FRANKLIN TEMPLETON JAPAN FUND
THIS STATEMENT OF ADDITIONAL INFORMATION DATED JULY 28,
1994, AS
SUPPLEMENTED JUNE 1, 1995, IS NOT A PROSPECTUS.
IT SHOULD BE READ INCONJUNCTION WITH THE PROSPECTUS
OF
FRANKLIN TEMPLETON JAPAN FUND
DATED JULY 28, 1994, AS SUPPLEMENTED MAY 25,
1995,
WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST
TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: (800) 237-0738
TABLE OF CONTENTS
General Information and History
Investment Objective and Policies
-Investment Policies
-Repurchase Agreements
-Debt Securities
-Convertible Securities
-Futures Contracts
-Options on Securities, Indices and Futures
-Foreign Currency Hedging Transactions
-Investment Restrictions
-Additional Restrictions
-Risk Factors
-Trading Policies
-Personal Securities Transactions
Management of the Fund
Trustee Compensation
Principal Shareholders
Investment Management and Other Services
-Investment Management Agreement
-Management Fees
-The Investment Manager
-Business Manager
-Custodian and Transfer Agent
-Legal Counsel
-Independent Accountants
-Reports to Shareholders
Brokerage Allocation
Purchase, Redemption and Pricing of Shares
-Ownership and Authority Disputes
-Tax-Deferred Retirement Plans
-Letter of Intent
-Special Net Asset Value Purchases
Tax Status
Principal Underwriter
Description of Shares
Performance Information
GENERAL INFORMATION AND HISTORY
Franklin Templeton Japan Fund (the "Fund") was
organized as
a Delaware business trust on October 29, 1991, and is
registered
under the Investment Company Act of 1940 (the "1940 Act")
as an
open-end management investment company.
INVESTMENT OBJECTIVE AND POLICIES
Investment Policies. The investment objective and
policies
of the Fund are described in the Fund's Prospectus under
the
heading "General Description -- Investment Objective and
Policies."
Repurchase Agreements. Repurchase agreements are
contracts
under which the buyer of a security simultaneously
commits to
resell the security to the seller at an agreed-upon price
and
date. Under a repurchase agreement, the seller is
required to
maintain the value of the securities subject to the
repurchase
agreement at not less than their repurchase price. The
investment manager of the Fund (Templeton Investment
Counsel,
Inc. ("TICI" or "Investment Manager")) will monitor the
value of
such securities daily to determine that the value equals
or
exceeds the repurchase price. Repurchase agreements may
involve
risks in the event of default or insolvency of the
seller,
including possible delays or restrictions upon the Fund's
ability
to dispose of the underlying securities. The Fund will
enter
into repurchase agreements only with parties who meet
creditworthiness standards approved by the Board of
Trustees,
i.e., banks or broker-dealers which have been determined
by the
Fund's Investment Manager to present no serious risk of
becoming
involved in bankruptcy proceedings within the time frame
contemplated by the repurchase transaction.
Debt Securities. The Fund may invest in debt
securities
that are rated in any rating category by Standard &
Poor's
Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's") or that are unrated by any rating agency. As
an
operating policy, which may be changed by the Board of
Trustees
without Shareholder approval, the Fund will invest no
more than
5% of its assets in debt securities rated lower than Baa
by
Moody's or BBB by S&P. The market value of debt
securities
generally varies in response to changes in interest rates
and the
financial condition of each issuer. During periods of
declining
interest rates, the value of debt securities generally
increases.
Conversely, during periods of rising interest rates, the
value of
such securities generally declines. These changes in
market
value will be reflected in the Fund's net asset value.
Bonds which are rated Baa by Moody's are considered
as
medium grade obligations, i.e., 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. Such bonds lack outstanding
investment
characteristics and in fact have speculative
characteristics as
well. 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 BBB by S&P are regarded as having an
adequate
capacity to pay interest and repay principal. Whereas
they
normally exhibit adequate protection parameters, adverse
economic
conditions or changing circumstances are more likely to
lead to a
weakened capacity to pay interest and repay principal for
bonds
in this category than in higher rated categories. Bonds
rated D
by S&P are the lowest rated class of bonds, and generally
are in
payment default. The D rating also will be used upon the
filing
of a bankruptcy petition if debt service payments are
jeopardized.
Although they may offer higher yields than do higher
rated
securities, high risk, low rated debt securities
(commonly
referred to as "junk bonds") and unrated debt securities
generally involve greater volatility of price and risk of
principal and income, including the possibility of
default by, or
bankruptcy of, the issuers of the securities. In
addition, the
markets in which low rated and unrated debt securities
are traded
are more limited than those in which higher rated
securities are
traded. The existence of limited markets for particular
securities may diminish the Fund's ability to sell the
securities
at fair value either to meet redemption requests or to
respond to
a specific economic event such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market
liquidity for certain low rated or unrated debt
securities may
also make it more difficult for the Fund to obtain
accurate
market quotations for the purposes of valuing the Fund's
portfolio. Market quotations are generally available on
many low
rated or unrated securities only from a limited number of
dealers
and may not necessarily represent firm bids of such
dealers or
prices for actual sales.
Adverse publicity and investor perceptions, whether
or not
based on fundamental analysis, may decrease the values
and
liquidity of low rated debt securities, especially in a
thinly
traded market. Analysis of the creditworthiness of
issuers of
low rated debt securities may be more complex than for
issuers of
higher rated securities, and the ability of the Fund to
achieve
its investment objective may, to the extent of investment
in low
rated debt securities, be more dependent upon such
creditworthiness analysis than would be the case if the
Fund were
investing in higher rated securities.
Low rated debt securities may be more susceptible to
real or
perceived adverse economic and competitive industry
conditions
than investment grade securities. The prices of low
rated debt
securities have been found to be less sensitive to
interest rate
changes than higher rated investments, but more sensitive
to
adverse economic downturns or individual corporate
developments.
A projection of an economic downturn or of a period of
rising
interest rates, for example, could cause a decline in low
rated
debt securities prices because the advent of a recession
could
lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities.
If the
issuer of low rated debt securities defaults, the Fund
may incur
additional expenses seeking recovery.
The Fund may invest in yen-dominated bonds sold in
Japan by
non-Japanese issuers ("Samurai bonds") and in
dollar-denominated
bonds sold in the United States by non-U.S. issuers
("Yankee
bonds"). As compared with bonds issued in their
countries of
domicile, such bond issues normally carry a higher
interest rate
but are less actively traded. The Fund will invest in
Samurai or
Yankee bond issues only after taking into account
consideration
of quality and liquidity, as well as yield. These bonds
would be
issued by governments which are members of the
Organization for
Economic Cooperation and Development or have AAA ratings.
The Fund may accrue and report interest income on
high yield
bonds, such as zero coupon bonds or pay-in-kind
securities, even
though it receives no cash interest until the security's
maturity
or payment date. In order to qualify for beneficial tax
treatment afforded regulated investment companies, and
generally
to be relieved of federal tax liabilities, the Fund must
distribute substantially all of its net income and gains
to
Shareholders (see "Tax Status") generally on an annual
basis.
The Fund may have to dispose of portfolio securities
under
disadvantageous circumstances to generate cash or
leverage itself
by borrowing cash in order to satisfy the distribution
requirement.
Recent legislation, which requires federally insured
savings
and loan associations to divest their investments in low
rated
debt securities, may have a material adverse effect on
the Fund's
net asset value and investment practices.
Convertible Securities. The Fund may invest in
convertible
securities, including convertible debt and convertible
preferred
stock. Convertible securities are fixed-income
securities which
may be converted at a stated price within a specific
amount of
time into a specified number of shares of common stock.
These
securities are usually senior to common stock in a
corporation's
capital structure, but usually are subordinated to non-
convertible debt securities. In general, the value of a
convertible security is the higher of its investment
value (its
value as a fixed-income security) and its conversion
value (the
value of the underlying shares of common stock if the
security is
converted). The investment value of a convertible
security
generally increases when interest rates decline and
generally
decreases when interest rates rise. The conversion value
of a
convertible security is influenced by the value of the
underlying
common stock.
Futures Contracts. The Fund may purchase and sell
financial
futures contracts. Although some financial futures
contracts
call for making or taking delivery of the underlying
securities,
in most cases these obligations are closed out before the
settlement date. The closing of a contractual obligation
is
accomplished by purchasing or selling an identical
offsetting
futures contract. Other financial futures contracts by
their
terms call for cash settlements.
The Fund may also buy and sell index futures
contracts with
respect to any stock or bond 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 index
futures contract specifies that no delivery of the actual
securities 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 index at the
expiration of the contract.
At the time the Fund purchases a futures contract,
an amount
of cash, U.S. Government securities, or other highly
liquid debt
securities equal to the market value of the 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, owning 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, Indices and Futures. The
Fund may
write covered put and call options and purchase put and
call
options on securities, securities indices and futures
contracts
that are traded on United States and foreign exchanges
and in the
over-the-counter markets.
An option on a security or a futures contract is a
contract
that gives the purchaser of the option, in return for the
premium
paid, the right to buy a specified security or futures
contract
(in the case of a call option) or to sell a specified
security or
futures contract (in the case of a put option) from or to
the
writer of the option at a designated price during the
term of the
option. An option on a securities index gives the
purchaser of
the option, in return for the premium paid, the right to
receive
from the seller cash equal to the difference between the
closing
price of the index and the exercise price of the option.
The Fund may write a call or put option only if the
option
is "covered." A call option on a security or futures
contract
written by the Fund is "covered" if the Fund owns the
underlying
security or futures contract 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 or futures contract is also
covered
if the Fund holds a call on the same security or futures
contract
and in the same principal amount as the call written
where the
exercise price of the call held (a) is equal to or less
than the
exercise price of the call written or (b) 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 or futures contract 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 or
futures contract 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 securities
indices that
it writes by owning securities whose price changes, in
the
opinion of the Fund's Investment Manager, are expected to
be
similar to those of the index, or in such other manner as
may be
in accordance with the rules of the exchange on which the
option
is traded and applicable laws and regulations.
Nevertheless,
where the Fund covers a call option on a securities 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 securities 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 its gross income in the event the
option
expires unexercised or is closed out at a profit. If the
value
of a security, index or futures contract 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, index or futures
contract rises, however, the Fund will realize a loss in
its call
option position, which will reduce the benefit of any
unrealized
appreciation in its investments. By writing a put
option, the
Fund assumes the risk of a decline in the underlying
security,
index or futures contract. To the extent that the price
changes
of the portfolio securities being hedged correlate with
changes
in the value of the underlying security, index or futures
contract, writing covered put options will increase the
Fund's
losses in the event of a market decline, although such
losses
will be offset in part by the premium received for
writing the
option.
The Fund may also purchase put options to hedge its
investments against a decline in value. By purchasing a
put
option, the Fund will seek to offset a decline in the
value of
the portfolio securities being hedged through
appreciation of the
put option. If the value of the Fund's investments does
not
decline as anticipated, or if the value of the option
does not
increase, its loss will be limited to the premium paid
for the
option plus related transaction costs. The success of
this
strategy will depend, in part, on the accuracy of the
correlation
between the changes in value of the underlying security,
index or
futures contract and the changes in value of the Fund's
security
holdings being hedged.
The Fund may purchase call options on individual
securities
or futures contracts to hedge against an increase in the
price of
securities or futures contracts that it 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,
index or
futures contract 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,
it may experience losses in some cases as a result of
such
inability. The value of over-the-counter options
purchased by
the Fund, as well as the cover for options written by the
Fund,
are considered not readily marketable and are subject to
the
Fund's limitation on investments in securities that are
not
readily marketable. See "Investment Objective and
Policies --
Investment Restrictions."
