULLEN, LLP
New York, New York
January 28, 1999
THE FRANKLIN TEMPLETON GROUP
CODE OF ETHICS
AND
POLICY STATEMENT ON INSIDER TRADING
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS.......................................1
PART 1 - STATEMENT OF PRINCIPLES..................................................1
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE.............................2
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS...........................3
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS......10
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS...........................13
PART 6 - PRE-CLEARANCE REQUIREMENTS..............................................17
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE....................................22
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY....23
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS..................24
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER.....................25
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS..............................31
III. SECURITIES EXEMPT FROM THE PROHIBITED, REPORTING,
AND PRE-CLEARANCE PROVISIONS .............................................32
IV. LEGAL REQUIREMENT..........................................................33
APPENDIX B: FORMS AND SCHEDULES..................................................34
ACKNOWLEDGMENT FORM..............................................................35
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK
TELEPHONE & FAX NUMBERS.............................................36
SCHEDULE B: SECURITIES TRANSACTION REPORT........................................37
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS
SECURITIES HOLDINGS ................................................39
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING..........................40
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST..............41
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS.........42
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY.........43
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES
ISSUED IN PRIVATE
PLACEMENTS.......................................................................45
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF FRANKLIN
RESOURCES, INC. - FEBRUARY 2000.................................................47
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING..................1
A. LEGAL REQUIREMENT...........................................................1
B. WHO IS AN INSIDER?..........................................................2
C. WHAT IS MATERIAL INFORMATION?...............................................2
D. WHAT IS NON-PUBLIC INFORMATION?.............................................2
E. BASIS FOR LIABILITY.........................................................3
F. PENALTIES FOR INSIDER TRADING...............................................3
G. INSIDER TRADING PROCEDURES..................................................4
</TABLE>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS
Franklin Resources, Inc. and all of its subsidiaries, and the funds in the
Franklin Templeton Group of Funds (the "Funds") (collectively, the "Franklin
Templeton Group") will follow this Code of Ethics (the "Code") and Policy
Statement on Insider Trading (the "Insider Trading Policy"). Additionally, the
subsidiaries listed in Appendix C of this Code, together with Franklin
Resources, Inc., the Funds, the Fund's investment advisers and principal
underwriter, have adopted the Code and Insider Trading Policy.
PART 1 - STATEMENT OF PRINCIPLES
The Franklin Templeton Group's policy is that the interests of shareholders
and clients are paramount and come before the interests of any director, officer
or employee of the Franklin Templeton Group.1
Personal investing activities of ALL directors, officers and employees of
the Franklin Templeton Group should be conducted in a manner to avoid actual OR
potential conflicts of interest with the Franklin Templeton Group, Fund
shareholders, and other clients of any Franklin Templeton adviser.
Directors, officers and employees of the Franklin Templeton Group shall use
their positions with the Franklin Templeton Group, and any investment
opportunities they learn of because of their positions with the Franklin
Templeton Group, in a manner consistent with their fiduciary duties for the
benefit of Fund shareholders, and clients.
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE
It is important that you read and understand this document, because its
overall purpose is to help all of us comply with the law and to preserve and
protect the outstanding reputation of the Franklin Templeton Group. This
document was adopted to comply with Securities and Exchange Commission rules
under the Investment Company Act of 1940 ("1940 Act"), the Investment Advisers
Act of 1940 ("Advisers Act"), the Insider Trading and Securities Fraud
Enforcement Act of 1988 ("ITSFEA"), industry practice and the recommendations
contained in the ICI's REPORT OF THE ADVISORY GROUP ON PERSONAL INVESTING. Any
violation of the Code or Insider Trading Policy, including engaging in a
prohibited transaction or failing to file required reports, may result in
disciplinary action, and, when appropriate, termination of employment and/or
referral to appropriate governmental agencies.
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS
3.1 WHO IS COVERED BY THE CODE AND HOW DOES IT WORK?
The principles contained in the Code must be observed by ALL directors,
officers and employees2 of the Franklin Templeton Group. However, there are
different categories of restrictions on personal investing activities. The
category in which you have been placed generally depends on your job function,
although unique circumstances may result in you being placed in a different
category.
The Code covers the following categories of employees who are described below:
(1) ACCESS PERSONS: Access Persons are those employees who have "ACCESS TO
INFORMATION" concerning recommendations made to a Fund or client with
regard to the purchase or sale of a security. Examples of "ACCESS TO
INFORMATION" would include having access to trading systems, portfolio
accounting systems, research data bases or settlement information. Access
Persons would typically include employees, including Management Trainees,
in the following departments:
o fund accounting;
o investment operations;
o information services & technology;
o product management;
o legal and legal compliance
o and anyone else designated by the Director of Compliance
In addition, you are an Access Person if you are any of the following:
o an officer or and directors of funds;
o an officer or director of an investment advisor or broker-dealer
subsidiary in the Franklin Templeton Group;
o a person that controls those entities; and
o any Franklin Resources' Proprietary Account ("Proprietary Account")3
(2) PORTFOLIO PERSONS: Portfolio Persons are a subset of Access Persons and are
those employees of the Franklin Templeton Group, who, in connection with
his or her regular functions or duties, makes or participates in the
decision to purchase or sell a security by a Fund in the Franklin Templeton
Group, or any other client or if his or her functions relate to the making
of any recommendations about those purchases or sales. Portfolio Persons
include:
o portfolio managers;
o research analysts;
o traders;
o employees serving in equivalent capacities (such as Management Trainees);
o employees supervising the activities of Portfolio Persons; and
o anyone else designated by the Director of Compliance
(3) NON-ACCESS PERSONS: If you are an employee in the Franklin Templeton Group
AND you do not fit into any of the above categories, you are a Non-Access
Person. Because you do not normally receive confidential information about
Fund portfolios, you are subject only to the prohibited transaction
provisions described in 3.4 of this Code and the Franklin Resources, Inc.'s
Standards of Business Conduct contained in the Employee Handbook.
Please contact the Legal Compliance Department if you are unsure as to what
category you fall in or whether you should be considered to be an Access Person
or Portfolio Person.
The Code works by prohibiting some transactions and requiring pre-clearance
and reporting of most others. NON-ACCESS PERSONS do not have to pre-clear their
security transactions, and, in most cases, do not have to report their
transactions. "INDEPENDENT DIRECTORS" need not report any securities transaction
unless you knew, or should have known that, during the 15-day period before or
after the transaction, the security was purchased or sold or considered for
purchase or sale by a Fund or Franklin Resources for a Fund. (See Section 5.2.B
below.) HOWEVER, PERSONAL INVESTING ACTIVITIES OF ALL EMPLOYEES AND INDEPENDENT
DIRECTORS ARE TO BE CONDUCTED IN COMPLIANCE WITH THE PROHIBITED TRANSACTIONS
PROVISIONS CONTAINED IN 3.4 BELOW. If you have any questions regarding your
personal securities activity, contact the Legal Compliance Department.
3.2 WHAT ACCOUNTS AND TRANSACTIONS ARE COVERED?
The Code covers all of your personal securities accounts and transactions,
as well as transactions by any of Franklin Resource's Proprietary Accounts. It
also covers all securities and accounts in which you have "beneficial
ownership." 4 A transaction by or for the account of your spouse, or any other
family member living in your home is considered to be the same as a transaction
by you. Also, a transaction for any account in which you have any economic
interest (other than the account of an unrelated client for which advisory fees
are received) and have or share investment control is generally considered the
same as a transaction by you. For example, if you invest in a corporation that
invests in securities and you have or share control over its investments, that
corporation's securities transactions are considered yours.
However, you are not deemed to have a pecuniary interest in any securities
held by a partnership, corporation, trust or similar entity unless you control,
or share control of such entity, or have, or share control over its investments.
For example, securities transactions of a trust or foundation in which you do
not have an economic interest (i.e., you are not the trustor or beneficiary) but
of which you are a trustee are not considered yours unless you have voting or
investment control of its assets. Accordingly, each time the words "you" or
"your" are used in this document, they apply not only to your personal
transactions and accounts, but also to all transactions and accounts in which
you have any direct or indirect beneficial interest. If it is not clear whether
a particular account or transaction is covered, ask a Preclearance Officer for
guidance.
3.3 WHAT SECURITIES ARE EXEMPT FROM THE CODE OF ETHICS?
You do not need to pre-clear OR report transactions of the following
securities:
(1) securities that are direct obligations of the U. S. Government (i.e.,
issued or guaranteed by the U.S. Government, such as Treasury bills, notes
and bonds, including U.S. Savings Bonds and derivatives thereof);
(2) high quality short-term instruments, including but not limited to bankers'
acceptances, bank certificates of deposit, commercial paper and repurchase
agreements;
(3) shares of registered open-end investment companies ("mutual funds"); and
(4) commodity futures, currencies, currency forwards and derivatives thereof.
Such transactions are also exempt from: (i) the prohibited transaction
provisions contained in Part 3.4 such as front-running; (ii) the additional
compliance requirements applicable to portfolio persons contained in Part 4; and
(iii) the applicable reporting requirements contained in Part 5.
