TEMPLETON GLOBAL INVESTMENT TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED JULY 10, 1995,
IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES
OF TEMPLETON GROWTH AND INCOME FUND,
TEMPLETON GLOBAL INFRASTRUCTURE FUND, AND TEMPLETON AMERICAS
GOVERNMENT SECURITIES FUND, EACH DATED JULY 10, 1995,
AND TEMPLETON GREATER EUROPEAN FUND AND
TEMPLETON LATIN AMERICA FUND, DATED MAY 8, 1995, EACH AS
SUPPLEMENTED FROM TIME TO TIME, WHICH MAY BE OBTAINED
WITHOUT CHARGE UPON REQUEST TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: 800/DIAL BEN
TABLE OF CONTENTS
General Information and History...................... 1
Investment Objectives and Policies................... 2
-Investment Policies............................... 2
-Repurchase Agreements............................. 2
-Debt Securities................................... 2
-Convertible Securities............................ 4
-Futures Contracts................................. 5
-Options on Securities, Indices
and Futures...................................... 5
-Foreign Currency Hedging Transactions............. 8
-Investment Restrictions........................... 9
-Additional Restrictions...........................11
-Risk Factors......................................12
-Trading Policies..................................18
-Personal Securities Transactions..................18
Management of the Trust..............................19
Trustee Compensation.................................25
Principal Shareholders...............................26
Investment Management and Other
Services...........................................27
-Investment Management Agreements..................27
-Management Fees...................................28
-The Investment Managers...........................29
-Sub-Advisory Agreement............................29
-Business Manager..................................30
-Custodian and Transfer Agent......................32
-Legal Counsel.....................................32
-Independent Accountants...........................32
-Reports to Shareholders...........................33
Brokerage Allocation.................................33
Purchase, Redemption and Pricing of
Shares.............................................36
-Ownership and Authority Disputes..................37
-Tax-Deferred Retirement Plans.....................37
-Letter of Intent..................................39
-Special Net Asset Value
Purchases......................................40
Tax Status...........................................41
Principal Underwriter................................48
Description of Shares................................51
Performance Information..............................52
Financial Statements.................................56
GENERAL INFORMATION AND HISTORY
Templeton Global Investment Trust (the "Trust") was
organized as a Delaware business trust on December 21, 1993, and
is registered under the Investment Company Act of 1940 (the "1940
Act") as an open-end management investment company with four
diversified series of Shares, Templeton Growth and Income Fund
("Growth and Income Fund") (formerly Templeton Global Rising
Dividends Fund), Templeton Global Infrastructure Fund
("Infrastructure Fund"), Templeton Greater European Fund
("Greater European Fund") and Templeton Latin America Fund
("Latin America Fund"), and one non-diversified series of Shares,
Templeton Americas Government Securities Fund ("Americas
Government Securities Fund") (collectively, the "Funds").
INVESTMENT OBJECTIVES AND POLICIES
Investment Policies. The investment objective and policies
of each Fund are described in each Fund's Prospectus under the
heading "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 each Fund (Templeton, Galbraith &
Hansberger Ltd. ("TGH") in the case of Growth and Income Fund,
Greater European Fund and Latin America Fund, Templeton
Investment Counsel, Inc. ("TICI") in the case of Infrastructure
Fund, and TICI, through its Templeton Global Bond Managers
division, in the case of Americas Government Securities Fund
(collectively, the "Investment Managers")) 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 a Fund's ability
to dispose of the underlying securities. A 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 a 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 Funds 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, neither Growth and Income Fund,
Infrastructure Fund, Greater European Fund, nor Latin America
Fund will invest 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 a
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
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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 a 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 a 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 a Fund to achieve its
investment objective may, to the extent of investment in low
rated debt securities, be more dependent upon such
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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, a Fund may incur
additional expenses seeking recovery.
A 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 to
generally be relieved of federal tax liabilities, a Fund must
distribute all of its net income and gains to Shareholders (see
"Tax Status") generally on an annual basis. A 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 a Fund's
net asset value and investment practices.
Convertible Securities. The Funds 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.
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Futures Contracts. Each 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.
Each 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 a 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, a 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, a 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. Each 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
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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.
Each 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 a 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 a 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 a 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.
A 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
a 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, a 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. A 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.
A 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 a Fund has
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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, a 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, a 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 a 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.
Each Fund may also purchase put options to hedge its
investments against a decline in value. By purchasing a put
option, a 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 a 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 a Fund's security holdings
being hedged.