Foreign Currency Hedging Transactions. In order to
hedge
against foreign currency exchange rate risks, the Fund
may enter
into forward foreign currency exchange contracts and
foreign
currency futures contracts, as well as purchase put or
call
options on foreign currencies, as described below. The
Fund may
also conduct its foreign currency exchange transactions
on a spot
(i.e., cash) basis at the spot rate prevailing in the
foreign
currency exchange market.
The Fund may enter into forward foreign currency
exchange
contracts ("forward contracts") to attempt to minimize
the risk
to the Fund from adverse changes in the relationship
between the
U.S. dollar and foreign currencies. A forward contract
is an
obligation to purchase or sell a specific currency for an
agreed
price at a future date which is individually negotiated
and
privately traded by currency traders and their customers.
The
Fund may enter into a forward contract, for example, when
it
enters into a contract for the purchase or sale of a
security
denominated in a foreign currency in order to "lock in"
the U.S.
dollar price of the security. In addition, for example,
when the
Fund believes that a foreign currency may suffer or enjoy
a
substantial movement against another currency, it may
enter into
a forward contract to sell an amount of the former
foreign
currency approximating the value of some or all of its
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 its 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 in an amount
sufficient
to cover any commitments under these contracts or to
limit any
potential risk. The segregated account will be
marked-to-market
on a daily basis. While these contracts are not
presently
regulated by the Commodity Futures Trading Commission
("CFTC"),
the CFTC may in the future assert authority to regulate
forward
contracts. In such event, the Fund's ability to utilize
forward
contracts in the manner set forth above may be
restricted.
Forward contracts may limit potential gain from a
positive change
in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may
result
in poorer overall performance for the Fund than if it had
not
engaged in such contracts.
The Fund may purchase and write put and call options
on
foreign currencies for the purpose of protecting against
declines
in the dollar value of foreign portfolio securities and
against
increases in the dollar cost of foreign securities to be
acquired. As is the case with other kinds of options,
however,
the writing of an option on foreign currency will
constitute only
a partial hedge up to the amount of the premium received,
and the
Fund could be required to purchase or sell foreign
currencies at
disadvantageous exchange rates, thereby incurring losses.
The
purchase of an option on foreign currency may constitute
an
effective hedge against fluctuation in exchange rates,
although,
in the event of rate movements adverse to its 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 ability of the Fund's Investment Manager to
forecast currency exchange rate movements correctly.
Should
exchange rates move in an unexpected manner, the Fund may
not
achieve the anticipated benefits of foreign currency
futures or
may realize losses.
Investment Restrictions. The Fund has imposed upon
itself
certain investment restrictions which, together with its
investment objective, are fundamental policies except as
otherwise indicated. No changes in the Fund's investment
objective or these investment restrictions can be made
without
the approval of the Shareholders of the Fund. For this
purpose,
the provisions of the 1940 Act require the affirmative
vote of
the lesser of either (1) 67% or more of the Fund's Shares
present
at a Shareholders' meeting at which more than 50% of the
outstanding Shares are present or represented by proxy or
(2)
more than 50% of the outstanding Shares of the Fund.
In accordance with these restrictions, the Fund will
not:
1. Invest in real estate or mortgages on real
estate
(although the Fund may invest in marketable
securities
secured by real estate or interests therein);
invest in
other open-end investment companies (except in
connection with a merger, consolidation,
acquisition or
reorganization); invest in interests (other
than
publicly issued debentures or equity stock
interests)
in oil, gas or other mineral exploration or
development
programs; or purchase or sell commodity
contracts
(except futures contracts as described in the
Fund's
Prospectus).
2. Purchase any security (other than obligations
of the
U.S. Government, its agencies or
instrumentalities) if,
as a result, as to 75% of the Fund's total
assets (a)
more than 5% of the Fund's total assets would
then be
invested in securities of any single issuer, or
(b) the
Fund would then own more than 10% of the voting
securities of any single issuer.
3. Act as an underwriter; issue senior securities
except
as set forth in investment restriction 6 below;
or
purchase on margin or sell short, except that
the Fund
may make margin payments in connection with
futures,
options and currency transactions.
4. Loan money, except that the Fund may (a)
purchase a
portion of an issue of publicly distributed
bonds,
debentures, notes and other evidences of
indebtedness,
(b) enter into repurchase agreements and (c)
lend its
portfolio securities.
5. Borrow money, except that the Fund may borrow
money
from banks in an amount not exceeding 33-1/3%
of the
value of its total assets (including the amount
borrowed).
6. Mortgage, pledge or hypothecate its assets
(except as
may be necessary in connection with permitted
borrowings); provided, however, this does not
prohibit
escrow, collateral or margin arrangements in
connection
with its use of options, futures contracts and
options
on future contracts.
7. Invest more than 25% of its total assets in a
single
industry. For purposes of this restriction,
(a) a
foreign government is considered to be an
industry, and
(b) all supra-national entities, in the
aggregate, are
considered to be an industry.
8. Participate on a joint or a joint and several
basis in
any trading account in securities. (See
"Investment
Objective and Policies -- Trading Policies" as
to
transactions in the same securities for the
Fund and/or
other mutual funds and clients with the same or
affiliated advisers.)
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 2 or 7 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.
Additional Restrictions. The Fund has adopted the
following
additional restrictions which are not fundamental and
which may
be changed without Shareholder approval, to the extent
permitted
by applicable law, regulation or regulatory policy.
Under these
restrictions, the Fund may not:
1. Purchase or retain securities of any company in
which
Trustees or officers of the Fund or of the
Fund's
Investment Manager, individually owning more
than 1/2
of 1% of the securities of such company, in the
aggregate own more than 5% of the securities of
such
company.
2. Invest more than 5% of the value of its total
assets in
securities of issuers which have been in
continuous
operation less than three years.
3. Invest more than 5% of its net assets in
warrants
whether or not listed on the New York or
American Stock
Exchanges, and more than 2% of its net assets
in
warrants that are not listed on those
exchanges.
Warrants acquired in units or attached to
securities
are not included in this restriction.
4. Purchase or sell real estate limited
partnership
interests.
5. Purchase or sell interests in oil, gas and
mineral
leases (other than securities of companies that
invest
in or sponsor such programs).
6. Invest for the purpose of exercising control
over
management of any company.
7. Purchase more than 10% of a company's
outstanding
voting securities.
8. Invest more than 15% of the Fund's total assets
in
securities that are not readily marketable
(including
repurchase agreements maturing in more than
seven days
and over-the-counter options purchased by the
Fund),
including no more than 10% of its total assets
in
restricted securities. Rule 144A securities
are not
subject to the 10% limitation on restricted
securities,
although the Fund will limit its investment in
all
restricted securities, including 144A
securities, to
15% of its total assets.
9. Invest more than 5% of the value of its total
assets in
securities of issuers domiciled in Eastern
Europe and
in non-European members of the Commonwealth of
Independent States.
Whenever any investment restriction states a maximum
percentage of the Fund's assets which may be invested in
any
security or other property, it is intended that such
maximum
percentage limitation be determined immediately after and
as a
result of the Fund's acquisition of such security or
property.
Assets are calculated as described in the Fund's
Prospectus under
the heading "How to Buy Shares of the Fund."
Risk Factors. The Fund's concentration of its
investments
in Japan means the Fund will be more dependent on the
investment
considerations discussed below and may be more volatile
than a
fund which is broadly diversified geographically.
Additional
factors relating to Japan include the following.
In the past, Japan has experienced earthquakes and
tidal
waves of varying degrees of severity, and the risks of
such
phenomena, and damage resulting therefrom, continue to
exist.
Japan also has one of the world's highest population
densities.
Approximately 45% of the total population of Japan is
concentrated in the metropolitan areas of Tokyo, Osaka
and
Nagoya.
Since the end of World War II, Japan has experienced
significant economic development and among the free
industrial
nations of the world is second only to the United States
in terms
of gross national product ("GNP"). During the years of
high
economic growth in the 1960's and early 1970's, the
expansion was
based on the development of heavy industries such as
steel and
shipbuilding. In the 1970's Japan moved into assembly
industries
which employ high levels of technology and consume
relatively low
quantities of resources, and since then has become a
major
producer of electrical and electronic products and
automobiles.
Since the mid-1980's Japan has become a major creditor
nation,
with extensive trade surpluses. With the exception of
periods
associated with the oil crises of 1974 and 1978, Japan
has
generally experienced very low levels of inflation.
There is, of
course, no guarantee these favorable trends will
continue.
The Government of Japan has called for a
transformation of
the economy away from its high dependency on export-led
growth
towards greater stimulation of the domestic economy.
This shift
has already begun to take place.
Japan's economy is a market economy in which
industry and
commerce are predominantly privately owned and operated.
However, the Government is involved in establishing and
meeting
objectives for developing the economy and improving the
standard
of living of the Japanese people.
Japan has historically depended on oil for most of
its
energy requirements. Almost all of its oil is imported,
with the
majority imported from the Middle East. In the past, oil
prices
have had a major impact on the domestic economy, but more
recently Japan has worked to reduce its dependence on oil
by
encouraging energy conservation and use of alternative
fuels. In
addition, a restructuring of industry, with emphasis
shifting
from basic industries to processing and assembly-type
industries,
has contributed to the reduction of oil consumption.
However,
there is no guarantee this favorable trend will continue.
Overseas trade is important to Japan's economy.
Japan has
few natural resources and must export to pay for its
imports of
these basic requirements. Japan's principal export
markets are
the United States, Canada, the United Kingdom, Germany,
Australia, Korea, Taiwan, Hong Kong and the People's
Republic of
China. The principal sources of its imports are the
United
States, South East Asia and the Middle East. Because of
the
concentration of Japanese exports in highly visible
products such
as automobiles, machine tools and semiconductors and the
large
trade surpluses ensuing therefrom, Japan has had
difficult
relations with its trading partners, particularly the
United
States, where the trade imbalance is the greatest. It is
possible trade sanctions or other protectionist measures
could
impact Japan adversely in both the short- and long-term.
Although under normal circumstances at least 80% of
the
Fund's assets will be invested in equity securities of
Japanese
issuers, the Fund has the right to purchase securities in
any
foreign country, developed or developing. Investors
should
consider carefully the substantial risks involved in
securities
of companies and governments of foreign nations,
including Japan,
which are in addition to the usual risks inherent in
domestic
investments.
There may be less publicly available information
about
foreign companies comparable to the reports and ratings
published
about companies in the United States. Foreign companies
are not
generally subject to uniform accounting, auditing and
financial
reporting standards, and auditing practices and
requirements may
not be comparable to those applicable to United States
companies.
Foreign markets have substantially less volume than the
New York
Stock Exchange ("NYSE") and securities of some foreign
companies
are less liquid and more volatile than securities of
comparable
United States companies. The Tokyo Stock Exchange has a
large
volume of trading and the Investment Manager believes
that
securities of companies traded in Japan are generally as
liquid
as securities of comparable U.S. companies. Commission
rates in
foreign countries, which are generally fixed rather than
subject
to negotiation as in the United States, are likely to be
higher.
In many foreign countries there is less government
supervision
and regulation of stock exchanges, brokers and listed
companies
than in the United States.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small current
size of
the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of
liquidity and in greater price volatility; (iii) certain
national
policies which may restrict the Fund's investment
opportunities,
including restrictions on investment in issuers or
industries
deemed sensitive to national interests; (iv) foreign
taxation;
(v) the absence of developed structures governing private
or
foreign investment or allowing for judicial redress for
injury to
private property; (vi) the absence, until recently in
certain
Eastern European countries, of a capital market structure
or
market-oriented economy; and (vii) the possibility that
recent
favorable economic developments in Eastern Europe may be
slowed
or reversed by unanticipated political or social events
in such
countries.
Investments in Eastern European countries may
involve risks
of nationalization, expropriation and confiscatory
taxation. The
Communist governments of a number of Eastern European
countries
expropriated large amounts of private property in the
past, in
many cases without adequate compensation, and there can
be no
assurance that such expropriation will not occur in the
future.