3.4 PROHIBITED TRANSACTIONS FOR ALL ACCESS PERSONS
A. "INTENT" IS IMPORTANT
Certain transactions described below have been determined by the courts and
the SEC to be prohibited by law. The Code reiterates that these types of
transactions are a violation of the Statement of Principals and are prohibited.
Preclearance, which is a cornerstone of our compliance efforts, cannot detect
transactions which are dependent upon INTENT, or which by their nature, occur
before any order has been placed for a fund or client. A Preclearance Officer,
who is there to assist you with compliance with the Code, CANNOT guarantee any
transaction or transactions comply with the Code or the law. The fact that your
transaction receives preclearance, shows evidence of good faith, but depending
upon all the facts, may not provide a full and complete defense to any
accusation of violation of the Code or of the law. For example, if you executed
a transaction for which you received approval, or if the transaction was exempt
from preclearance (e.g., a transaction for 100 shares or less), would not
preclude a subsequent finding that front-running or scalping occurred because
such activity are dependent upon your intent. Intent cannot be detected during
preclearance, but only after a review of all the facts.
In the final analysis, compliance remains the responsibility of EACH
individual effecting personal securities transactions.
B. FRONT-RUNNING: TRADING AHEAD OF A FUND OR CLIENT
You cannot front-run any trade of a Fund or client. The term "front-run"
means knowingly trading before a contemplated transaction by a Fund or client of
any Franklin Templeton adviser, whether or not your trade and the Fund's or
client's trade take place in the same market. Thus, you may not:
(1) purchase a security if you intend, or know of Franklin Templeton Group's
intention, to purchase that security or a related security on behalf of a
Fund or client, or
(2) sell a security if you intend, or know of Franklin Templeton Group's
intention, to sell that security or a related security on behalf of a Fund
or client.
C. SCALPING.
You cannot purchase a security (or its economic equivalent) with the
intention of recommending that the security be purchased for a Fund, or client,
or sell short a security (or its economic equivalent) with the intention of
recommending that the security be sold for a Fund or client. Scalping is
prohibited whether or not you realize a profit from such transaction.
D. TRADING PARALLEL TO A FUND OR CLIENT
You cannot buy a security if you know that the same or a related security
is being bought contemporaneously by a Fund or client, or sell a security if you
know that the same or a related security is being sold contemporaneously by a
Fund or client.
E. TRADING AGAINST A FUND OR CLIENT
You cannot:
(1) buy a security if you know that a Fund or client is selling the same or a
related security, or has sold the security, until seven (7) calendar days
after the Fund's or client's order has either been executed or withdrawn,
or
(2) sell a security if you know that a Fund or client is buying the same or a
related security, or has bought the security until seven (7) calendar days
after the Fund's or client's order has either been executed or withdrawn.
Refer to Section I.A., "Pre-Clearance Standards," of Appendix A of the Code
for more details regarding the preclearance of personal securities transactions.
F. USING PROPRIETARY INFORMATION FOR PERSONAL TRANSACTIONS
You cannot buy or sell a security based on Proprietary Information 5
without disclosing the information and receiving written authorization. If you
wish to purchase or sell a security about which you obtained such information,
you must report all of the information you obtained regarding the security to
the Appropriate Analyst(s)6, or to the Director of Compliance for dissemination
to the Appropriate Analyst(s).
You will be permitted to purchase or sell such security if the Appropriate
Analyst(s) confirms to the Preclearance Desk that there is no intention to
engage in a transaction regarding the security within seven (7) calendar days on
behalf of an Associated Client7 and you subsequently preclear such security in
accordance with Part 6 below.
G. CERTAIN TRANSACTIONS IN SECURITIES OF FRANKLIN RESOURCES, INC., AND
AFFILIATED CLOSED-END FUNDS, AND REAL ESTATE INVESTMENT TRUSTS
If you are an employee of Franklin Resources, Inc. or any of its
affiliates, including the Franklin Templeton Group, you cannot effect a short
sale of the securities, including "short sales against the box" of Franklin
Resources, Inc., or any of the Franklin or Templeton closed-end funds, Franklin
real estate investment trusts or any other security issued by Franklin
Resources, Inc. or its affiliates. This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to
sales of any option to buy (i.e., a call option) or purchases of any option to
sell (i.e., a put option) and "swap" transactions or other derivatives. Officers
and directors of the Franklin Templeton Group who may be covered by Section 16
of the Securities Exchange Act of 1934, are reminded that their obligations
under that section are in addition to their obligations under this Code.
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS8
4.1 REQUIREMENT TO DISCLOSE INTEREST AND METHOD OF DISCLOSURE
As a Portfolio Person, you must promptly disclose your direct or indirect
beneficial interest in a security whenever you learn that the security is under
consideration for purchase or sale by an Associated Client in the Franklin
Templeton Group and you;
(1) Have or share investment control of the Associated Client;
(2) Make any recommendation or participate in the determination of which
recommendation shall be made on behalf of the Associated Client; or
(3) Have functions or duties that relate to the determination of which
recommendation shall be made to the Associated Client.
In such instances, you must initially disclose that beneficial interest
orally to the primary portfolio manager (or other Appropriate Analyst) of the
Associated Client(s) considering the security, the Director of Research and
Trading or the Director of Compliance. Following that oral disclosure, you must
send a written acknowledgment of that interest on Schedule E (or on a form
containing substantially similar information) to the primary portfolio manager
(or other Appropriate Analyst), with a copy to the Legal Compliance Department.
4.2 SHORT SALES OF SECURITIES
You cannot sell short ANY security held by your Associated Clients,
including "short sales against the box". Additionally, Portfolio Persons
associated with the Templeton Group of Funds and clients cannot sell short any
security on the Templeton "Bargain List". This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to,
sales of uncovered call options, purchases of put options while not owning the
underlying security and short sales of bonds that are convertible into equity
positions.
4.3 SHORT SWING TRADING
Portfolio Persons cannot profit from the purchase and sale or sale and
purchase within sixty calendar days of any security, including derivatives.
Portfolio Persons are responsible for transactions that may occur in margin and
option accounts and all such transactions must comply with this restriction.9
This restriction does NOT apply to:
(1) trading within a shorter period if you do not realize a profit and if
you do not violate any other provisions of this Code; AND
(2) profiting on the purchase and sale or sale and purchase within sixty
calendar days of the following securities:
o securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings Bonds
and derivatives thereof;
o high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S.
bank certificates of deposit; (iii) commercial paper; and (iv)
repurchase agreements;
o shares of registered open-end investment companies; and
o commodity futures, currencies, currency forwards and derivatives
thereof.
Calculation of profits during the 60 calendar day holding period generally
will be based on "last-in, first-out" ("LIFO"). Portfolio Persons may elect to
calculate their 60 calendar day profits on either a LIFO or FIFO ("first-in,
first-out") basis when there has not been any activity in such security by their
Associated Clients during the previous 60 calendar days.
4.4 SERVICE AS A DIRECTOR
As a Portfolio Person, you cannot serve as a director, trustee, or in a
similar capacity for any company (excluding not-for-profit companies, charitable
groups, and eleemosynary organizations) unless you receive approval from the
Chief Executive Officer of the principal investment adviser to the Fund(s) of
which you are a Portfolio Person and he/she determines that your service is
consistent with the interests of the Fund(s) and its shareholders.
4.5 SECURITIES SOLD IN A PUBLIC OFFERING
Portfolio Persons cannot buy securities in any initial public offering, or
a secondary offering by an issuer, INCLUDING initial public offerings of
securities made by closed-end funds and real estate investment trusts advised by
the Franklin Templeton Group. Purchases of open-end mutual funds are excluded
from this prohibition.
4.6 INTERESTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS
Portfolio Persons cannot acquire limited partnership interests or other
securities in private placements unless they:
(1) complete the Private Placement Checklist (Schedule H);
(2) provide supporting documentation (e.g., a copy of the offering
memorandum); and
(3) obtain approval of the appropriate Chief Investment Officer; and
(4) submit all documents to the Legal Compliance Department Approval will
only be granted after the Director of Compliance consults with an
executive officer of Franklin Resources, Inc.
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS
5.1 REPORTING OF BENEFICIAL OWNERSHIP AND SECURITIES TRANSACTIONS
Compliance with the following personal securities transaction reporting
procedures is essential to enable us to meet our responsibilities to Funds and
other clients and to comply with regulatory requirements. You are expected to
comply with both the letter and spirit of these requirements, including
completing and filing all reports required under the Code in a timely manner.
5.2 INITIAL HOLDINGS AND BROKERAGE ACCOUNT REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS) Every employee (new or
transfer) of the Franklin Templeton Group who becomes an Access Person, must
file:
(1) An Acknowledgement Form;
(2) Schedule C: Initial, Annual & Updated Disclosure of Securities Holdings;
and
(3) Schedule F: Initial, Annual & Updated Disclosure of Securities Accounts
The Acknowledgement Form, Schedule C and Schedule F MUST be completed and
returned to the Legal Compliance Department within 10 CALENDAR DAYS of the date
the employee becomes an access person.