A 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, a 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, a
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 a 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 a 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.
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The value of over-the-counter options purchased by a Fund, as
well as the cover for options written by a Fund, are considered
not readily marketable and are subject to the Trust's limitation
on investments in securities that are not readily marketable.
See "Investment Objectives and Policies -- Investment
Restrictions."
Foreign Currency Hedging Transactions. In order to hedge
against foreign currency exchange rate risks, each 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. Each 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.
A 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. A 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 a
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 a 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, a 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 Funds' 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 a Fund than if it had not
engaged in such contracts.
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A 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 a
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, a Fund
may forfeit the entire amount of the premium plus related
transaction costs. Options on foreign currencies to be written
or purchased by a Fund will be traded on U.S. and foreign
exchanges or over-the-counter.
A 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 a
Fund's portfolio securities or adversely affect the prices of
securities that a Fund intends to purchase at a later date. The
successful use of foreign currency futures will usually depend on
the ability of a Fund's Investment Manager to forecast currency
exchange rate movements correctly. Should exchange rates move in
an unexpected manner, a Fund may not achieve the anticipated
benefits of foreign currency futures or may realize losses.
Investment Restrictions. The Funds have imposed upon
themselves certain investment restrictions which, together with
their investment objectives, are fundamental policies except as
otherwise indicated. No changes in a Fund's investment objective
or these investment restrictions can be made without the approval
of the Shareholders of that Fund. For this purpose, the
provisions of the 1940 Act require the affirmative vote of the
lesser of either (i) 67% or more of that Fund's Shares present at
a Shareholders' meeting at which more than 50% of the outstanding
Shares are present or represented by proxy or (ii) more than 50%
of the outstanding Shares of that Fund.
In accordance with these restrictions, each Fund will not:
1. Invest in real estate or mortgages on real estate
(although the Funds 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
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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 a 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; provided, however,
that this restriction does not apply to Americas
Government Securities Fund.
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 each Fund
may make margin payments in connection with futures,
options and currency transactions.
4. Loan money, except that a 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 a 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.
8. Participate on a joint or a joint and several basis in
any trading account in securities. (See "Investment
Objectives and Policies -- Trading Policies" as to
transactions in the same securities for the Funds
and/or other mutual funds and clients with the same or
affiliated advisers.)
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If a 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. Each 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, a Fund may not:
1. Purchase or retain securities of any company in which
Trustees or officers of the Trust or of a 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.
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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 a Fund will limit its investment in all
restricted securities, including Rule 144A securities,
to 15% of its total assets.
Whenever any investment restriction states a maximum
percentage of a 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 each Fund's Prospectus
under the heading "How to Buy Shares of the Fund."
Risk Factors. Each 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, 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. 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 a Fund's investment opportunities,
- 12 -
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.
To the extent of the Communist Party's influence,
investments in such 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, a Fund could lose a
substantial portion of any investments it has made in the
affected countries. Further, no accounting standards exist in
Eastern European countries. Finally, even though certain Eastern
European currencies may be convertible into U.S. dollars, the
conversion rates may be artificial to the actual market values
and may be adverse to Fund Shareholders.
Certain Eastern European countries, which do not have market
economies, are characterized by an absence of developed legal
structures governing private and foreign investments and private
property. Certain countries require governmental approval prior
to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit
the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms
than securities of the company available for purchase by
nationals.
Governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act
as custodian of a Fund's assets invested in such country. To the
extent such governmental or quasi-governmental authorities do not
satisfy the requirements of the 1940 Act to act as foreign
custodians of a Fund's cash and securities, the Fund's investment
in such countries may be limited or may be required to be
effected through intermediaries. The risk of loss through
governmental confiscation may be increased in such countries.
The Infrastructure Fund, Growth and Income Fund, and Greater
European Fund may each invest a portion of its assets in Russian
securities, subject to the availability of an eligible foreign
- 13 -
subcustodian approved by the Board of Trustees in accordance with
Rule 17f-5 under the 1940 Act. There can be no assurance that
appropriate sub-custody arrangements will be available to the
Funds if and when one or more of the Funds seeks to invest a
portion of its assets in Russian securities. As a non-
fundamental policy, none of the Funds will invest more than 5% of
its total assets in Russian securities.