In the event of such expropriation, the Fund could lose
a
substantial portion of any investments it has made in the
affected countries. Further, no accounting standards
exist in
Eastern European countries. Finally, even though certain
Eastern
European currencies may be convertible into U.S. dollars,
the
conversion rates may be artificial to the actual market
values
and may be adverse to Fund Shareholders.
Investing in Russian companies involves a high
degree of
risk and special considerations not typically associated
with
investing in the United States securities markets, and
should be
considered highly speculative. Such risks include: (1)
delays
in settling portfolio transactions and risk of loss
arising out
of Russia's system of share registration and custody; (2)
the
risk that it may be impossible or more difficult than in
other
countries to obtain and/or enforce a judgment; (3)
pervasiveness
of corruption and crime in the Russian economic system;
(4)
currency exchange rate volatility and the lack of
available
currency hedging instruments; (5) higher rates of
inflation
(including the risk of social unrest associated with
periods of
hyper-inflation); (6) controls on foreign investment and
local
practices disfavoring foreign investors and limitations
on
repatriation of invested capital, profits and dividends,
and on
the Fund's ability to exchange local currencies for U.S.
dollars;
(7) the risk that the government of Russia or other
executive or
legislative bodies may decide not to continue to support
the
economic reform programs implemented since the
dissolution of the
Soviet Union and could follow radically different
political
and/or economic policies to the detriment of investors,
including
non-market-oriented policies such as the support of
certain
industries at the expense of other sectors or investors,
or a
return to the centrally planned economy that existed
prior to the
dissolution of the Soviet Union; (8) the financial
condition of
Russian companies, including large amounts of
inter-company debt
which may create a payments crisis on a national scale;
(9)
dependency on exports and the corresponding importance of
international trade; (10) the risk that the Russian tax
system
will not be reformed to prevent inconsistent, retroactive
and/or
exorbitant taxation; and (11) possible difficulty in
identifying
a purchaser of securities held by the Fund due to the
underdeveloped nature of the securities markets.
There is little historical data on Russian
securities
markets because they are relatively new and a substantial
proportion of securities transactions in Russia are
privately
negotiated outside of stock exchanges. Because of the
recent
formation of the securities markets as well as the
underdeveloped
state of the banking and telecommunications systems,
settlement,
clearing and registration of securities transactions are
subject
to significant risks. Ownership of shares (except where
shares
are held through depositories that meet the requirements
of the
1940 Act) is defined according to entries in the
company's share
register and normally evidenced by extracts from the
register or
by formal share certificates. However, there is no
central
registration system for shareholders and these services
are
carried out by the companies themselves or by registrars
located
throughout Russia. These registrars are not necessarily
subject
to effective state supervision and it is possible for the
Fund to
lose its registration through fraud, negligence or even
mere
oversight. While the Fund will endeavor to ensure that
its
interest continues to be appropriately recorded either
itself or
through a custodian or other agent inspecting the share
register
and by obtaining extracts of share registers through
regular
confirmations, these extracts have no legal
enforceability and it
is possible that subsequent illegal amendment or other
fraudulent
act may deprive the Fund of its ownership rights or
improperly
dilute its interests. In addition, while applicable
Russian
regulations impose liability on registrars for losses
resulting
from their errors, it may be difficult for the Fund to
enforce
any rights it may have against the registrar or issuer of
the
securities in the event of loss of share registration.
Furthermore, although a Russian public enterprise with
more than
1,000 shareholders is required by law to contract out the
maintenance of its shareholder register to an independent
entity
that meets certain criteria, in practice this regulation
has not
always been strictly enforced. Because of this lack of
independence, management of a company may be able to
exert
considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar
to refuse
to record transactions in the share register. This
practice may
prevent the Fund from investing in the securities of
certain
Russian companies deemed suitable by the Investment
Manager.
Further, this also could cause a delay in the sale of
Russian
company securities by the Fund if a potential purchaser
is deemed
unsuitable, which may expose the Fund to potential loss
on the
investment.
The Fund endeavors to buy and sell foreign
currencies on as
favorable a basis as practicable. Some price spread 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 or withhold portions
of
interest and dividends at the source. There is the
possibility
of expropriation, nationalization or confiscatory
taxation,
withholding and other foreign taxes on income or other
amounts,
foreign exchange controls (which may include suspension
of the
ability to transfer currency from a given country),
default in
foreign government securities, political or social
instability,
or diplomatic developments which could affect investments
in
securities of issuers in foreign nations.
The Fund may be affected either unfavorably or
favorably by
fluctuations in the relative rates of exchange between
the
currencies of different nations, by exchange control
regulations
and by indigenous economic and political developments.
Through
the flexible policy of the Fund, the Investment Manager
endeavors
to avoid unfavorable consequences and to take advantage
of
favorable developments in particular nations where from
time to
time it places the Fund's investments.
The exercise of this flexible policy may include
decisions
to purchase securities with substantial risk
characteristics and
other decisions such as changing the emphasis on
investments from
one nation to another and from one type of security to
another.
Some of these decisions may later prove profitable and
others may
not. No assurance can be given that profits, if any,
will exceed
losses.
The Trustees consider at least annually the
likelihood of
the imposition by any foreign government of exchange
control
restrictions which would affect the liquidity of the
Fund's
assets maintained with custodians in foreign countries,
as well
as the degree of risk from political acts of foreign
governments
to which such assets may be exposed. The Trustees also
consider
the degree of risk involved through the holding of
portfolio
securities in domestic and foreign securities
depositories (see
"Investment Management and Other Services -- Custodian
and
Transfer Agent"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of
the
Fund's Investment Manager, any losses resulting from the
holding
of portfolio securities in foreign countries and/or with
securities depositories will be at the risk of the
Shareholders.
No assurance can be given that the Trustees' appraisal of
the
risks will always be correct or that such exchange
control
restrictions or political acts of foreign governments
will not
occur.
The Fund's ability to reduce or eliminate its
futures and
related options positions will depend upon the liquidity
of the
secondary markets for such futures and options. The Fund
intends
to purchase or sell futures and related options only on
exchanges
or boards of trade where there appears to be an active
secondary
market, but there is no assurance that a liquid secondary
market
will exist for any particular contract or at any
particular time.
Use of futures and options for hedging may involve risks
because
of imperfect correlations between movements in the prices
of the
futures or options and movements in the prices of the
securities
being hedged. Successful use of futures and related
options by
the Fund for hedging purposes also depends upon the
Investment
Manager's ability to predict correctly movements in the
direction
of the market, as to which no assurance can be given.
Additional risks may be involved with the Fund's
special
investment techniques, including loans of portfolio
securities
and borrowing for investment purposes. These risks are
described
under the heading "Investment Techniques" in the
Prospectus.
Trading Policies. The Investment Manager and its
affiliated
companies serve as investment advisers to other
investment
companies and private clients. Accordingly, the
respective
portfolios of these funds and clients may contain many or
some of
the same securities. When any two or more of these funds
or
clients are engaged simultaneously in the purchase or
sale of the
same security, the transactions are placed for execution
in a
manner designed to be equitable to each party. The
larger size
of the transaction may affect the price of the security
and/or
the quantity which may be bought or sold for each party.
If the
transaction is large enough, brokerage commissions in
certain
countries may be negotiated below those otherwise
chargeable.
Sale or purchase of securities, without payment of
brokerage
commissions, fees (except customary transfer fees) or
other
remuneration in connection therewith, may be effected
between any
of these funds, or between funds and private clients,
under
procedures adopted pursuant to Rule 17a-7 under the 1940
Act.
Personal Securities Transactions. Access persons of
the
Franklin Templeton Group, as defined in SEC Rule 17(j)
under the
1940 Act, who are employees of Franklin Resources, Inc.
or their
subsidiaries, are permitted to engage in personal
securities
transactions subject to the following general
restrictions and
procedures: (1) the trade must receive advance clearance
from a
Compliance Officer and must be completed within 24 hours
after
this clearance; (2) copies of all brokerage confirmations
must be
sent to the Compliance Officer and within 10 days after
the end
of each calendar quarter, a report of all securities
transactions
must be provided to the Compliance Officer; (3) in
addition to
items (1) and (2), access persons involved in preparing
and
making investment decisions must file annual reports of
their
securities holdings each January and also inform the
Compliance
Officer (or other designated personnel) if they own a
security
that is being considered for a fund or other client
transactions
or if they are recommending a security in which they have
an
ownership interest for purchases or sale by a fund or
other
client.
MANAGEMENT OF THE FUND
The name, address, principal occupation during the
past five
years and other information with respect to each of the
Trustees
and Principal Executive Officers of the Fund are as
follows:
Name, Address and Principal Occupation
Offices with Fund During Past Five Years
HARRIS J. ASHTON Chairman of the Board,
Metro Center president, and chief
executive
1 Station Place officer of General Host
Stamford, Connecticut Corporation (nursery and
craft
Trustee centers); and a director
of RBC
Holdings (U.S.A.) Inc.
(a bank
holding company) and
Bar-S
Foods.
NICHOLAS F. BRADY* Chairman of Templeton
Emerging
The Bullitt House Markets Investment Trust
PLC;
102 East Dover Street chairman of Templeton
Latin
Easton, Maryland America Investment Trust
PLC;
Trustee chairman of Darby
Overseas
Investments, Ltd. (an
investment
firm) (1994-present);
director
of the Amerada Hess
Corporation,
Capital Cities/ABC,
Inc.,
Christiana Companies,
and the
H.J. Heinz Company;
Secretary of
the United States
Department of
the Treasury
(1988-January
1993); and chairman of
the board
of Dillion, Read & Co.
Inc.
(investment banking)
prior
thereto.
F. BRUCE CLARKE Retired; formerly,
credit
19 Vista View Blvd. adviser, National Bank
of
Thornhill, Ontario Canada, Toronto.
Trustee
HASSO-G VON DIERGARDT-NAGLO Farmer; and president of
R.R. 3 Clairhaven Investments,
Ltd. and
Stouffville, Ontario other private investment
Trustee companies.
MARTIN L. FLANAGAN* Senior vice president,
treasurer
777 Mariners Island Blvd. and chief financial
officer of
San Mateo, California Franklin Resources,
Inc.;
Trustee and Vice President director and executive
vice
president of Templeton
Investment Counsel,
Inc.;
director, president and
chief
executive officer of
Templeton
Global Investors, Inc.;
president or vice
president of
various Templeton Funds;
director or trustee of
six
Templeton Funds;
accountant,
Arthur Andersen &
Company (1982-
1983); and a member of
the
International Society of
Financial Analysts and
the
American Institute of
Certified
Public Accountants.
S. JOSEPH FORTUNATO Member of the law firm
of
200 Campus Drive Pitney, Hardin, Kipp &
Szuch;
Florham Park, New Jersey and a director of
General Host
Trustee Corporation.
JOHN Wm. GALBRAITH President of Galbraith
360 Central Avenue Properties, Inc.
(personal
Suite 1300 investment company);
director of
St. Petersburg, Florida Gulfwest Banks, Inc.
(bank
Trustee holding company)
(1995-present)
and Mercantile Bank
(1991-
present); vice chairman
of
Templeton, Galbraith &
Hansberger Ltd.
(1986-1992); and
chairman of Templeton
Funds
Management, Inc.
(1974-1991).
ANDREW H. HINES, JR. Consultant for the
Triangle
150 2nd Avenue N. Consulting Group;
chairman of
St. Petersburg, Florida the board and chief
executive
Trustee officer of Florida
Progress
Corporation
(1982-February 1990)
and director of various
of its
subsidiaries; chairman
and
director of Precise
Power
Corporation;
executive-in-
residence of Eckerd
College
(1991-present); and a
director
of Checkers Drive-In
Restaurants, Inc.