5.3 QUARTERLY TRANSACTION REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
You MUST report ALL securities transactions by; (i) providing the Legal
Compliance Department with copies of ALL broker's confirmations and statements
within 10 calendar days after the end of the calendar quarter (which may be sent
under separate cover by the broker) showing ALL transactions and holdings in
securities AND (ii) certifying by January 30th of each year that you have
disclosed all such brokerage accounts on Schedule F to the Legal Compliance
Department. The brokerage statements and confirmations must include all
transactions in securities in which you have, or by reason of the transaction
acquire any direct or indirect beneficial ownership, including transactions in a
discretionary account and transactions for any account in which you have any
economic interest AND have or share investment control. Also, if you acquire
securities by any other method which is not being reported to the Legal
Compliance Department by a duplicate confirmation statement at or near the time
of the acquisition, you must report that acquisition to the Legal Compliance
Department on Schedule B within 10 calendar days after you are notified of the
acquisition. Such acquisitions include, among other things, securities acquired
by gift, inheritance, vesting,10 stock splits, merger or reorganization of the
issuer of the security.
You must file these documents with the Legal Compliance Department not
later than 10 calendar days after the end of each quarter, but you need not show
or report transactions for any account over which you had no direct or indirect
influence or control.11 Failure to timely report transactions is a violation of
Rule 17j-1 as well as the Code, and may be reported to the Fund's Board of
Directors and may also result, among other things, in denial of future personal
security transaction requests.
B. INDEPENDENT DIRECTORS
If you are a director of the Franklin Templeton Group but you are not an
"interested person" of the Fund, you are not required to file transaction
reports unless you knew or should have known that, during the 15-day period
before or after a transaction, the security was purchased or sold, or considered
for purchase or sale, by a Fund or by Franklin Resources on behalf of a Fund.
5.4 ANNUAL REPORTS - ALL ACCESS PERSONS
A. SECURITIES ACCOUNTS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
As an access person, you must file a report of all personal securities
accounts on Schedule F, with the Legal Compliance Department, annually by
January 30th. You must report the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse and minor children. You must also report any
account in which you have any economic interest AND have or share investment
control (e.g., trusts, foundations, etc.) other than an account for a Fund in,
or a client of, the Franklin Templeton Group.
B. SECURITIES HOLDINGS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
You must file a report of personal securities holdings on Schedule C, with
the Legal Compliance Department, by January 30th of each year. This report
should include ALL of your securities holdings, including any security acquired
by a transaction, gift, inheritance, vesting, merger or reorganization of the
issuer of the security, in which you have any direct or indirect beneficial
ownership, including securities holdings in a discretionary account and for any
account in which you have any economic interest AND have or share investment
control. Your securities holding information must be current as of a date no
more than 30 days before the report is submitted. You may attach copies of
year-end brokerage statements to the Schedule C in lieu of listing each security
position on the schedule.
C. CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS (INCLUDING INDEPENDENT
DIRECTORS)
All access persons, including independent directors, will be asked to
certify that they will comply with the FRANKLIN TEMPLETON GROUP'S CODE OF ETHICS
AND POLICY STATEMENT ON INSIDER TRADING by filing the Acknowledgment Form with
the Legal Compliance Department within 10 business days of receipt of the Code.
Thereafter, you will be asked to certify that you have complied with the Code
during the preceding year by filing a similar Acknowledgment Form by January 30
of each year.
5.5 BROKERAGE ACCOUNTS AND CONFIRMATIONS OF SECURITIES TRANSACTIONS (EXCEPT
INDEPENDENT DIRECTORS)
If you are an access person , in the Franklin Templeton Group, before or at
a time contemporaneous with opening a brokerage account with a registered
broker-dealer, or a bank, or placing an initial order for the purchase or sale
of securities with that broker-dealer or bank, you must:
(1) notify the Legal Compliance Department, in writing, by completing Schedule
D or by providing substantially similar information; and
(2) notify the institution with which the account is opened, in writing, of
your association with the Franklin Templeton Group.
The Compliance Department will request the institution in writing to send
to it duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their mailing to you.
If you have an existing account on the effective date of this Code or upon
becoming an access person, you must comply within 10 days with conditions (1)
and (2) above.
PART 6 - PRE-CLEARANCE REQUIREMENTS
6.1 PRIOR APPROVAL OF SECURITIES TRANSACTIONS
A. LENGTH OF APPROVAL
Unless you are covered by Paragraph D below, you cannot buy or sell any
security, without first contacting a Preclearance Officer by fax, phone, or
e-mail and obtaining his or her approval. A clearance is good until the close of
the business day following the day clearance is granted but may be extended in
special circumstances, shortened or rescinded, as explained in Appendix A.
B. SECURITIES NOT REQUIRING PRECLEARANCE
The securities enumerated below do not require preclearance under the Code.
However, all other provisions of the Code apply, including, but not limited to:
(i) the prohibited transaction provisions contained in Part 3.4 such as
front-running; (ii) the additional compliance requirements applicable to
portfolio persons contained in Part 4, (iii) the applicable reporting
requirements contained in Part 5; and (iv) insider trading prohibitions.
You need NOT pre-clear transactions in the following securities:
(1) MUTUAL FUNDS. Transactions in shares of any registered open-end mutual
fund;
(2) FRANKLIN RESOURCES, INC., AND ITS AFFILIATES. Purchases and sales of
securities of Franklin Resources, Inc., closed-end funds of the Franklin
Templeton Group, or real estate investment trusts advised by Franklin
Properties Inc., as these securities cannot be purchased on behalf of our
advisory clients.12
(3) SMALL QUANTITIES. Transactions that do not result in purchases or sales of
more than 100 shares of any one security, regardless of where it is traded,
in any 30 day period. HOWEVER, YOU MAY NOT EXECUTE ANY TRANSACTION,
REGARDLESS OF QUANTITY, IF YOU LEARN THAT THE FUNDS ARE ACTIVE IN THE
SECURITY. IT WILL BE PRESUMED THAT YOU HAVE KNOWLEDGE OF FUND ACTIVITY IN
THE SECURITY IF, AMONG OTHER THINGS, YOU ARE DENIED APPROVAL TO GO FORWARD
WITH A TRANSACTION REQUEST. Transactions made pursuant to dividend
reinvestment plans ("DRIPs") do not require preclearance regardless of
quantity or Fund activity.
(4) GOVERNMENT OBLIGATIONS. Transactions in securities issued or guaranteed by
the governments of the United States, Canada, the United Kingdom, France,
Germany, Switzerland, Italy and Japan, or their agencies or
instrumentalities, or derivatives thereof;
(5) PAYROLL DEDUCTION PLANS. Securities purchased by an employee's spouse
pursuant to a payroll deduction program, provided the Compliance Department
has been previously notified in writing by the access person that the
spouse will be participating in the payroll deduction program.
(6) EMPLOYER STOCK OPTION PROGRAMS. Transactions involving the exercise and/or
purchase by an access person or an access person's spouse of securities
pursuant to a program sponsored by a corporation employing the access
person or spouse.
(7) PRO RATA DISTRIBUTIONS. Purchases effected by the exercise of rights issued
pro rata to all holders of a class of securities or the sale of rights so
received.
(8) TENDER OFFERS. Transactions in securities pursuant to a bona fide tender
offer made for any and all such securities to all similarly situated
shareholders in conjunction with mergers, acquisitions, reorganizations
and/or similar corporate actions. However, tenders pursuant to offers for
less than all outstanding securities of a class of securities of an issuer
must be precleared.
(9) NOT ELIGIBLE FOR FUNDS AND CLIENTS. Transactions in any securities that are
prohibited investments for all Funds and clients advised by the entity
employing the access person.
(10) NO INVESTMENT CONTROL. Transactions effected for an account or entity over
which you do not have or share investment control (i.e., an account where
someone else exercises complete investment control).
(11) NO BENEFICIAL OWNERSHIP. Transactions in which you do not acquire or
dispose of direct or indirect beneficial ownership (i.e., an account where
in you have no financial interest).
Although an access person's securities transaction may be exempt from
pre-clearing, such transactions must comply with the prohibited transaction
provisions of Section 3.4 above. Additionally, you may not trade any securities
as to which you have "inside information" (see attached THE FRANKLIN TEMPLETON
GROUP POLICY STATEMENT ON INSIDER Trading). If you have any questions, contact a
Preclearance Officer before engaging in the transaction. If you have any doubt
whether you have or might acquire direct or indirect beneficial ownership or
have or share investment control over an account or entity in a particular
transaction, or whether a transaction involves a security covered by the Code,
you should consult with a Preclearance Officer before engaging in the
transaction.
C. DISCRETIONARY ACCOUNTS
You need not pre-clear transactions in any discretionary account for which
a registered broker-dealer, a registered investment adviser, or other investment
manager acting in a similar fiduciary capacity, which is not affiliated with the
Franklin Templeton Group, exercises sole investment discretion, if the following
conditions are met:13
(1) The terms of each account relationship ("Agreement") must be in writing and
filed with a Preclearance Officer prior to any transactions.
(2) Any amendment to each Agreement must be filed with aPreclearance Officer
prior to its effective date.
(3) The Portfolio Person certifies to the Compliance Department at the time
such account relationship commences, and annually thereafter, as contained
in Schedule G of the Code that such Portfolio Person does not have direct
or indirect influence or control over the account, other than the right to
terminate the account.