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: (i) delays
in settling portfolio transactions and risk of loss arising out
of Russia's system of share registration and custody; (ii) the
risk that it may be impossible or more difficult than in other
countries to obtain and/or enforce a judgment; (iii)
pervasiveness of corruption and crime in the Russian economic
system; (iv) currency exchange rate volatility and the lack of
available currency hedging instruments; (v) higher rates of
inflation (including the risk of social unrest associated with
periods of hyper-inflation); (vi) controls on foreign investment
and local practices disfavoring foreign investors and limitations
on repatriation of invested capital, profits and dividends, and
on a Fund's ability to exchange local currencies for U.S.
dollars; (vii) 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; (viii) the
financial condition of Russian companies, including large amounts
of inter-company debt which may create a payments crisis on a
national scale; (ix) dependency on exports and the corresponding
importance of international trade; (x) the risk that the Russian
tax system will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation; and (xi) possible
difficulty in identifying a purchaser of securities held by a
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
- 14 -
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 a Fund to
lose its registration through fraud, negligence or even mere
oversight. While each 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 a 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 a 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 a Fund from investing in the securities of certain
Russian companies deemed suitable by its Investment Manager.
Further, this also could cause a delay in the sale of Russian
company securities by a Fund if a potential purchaser is deemed
unsuitable, which may expose the Fund to potential loss on the
investment.
Investing in Latin American issuers involves a high degree
of risk and special considerations not typically associated with
investing in the United States and other more developed
securities markets, and should be considered highly speculative.
Such risks include: (i) restrictions or controls on foreign
investment and limitations on repatriation of invested capital
and Latin America Fund's ability to exchange local currencies for
U.S. dollars; (ii) higher and sometimes volatile rates of
inflation (including the risk of social unrest associated with
periods of hyper-inflation); (iii) the risk that certain Latin
American countries, which are among the largest debtors to
commercial banks and foreign governments and which have
experienced difficulty in servicing sovereign debt obligations in
- 15 -
the past, may negotiate to restructure sovereign debt
obligations; (iv) the risk that it may be impossible or more
difficult than in other countries to obtain and/or enforce a
judgment; (v) currency exchange rate fluctuations and the lack of
available currency hedging instruments; (vi) more substantial
government involvement in and control over the local economies;
and (vii) dependency on exports and the corresponding importance
of international trade.
Latin American countries may be subject to a greater degree
of economic, political, and social instability than is the case
in the United States, Japan, or Western European countries. Such
instability may result from, among other things, the following:
(i) authoritarian governments or military involvement in
political and economic decision-making, including changes in
governmental control through extra-constitutional means; (ii)
popular unrest associated with demands for improved political,
economic, and social conditions; (iii) internal insurgencies and
terrorist activities; (iv) hostile relations with neighboring
countries; (v) ethnic, religious and racial disaffection; and
(vi) drug trafficking.
Each 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 a 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 a 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 Funds 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 Funds, the Investment Managers
endeavor to avoid unfavorable consequences and to take advantage
of favorable developments in particular nations where from time
to time they place the Funds' investments.
The exercise of this flexible policy may include decisions
to purchase securities with substantial risk characteristics and
- 16 -
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 Funds'
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 a
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.
A 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 Funds intend
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 a
Fund for hedging purposes also depends upon that Fund's
Investment Manager's ability to predict correctly movements in
the direction of the market, as to which no assurance can be
given.
The Greater European Fund and Latin America Fund are
permitted to invest in entities organized and operated solely for
the purpose of restructuring the investment characteristics of
various securities ("Structured Investments"). As Structured
Investments are backed by, or represent interests in, underlying
instruments, they may be considered derivative instruments and
involve special risks that are discussed in the Funds' Prospectus
under the heading "Investment Techniques -- Structured
Investments."
- 17 -
Additional risks may be involved with the Funds' 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 Managers and their
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: (i) The trade must receive advance clearance from a
compliance officer and must be completed within 24 hours after
this clearance; (ii) 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; (iii) In
addition to items (i) and (ii), access persons involved in
preparing and making investment decisions must file annual
reports of their securities holdings each January and also inform
the compliance officer (or other designated personnel) if they
own a security that is being considered for a fund or other
client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale by a
fund or other client.
- 18 -
MANAGEMENT OF THE TRUST
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 Trust are as follows:
Name, Address and Principal Occupation
Offices with Trust During Past Five Years
HARRIS J. ASHTON
Metro Center
1 Station Place
Stamford, Connecticut
Trustee
Chairman of the Board,
president, and chief executive
officer of General Host
Corporation (nursery and craft
centers); and a director of RBC
Holdings (U.S.A.) Inc. (a bank
holding company) and Bar-S
Foods.