CHARLES B. JOHNSON* President, chief
executive
777 Mariners Island Blvd. officer, and director of
San Mateo, California Franklin Resources,
Inc.;
Chairman of the Board and chairman of the board
and
Vice President director of Franklin
Advisers,
Inc. and Franklin
Templeton
Distributors, Inc.;
director of
Franklin Administrative
Services, Inc., General
Host
Corporation, and
Templeton
Global Investors, Inc.;
and
officer and director,
trustee or
managing general
partner, as the
case may be, of most
other
subsidiaries of Franklin
and of
55 of the investment
companies
in the Franklin
Templeton Group.
CHARLES E. JOHNSON* Senior vice president
and
777 Mariners Island Blvd. director of Franklin
Resources,
San Mateo, California Inc.; senior vice
president of
Trustee and President Franklin Templeton
Distributors,
Inc.; president and
director of
Franklin Institutional
Service
Corporation and
Templeton
Worldwide, Inc.;
chairman of the
board of Templeton
Investment
Counsel, Inc.; vice
president
and/or director, as the
case may
be, for some of the
subsidiaries
of Franklin Resources,
Inc.; and
an officer and/or
director or
trustee, as the case may
be, of
24 of the investment
companies
in the Franklin
Templeton Group.
BETTY P. KRAHMER Director or trustee of
various
2201 Kentmere Parkway civic associations;
formerly,
Wilmington, Delaware economic analyst, U.S.
Trustee Government.
GORDON S. MACKLIN Chairman of White River
8212 Burning Tree Road Corporation (information
Bethesda, Maryland services); director of
Fund
Trustee America Enterprises
Holdings,
Inc., Lockheed Martin
Corporation, MCI
Communications
Corporation, Fusion
Systems
Corporation, Infovest
Corporation, and
Medimmune,
Inc.; formerly, chairman
of
Hambrecht and Quist
Group;
director of H&Q
Healthcare
Investors; and president
of the
National Association of
Securities Dealers, Inc.
FRED R. MILLSAPS Manager of personal
investments
2665 N.E. 37th Drive (1978-present); chairman
and
Fort Lauderdale, Florida chief executive officer
of
Trustee Landmark Banking
Corporation
(1969-1978); financial
vice
president of Florida
Power and
Light (1965-1969); vice
president of The Federal
Reserve
Bank of Atlanta
(1958-1965); and
a director of various
other
business and nonprofit
organizations.
MARK G. HOLOWESKO President and director
of
Lyford Cay Templeton, Galbraith &
Nassau, Bahamas Hansberger Ltd.;
director of
Vice President global equity research
for
Templeton Worldwide,
Inc.;
president or vice
president of
the Templeton Funds;
formerly,
investment administrator
with
Roy West Trust
Corporation
(Bahamas) Limited
(1984-1985).
WILLIAM HOWARD Vice president of
Templeton
500 East Broward Blvd. Investment Counsel,
Inc.;
Fort Lauderdale, Florida formerly, portfolio
manager and
Vice President analyst, Tennessee
Consolidated
Retirement System
(1986-1993).
JOHN R. KAY Vice president of the
Templeton
500 East Broward Blvd. Funds; vice president
and
Fort Lauderdale, Florida treasurer of Templeton
Global
Vice President Investors, Inc. and
Templeton
Worldwide, Inc.;
assistant vice
president of Franklin
Templeton
Distributors, Inc.;
formerly,
vice president and
controller of
the Keystone Group, Inc.
JAMES R. BAIO Certified public
accountant;
500 East Broward Blvd. treasurer of the
Templeton
Fort Lauderdale, Florida Funds; senior vice
president of
Treasurer Templeton Worldwide,
Inc.,
Templeton Global
Investors,
Inc., and Templeton
Funds Trust
Company; formerly,
senior tax
manager of Ernst & Young
(certified public
accountants)
(1977-1989).
THOMAS M. MISTELE Senior vice president of
700 Central Avenue Templeton Global
Investors,
St. Petersburg, Florida Inc.; vice president of
Franklin
Secretary Templeton Distributors,
Inc.;
secretary of the
Templeton
Funds; formerly,
attorney,
Dechert Price & Rhoads
(1985-
1988) and Freehill,
Hollingdale
& Page (1988); and
judicial
clerk, U.S. District
Court
(Eastern District of
Virginia)
(1984-1985).
JACK L. COLLINS Assistant treasurer of
the
700 Central Avenue Templeton Funds;
assistant vice
St. Petersburg, Florida president of Franklin
Templeton
Assistant Treasurer Investor Services, Inc.;
formerly, partner, Grant
Thornton, independent
public
accountants.
JEFFREY L. STEELE Partner, Dechert Price
& Rhoads.
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
__________________________
* These are Trustees who are "interested persons" of
the Fund
as that term is defined in the 1940 Act. Mr. Brady
and
Franklin Resources, Inc. are limited partners of
Darby
Overseas Partners, L.P. ("Darby Overseas"). Mr.
Brady
established Darby Overseas in February, 1994, and is
Chairman and a shareholder of the corporate general
partner
of Darby Overseas. In addition, Darby Overseas and
Templeton, Galbraith & Hansberger, Ltd. are limited
partners
of Darby Emerging Markets Fund, L.P.
There are no family relationships between any of the
Trustees, except that Mr. Charles B. Johnson is the
father of Mr.
Charles E. Johnson.
TRUSTEE COMPENSATION
All of the Fund's Officers and Trustees also hold
positions
with other investment companies in the Franklin Templeton
Group.
No compensation is paid by the Fund to any officer or
Trustee who
is an officer, trustee or employee of the Investment
Manager or
its affiliates. Each Templeton Fund pays its independent
directors and trustees and Mr. Brady an annual retainer
and/or
fees for attendance at Board and Committee meetings, the
amount
of which is based on the level of assets in each fund.
Accordingly, the Fund currently pays the independent
Trustees and
Mr. Brady an annual retainer of $100. The independent
Trustees
and Mr. Brady are reimbursed for any expenses incurred in
attending meetings, paid pro rata by each Franklin
Templeton Fund
in which they serve. No pension or retirement benefits
are
accrued as part of Fund expenses.
The following table shows the total compensation
paid to the
Trustees by the Fund and by all investment companies in
the
Franklin Templeton Group:
Number of Total
Franklin
Compensation
Aggregate Templeton Fund from All
Funds
Compensation Boards on in
Franklin
from the Which Trustee
Templeton
Name of Trustee Trust* Serves Group**
Harris J. Ashton $550 54 $319,925
Nicholas F. Brady 500 23 86,124
F. Bruce Clarke 550 19 95,275
Hasso-G von 550 19 75,275
Diergardt-Naglo
S. Joseph Fortunato 550 56 336,065
John Wm. Galbraith 0 22
0
Andrew H. Hines, Jr. 550 23 106,125
Betty P. Krahmer 550 23 75,275
Gordon S. Macklin 550 51 303,685
Fred R. Millsaps 550 23 106,125
_______________
* For the fiscal year ended March 31, 1995.
** For the calendar year ended December 31, 1994.
PRINCIPAL SHAREHOLDERS
As of January 1, 1995, there were 96,442 Shares of
the Fund
outstanding, of which no Shares were owned beneficially
by any of
the Trustees or Officers of the Fund. As of January 1,
1995, to
the knowledge of management, no person owned beneficially
or of
record 5% or more of the outstanding Shares of the Fund,
except
Templeton Global Investors, Inc., 500 East Broward Blvd.,
Suite
2100, Fort Lauderdale, Florida 33394 owned 50,257 Shares
(52.1%
of the outstanding Shares) and Merrill Lynch Pierce
Fenner &
Smith, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville,
Florida 32246 owned of record 37,816 Shares (39.2% of the
outstanding Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Management Agreement. The Investment
Manager of
the Fund is Templeton Investment Counsel, Inc., a Florida
corporation with offices located at Broward Financial
Centre,
Fort Lauderdale, Florida 33394-3091. The Investment
Management
Agreement, dated July 28, 1994, was approved by the Board
of
Trustees, including a majority of the Trustees who were
not
parties to the Agreement or interested persons of any
such party,
at a meeting on March 18, 1994, and by Templeton Global
Investors, Inc., as sole Shareholder of the Fund, on June
30,
1994, and will run through July 31, 1995. The Investment
Management Agreement will continue from year to year
thereafter,
subject to approval annually by the Board of Trustees or
by vote
of a majority of the outstanding Shares of the Fund (as
defined
in the 1940 Act) and also, in either event, with the
approval of
a majority of those Trustees who are not parties to the
Agreement
or interested persons of any such party in person at a
meeting
called for the purpose of voting on such approval.
The Investment Management Agreement requires the
Fund's
Investment Manager to manage the investment and
reinvestment of
the Fund's assets. The Investment Manager is not
required to
furnish any personnel, overhead items or facilities for
the Fund,
including daily pricing or trading desk facilities,
although such
expenses are paid by investment advisers of some other
investment
companies.
The Investment Management Agreement provides that
the Fund's
Investment Manager will select brokers and dealers for
execution
of the Fund's portfolio transactions consistent with the
Fund's
brokerage policies (see "Brokerage Allocation").
Although the
services provided by broker-dealers in accordance with
the
brokerage policies incidentally may help reduce the
expenses of
or otherwise benefit the Investment Manager and other
investment
advisory clients of the Investment Manager and of its
affiliates,
as well as the Fund, the value of such services is
indeterminable
and the Investment Manager's fee is not reduced by any
offset
arrangement by reason thereof.
When the Investment Manager of the Fund determines
to buy or
sell the same security for the Fund that the Investment
Manager
or one or more of its affiliates has selected for one or
more of
its other clients or for clients of its affiliates, the
orders
for all such securities transactions are placed for
execution by
methods determined by the Investment Manager, with
approval by
the Board of Trustees, to be impartial and fair, in order
to seek
good results for all parties. See "Investment Objective
and
Policies -- Trading Policies." Records of securities
transactions of persons who know when orders are placed
by the
Fund are available for inspection at least four times
annually by
the Compliance Officer of the Fund so that the
non-interested
Trustees (as defined in the 1940 Act) can be satisfied
that the
procedures are generally fair and equitable to all
parties.
The Investment Management Agreement provides that
the Fund's
Investment Manager shall have no liability to the Fund,
or any
Shareholder of the Fund for any error of judgment,
mistake of
law, or any loss arising out of any investment or other
act or
omission in the performance by the Investment Manager of
its
duties under the Agreement, except liability resulting
from
willful misfeasance, bad faith or gross negligence on the
Investment Manager's part or reckless disregard of its
duties
under the Agreement. The Investment Management Agreement
will
terminate automatically in the event of its assignment,
and may
be terminated by the Fund any time without payment of any
penalty
on 60 days' written notice, with the approval of a
majority of
the Trustees in office at the time or by vote of a
majority of
the outstanding voting securities of the Fund (as defined
in the
1940 Act).
Management Fees. For its services, the Fund pays
the
Investment Manager a monthly fee equal on an annual basis
to
0.75% of its average daily net assets.
The Investment Manager will comply with any
applicable state
regulations which may require it to make reimbursements
to the
Fund in the event that the Fund's aggregate operating
expenses,
including the advisory fee, but generally excluding
interest,
taxes, brokerage commissions and extraordinary expenses,
are in
excess of specific applicable limitations. The strictest
rule
currently applicable to the Fund is 2.5% of the first
$30,000,000
of net assets, 2% of the next $70,000,000 of net assets
and 1.5%
of the remainder.
The Investment Manager. The Investment Manager is
an
indirect wholly owned subsidiary of Franklin Resources,
Inc.
("Franklin"), a publicly traded company whose shares are
listed
on the NYSE. Charles B. Johnson (a Trustee and officer
of the
Fund), Rupert H. Johnson, Jr. and R. Martin Wiskemann are
principal shareholders of Franklin and own, respectively,
approximately 20%, 16% and 9.2% of its outstanding
shares.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers.