(4) Additionally, any discretionary account that you open or maintain with a
registered broker-dealer, a registered investment adviser, or other
investment manager acting in a similar fiduciary capacity must provide
duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their delivery to you., If your
discretionary account acquires securities which are not reported to a
Preclearance Officer by a duplicate confirmation, such transaction must be
reported to a Preclearance Officer on Schedule B within 10 days after you
are notified of the acquisition.14
However, if you make ANY request that the discretionary account manager
enter into or refrain from a specific transaction or class of transactions, you
must first consult with aPreclearance Officer and obtain approval prior to
making such request.
D. DIRECTORS WHO ARE NOT ADVISORY PERSONS OR ADVISORY REPRESENTATIVES
You need not pre-clear any securities if:
(1) You are a director of a Fund in the Franklin Templeton Group and a
director of the fund's advisor;
(2) You are not an "advisory person"15 of a Fund in the Franklin Templeton
Group; and
(3) You are not an employee of any Fund,
or
(1) You are a director of a Fund in the Franklin Templeton Group;
(2) You are not an "advisory representative"16 of Franklin Resources or
any subsidiary; and
(3) You are not an employee of any Fund,
unless you know or should know that, during the 15-day period before the
transaction, the security was purchased or sold, or considered for purchase or
sale, by a Fund or by Franklin Resources on behalf of a Fund or other client.
Directors qualifying under this paragraph are required to comply with all
applicable provisions of the Code including reporting their initial holdings and
brokerage accounts in accordance with 5.2, personal securities transactions and
accounts in accordance with 5.3 and 5.5, and annual reports in accordance with
5.4 of the Code.
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE
The Code is designed to assure compliance with applicable law and to
maintain shareholder confidence in the Franklin Templeton Group.
In adopting this Code, it is the intention of the Boards of
Directors/Trustees, to attempt to achieve 100% compliance with all requirements
of the Code - but it is recognized that this may not be possible. Incidental
failures to comply with the Code are not necessarily a violation of the law or
the Franklin Templeton Group's Statement of Principles. Such isolated or
inadvertent violations of the Code not resulting in a violation of law or the
Statement of Principles will be referred to the Director of Compliance and/or
management personnel, and disciplinary action commensurate with the violation,
if warranted, will be imposed.
However, if you violate any of the enumerated prohibited transactions
contained in Parts 3 and 4 of the Code, you will be expected to give up ANY
profits realized from these transactions to Franklin Resources for the benefit
of the affected Funds or other clients. If Franklin Resources cannot determine
which Fund(s) or client(s) were affected, the proceeds will be donated to a
charity chosen by Franklin Resources. Failure to disgorge profits when requested
may result in additional disciplinary action, including termination of
employment.
Further, a pattern of violations that individually do not violate the law
or Statement of Principles, but which taken together demonstrate a lack of
respect for the Code of Ethics, may result in disciplinary action including
termination of employment. A violation of the Code resulting in a violation of
the law will be severely sanctioned, with disciplinary action including, but not
limited to, referral of the matter to the board of directors of the affected
Fund, termination of employment or referral of the matter to the appropriate
regulatory agency for civil and/or criminal investigation.
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY
The Code of Ethics is primarily concerned with transactions in securities
held or to be acquired by any of the Funds or Franklin Resources' clients,
regardless of whether those transactions are based on inside information or
actually harm a Fund or a client.
The Insider Trading Policy (attached to this document) deals with the
problem of insider trading in securities that could result in harm to a Fund, a
client, or members of the public, and applies to all directors, officers and
employees of any entity in the Franklin Templeton Group. Although the
requirements of the Code and the Insider Trading Policy are similar, you must
comply with both.
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS
This appendix sets forth the additional responsibilities and obligations of
Compliance Officers, and the Legal/Administration and Legal/Compliance
Departments, under the Franklin Templeton Group Code of Ethics and Policy
Statement on Insider Trading.
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER
A. PRE-CLEARANCE STANDARDS
1. GENERAL PRINCIPLES
The Director of Compliance, or a Preclearance Officer, shall only permit an
access person to go forward with a proposed security17 transaction if he or she
determines that, considering all of the facts and circumstances, the transaction
does not violate the provisions of Rule 17j-1, or of this Code and there is no
likelihood of harm to a client.
2. ASSOCIATED CLIENTS
Unless there are special circumstances that make it appropriate to
disapprove a personal securities transaction request, a Preclearance Officer
shall consider only those securities transactions of the "Associated Clients" of
the access person, including open and executed orders and recommendations, in
determining whether to approve such a request. "Associated Clients" are those
Funds or clients whose trading information would be available to the access
person during the course of his or her regular functions or duties. Currently,
there are three groups of Associated Clients: (i) the Franklin Mutual Series
Funds and clients advised by Franklin Mutual Advisers, LLC ("Mutual Clients");
(ii) the Franklin Group of Funds and the clients advised by the various Franklin
investment advisers ("Franklin Clients"); and (iii) the Templeton Group of Funds
and the clients advised by the various Templeton investment advisers ("Templeton
Clients"). Thus, persons who have access to the trading information of Mutual
Clients generally will be precleared solely against the securities transactions
of the Mutual Clients, including open and executed orders and recommendations.
Similarly, persons who have access to the trading information of Franklin
Clients or Templeton Clients generally will be precleared solely against the
securities transactions of Franklin Clients or Templeton Clients, as
appropriate.
Certain officers of Franklin Resources, as well as legal, compliance, fund
accounting, investment operations and other personnel who generally have access
to trading information of the funds and clients of the Franklin Templeton Group
during the course of their regular functions and duties, will have their
personal securities transactions precleared against executed transactions, open
orders and recommendations of the entire Franklin Templeton Group.
3. SPECIFIC STANDARDS
(a) SECURITIES TRANSACTIONS BY FUNDS OR CLIENTS
No clearance shall be given for any transaction in any security on any day
during which an Associated Client of the access person has executed a buy or
sell order in that security, until seven (7) calendar days after the order has
been executed. Notwithstanding a transaction in the previous seven days,
clearance may be granted to sell if the security has been disposed of by all
Associated Clients.
(b) SECURITIES UNDER CONSIDERATION
OPEN ORDERS
No clearance shall be given for any transaction in any security on any day
which an Associated Client of the access person has a pending buy or sell order
for such security, until seven (7) calendar days after the order has been
executed.
RECOMMENDATIONS
No clearance shall be given for any transaction in any security on any day
on which a recommendation for such security was made by a Portfolio Person,
until seven (7) calendar days after the recommendation was made and no orders
have subsequently been executed or are pending.
(c) PRIVATE PLACEMENTS
In considering requests by Portfolio Personnel for approval of limited
partnerships and other private placement securities transactions, the Director
of Compliance shall consult with an executive officer of Franklin Resources,
Inc. In deciding whether to approve the transaction, the Director of Compliance
and the executive officer shall take into account, among other factors, whether
the investment opportunity should be reserved for a Fund or other client, and
whether the investment opportunity is being offered to the Portfolio Person by
virtue of his or her position with the Franklin Templeton Group. If the
Portfolio Person receives clearance for the transaction, an investment in the
same issuer may only be made for a Fund or client if an executive officer of
Franklin Resources, Inc., who has been informed of the Portfolio Person's
pre-existing investment and who has no interest in the issuer, approves the
transaction.
(d) DURATION OF CLEARANCE
If a Preclearance Officer approves a proposed securities transaction, the
order for the transaction must be placed and effected by the close of the next
business day following the day approval was granted. The Director of Compliance
may, in his or her discretion, extend the clearance period up to seven calendar
days, beginning on the date of the approval, for a securities transaction of any
access person who demonstrates that special circumstances make the extended
clearance period necessary and appropriate.18 The Director of Compliance may, in
his or her discretion, after consultation with a member of senior management for
Franklin Resources, Inc., renew the approval for a particular transaction for up
to an additional seven calendar days upon a similar showing of special
circumstances by the access person. The Director of Compliance may shorten or
rescind any approval or renewal of approval under this paragraph if he or she
determines it is appropriate to do so.
B. WAIVERS BY THE DIRECTOR OF COMPLIANCE
The Director of Compliance may, in his or her discretion, after
consultation with an executive officer of Franklin Resources, Inc., waive
compliance by any access person with the provisions of the Code, if he or she
finds that such a waiver:
(1) is necessary to alleviate undue hardship or in view of unforeseen
circumstances or is otherwise appropriate under all the relevant facts
and circumstances;
(2) will not be inconsistent with the purposes and objectives of the Code;
(3) will not adversely affect the interests of advisory clients of the
Franklin Templeton Group, the interests of the Franklin Templeton
Group or its affiliates; and
(4) will not result in a transaction or conduct that would violate
provisions of applicable laws or regulations.
Any waiver shall be in writing, shall contain a statement of the basis for
it, and a copy shall be promptly sent by the Director of Compliance to the
General Counsel of Franklin Resources, Inc.
C. CONTINUING RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
A Preclearance Officer shall make a record of all requests for
pre-clearance regarding the purchase or sale of a security, including the date
of the request, the name of the access person, the details of the proposed
transaction, and whether the request was approved or denied. APreclearance
Officer shall keep a record of any waivers given, including the reasons for each
exception and a description of any potentially conflicting Fund or client
transactions.