NICHOLAS F. BRADY*
102 East Dover Street
Easton, Maryland
Trustee
Chairman of Templeton Emerging
Markets Investment Trust PLC;
chairman of Templeton Latin
America Investment Trust PLC;
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 Dillon, Read & Co. Inc.
(investment banking) prior
thereto.
F. BRUCE CLARKE
19 Vista View Blvd.
Thornhill, Ontario
Trustee
Retired; formerly, credit
adviser, National Bank of
Canada, Toronto.
- 19 -
Name, Address and Principal Occupation
Offices with Trust During Past Five Years
MARTIN L. FLANAGAN*
777 Mariners Island Blvd.
San Mateo, California
Trustee and Vice President
Senior vice president,
treasurer, and chief financial
officer of Franklin Resources,
Inc.; 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.
HASSO-G VON DIERGARDT-NAGLO
R.R. 3
Stouffville, Ontario
Trustee
Farmer; and president of
Clairhaven Investments, Ltd. and
other private investment
companies.
S. JOSEPH FORTUNATO
200 Campus Drive
Florham Park, New Jersey
Trustee
Member of the law firm of
Pitney, Hardin, Kipp & Szuch;
and a director of General Host
Corporation.
- 20 -
JOHN Wm. GALBRAITH
360 Central Avenue
Suite 1300
St. Petersburg, Florida
Trustee
President of Galbraith
Properties, Inc. (personal
investment company); director of
Gulfwest Banks, Inc. (bank
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.
150 2nd Avenue N.
St. Petersburg, Florida
Trustee
Consultant for the Triangle
Consulting Group; chairman of
the board and chief executive
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*
777 Mariners Island Blvd.
San Mateo, California
Chairman of the Board
and Vice President
President, chief executive
officer, and director of
Franklin Resources, Inc.;
chairman of the board and
director of Franklin Advisers,
Inc. and Franklin Templeton
Distributors, Inc.; director of
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 Resources, Inc. and of
55 of the investment companies
in the Franklin Templeton Group.
BETTY P. KRAHMER
2201 Kentmere Parkway
Wilmington, Delaware
Trustee
Director or trustee of various
civic associations; formerly,
economic analyst, U.S.
Government.
GORDON S. MACKLIN
8212 Burning Tree Road
Bethesda, Maryland
Trustee
Chairman of White River
Corporation (information
services); director of Fund
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
2665 N.E. 37th Drive
Fort Lauderdale, Florida
Trustee
Manager of personal investments
(1978-present); chairman and
chief executive officer of
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
Lyford Cay
Nassau, Bahamas
President
President and director of
Templeton, Galbraith &
Hansberger Ltd.; director of
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).
- 21 -
Name, Address and Principal Occupation
Offices with Trust During Past Five Years
DORIAN FOYIL
Lyford Cay
Nassau, Bahamas
Vice President
Vice president, Portfolio
Management/Research, of
Templeton, Galbraith &
Hansberger Ltd.; formerly,
research analyst, UBS Phillips &
Drew (London).
SAMUEL J. FORESTER, JR.
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President
President of the Templeton
Global Bond Managers Division of
Templeton Investment Counsel,
Inc.; president or vice
president of other Templeton
Funds; founder and partner of
Forester, Hairston Investment
Management (1989-1990); managing
director (Mid-East Region) of
Merrill Lynch, Pierce, Fenner &
Smith Inc. (1987-1988); and an
advisor for Saudi Arabian
Monetary Agency (1982-1987).
JOHN R. KAY
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President
Vice president of the Templeton
Funds; vice president and
treasurer of Templeton Global
Investors, Inc. and Templeton
Worldwide, Inc.; assistant vice
president of Franklin Templeton
Distributors, Inc.; formerly,
vice president and controller of
the Keystone Group, Inc.
GARY CLEMONS
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President
Research analyst for Templeton
Investment Counsel, Inc. (1993-
present); formerly, research
analyst for Templeton
Quantitative Advisors, Inc.
DOUGLAS R. LEMPEREUR
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President
Senior vice president of the
Templeton Global Bond Managers
Division of Templeton Investment
Counsel, Inc.; formerly,
securities analyst for Colonial
Management Associates (1985-
1988), Standish, Ayer & Wood
(1977-1985), and The First
National Bank of Chicago (1974-
1977).