Business Manager. Templeton Global Investors, Inc.
performs
certain administrative functions as Business Manager for
the
Fund, including:
- providing office space, telephone, office
equipment and
supplies for the Fund;
- paying compensation of the Fund's officers for
services
rendered as such;
- authorizing expenditures and approving bills
for
payment on behalf of the Fund;
- supervising preparation of annual and
semiannual
reports to Shareholders, notices of dividends,
capital
gain distributions and tax credits, and
attending to
correspondence and other special communications
with
individual Shareholders;
- daily pricing of the Fund's investment
portfolio and
preparing and supervising publication of daily
quotations of the bid and asked prices of the
Fund's
Shares, earnings reports and other financial
data;
- monitoring relationships with organizations
serving the
Fund, including the custodian and printers;
- providing trading desk facilities for the Fund;
- supervising compliance by the Fund with
recordkeeping
requirements under the 1940 Act and regulations
thereunder, with state regulatory requirements,
maintaining books and records for the Fund
(other than
those maintained by the custodian and transfer
agent),
and preparing and filing tax reports other than
the
Fund's income tax returns;
- monitoring the qualifications of tax-deferred
retirement plans providing for investment in
Shares of
the Fund; and
- providing executive, clerical and secretarial
help
needed to carry out these responsibilities.
For its services, the Business Manager receives a
monthly
fee equal on an annual basis to 0.15% of the first
$200,000,000
of the Fund's average daily net assets, reduced to 0.135%
annually of the Fund's net assets in excess of
$200,000,000,
further reduced to 0.1% annually of such net assets in
excess of
$700,000,000, and further reduced to 0.075% annually of
such net
assets in excess of $1,200,000,000. Since the Business
Manager's
fee covers services often provided by investment advisers
to
other funds, the Fund's combined expenses for advisory
and
administrative services together may be higher than those
of some
other investment companies.
The Business Manager is relieved of liability to the
Fund
for any act or omission in the course of its performance
under
the Business Management Agreement, in the absence of
willful
misfeasance, bad faith, gross negligence or reckless
disregard of
its duties and obligations under the Agreement. The
Business
Management Agreement may be terminated by the Fund at any
time on
60 days' written notice without payment of penalty,
provided that
such termination by the Fund shall be directed or
approved by
vote of a majority of the Trustees of the Fund in office
at the
time or by vote of a majority of the outstanding voting
securities of the Fund, and shall terminate automatically
and
immediately in the event of its assignment.
Templeton Global Investors, Inc. is a wholly owned
subsidiary of Franklin.
Custodian and Transfer Agent. The Chase Manhattan
Bank,
N.A. serves as Custodian of the Fund's assets, which are
maintained at the Custodian's principal office, MetroTech
Center, Brooklyn, New York 11245, and at the offices of
its
branches and agencies throughout the world. The
Custodian has
entered into agreements with foreign sub-custodians
approved by
the Trustees pursuant to Rule 17f-5 under the 1940 Act.
The
Custodian, its branches and sub-custodians generally
domestically, and frequently abroad, do not actually hold
certificates for the securities in their custody, but
instead
have book records with domestic and foreign securities
depositories, which in turn have book records with the
transfer
agents of the issuers of the securities. Compensation
for the
services of the Custodian is based on a schedule of
charges
agreed on from time to time.
Franklin Templeton Investor Services, Inc. serves as
the
Fund's Transfer Agent. Services performed by the
Transfer Agent
include processing purchase, transfer and redemption
orders;
making dividend payments, capital gain distributions and
reinvestments; and handling routine communications with
Shareholders. The Transfer Agent receives from the Fund
an
annual fee of $13.74 per Shareholder account plus
out-of-pocket
expenses. These fees are adjusted each year to reflect
changes
in the Department of Labor Consumer Price Index.
Legal Counsel. Dechert Price & Rhoads, 1500 K
Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Fund
with regard
to matters of U.S. law.
Independent Accountants. The firm of McGladrey &
Pullen,
LLP, 555 Fifth Avenue, New York, New York 10017, serves
as
independent accountants for the Fund. Its audit services
comprise examination of the Fund's financial statements
and
review of the Fund's filings with the Securities and
Exchange
Commission ("SEC") and the Internal Revenue Service
("IRS").
Reports to Shareholders. The Fund's fiscal year
ends on
March 31. Shareholders are provided at least
semiannually with
reports showing the Fund's portfolio and other
information,
including an annual report with financial statements
audited by
the independent accountants. Shareholders who would like
to
receive an interim quarterly report may phone Fund
Information at
1-800-292-9293.
BROKERAGE ALLOCATION
The Investment Management Agreement provides that
the
Investment Manager is responsible for selecting members
of
securities exchanges, brokers and dealers (such members,
brokers
and dealers being hereinafter referred to as "brokers")
for the
execution of the Fund's portfolio transactions and, when
applicable, the negotiation of commissions in connection
therewith. All decisions and placements are made in
accordance
with the following principles:
1. Purchase and sale orders are usually placed
with
brokers who are selected by the Fund's
Investment
Manager as able to achieve "best execution" of
such
orders. "Best execution" means prompt and
reliable
execution at the most favorable securities
price,
taking into account the other provisions
hereinafter
set forth. The determination of what may
constitute
best execution and price in the execution of a
securities transaction by a broker involves a
number of
considerations, including, without limitation,
the
overall direct net economic result to the Fund
(involving both price paid or received and any
commissions and other costs paid), the
efficiency with
which the transaction is effected, the ability
to
effect the transaction at all where a large
block is
involved, availability of the broker to stand
ready to
execute possibly difficult transactions in the
future,
and the financial strength and stability of the
broker.
Such considerations are judgmental and are
weighed by
the Investment Manager in determining the
overall
reasonableness of brokerage commissions.
2. In selecting brokers for portfolio
transactions, the
Investment Manager takes into account its past
experience as to brokers qualified to achieve
"best
execution," including brokers who specialize in
any
foreign securities held by the Fund.
3. The Investment Manager is authorized to
allocate
brokerage business to brokers who have provided
brokerage and research services, as such
services are
defined in Section 28(e) of the Securities
Exchange Act
of 1934 (the "1934 Act"), for the Fund and/or
other
accounts, if any, for which the Investment
Manager
exercises investment discretion (as defined in
Section
3(a)(35) of the 1934 Act) and, as to
transactions to
which fixed minimum commission rates are not
applicable, to cause the Fund to pay a
commission for
effecting a securities transaction in excess of
the
amount another broker would have charged for
effecting
that transaction, if the Investment Manager in
making
the selection in question determines in good
faith that
such amount of commission is reasonable in
relation to
the value of the brokerage and research
services
provided by such broker, viewed in terms of
either that
particular transaction or the Investment
Manager's
overall responsibilities with respect to the
Fund and
the other accounts, if any, as to which it
exercises
investment discretion. In reaching such
determination,
the Investment Manager is not required to place
or
attempt to place a specific dollar value on the
research or execution services of a broker or
on the
portion of any commission reflecting either of
said
services. In demonstrating that such
determinations
were made in good faith, the Investment Manager
shall
be prepared to show that all commissions were
allocated
and paid for purposes contemplated by the
Fund's
brokerage policy; that the research services
provide
lawful and appropriate assistance to the
Investment
Manager in the performance of its investment
decision-
making responsibilities; and that the
commissions paid
were within a reasonable range. The
determination that
commissions were within a reasonable range
shall be
based on any available information as to the
level of
commissions known to be charged by other
brokers on
comparable transactions, but there shall be
taken into
account the Fund's policies that (i) obtaining
a low
commission is deemed secondary to obtaining a
favorable
securities price, since it is recognized that
usually
it is more beneficial to the Fund to obtain a
favorable
price than to pay the lowest commission; and
(ii) the
quality, comprehensiveness and frequency of
research
studies which are provided for the Investment
Manager
are useful to the Investment Manager in
performing its
advisory services under the Investment
Management
Agreement with the Fund. Research services
provided by
brokers to the Investment Manager are
considered to be
in addition to, and not in lieu of, services
required
to be performed by the Investment Manager under
its
Investment Management Agreement with the Fund.
Research furnished by brokers through whom the
Fund
effects securities transactions may be used by
the
Investment Manager for any of its accounts, and
not all
such research may be used by the Investment
Manager for
the Fund. When execution of portfolio
transactions is
allocated to brokers trading on exchanges with
fixed
brokerage commission rates, account may be
taken of
various services provided by the broker,
including
quotations outside the United States for daily
pricing
of foreign securities held in the Fund's
portfolio.
4. Purchases and sales of portfolio securities
within the
United States other than on a securities
exchange are
executed with primary market makers acting as
principal, except where, in the judgment of the
Investment Manager, better prices and execution
may be
obtained on a commission basis or from other
sources.
5. Sales of the Fund's Shares (which shall be
deemed to
include also shares of other companies
registered under
the 1940 Act which have either the same
investment
adviser or an investment adviser affiliated
with the
Investment Manager) made by a broker are one
factor
among others to be taken into account in
deciding to
allocate portfolio transactions (including
agency
transactions, principal transactions, purchases
in
underwritings or tenders in response to tender
offers)
for the account of the Fund to that broker;
provided
that the broker shall furnish "best execution,"
as
defined in paragraph 1 above, and that such
allocation
shall be within the scope of the Fund's other
policies
as stated above; and provided further, that in
every
allocation made to a broker in which the sale
of Shares
is taken into account there shall be no
increase in the
amount of the commissions or other compensation
paid to
such broker beyond a reasonable commission or
other
compensation determined, as set forth in
paragraph 3
above, on the basis of best execution alone or
best
execution plus research services, without
taking
account of or placing any value upon such sale
of
Shares.
Brokerage commissions for transactions in securities
listed
on the Tokyo Stock Exchange and other Japanese securities
exchanges are fixed and are calculated based on the
following
table.
The following percentage points shall be applied to
the
purchase and sales proceeds of each trade in stocks,
warrants and
subscription rights.* Other fixed rates apply to
transactions in
bonds (convertible and non-convertible) and bonds with
warrants.
Amount of Purchase/ Cost as a
Percentage of
Sales Proceeds Trade Proceeds
One million yen or less 1.150%
Over 1 million - 5 million 0.900% + 2,500
Over 5 million - 10 million 0.700% + 12,500
Over 10 million - 30 million 0.575% + 25,000
Over 30 million - 50 million 0.375% + 85,000
Over 50 million - 100 million 0.225% + 160,000
Over 100 million - 300 million 0.200% + 185,000
Over 300 million - 500 million 0.125% + 410,000
Over 500 million - 1 billion 0.100% + 535,000
Over 1 billion Stocks: negotiable
(minimum 1,535,000)
Others: 0.075% +
785,000
* Minimum amount of brokerage commission required is
2,500 yen
for every trade.
Under the current regulations of the Tokyo Stock
Exchange
and the Japanese Ministry of Finance, member and
non-member firms
of Japanese exchanges are required to charge full
commissions to
all customers other than banks and certain financial
institutions, but members and licensed non-member firms
may
confirm transactions to banks and financial institution
affiliates located outside Japan with institutional
discounts on
brokerage commissions. The Fund shall avail itself of
institutional discounts, if the transactions are executed
through
such banks and financial institutions. Currently, the
Fund is
entitled to receive such discount and the amount of
brokerage
commission is 80% of the full commission. There can be
no
assurance that the Fund will continue to realize the
benefit of
discounts from fixed commissions.