A Preclearance Officer shall also collect the signed initial
acknowledgments of receipt and the annual acknowledgments from each access
person of receipt of a copy of the Code and Insider Trading Policy, as well as
reports, as applicable, on Schedules B, C, D, E and F of the Code. In addition,
a Preclearance Officer shall request copies of all confirmations, and other
information with respect to an account opened and maintained with the
broker-dealer by any access person of the Franklin Templeton Group. A
Preclearance Officer shall preserve those acknowledgments and reports, the
records of consultations and waivers, and the confirmations, and other
information for the period required by applicable regulation.
A Preclearance Officer shall review brokerage transaction confirmations,
account statements, Schedules B, C, D, E, F and Private Placement Checklists of
Access Persons for compliance with the Code. The reviews shall include, but are
not limited to;
(1) Comparison of brokerage confirmations, Schedule Bs, and/or brokerage
statements to preclearance request worksheets or, if a private
placement, the Private Placement Checklist;
(2) Comparison of brokerage statements and/or Schedule Fs to current
securities holding information;
(3) Comparison of Schedule C to current securities account information;
(4) Conducting periodic "back-testing" of access person transactions,
Schedule Es and/or Schedule Gs in comparison to fund and client
transactions;
A Preclearance Officer shall evidence review by initialing and dating the
appropriate document. Any apparent violations of the Code detected by a
Preclearance Officer during his or her review shall be promptly brought to the
attention of the Director of Compliance.
D. PERIODIC RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
The Legal Compliance Department shall consult with the General Counsel and
the Human Resources Department, as the case may be, to assure that:
(1) Adequate reviews and audits are conducted to monitor compliance with
the reporting, pre-clearance, prohibited transaction and other
requirements of the Code.
(2) Adequate reviews and audits are conducted to monitor compliance with
the reporting, pre-clearance, prohibited transaction and other
requirements of the Code.
(3) All access persons and new employees of the Franklin Templeton Group
are adequately informed and receive appropriate education and training
as to their duties and obligations under the Code.
(4) There are adequate educational, informational and monitoring efforts
to ensure that reasonable steps are taken to prevent and detect
unlawful insider trading by access persons and to control access to
inside information.
(5) Written compliance reports are submitted to the Board of Directors of
Franklin Resources, Inc., and the Board of each relevant Fund at least
annually. Such reports will describe any issues arising under the Code
or procedures since the last report, including, but not limited to,
information about material violations of the Code or procedures and
sanctions imposed in response to the material violations.
(6) The Legal Compliance Department will certify at least annually to the
Fund's board of directors that the Franklin Templeton Group has
adopted procedures reasonably necessary to prevent Access Persons from
violating the Code, and
(7) Appropriate records are kept for the periods required by law.
E. APPROVAL BY FUND'S BOARD OF DIRECTORS
(1) Basis for Approval
The Board of Directors/Trustees must base its approval of the Code on
a determination that the Code contains provisions reasonably necessary to
prevent access persons from engaging in any conduct prohibited by rule
17j-1.
(2) New Funds
At the time a new fund is organized, the Legal Compliance Department will
provide the Fund's board of directors, a certification that the investment
adviser and principal underwriter have adopted procedures reasonably necessary
to prevent Access Persons from violating the Code. Such certification will state
that the Code contains provisions reasonably necessary to prevent Access Persons
from violating the Code.
(3) Material Changes to the Code of Ethics
The Legal Compliance Department will provide the Fund's board of directors
a written description of all material changes to the Code no later than six
months after adoption of the material change by the Franklin Templeton Group.
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS
For purposes of the Code of Ethics and Insider Trading Policy, the terms
below have the following meanings:
1934 ACT - The Securities Exchange Act of 1934, as amended.
1940 ACT - The Investment Company Act of 1940, as amended.
ACCESS PERSON - Each director, trustee, general partner or officer, and any
other person that directly or indirectly controls (within the meaning of
Section 2(a)(9) of the 1940 Act) the Franklin Templeton Group or a person,
including an Advisory Representative, who has access to information
concerning recommendations made to a Fund or client with regard to the
purchase or sale of a security.
ADVISORY REPRESENTATIVE - Any officer or director of Franklin Resources; any
employee who makes any recommendation, who participates in the
determination of which recommendation shall be made, or whose functions or
duties relate to the determination of which recommendation shall be made;
any employee who, in connection with his or her duties, obtains any
information concerning which securities are being recommended prior to the
effective dissemination of such recommendations or of the information
concerning such recommendations; and any of the following persons who
obtain information concerning securities recommendations being made by
Franklin Resources prior to the effective dissemination of such
recommendations or of the information concerning such recommendations: (i)
any person in a control relationship to Franklin Resources, (ii) any
affiliated person of such controlling person, and (iii) any affiliated
person of such affiliated person.
AFFILIATED PERSON - same meaning as Section 2(a)(3) of the Investment Company
Act of 1940. An "affiliated person" of an investment company includes
directors, officers, employees, and the investment adviser. In addition, it
includes any person owning 5% of the company's voting securities, any
person in which the investment company owns 5% or more of the voting
securities, and any person directly or indirectly controlling, controlled
by, or under common control with the company.
APPROPRIATE ANALYST - With respect to any access person, any securities analyst
or portfolio manager making investment recommendations or investing funds
on behalf of an Associated Client and who may be reasonably expected to
recommend or consider the purchase or sale of a security.
ASSOCIATED CLIENT - A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
BENEFICIAL OWNERSHIP - Has the same meaning as in Rule 16a-1(a)(2) under the
1934 Act. Generally, a person has a beneficial ownership in a security if
he or she, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the security. There is a presumption of a
pecuniary interest in a security held or acquired by a member of a person's
immediate family sharing the same household.
FUNDS - Investment companies in the Franklin Templeton Group of Funds.
HELD OR TO BE ACQUIRED - A security is "held or to be acquired" if within the
most recent 15 days it (i) is or has been held by a Fund, or (ii) is being
or has been considered by a Fund or its investment adviser for purchase by
the Fund.
PORTFOLIO PERSON - Any employee of the Franklin Templeton Group, who, in
connection with his or her regular functions or duties, makes or
participates in the decision to purchase or sell a security by a Fund in
the Franklin Templeton Group, or any other client or if his or her
functions relate to the making of any recommendations about those purchases
or sales. Portfolio Persons include portfolio managers, research analysts,
traders, persons serving in equivalent capacities (such as Management
Trainees), persons supervising the activities of Portfolio Persons, and
anyone else designated by the Director of Compliance
PROPRIETARY ACCOUNTS - Any corporate account or other account including, but not
limited to, a limited partnership, a corporate hedge fund, a limited
liability company or any other pooled investment vehicle in which Franklin
Resources or its affiliates, owns 5 percent or more of the outstanding
capital or is entitled to 25% or more of the profits or losses in the
account (excluding any asset based investment management fees based on
average periodic net assets in accounts). SECURITY - Any stock, note, bond,
evidence of indebtedness, participation or interest in any profit-sharing
plan or limited or general partnership, investment contract, certificate of
deposit for a security, fractional undivided interest in oil or gas or
other mineral rights, any put, call, straddle, option, or privilege on any
security (including a certificate of deposit), guarantee of, or warrant or
right to subscribe for or purchase any of the foregoing, and in general any
interest or instrument commonly known as a security, except commodity
futures, currency and currency forwards. For the purpose of this Code,
"security" does not include: (1) Direct obligations of the Government of
the United States; (2) Bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt instruments, including
repurchase agreements; and (3) Shares issued by open-end funds.
SEE Section III of Appendix A for a summary of different requirements for
different types of securities.
III. SECURITIES EXEMPT FROM THE PROHIBITED , REPORTING, AND PRE-CLEARANCE
PROVISIONS
A. PROHIBITED TRANSACTIONS
Securities that are EXEMPT from the prohibited transaction provisions of
Section 3.4 include:
(1) securities that are direct obligations of the U.S. Government, such as
Treasury bills, notes and bonds, and U.S. Savings Bonds and
derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S. bank
certificates of deposit; (iii) commercial paper; and (iv) repurchase
agreements;
(3) shares of registered open-end investment companies;
(4) commodity futures, currencies, currency forwards and derivatives
thereof;
(5) securities that are prohibited investments for all Funds and clients
advised by the entity employing the access person; and
(6) transactions in securities issued or guaranteed by the governments or
their agencies or instrumentalities of Canada, the United Kingdom,
France, Germany, Switzerland, Italy and Japan and derivatives thereof.
B. REPORTING AND PRECLEARANCE
Securities that are EXEMPT from both the reporting requirements of Section
5 and preclearance requirements of Section 6 of the Code include:
(1) securities that are direct obligations of the U.S. Government, such as
Treasury bills, notes and bonds, and U.S. Savings Bonds and
derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S. bank
certificates of deposit; (iii) commercial paper; and (iv) repurchase
agreements;
(3) shares of registered open-end investment companies; and
(4) commodity futures, currencies, currency forwards and derivatives
thereof.
IV. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") makes it
unlawful for any affiliated person of the Franklin Templeton Group in connection
with the purchase or sale of a security, including any option to purchase or
sell, and any security convertible into or exchangeable for, any security that
is "held or to be acquired" by a Fund in the Franklin Templeton Group:
A. To employ any device, scheme or artifice to defraud a Fund;
B. To make to a Fund any untrue statement of a material fact or omit to state
to a Fund a material fact necessary in order to make the statements made,
in light of the circumstances under which they are made, not misleading;
C. To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Fund; or
D. To engage in any manipulative practice with respect to a Fund.
A security is "held or to be acquired" if within the most recent 15 days it
(i) is or has been held by a Fund, or (ii) is being or has been considered by a
Fund or its investment adviser for purchase by the Fund. .
APPENDIX B: FORMS AND SCHEDULES
ACKNOWLEDGMENT FORM
CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING
To: DIRECTOR OF COMPLIANCE, LEGAL COMPLIANCE DEPARTMENT
I hereby acknowledge receipt of a copy of the Franklin Templeton Group's CODE OF
ETHICS AND POLICY STATEMENT ON INSIDER TRADING, AMENDED AND RESTATED, FEBRUARY
2000, which I have read and understand. I will comply fully with all provisions
of the Code and the Insider Trading Policy to the extent they apply to me during
the period of my employment. Additionally, I authorize any broker-dealer, bank
or investment adviser with whom I have securities accounts and accounts in which
I have beneficial ownership, to provide brokerage confirmations and statements
as required for compliance with the Code. I further understand and acknowledge
that any violation of the Code or Insider Trading Policy, including engaging in
a prohibited transaction or failure to file reports as required (see Schedules
B, C, D, E, F and G), may subject me to disciplinary action, including
termination of employment.
___________________________________________________________________________
SIGNATURE:
___________________________________________________________________________
PRINT NAME:
___________________________________________________________________________
TITLE:
___________________________________________________________________________
DEPARTMENT:
___________________________________________________________________________
LOCATION:
___________________________________________________________________________
DATE ACKNOWLEDGMENT WAS SIGNED:
___________________________________________________________________________
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS - FLOOR 2.
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX
NUMBERS 19
LEGAL OFFICER
MURRAY SIMPSON
EXECUTIVE VICE PRESIDENT & GENERAL COUNSEL
FRANKLIN RESOURCES, INC.
901 MARINERS ISLAND BLVD.
7TH FLOOR
SAN MATEO, CA 94404
(650) 525 -7331
COMPLIANCE OFFICERS
___________________________________________________________________________
Director of Compliance PRECLEARANCE OFFICERS
James M. Davis Stephanie Harwood
Franklin Resources, Inc. Wally Enrico
2000 Alameda de las Pulgas, Suite Legal Compliance Department
200F 2000 Alameda de las Pulgas,
San Mateo, CA 94403 Suite 200E
(650) 312-2832 San Mateo, CA 94403
(650) 312-3693 (telephone)
(650) 312-5646 (facsimile)
Preclear, Legal (internal
e-mail address)
[email protected] (external e-mail
address)
___________________________________________________________________________
SCHEDULE B: SECURITIES TRANSACTION REPORT
This report of personal securities transactions NOT reported by duplicate
confirmations and brokerage statements pursuant to Section 5.3 of the Code is
required pursuant to Rule 204-2(a) of the Investment Advisers Act of 1940 or
Rule 17j-1(c) of the Investment Company Act of 1940. The report must be
completed and submitted to the Compliance Department no later than 10 calendar
days after the end of the calendar quarter.. Refer to Section 5.3 of the Code of
Ethics for further instructions.
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________
Trade Buy, sell Security Description, including Type of Quantity or Price Broker-Dealer Date Preclearance
Date or Other interest rate and maturity Security Principal or Bank obtained from
(if appropriate) (Stock, Amount Compliance Dept.
Bond, Option,
etc.)
________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
THE REPORT OR RECORDING OF ANY TRANSACTION ABOVE SHALL NOT BE CONSTRUED AS AN
ADMISSION THAT I HAVE ANY DIRECT OR INDIRECT OWNERSHIP IN THE SECURITIES.
______________________________ _________________________ ___________________ ___________________
(PRINT NAME) (SIGNATURE) (DATE) (QUARTER ENDING)
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS SECURITIES
HOLDINGS This report shall set forth the security name or description and
security class of each security holding in which you have a direct or indirect
beneficial interest, including holdings by a spouse, minor children, trusts,
foundations, and any account for which trading authority has been delegated to
you, other than authority to trade for a Fund in or a client of the Franklin
Templeton Group.. In lieu of listing each security position below, you may
instead attach copies of brokerage statements, sign below and return Schedule C
and brokerage statements to the Legal Compliance Department within 10 days if an
initial report or by January 30th of each year if an annual report. Refer to
Sections 5.2.A and 5.4.A of the Code for additional filing instructions.
<TABLE>
<CAPTION>
_______________________________________________________________________________________
Security Description Type of Security Quantity or
including interest rate (Stocks, Bond Principal Name of Broker- Account
and maturity (if appropriate) Option, etc.) Amount Dealer or Bank Number
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
[ ] I DID NOT HAVE ANY PERSONAL SECURITIES HOLDINGS FOR YEAR ENDED _____________
[ ] I HAVE ATTACHED STATEMENTS CONTAINING ALL MY PERSONAL SECURITIES HOLDINGS FOR THE
YEAR ENDED ______
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST,
INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS,
AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED AN UNAFFILIATED
PARTY.
_______________________ ___________________ __________________ _______________ ____________
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
* Securities that are EXEMPT from being reported on Schedule C include: (i)
securities that are direct obligations of the U.S. Government, such as Treasury
bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof; (ii)
high quality short-term instruments ("money market instruments") including but
not limited to bankers' acceptances, U.S. bank certificates of deposit;
commercial paper; and repurchase agreements; (iii) shares of registered open-end
investment companies; and (iv) commodity futures, currencies, currency forwards
and derivatives thereof.
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING
DATE: __________________________________
TO: Preclearance Desk
Legal Compliance Department
2000 Alameda de las Pulgas, Suite 200E
San Mateo, CA 94403
(650) 312-3693
FAX: (650) 312-5646
FROM: NAME: ____________________________
DEPARTMENT:_______________________
LOCATION:_________________________
EXTENSION:________________________
ARE YOU A REG. REPRESENTATIVE? YES[ ] NO[ ]
ARE YOU AN ACCESS PERSON? YES[ ] NO[ ]
This is to advise you that I will be opening or have opened a securities account
with the following firm:
PLEASE FILL OUT COMPLETELY TO EXPEDITE PROCESSING
NAME ON ACCOUNT: ____________________________________________________________
(If other than employee, please state relationship i.e.,
spouse, son, daughter, trust, etc.)
ACCT # OR SSN #:_____________________________________________________________
NAME OF FIRM:________________________________________________________________
ATTN:________________________________________________________________________
ADDRESS OF FIRM:_____________________________________________________________
CITY/STATE/ZIP:______________________________________________________________
* All Franklin registered representatives and Access Persons, PRIOR TO OPENING A
BROKERAGE ACCOUNT OR PLACING AN INITIAL ORDER, are required to notify the Legal
Compliance Department and the executing broker-dealer in writing. This includes
accounts in which the registered representative or access person has or will
have a financial interest (e.g., a spouse's account) or discretionary authority
(e.g., a trust account for a minor child).
Upon receipt of the NOTIFICATION OF SECURITIES ACCOUNT OPENING form, the Legal
Compliance Department will contact the broker-dealer identified above and
request that it receive duplicate confirmations and statements of your brokerage
account.
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST If you have
any beneficial ownership in a security and you recommend to the Appropriate
Analyst that the security be considered for purchase or sale by an Associated
Client, or if you carry out a purchase or sale of that security for an
Associated Client, you must disclose your beneficial ownership to the Legal
Compliance Department and the Appropriate Analyst in writing on Schedule E (or
an equivalent form containing similar information) before the purchase or sale,
or before or simultaneously with the recommendation.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
Method of Primary
Ownership Acquisition Date and Method Learned Portfolio Manager
Type (Direct Year (Purch/Gift/ that Security Under or Appropriate Name of Person Date of Verbal
Security Description or Indirect) Acquired Other) Consideration by Funds Analyst Notified Notification
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
________________________ ___________________________ __________________
(PRINT NAME) (SIGNATURE) (DATE)
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS
This report shall set forth the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse, minor children, trusts, foundations, and any
account for which trading authority has been delegated to you, other than
authority to trade for a Fund in, or a client of, the Franklin Templeton Group.
In lieu of listing each securities account below, you may instead attach copies
of the brokerage statements, sign below and return Schedule F and brokerage
statements to the Compliance Department.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________
NAME(S) ON ACCOUNT NAME OF BROKERAGE FIRM, ADDRESS OF BROKERAGE FIRM, BANK OR ACCOUNT NAME OF ACCOUNT
(REGISTRATION SHOWN ON BANK OR INVESTMENT INVEST. ADVISER NUMBER EXECUTIVE/REPRESENTATIVE
STATEMENT) ADVISER (STREET, CITY , STATE AND ZIP CODE)
____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS IN
WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST, INCLUDING SECURITY
ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS, AND ANY ACCOUNT FOR
WHICH TRADING AUTHORITY HAS BEEN DELEGATED TO ME.