Insofar as known to management, no Trustee or
officer of the
Fund, nor the Investment Manager or Principal Underwriter
or any
person affiliated with either of them, has any material
direct or
indirect interest in any broker employed by or on behalf
of the
Fund. Franklin Templeton Distributors, Inc., the Fund's
Principal Underwriter, is a registered broker-dealer, but
it does
not intend to execute any purchase or sale transactions
for the
Fund's portfolio or to participate in any commissions on
any such
transactions. All portfolio transactions are allocated
to
broker-dealers only when their prices and execution, in
the
judgment of the Investment Manager, are equal to the best
available within the scope of the Fund's policies. There
is no
fixed method used in determining which broker-dealers
receive
which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Fund's Prospectus describes the manner in which
the
Fund's Shares may be purchased and redeemed. See "How to
Buy
Shares of the Fund" and "How to Sell Shares of the Fund."
Net asset value per Share is determined as of the
scheduled
closing of the NYSE (generally 4:00 p.m., New York time),
every
Monday through Friday (exclusive of national business
holidays).
The Fund's offices will be closed, and net asset value
will not
be calculated, on those days on which the NYSE is closed,
which
currently are: New Year's Day, Presidents' Day, Good
Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and
Christmas Day.
Trading in securities on European and Far Eastern
securities
exchanges and over-the-counter markets is normally
completed well
before the close of business in New York on each day on
which the
NYSE is open. Trading of European or Far Eastern
securities
generally, or in a particular country or countries, may
not take
place on every New York business day. Furthermore,
trading takes
place in various foreign markets on days which are not
business
days in New York and on which the Fund's net asset value
is not
calculated. The Fund calculates net asset value per
Share, and
therefore effects sales, redemptions and repurchases of
its
Shares, as of the close of the NYSE once on each day on
which
that Exchange is open. Such calculation does not take
place
contemporaneously with the determination of the prices of
many of
the portfolio securities used in such calculation and if
events
occur which materially affect the value of those foreign
securities, they will be valued at fair market value as
determined by the management and approved in good faith
by the
Board of Trustees.
The Board of Trustees may establish procedures under
which
the Fund may suspend the determination of net asset value
for the
whole or any part of any period during which (1) the NYSE
is
closed other than for customary weekend and holiday
closings, (2)
trading on the NYSE is restricted, (3) an emergency
exists as a
result of which disposal of securities owned by the Fund
is not
reasonably practicable or it is not reasonably
practicable for
the Fund fairly to determine the value of its net assets,
or (4)
for such other period as the SEC may by order permit for
the
protection of the holders of the Fund's Shares.
Ownership and Authority Disputes. In the event of
disputes
involving multiple claims of ownership or authority to
control a
Shareholder's account, the Fund has the right (but has no
obligation) to: (1) freeze the account and require the
written
agreement of all persons deemed by the Fund to have a
potential
property interest in the account, prior to executing
instructions
regarding the account; or (2) interplead disputed funds
or
accounts with a court of competent jurisdiction.
Moreover, the
Fund may surrender ownership of all or a portion of an
account to
the IRS in response to a Notice of Levy.
In addition to the special purchase plans described
in the
Prospectus, the following special purchase plans also are
available.
Tax-Deferred Retirement Plans. The Fund offers its
Shareholders the opportunity to participate in the
following
types of retirement plans:
- For individuals whether or not covered by other
qualified plans;
- For simplified employee pensions;
- For employees of tax-exempt organizations; and
- For corporations, self-employed individuals and
partnerships.
Capital gains and income received by the foregoing
plans
generally are exempt from taxation until distribution
from the
plans. Investors considering participation in any such
plan
should review specific tax laws relating thereto and
should
consult their attorneys or tax advisers with respect to
the
establishment and maintenance of any such plan.
Additional
information, including the fees and charges with respect
to all
of these plans, is available upon request to the
Principal
Underwriter. No distribution under a retirement plan
will be
made until Franklin Templeton Funds Trust Company
("FTTC")
receives the participant's election on IRS Form W-4P
(available
on request from FTTC), and such other documentation as it
deems
necessary, as to whether or not U.S. income tax is to be
withheld
from such distribution.
Individual Retirement Account (IRA). All
individuals
(whether or not covered by qualified private or
governmental
retirement plans) may purchase Shares of the Fund
pursuant to an
IRA. However, contributions to an IRA by an individual
who is
covered by a qualified private or governmental plan may
not be
tax-deductible depending on the individual's income.
Custodial
services for IRAs are available through FTTC. Disclosure
statements summarizing certain aspects of IRAs are
furnished to
all persons investing in such accounts, in accordance
with IRS
regulations.
Simplified Employee Pensions (SEP-IRA). For
employers who
wish to establish a simplified form of employee
retirement
program investing in Shares of the Fund, there are
available
Simplified Employee Pensions invested in IRA Plans.
Details and
materials relating to these plans will be furnished upon
request
to the Principal Underwriter.
Retirement Plan for Employees of Tax-Exempt
Organizations
(403(b)). Employees of public school systems and certain
types
of charitable organizations may enter into a deferred
compensation arrangement for the purchase of Shares of
the Fund
without being taxed currently on the investment.
Contributions
which are made by the employer through salary reduction
are
excludable from the gross income of the employee. Such
deferred
compensation plans, which are intended to qualify under
Section
403(b) of the Internal Revenue Code of 1986, as amended
(the
"Code"), are available through the Principal Underwriter.
Custodial services are provided by FTTC.
Qualified Plan for Corporations, Self-Employed
Individuals
and Partnerships. For employers who wish to purchase
Shares of
the Fund in conjunction with employee retirement plans,
there is
a prototype master plan which has been approved by the
IRS. A
"Section 401(k) plan" is also available. FTTC furnishes
custodial services for these plans. For further details,
including custodian fees and plan administration
services, see
the master plan and related material which is available
from the
Principal Underwriter.
Letter of Intent. Purchasers who intend to invest
$50,000
or more in Shares of the Fund or Class I Shares of any
other fund
in the Franklin Group of Funds and the Templeton Family
of Funds,
except Templeton Capital Accumulator Fund, Inc.,
Templeton
Variable Annuity Fund, Templeton Variable Products Series
Fund,
Franklin Valuemark Funds and Franklin Government
Securities Trust
(the "Franklin Templeton Funds"), within 13 months
(whether in
one lump sum or in installments, the first of which may
not be
less than 5% of the total intended amount and each
subsequent
installment not less than $25 unless the investor is a
qualifying
employee benefit plan (the "Benefit Plan"), including
automatic
investment and payroll deduction plans), and to
beneficially hold
the total amount of such Shares fully paid for and
outstanding
simultaneously for at least one full business day before
the
expiration of that period, should execute a Letter of
Intent
("LOI") on the form provided in the Shareholder
Application in
the Fund's Prospectus. Payment for not less than 5% of
the total
intended amount must accompany the executed LOI unless
the
investor is a Benefit Plan. Except for purchases of
Shares by a
Benefit Plan, those Shares purchased with the first 5% of
the
intended amount stated in the LOI will be held as
"Escrowed
Shares" for as long as the LOI remains unfulfilled.
Although the
Escrowed Shares are registered in the investor's name,
his full
ownership of them is conditional upon fulfillment of the
LOI. No
Escrowed Shares can be redeemed by the investor for any
purpose
until the LOI is fulfilled or terminated. If the LOI is
terminated for any reason other than fulfillment, the
Transfer
Agent will redeem that portion of the Escrowed Shares
required
and apply the proceeds to pay any adjustment that may be
appropriate to the sales commission on all Shares
(including the
Escrowed Shares) already purchased under the LOI and
apply any
unused balance to the investor's account. The LOI is not
a
binding obligation to purchase any amount of Shares, but
its
execution will result in the purchaser paying a lower
sales
charge at the appropriate quantity purchase level. A
purchase
not originally made pursuant to an LOI may be included
under a
subsequent LOI executed within 90 days of such purchase.
In this
case, an adjustment will be made at the end of 13 months
from the
effective date of the LOI at the net asset value per
Share then
in effect, unless the investor makes an earlier written
request
to the Principal Underwriter upon fulfilling the purchase
of
Shares under the LOI. In addition, the aggregate value
of any
Shares purchased prior to the 90-day period referred to
above may
be applied to purchases under a current LOI in fulfilling
the
total intended purchases under the LOI. However, no
adjustment
of sales charges previously paid on purchases prior to
the 90-day
period will be made.
If an LOI is executed on behalf of a benefit plan
(such
plans are described under "How to Buy Shares of the Fund
- -- Net
Asset Value Purchases" in the Prospectus), the level and
any
reduction in sales charge for these employee benefit
plans will
be based on actual plan participation and the projected
investments in the Franklin Templeton Funds under the
LOI.
Benefit Plans are not subject to the requirement to
reserve 5% of
the total intended purchase, or to any penalty as a
result of the
early termination of a plan, nor are Benefit Plans
entitled to
receive retroactive adjustments in price for investments
made
before executing LOIs.
Special Net Asset Value Purchases. As discussed in
the
Prospectus under "How to Buy Shares of the Fund --
Description of
Special Net Asset Value Purchases," certain categories of
investors may purchase Shares of the Fund at net asset
value
(without a front-end or contingent deferred sales
charge).
Franklin Templeton Distributors, Inc. ("FTD") or one of
its
affiliates may make payments, out of its own resources,
to
securities dealers who initiate and are responsible for
such
purchases, as indicated below. FTD may make these
payments in
the form of contingent advance payments, which may
require
reimbursement from the securities dealers with respect to
certain
redemptions made within 12 months of the calendar month
following
purchase, as well as other conditions, all of which may
be
imposed by an agreement between FTD, or its affiliates,
and the
securities dealer.
The following amounts will be paid by FTD or one of
its
affiliates, out of its own resources, to securities
dealers who
initiate and are responsible for (i) purchases of most
equity and
fixed-income Franklin Templeton Funds made at net asset
value by
certain designated retirement plans (excluding IRA and
IRA
rollovers): 1.00% on sales of $1 million but less than
$2
million, plus 0.80% on sales of $2 million but less than
$3
million, plus 0.50% on sales of $3 million but less than
$50
million, plus 0.25% on sales of $50 million but less than
$100
million, plus 0.15% on sales of $100 million or more; and
(ii)
purchases of most fixed-income Franklin Templeton Funds
made at
net asset value by non-designated retirement plans:
0.75% on
sales of $1 million but less than $2 million, plus 0.60%
on sales
of $2 million but less than $3 million, plus 0.50% on
sales of $3
million but less than $50 million, plus 0.25% on sales of
$50
million but less than $100 million, plus 0.15% on sales
of $100
million or more. These payment breakpoints are reset
every 12
months for purposes of additional purchases. With
respect to
purchases made at net asset value by certain trust
companies and
trust departments of banks and certain retirement plans
of
organizations with collective retirement plan assets of
$10
million or more, FTD, or one of its affiliates, out of
its own
resources, may pay up to 1% of the amount invested.
Under agreements with certain banks in Taiwan,
Republic of
China, the Fund's Shares are available to such banks'
discretionary trust funds at net asset value. The banks
may
charge service fees to their customers who participate in
the
discretionary trusts. Pursuant to agreements, a portion
of such
service fees may be paid to FTD, or an affiliate of FTD
to help
defray expenses of maintaining a service office in
Taiwan,
including expenses related to local literature
fulfillment and
communication facilities.
TAX STATUS
The following discussion summarizes certain U.S.
Federal tax
considerations incident to an investment in the Fund.