______________________ ____________________ ___________________ ___________
PRINT NAME SIGNATURE DATE YEAR ENDED
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY
This report shall set forth the account name or description in which you have a
direct or indirect beneficial interest, including holdings by a spouse, minor
children, trusts, foundations, and as to which trading authority has been
delegated by you to an unaffiliated registered broker-dealer, registered
investment adviser, or other investment manager acting in a similar fiduciary
capacity, who exercises sole investment discretion.
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
TYPE OF OWNERSHIP
NAME/DESCRIPTION OF BROKERAGE FIRM, DIRECT OWNERSHIP ACCOUNT NUMBER
NAME(S) AS SHOWN ON ACCOUNT OR BANK, INVESTMENT ADVISER OR INVESTMENT (DO) (IF APPLICABLE)
INVESTMENT INDIRECT
OWNERSHIP (IO)
___________________________________________________________________________________________________________________
<S> <C> <C> <C>
___________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST,
INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS,
AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED AN UNAFFILIATED
PARTY. FURTHER, I CERTIFY THAT I DO NOT HAVE ANY DIRECT OR INDIRECT INFLUENCE OR
CONTROL OVER THE ACCOUNTS LISTED ABOVE.
____________________ ___________________ _________________ __________________
PRINT NAME SIGNATURE DATE YEAR ENDED
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES ISSUED IN
PRIVATE PLACEMENTS
GENERAL INSTRUCTIONS: In considering requests by Access Persons for approval of
limited partnerships and other private placement securities transactions, the
Director of Compliance shall consult with an executive officer of Franklin
Resources, Inc. In deciding whether to approve the transaction, the Director of
Compliance and the executive officer shall take into account, among other
factors, whether the investment opportunity should be reserved for a Fund or
other client, and whether the investment opportunity is being offered to the
access person by virtue of his or her position with the Franklin Templeton
Group. IF THE ACCESS PERSON RECEIVES CLEARANCE FOR THE TRANSACTION, AN
INVESTMENT IN THE SAME ISSUER MAY ONLY BE MADE FOR A FUND OR CLIENT IF AN
EXECUTIVE OFFICER OF FRANKLIN RESOURCES, INC., WHO HAS BEEN INFORMED OF THE
ACCESS PERSON'S PRE-EXISTING INVESTMENT AND WHO HAS NO INTEREST IN THE ISSUER,
APPROVES THE TRANSACTION.
IN ORDER TO PROCESS YOUR REQUEST, PLEASE PROVIDE THE FOLLOWING INFORMATION:
______________________________
1) Name/Description of proposed investment: [______________________________]
__________________________________
2) Proposed Investment Amount: [__________________________________]
3) Please attach pages of the offering memorandum (or other documents)
summarizing the investment opportunity, including:
a) Name of the partnership/hedge fund/issuer;
b) Name of the general partner, location & telephone number;
c) Summary of the offering; including the total amount the offering/issuer;
d) Percentage your investment will represent of the total offering;
e) Plan of distribution; and
f) Investment objective and strategy,
PLEASE RESPOND TO THE FOLLOWING QUESTIONS:
4) Was this investment opportunity presented to you in your capacity as a
portfolio manager, trader or research analyst? If no, please explain the
relationship, if any, you have to the issuer or principals of the issuer.
5) Is this investment opportunity suitable for any fund/client that you
advise? If yes, why isn't the investment being made on behalf of the
fund/client? If no, why isn't the investment opportunity suitable for the
fund/clients?
6) Do any of the fund/clients that you advise presently hold securities of the
issuer of this proposed investment (e.g., common stock, preferred stock,
corporate debt, loan participations, partnership interests, etc)? If yes,
please provide the names of the funds/clients and security description.
7) Do you presently have or will you have any managerial role with the
company/issuer as a result of your investment? If yes, please explain in
detail your responsibilities, including any compensation you will receive.
8) Will you have any investment control or input to the investment decision
making process?
9) If applicable, will you receive reports of portfolio holdings? If yes, when
and how frequently will these be provided?
Reminder: Personal securities transactions that do not generate brokerage
confirmations must be reported to the Legal Compliance Department on Schedule B
within 10 calendar days after you are notified.
______________________________
Name of Access Person
_______________________________ ________________
Access Person Signature Date
Approved by: _______________________________________ ________________
Chief Investment Officer Signature Date
________________________________________________________________________________
Legal Compliance Use Only
________________________________________________________________________________
Date Received: ________________________________________
Date Entered in Lotus Notes: ______________________________________
Date Forwarded FRI Executive Officer: _________________________________
Precleared: [ ] [ ] (attach E-Mail) Date: __________________________
Date Entered in APII: __________________________
________________________________________________________________________________
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF
FRANKLIN RESOURCES, INC. - FEBRUARY 2000
<TABLE>
<CAPTION>
__________________________________________________________________________________________
<S> <C> <C> <C>
Franklin Advisers, Inc. IA Templeton Management Limited IA
(Canada)
__________________________________________________________________________________________
Franklin Advisory Services, LLC. IA Templeton Franklin Investment IA/BD
Services, Inc.
__________________________________________________________________________________________
Franklin Investment Advisory IA Templeton Investment Counsel, Inc. IA
Services, Inc.
__________________________________________________________________________________________
Franklin Management, Inc. IA Templeton Asset Management, Ltd. IA/FIA
__________________________________________________________________________________________
Franklin Mutual Advisers, LLC IA Templeton Investment Management Co. FIA
Ltd. (Japan)
__________________________________________________________________________________________
Franklin Properties, Inc. REA Closed Joint-Stock Company FIA
Templeton (Russia)
__________________________________________________________________________________________
Franklin Templeton Distributors, IA/BD Templeton Unit Trust Management FBD
Inc. Ltd. (UK)
__________________________________________________________________________________________
Franklin Asset Management IA Orion Fund Management Ltd. FIA
(Proprietary) Ltd.
__________________________________________________________________________________________
Templeton (Switzerland), Inc. FBD Templeton Global Advisors Ltd. IA
(Bahamas)
__________________________________________________________________________________________
Templeton Franklin Investment FBD Templeton Asset Management (India) FIA/FBD
Services (Asia) Ltd. Pvt. Ltd.
__________________________________________________________________________________________
`Templeton Investment Management IA/FIA Templeton Italia SIM S.p.A. (Italy) FBD
Limited (UK)
__________________________________________________________________________________________
Templeton Global Strategic Services FBD Templeton Global Strategic Services FBD
S.A. (Luxembourg) (Deutschland) GmbH (Germany)
__________________________________________________________________________________________
Templeton Investment Management FIA Templeton Funds Annuity Company INS
(Australia) Ltd.
__________________________________________________________________________________________
Franklin Templeton Investment TA
Services, Inc.
__________________________________________________________________________________________
Franklin Templeton Services, Inc. BM
__________________________________________________________________________________________
</TABLE>
Codes:
IA: US registered investment adviser
BD: US registered broker-dealer
FIA: Foreign equivalent investment adviser
FBD: Foreign equivalent broker-dealer
TA: US registered transfer agent
BM: Business manager to the funds
REA: Real estate adviser
INS: Insurance company
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING
A. LEGAL REQUIREMENT
Pursuant to the Insider Trading and Securities Fraud Enforcement Act of
1988, it is the policy of the Franklin Templeton Group to forbid any officer,
director, employee, consultant acting in a similar capacity, or other person
associated with the Franklin Templeton Group from trading, either personally or
on behalf of clients, including all client assets managed by the entities in the
Franklin Templeton Group, on material non-public information or communicating
material non-public information to others in violation of the law. This conduct
is frequently referred to as "insider trading." The Franklin Templeton Group's
Policy Statement on Insider Trading applies to every officer, director, employee
or other person associated with the Franklin Templeton Group and extends to
activities within and outside their duties with the Franklin Templeton Group.
Every officer, director and employee must read and retain this policy statement.
Any questions regarding the Franklin Templeton Group's Policy Statement on
Insider Trading or the Compliance Procedures should be referred to the Legal
Department.
The term "insider trading" is not defined in the federal securities laws,
but generally is used to refer to the use of material non-public information to
trade in securities (whether or not one is an "insider") or to communications of
material non-public information to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material non-public
information; or
(2) trading by a non-insider, while in possession of material non-public
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated; or
(3) communicating material non-public information to others.
The elements of insider trading and the penalties for such unlawful conduct
are discussed below. If, after reviewing this policy statement, you have any
questions, you should consult the Legal Department.
POLICY STATEMENT ON INSIDER TRADING
B. WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
outside attorneys, accountants, consultants, bank lending officers, and the
employees of such organizations. In addition, an investment adviser may become a
temporary insider of a company it advises or for which it performs other
services. According to the U.S. Supreme Court, the company must expect the
outsider to keep the disclosed non-public information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
C. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of the company's securities. Information that officers, directors and
employees should consider material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major litigation,
liquidation problems, and extraordinary management developments.
Material information does not have to relate to a company's business. For
example, in CARPENTER V. U.S., 108 U.S. 316 (1987), the Supreme Court considered
as material certain information about the contents of a forthcoming newspaper
column that was expected to affect the market price of a security. In that case,
a WALL STREET JOURNAL reporter was found criminally liable for disclosing to
others the dates that reports on various companies would appear in the WALL
STREET JOURNAL and whether those reports would be favorable or not.
D. WHAT IS NON-PUBLIC INFORMATION?
Information is non-public until it has been effectively communicated to the
marketplace. One must be able to point to some fact to show that the information
is generally public. For example, information found in a report filed with the
Securities and Exchange Commission ("SEC"), or appearing in Dow Jones, Reuters
Economic Services, THE WALL STREET JOURNAL or other publications of general
circulation would be considered public.
E. BASIS FOR LIABILITY
1. FIDUCIARY DUTY THEORY
In 1980, the Supreme Court found that there is no general duty to disclose
before trading on material non-public information, but that such a duty arises
only where there is a fiduciary relationship. That is, there must be a
relationship between the parties to the transaction such that one party has a
right to expect that the other party will not disclose any material non-public
information or refrain from trading. CHIARELLA V. U.S., 445 U.S. 22 (1980).
In DIRKS V. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternate
theories under which non-insiders can acquire the fiduciary duties of insiders.
They can enter into a confidential relationship with the company through which
they gain information (E.G., attorneys, accountants), or they can acquire a
fiduciary duty to the company's shareholders as "tippees" if they are aware or
should have been aware that they have been given confidential information by an
insider who has violated his fiduciary duty to the company's shareholders.
However, in the "tippee" situation, a breach of duty occurs only if the
insider personally benefits, directly or indirectly, from the disclosure. The
benefit does not have to be pecuniary but can be a gift, a reputational benefit
that will translate into future earnings, or even evidence of a relationship
that suggests a quid pro quo.
2. MISAPPROPRIATION THEORY
Another basis for insider trading liability is the "misappropriation"
theory, under which liability is established when trading occurs on material
non-public information that was stolen or misappropriated from any other person.
In U.S. V. CARPENTER, SUPRA, the Court found, in 1987, a columnist defrauded THE
WALL STREET JOURNAL when he stole information from the WALL STREET JOURNAL and
used it for trading in the securities markets. It should be noted that the
misappropriation theory can be used to reach a variety of individuals not
previously thought to be encompassed under the fiduciary duty theory.
F. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material non-public information
are severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
o civil injunctions;
o treble damages;
o disgorgement of profits;
o jail sentences;
o fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefited; and
o fines for the employer or other controlling person of up to the greater
of $1,000,000 or three times the amount of the profit gained or loss
avoided.
In addition, any violation of this policy statement can result in serious
sanctions by the Franklin Templeton Group, including dismissal of any person
involved.
G. INSIDER TRADING PROCEDURES
Each access person, Compliance Officer, the Risk Management Department, and
the Legal Department, as the case may be, shall comply with the following
procedures.
1. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including investment companies or
private accounts managed by the Franklin Templeton Group, in the securities of a
company about which you may have potential inside information, ask yourself the
following questions:
o Is the information material?
o Is this information that an investor would consider important in
making his or her investment decisions?
o Is this information that would substantially affect the market price
of the securities if generally disclosed?
o Is the information non-public?
o To whom has this information been provided?
o Has the information been effectively communicated to the marketplace
(e.g., published in REUTERS, THE WALL STREET JOURNAL or other
publications of general circulation)?
If, after consideration of these questions, you believe that the information may
be material and non-public, or if you have questions as to whether the
information is material and non-public, you should take the following steps:
(i) Report the matter immediately to the designated Compliance Officer, or if
he or she is not available, to the Legal Department.
(ii) Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by the Franklin
Templeton Group.
(iii) Do not communicate the information inside or outside the Franklin
Templeton Group, other than to the Compliance Officer or the Legal
Department.
(iv) The Compliance Officer shall immediately contact the Legal Department for
advice concerning any possible material, non-public information.
(v) After the Legal Department has reviewed the issue and consulted with the
Compliance Officer, you will be instructed either to continue the
prohibitions against trading and communication noted in (ii) and (iii), or
you will be allowed to trade and communicate the information.
(vi) In the event the information in your possession is determined by the Legal
Department or the Compliance Officer to be material and non-public, it may
not be communicated to anyone, including persons within the Franklin
Templeton Group, except as provided in (i) above. In addition, care should
be taken so that the information is secure. For example, files containing
the information should be sealed and access to computer files containing
material non-public information should be restricted to the extent
practicable.
2. RESTRICTING ACCESS TO OTHER SENSITIVE INFORMATION
All Franklin Templeton Group personnel also are reminded of the need to be
careful to protect from disclosure other types of sensitive information that
they may obtain or have access to as a result of their employment or association
with the Franklin Templeton Group.
(I) GENERAL ACCESS CONTROL PROCEDURES
The Franklin Templeton Group has established a process by which access to
company files that may contain sensitive or non-public information such as the
Bargain List and the Source of Funds List is carefully limited. Since most of
the Franklin Templeton Group files which contain sensitive information are
stored in computers, personal identification numbers, passwords and/or code
access numbers are distributed to Franklin Templeton Group computer access
persons only. This activity is monitored on an ongoing basis. In addition,
access to certain areas likely to contain sensitive information is normally
restricted by access codes.
________
1 "Director" includes trustee.
2 The term "employee or employees" includes management trainees, as well as
regular employees of the Franklin Templeton Group.
3 SEE Appendix A. II., for definition of "Proprietary Accounts."
4 Generally, a person has "beneficial ownership" in a security if he or she,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares a direct or indirect pecuniary
interest in the security. There is a presumption of a pecuniary interest in
a security held or acquired by a member of a person's immediate family
sharing the same household.
5 Proprietary Information: Information that is obtained or developed during
the ordinary course of employment with the Franklin Templeton Group,
whether by you or someone else, and is not available to persons outside the
Franklin Templeton Group. Examples of such Proprietary Information include,
among other things, internal research reports, research materials supplied
to the Franklin Templeton Group by vendors and broker-dealers not generally
available to the public, minutes of departmental/research meetings and
conference calls, and communications with company officers (including
confidentiality agreements). Examples of non-Proprietary Information
include mass media publications (e.g., The Wall Street Journal, Forbes, and
Fortune), certain specialized publications available to the public (e.g.,
Morningstar, Value Line, Standard and Poors), and research reports
available to the general public.
6 The Director of Compliance is designated on Schedule A. The "Appropriate
Analyst" means any securities analyst or portfolio manager, other than you,
making recommendations or investing funds on behalf of any associated
client, who may be reasonably expected to recommend or consider the
purchase or sale of the security in question.
7 Associated Client: A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
8 You are a "Portfolio Person" if you are an employee of the Franklin
Templeton Group, and, in connection with your regular functions or duties,
make or participate in the decision to purchase or sell a security by a
Fund in the Franklin Templeton Group, or any other client or if your
functions relate to the making of any recommendations about those purchases
or sales. Portfolio Persons include portfolio managers, research analysts,
traders, persons serving in equivalent capacities (such as Management
Trainees), persons supervising the activities of Portfolio Persons, and
anyone else so designated by the Compliance Officer.
9 This restriction applies equally to transactions occurring in margin and
option accounts which may not be due to direct actions by the Portfolio
Person. For example, a stock held less than 60 days that is sold to meet a
margin call or the underlying stock of a covered call option held less than
60 days that is called away, would be a violation of this restriction if
these transactions resulted in a profit for the Portfolio Person.
10 You are not required to separately report the vesting of shares or options
of Franklin Resources, Inc., received pursuant to a deferred compensation
plan as such information is already maintained.
11 See Sections 3.2 and 4.6 of the Code. Also, confirmations and statements of
transactions in open-end mutual funds, including mutual funds sponsored by
the Franklin Templeton Group are not required. See Section 3.3 above for a
list of other securities that need not be reported. If you have any
beneficial ownership in a discretionary account, transactions in that
account are treated as yours and must be reported by the manager of that
account (see Section 6.1.C below).
12 Officers, directors and certain other key management personnel who perform
significant policy-making functions of Franklin Resources, Inc., the
closed-end funds, and/or real estate investment trusts may have ownership
reporting requirements in addition to these reporting requirements. Contact
the Legal Compliance Department for additional information. SEE also the
"Insider Trading Policy" attached.
13 Please note that these conditions apply to any discretionary account in
existence prior to the effective date of this Code or prior to your
becoming an access person. Also, the conditions apply to transactions in
any discretionary account, including pre-existing accounts, in which you
have any direct or indirect beneficial ownership, even if it is not in your
name.
14 Any pre-existing agreement must be promptly amended to comply with this
condition. The required reports may be made in the form of an account
statement if they are filed by the applicable deadline.
15 An "advisory person" of a registered investment company or an investment
adviser is any employee, who in connection with his or her regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by an advisory client , or
whose functions relate to the making of any recommendations with respect to
such purchases or sales. Advisory person also includes any natural person
in a control relationship to such company or investment adviser who obtains
information concerning recommendations made to such company with regard to
the purchase or sale of a security.
16 Generally, an "advisory representative" is any person who makes any
recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made, or who, in connection
with his duties, obtains any information concerning which securities are
being recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations. See
Section II of Appendix A for the legal definition of "Advisory
Representative."
17 Security includes any option to purchase or sell, and any security that is
exchangeable for or convertible into, any security that is held or to be
acquired by a fund.
18 Special circumstances include but are not limited to, for example,
differences in time zones, delays due to travel, and the unusual size of
proposed trades or limit orders. Limit orders must expire within the
applicable clearance period.
19 As of February 2000