The Fund intends to qualify as a regulated
investment
company under the Code. To so qualify, the Fund must,
among
other things: (a) derive at least 90% of its gross
income from
dividends, interest, payments with respect to securities
loans,
gains from the sale or other disposition of stock or
securities
and gains from the sale or other disposition of foreign
currencies, or other income (including gains from
options,
futures contracts and forward contracts) derived with
respect to
the Fund's business of investing in stocks, securities or
currencies; (b) derive less than 30% of its gross income
from the
sale or other disposition of the following assets held
for less
than three months: (i) stock and securities, (ii)
options,
futures and forward contracts (other than options,
futures and
forward contracts on foreign currencies), and (iii)
foreign
currencies (and options, futures and forward contracts on
foreign
currencies) which are not directly related to the Fund's
principal business of investing in stocks and securities
(or
options and futures with respect to stock or securities);
(c)
diversify its holdings so that, at the end of each
quarter, (i)
at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government
securities,
securities of other regulated investment companies, and
other
securities, with such other securities limited in respect
of any
one issuer to an amount not greater in value than 5% of
the
Fund's total assets and to not more than 10% of the
outstanding
voting securities of such issuer, and (ii) not more than
25% of
the value of the Fund's total assets is invested in the
securities (other than U.S. Government securities or
securities
of other regulated investment companies) of any one
issuer or of
any two or more issuers that the Fund controls and that
are
determined to be engaged in the same business or similar
or
related businesses; and (d) distribute at least 90% of
its
investment company taxable income (which includes, among
other
items, dividends, interest and net short-term capital
gains in
excess of net long-term capital losses) each taxable
year.
The Treasury Department is authorized to issue
regulations
providing that foreign currency gains that are not
directly
related to the Fund's principal business of investing in
stock or
securities (or options and futures with respect to stock
or
securities) will be excluded from the income which
qualifies for
purposes of the 90% gross income requirement described
above. To
date, however, no regulations have been issued.
The status of the Fund as a regulated investment
company
does not involve government supervision of management or
of its
investment practices or policies. As a regulated
investment
company, the Fund generally will be relieved of liability
for
U.S. Federal income tax on that portion of its net
investment
income and net realized capital gains which it
distributes to its
Shareholders. Amounts not distributed on a timely basis
in
accordance with a calendar year distribution requirement
also are
subject to a nondeductible 4% excise tax. To prevent
application
of the excise tax, the Fund intends to make distributions
in
accordance with the calendar year distribution
requirement.
Dividends of net investment income and net
short-term
capital gains are taxable to Shareholders as ordinary
income.
Distributions of net capital gains (the excess of net
long-term
capital gains over net short-term capital losses)
designated by
the Fund as capital gain dividends are taxable to
Shareholders as
long-term capital gains, regardless of the length of time
the
Fund's Shares have been held by a Shareholder. Generally
dividends and distributions are taxable to Shareholders,
whether
received in cash or reinvested in Shares of the Fund.
Any
distributions that are not from the Fund's investment
company
taxable income or net capital gain may be characterized
as a
return of capital to Shareholders or, in some cases, as
capital
gain. Shareholders will be notified annually as to the
Federal
tax status of dividends and distributions they receive
and any
tax withheld thereon.
Distributions by the Fund reduce the net asset value
of the
Fund's Shares. Should a distribution reduce the net
asset value
below a Shareholder's cost basis, the distribution
nevertheless
would be taxable to the Shareholder as ordinary income or
capital
gain as described above, even though, from an investment
standpoint, it may constitute a partial return of
capital. In
particular, investors should be careful to consider the
tax
implication of buying Shares just prior to a distribution
by the
Fund. The price of Shares purchased at that time
includes the
amount of the forthcoming distribution, but the
distribution will
generally be taxable to them.
Certain of the debt securities acquired by the Fund
may be
treated as debt securities that were originally issued at
a
discount. Original issue discount can generally be
defined as
the difference between the price at which a security was
issued
and its stated redemption price at maturity. Although no
cash
income is actually received by the Fund, original issue
discount
that accrues on a debt security in a given year generally
is
treated for Federal income tax purposes as interest and,
therefore, such income would be subject to the
distribution
requirements of the Code.
Some of the debt securities may be purchased by the
Fund at
a discount which exceeds the original issue discount on
such debt
securities, if any. This additional discount represents
market
discount for Federal income tax purposes. The gain
realized on
the disposition of any taxable debt security having
market
discount generally will be treated as ordinary income to
the
extent it does not exceed the accrued market discount on
such
debt security. Generally, market discount accrues on a
daily
basis for each day the debt security is held by the Fund
at a
constant rate over the time remaining to the debt
security's
maturity or, at the election of the Fund, at a constant
yield to
maturity which takes into account the semiannual
compounding of
interest.
The Fund may invest in stocks of foreign companies
that are
classified under the Code as passive foreign investment
companies
("PFICs"). In general, a foreign company is classified
as a PFIC
if at least one-half of its assets constitute
investment-type
assets or 75% or more of its gross income is
investment-type
income. Under the PFIC rules, an "excess distribution"
received
with respect to PFIC stock is treated as having been
realized
ratably over the period during which the Fund held the
PFIC
stock. The Fund itself will be subject to tax on the
portion, if
any, of the excess distribution that is allocated to the
Fund's
holding period in prior taxable years (and an interest
factor
will be added to the tax, as if the tax had actually been
payable
in such prior taxable years) even though the Fund
distributes the
corresponding income to Shareholders. Excess
distributions
include any gain from the sale of PFIC stock as well as
certain
distributions from a PFIC. All excess distributions are
taxable
as ordinary income.
The Fund may be able to elect alternative tax
treatment with
respect to PFIC stock. Under an election that currently
may be
available, the Fund generally would be required to
include in its
gross income its share of the earnings of a PFIC on a
current
basis, regardless of whether any distributions are
received from
the PFIC. If this election is made, the special rules,
discussed
above, relating to the taxation of excess distributions,
would
not apply. In addition, another election may be
available that
would involve marking to market the Fund's PFIC shares at
the end
of each taxable year (and on certain other dates
prescribed in
the Code), with the result that unrealized gains are
treated as
though they were realized. If this election were made,
tax at
the Fund level under the PFIC rules would generally be
eliminated, but the Fund could, in limited circumstances,
incur
nondeductible interest charges. The Fund's intention to
qualify
annually as a regulated investment company may limit its
elections with respect to PFIC shares.
Because the application of the PFIC rules may
affect, among
other things, the character of gains, the amount of gain
or loss
and the timing of the recognition of income with respect
to PFIC
stock, as well as subject the Fund itself to tax on
certain
income from PFIC stock, the amount that must be
distributed to
Shareholders, and which will be taxed to Shareholders as
ordinary
income or long-term capital gain, may be increased or
decreased
substantially as compared to a fund that did not invest
in PFIC
stock.
Income received by the Fund from sources within
foreign
countries may be subject to withholding and other income
or
similar taxes imposed by such countries. If more than
50% of the
value of the Fund's total assets at the close of its
taxable year
consists of securities of foreign corporations, the Fund
will be
eligible and intends to elect to "pass through" to the
Fund's
Shareholders the amount of foreign taxes paid by the
Fund.
Pursuant to this election, a Shareholder will be required
to
include in gross income (in addition to taxable dividends
actually received) his pro rata share of the foreign
taxes paid
by the Fund, and will be entitled either to deduct (as an
itemized deduction) his pro rata share of foreign income
and
similar taxes in computing his taxable income or to use
it as a
foreign tax credit against his U.S. Federal income tax
liability,
subject to limitations. No deduction for foreign taxes
may be
claimed by a Shareholder who does not itemize deductions,
but
such a Shareholder may be eligible to claim the foreign
tax
credit (see below). Each Shareholder will be notified
within 60
days after the close of the Fund's taxable year whether
the
foreign taxes paid by the Fund will "pass through" for
that year.
Generally, a credit for foreign taxes is subject to
the
limitation that it may not exceed the Shareholder's U.S.
tax
attributable to his foreign source taxable income. For
this
purpose, if the pass-through election is made, the source
of the
Fund's income flows through to its Shareholders. With
respect to
the Fund, gains from the sale of securities will be
treated as
derived from U.S. sources and certain currency
fluctuation gains,
including fluctuation gains from foreign-currency
denominated
debt securities, receivables and payables, will be
treated as
ordinary income derived from U.S. sources. The
limitation on the
foreign tax credit is applied separately to foreign
source
passive income (as defined for purposes of the foreign
tax
credit), including the foreign source passive income
passed
through by the Fund. Shareholders may be unable to claim
a
credit for the full amount of their proportionate share
of the
foreign taxes paid by the Fund. Foreign taxes may not be
deducted in computing alternative minimum taxable income
and the
foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for
purposes
of this limitation) imposed on corporations and
individuals. If
the Fund is not eligible to make the election to "pass
through"
to its Shareholders its foreign taxes, the foreign income
taxes
it pays generally will reduce investment company taxable
income
and the distributions by the Fund will be treated as
United
States source income.
Certain options, futures and foreign currency
forward
contracts in which the Fund may invest are "section 1256
contracts." Gains or losses on section 1256 contracts
generally
are considered 60% long-term and 40% short-term capital
gains or
losses ("60/40"); however, foreign currency gains or
losses (as
discussed below) arising from certain section 1256
contracts may
be treated as ordinary income or loss. Also, section
1256
contracts held by the Fund at the end of each taxable
year (and
on certain other dates as prescribed under the Code) are
"marked-
to-market" with the result that unrealized gains or
losses are
treated as though they were realized.
Generally, the hedging transactions undertaken by
the Fund
may result in "straddles" for U.S. Federal income tax
purposes.
The straddle rules may affect the character of gains (or
losses)
realized by the Fund. In addition, losses realized by
the Fund
on positions that are part of the straddle may be
deferred under
the straddle rules, rather than being taken into account
in
calculating the taxable income for the taxable year in
which the
losses are realized. Because only a few regulations
implementing
the straddle rules have been promulgated, the tax
consequences to
the Fund of hedging transactions are not entirely clear.
The
hedging transactions may increase the amount of
short-term
capital gain realized by the Fund which is taxed as
ordinary
income when distributed to Shareholders.
The Fund may make one or more of the elections
available
under the Code which are applicable to straddles. If the
Fund
makes any of the elections, the amount, character, and
timing of
the recognition of gains or losses from the affected
straddle
positions will be determined under rules that vary
according to
the election(s) made. The rules applicable under certain
of the
elections may operate to accelerate the recognition of
gains or
losses from the affected straddle positions.
Because application of the straddle rules may affect
the
character of gains or losses, defer losses and/or
accelerate the
recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to
Shareholders
and which will be taxed to Shareholders as ordinary
income or
long-term capital gain may be increased or decreased as
compared
to a fund that did not engage in such hedging
transactions.
Requirements relating to the Fund's tax status as a
regulated investment company may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and foreign currency forward contracts.
Under the Code, gains or losses attributable to
fluctuations
in foreign currency exchange rates which occur between
the time
the Fund accrues income or other receivables or accrues
expenses
or other liabilities denominated in a foreign currency
and the
time the Fund actually collects such receivables or pays
such
liabilities generally are treated as ordinary income or
ordinary
loss. Similarly, on disposition of debt securities
denominated
in a foreign currency and on disposition of certain
financial
contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the
date of
acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss.
These
gains and losses, referred to under the Code as "section
988"
gains and losses, may increase or decrease the amount of
the
Fund's net investment income to be distributed to its
Shareholders as ordinary income. For example,
fluctuations in
exchange rates may increase the amount of income that the
Fund
must distribute in order to qualify for treatment as a
regulated
investment company and to prevent application of an
excise tax on
undistributed income. Alternatively, fluctuations in
exchange
rates may decrease or eliminate income available for
distribution. If section 988 losses exceed other net
investment
income during a taxable year, the Fund would not be able
to make
ordinary dividend distributions, or distributions made
before the
losses were realized would be recharacterized as return
of
capital to Shareholders for Federal income tax purposes,
rather
than as an ordinary dividend, reducing each Shareholder's
basis
in his Fund Shares, or as a capital gain.
Upon the sale or exchange of his Shares, a
Shareholder will
realize a taxable gain or loss depending upon his basis
in the
Shares. Such gain or loss will be treated as capital
gain or
loss if the Shares are capital assets in the
Shareholder's hands,
and generally will be long-term if the Shareholder's
holding
period for the Shares is more than one year and generally
otherwise will be short-term. Any loss realized on a
sale or
exchange will be disallowed to the extent that the Shares
disposed of are replaced (including replacement through
the
reinvesting of dividends and capital gain distributions
in the
Fund) within a period of 61 days beginning 30 days before
and
ending 30 days after the disposition of the Shares. In
such a
case, the basis of the Shares acquired will be adjusted
to
reflect the disallowed loss. Any loss realized by a
Shareholder
on the sale of the Fund's Shares held by the Shareholder
for six
months or less will be treated for Federal income tax
purposes as
a long-term capital loss to the extent of any
distributions of
long-term capital gains received by the Shareholder with
respect
to such Shares.
In some cases, Shareholders will not be permitted to
take
sales charges into account for purposes of determining
the amount
of gain or loss realized on the disposition of their
Shares.
This prohibition generally applies where (1) the
Shareholder
incurs a sales charge in acquiring the stock of a
regulated
investment company, (2) the stock is disposed of before
the 91st
day after the date on which it was acquired, and (3) the
Shareholder subsequently acquires shares of the same or
another
regulated investment company and the otherwise applicable
sales
charge is reduced or eliminated under a "reinvestment
right"
received upon the initial purchase of shares of stock.
In that
case, the gain or loss recognized will be determined by
excluding
from the tax basis of the Shares exchanged all or a
portion of
the sales charge incurred in acquiring those Shares.
This
exclusion applies to the extent that the otherwise
applicable
sales charge with respect to the newly acquired Shares is
reduced
as a result of having incurred a sales charge initially.
Sales
charges affected by this rule are treated as if they were
incurred with respect to the stock acquired under the
reinvestment right. This provision may be applied to
successive
acquisitions of stock.
The Fund generally will be required to withhold
Federal
income tax at a rate of 31% ("backup withholding") from
dividends
paid, capital gain distributions, and redemption proceeds
to
Shareholders if (1) the Shareholder fails to furnish the
Fund
with the Shareholder's correct taxpayer identification
number or
social security number and to make such certifications as
the
Fund may require, (2) the IRS notifies the Shareholder or
the
Fund that the Shareholder has failed to report properly
certain
interest and dividend income to the IRS and to respond to
notices
to that effect, or (3) when required to do so, the
Shareholder
fails to certify that he is not subject to backup
withholding.
Any amounts withheld may be credited against the
Shareholder's
Federal income tax liability.
Ordinary dividends and taxable capital gain
distributions
declared in October, November, or December with a record
date in
such month and paid during the following January will be
treated
as having been paid by the Fund and received by
Shareholders on
December 31 of the calendar year in which declared,
rather than
the calendar year in which the dividends are actually
received.
Distributions also may be subject to state, local
and
foreign taxes. U.S. tax rules applicable to foreign
investors
may differ significantly from those outlined above. This
discussion does not purport to deal with all of the tax
consequences applicable to Shareholders. Shareholders
are
advised to consult their own tax advisers for details
with
respect to the particular tax consequences to them of an
investment in the Fund.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the
"Principal Underwriter"), P.O. Box 33030, St. Petersburg,
Florida
33733-8030, toll free telephone (800) 237-0738, is the
Principal
Underwriter of the Fund's Shares. FTD is a wholly owned
subsidiary of Franklin.
The Fund, pursuant to Rule 12b-1 under the 1940 Act,
has
adopted a Distribution Plan (the "Plan"). Under the
Plan, the
Fund may reimburse the Principal Underwriter or others
quarterly
(subject to a limit of 0.35% per annum of the Fund's
average
daily net assets) for costs and expenses incurred by FTD
or
others in connection with any activity which is primarily
intended to result in the sale of the Fund's Shares.
Payments to
FTD or others could be for various types of activities,
including
(1) payments to broker-dealers who provide certain
services of
value to the Fund's Shareholders (sometimes referred to
as a
"trail fee"); (2) reimbursement of expenses relating to
selling
and servicing efforts or of organizing and conducting
sales
seminars; (3) payments to employees or agents of the
Principal
Underwriter who engage in or support distribution of
Shares; (4)
payments of the costs of preparing, printing and
distributing
prospectuses and reports to prospective investors and of
printing
and advertising expenses; (5) payment of dealer
commissions and
wholesaler compensation in connection with sales of the
Fund's
Shares exceeding $1 million (on which the Fund imposes no
initial
sales charge) and interest or carrying charges in
connection
therewith; and (6) such other similar services as the
Fund's
Board of Trustees determines to be reasonably calculated
to
result in the sale of Shares. Under the Plan, the costs
and
expenses not reimbursed in any one given quarter
(including costs
and expenses not reimbursed because they exceed 0.35% of
the
Fund's average daily net assets) may be reimbursed in
subsequent
quarters or years.
The Distribution Agreement provides that the
Principal
Underwriter will use its best efforts to maintain a broad
and
continuous distribution of the Fund's Shares among bona
fide
investors and may sign selling agreements with
responsible
dealers, as well as sell to individual investors. The
Shares are
sold only at the Offering Price in effect at the time of
sale,
and the Fund receives not less than the full net asset
value of
the Shares sold. The discount between the Offering Price
and the
net asset value of the Fund's Shares may be retained by
the
Principal Underwriter or it may reallow all or any part
of such
discount to dealers.
The Distribution Agreement provides that the Fund
shall pay
the costs and expenses incident to registering and
qualifying its
Shares for sale under the Securities Act of 1933 and
under the
applicable blue sky laws of the jurisdictions in which
the
Principal Underwriter desires to distribute such Shares,
and for
preparing, printing and distributing prospectuses and
reports to
Shareholders. The Principal Underwriter pays the cost of
printing additional copies of the prospectus and reports
to
Shareholders used for selling purposes. (The Fund pays
the costs
of preparation, set-up and initial supply of its
prospectus for
existing Shareholders.)
The Distribution Agreement is subject to renewal
from year
to year in accordance with the provisions of the 1940 Act
and
terminates automatically in the event of its assignment.
The
Distribution Agreement may be terminated without penalty
by
either party upon 60 days' written notice to the other,
provided
termination by the Fund shall be approved by the Board of
Trustees or a majority (as defined in the 1940 Act) of
the
Shareholders. The Principal Underwriter is relieved of
liability
for any act or omission in the course of its performance
of the
Distribution Agreement, in the absence of willful
misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations.
FTD is the principal underwriter for the other
Templeton
Funds.
DESCRIPTION OF SHARES
The Trust Instrument provides that the holders of
not less
than two-thirds of the outstanding Shares of the Fund may
remove
a person serving as Trustee either by declaration in
writing or
at a meeting called for such purpose. The Trustees are
required
to call a meeting for the purpose of considering the
removal of a
person serving as Trustee if requested in writing to do
so by the
holders of not less than 10% of the outstanding Shares of
the
Fund.
The Shares have non-cumulative voting rights so that
the
holders of a plurality of the Shares voting for the
election of
Trustees at a meeting at which 50% of the outstanding
Shares are
present can elect all the Trustees and in such event, the
holders
of the remaining Shares voting for the election of
Trustees will
not be able to elect any person or persons to the Board
of
Trustees.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total
return in
advertisements or reports to Shareholders or prospective
investors. Quotations of average annual total return for
the
Fund will be expressed in terms of the average annual
compounded
rate of return for periods in excess of one year or the
total
return for periods less than one year of a hypothetical
investment in the Fund over periods of one, five, or ten
years
(up to the life of the Fund) calculated pursuant to the
following
formula: P(1 + T)n = ERV (where P = a hypothetical
initial
payment of $1,000, T = the average annual total return
for
periods of one year or more or the total return for
periods of
less than one year, n = the number of years, and ERV =
the ending
redeemable value of a hypothetical $1,000 payment made at
the
beginning of the period). All total return figures
reflect the
deduction of the maximum initial sales charge and
deduction of a
proportional share of Fund expenses on an annual basis,
and
assume that all dividends and distributions are
reinvested when
paid. The total return for the period from July 28, 1994
(commencement of operations) through December 31, 1994,
on an
annualized basis, was -14.06%.
Performance information for the Fund may be
compared, in
reports and promotional literature, to: (i) unmanaged
indices so
that investors may compare the Fund's results with those
of a
group of unmanaged securities widely regarded by
investors as
representative of the securities market in general; (ii)
other
groups of mutual funds tracked by Lipper Analytical
Services,
Inc., a widely used independent research firm which ranks
mutual
funds by overall performance, investment objectives and
assets,
or tracked by other services, companies, publications, or
persons
who rank mutual funds on overall performance or other
criteria;
and (iii) the Consumer Price Index (measure for
inflation) to
assess the real rate of return from an investment in the
Fund.
Unmanaged indices may assume the reinvestment of
dividends but
generally do not reflect deductions for administrative
and
management costs and expenses.
Performance information for the Fund reflects only
the
performance of a hypothetical investment in the Fund
during the
particular time period on which the calculations are
based.
Performance information should be considered in light of
the
Fund's investment objective and policies, characteristics
and
quality of the portfolio and the market conditions during
the
given time period, and should not be considered as a
representation of what may be achieved in the future.
From time to time, the Fund and the Investment
Manager may
also refer to the following information:
(1) The Investment Manager's and its affiliates' market
share of
international equities managed in mutual funds
prepared or
published by Strategic Insight or a similar
statistical
organization.
(2) The performance of U.S. equity and debt markets
relative to
foreign markets prepared or published by Morgan
Stanley
Capital International or a similar financial
organization.
(3) The capitalization of U.S. and foreign stock markets
as
prepared or published by the International Finance
Corporation, Morgan Stanley Capital International or
a
similar financial organization.
(4) The geographic distribution of the Fund's portfolio.
(5) The GNP and populations, including age
characteristics,
literacy rates, foreign investment improvements due
to a
liberalization of securities laws and a reduction of
foreign
exchange controls, and improving communication
technology,
of various countries as published by various
statistical
organizations.
(6) To assist investors in understanding the different
returns
and risk characteristics of various investments, the
Fund
may show historical returns of various investments
and
published indices (e.g., Ibbotson Associates, Inc.
Charts
and Morgan Stanley EAFE - Index).
(7) The major industries located in various
jurisdictions as
published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to
mutual fund
shareholder services.
(9) Allegorical stories illustrating the importance of
persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking
relative
to industry standards as published by Lipper
Analytical
Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's
investment
management philosophy and approach, including its
worldwide
search for undervalued or "bargain" securities and
its
diversification by industry, nation and type of
stocks or
other securities.
(12) Quotations from the Templeton organization's
founder, Sir
John Templeton,* advocating the virtues of
diversification
and long-term investing, including the following:
_______________
* Sir John Templeton sold the Templeton organization
to
Franklin Resources, Inc. in October, 1992 and resigned
from the
Fund's Board on April 16, 1995. He is no longer involved
with
the investment management process.
- "Never follow the crowd. Superior performance
is
possible only if you invest differently from
the
crowd."
- "Diversify by company, by industry and by
country."
- "Always maintain a long-term perspective."
- "Invest for maximum total real return."
- "Invest - don't trade or speculate."
- "Remain flexible and open-minded about types of
investment."
- "Buy low."
- "When buying stocks, search for bargains among
quality
stocks."
- "Buy value, not market trends or the economic
outlook."
- "Diversify. In stocks and bonds, as in much
else,
there is safety in numbers."
- "Do your homework or hire wise experts to help
you."
- "Aggressively monitor your investments."
- "Don't panic."
- "Learn from your mistakes."
- "Outperforming the market is a difficult task."
- "An investor who has all the answers doesn't
even
understand all the questions."
- "There's no free lunch."
- "And now the last principle: Do not be fearful
or
negative too often."
In addition, the Fund and the Investment Manager may
also
refer to the number of Shareholders in the Fund or the
aggregate
number of shareholders of the Franklin Templeton Funds or
the
dollar amount of fund and private account assets under
management
in advertising materials.