- 22 -
NEIL S. DEVLIN
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President
Senior vice president, Portfolio
Management/Research, of the
Templeton Global Bond Managers
division of Templeton Investment
Counsel, Inc.; formerly,
portfolio manager and bond
analyst for Constitutional
Capital Management (1985-1987);
and a bond trader and research
analyst for Bank of New England
(1982-1985).
JAMES R. BAIO
500 East Broward Blvd.
Fort Lauderdale, Florida
Treasurer
Certified public accountant;
treasurer of the Templeton
Funds; senior vice president of
Templeton Worldwide, Inc.,
Templeton Global Investors,
Inc., and Templeton Funds Trust
Company; formerly, senior tax
manager for Ernst & Young
(certified public accountants)
(1977-1989).
THOMAS M. MISTELE
700 Central Avenue
St. Petersburg, Florida
Secretary
Senior vice president of
Templeton Global Investors,
Inc.; vice president of Franklin
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
700 Central Avenue
St. Petersburg, Florida
Assistant Treasurer
Assistant treasurer of the
Templeton Funds; assistant vice
president of Franklin Templeton
Investor Services, Inc.;
formerly, partner with Grant
Thornton, independent public
accountants.
JEFFREY L. STEELE
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
Partner, Dechert Price & Rhoads.
- 23 -
__________________________
* These are Trustees who are "interested persons" of the Trust
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.
TRUSTEE COMPENSATION
All of the Trust's Officers and Trustees also hold positions
with other investment companies in the Franklin Templeton Group.
No compensation is paid by the Trust to any officer of 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 Trust 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 Trust expenses.
The following table shows the total compensation paid to the
Trustees by the Trust and by all investment companies in the
Franklin Templeton Group:
- 24 -
<TABLE>
<CAPTION>
Number of Total Compensation
Aggregate Franklin Templeton from All Funds in
Name of Compensation from Fund Boards on which Franklin Templeton
Trustee the Trust* Trustee Serves Group**
<S> <C> <C> <C>
Harris J. Ashton $2,050 54 $319,925
Nicholas F. Brady 2,050 23 86,125
F. Bruce Clarke 3,050 19 95,275
Hasso-G von
Diergardt-Naglo 2,050 19 75,275
S. Joseph Fortunato 2,050 56 336,065
John Wm. Galbraith 0 22 0
Andrew H. Hines, Jr. 3,050 23 106,125
Betty P. Krahmer 2,050 23 75,275
Gordon S. Macklin 2,050 51 303,685
Fred R. Millsaps 3,050 23 106,125
</TABLE>
* For the fiscal year ended March 31, 1995.
** For the calendar year ended December 31, 1994.
PRINCIPAL SHAREHOLDERS
As of June 16, 1995, there were 594,395 Shares of Growth and
Income Fund outstanding, of which 595 Shares (0.1%) were owned
beneficially, directly or indirectly, by all the Trustees and
Officers of the Trust as a group. As of June 16, 1995, there
were 1,982,187 Shares of Infrastructure Fund outstanding, of
which 559 Shares (0.03%) were owned beneficially, directly or
indirectly, by all the Trustees and Officers of the Trust as a
group. As of June 16, 1995, there were 294,755 Shares of
Americas Government Securities Fund outstanding, of which 170
Shares (less than 0.01%) were owned beneficially, directly or
indirectly, by all the Trustees and Officers of the Trust as a
group. As of June 16, 1995, to the knowledge of management, no
person owned beneficially 5% or more of the outstanding Shares of
Growth and Income Fund, except Templeton Global Investors, Inc.,
500 E. Broward Blvd., Suite 2100, Fort Lauderdale, Florida 33394
("Templeton Global Investors") owned 103,614 Shares (16% of the
outstanding Shares). As of June 16, 1995, to the knowledge of
management, no person owned beneficially 5% or more of the
outstanding Shares of Infrastructure Fund. As of June 16, 1995,
to the knowledge of management, no person owned beneficially 5%
- 25 -
or more of the outstanding Shares of Americas Government
Securities Fund, except Templeton Global Investors owned 257,354
Shares (83% of the outstanding Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Management Agreements. The Investment Manager of
Growth and Income Fund, Greater European Fund, and Latin America
Fund is TGH, a Bahamian corporation with offices in Nassau,
Bahamas. The Investment Manager of Infrastructure Fund is
Templeton Investment Counsel, Inc., a Florida corporation with
offices located at Broward Financial Centre, Fort Lauderdale,
Florida 33394-3091. The Investment Manager of Americas
Government Securities Fund is TICI, through the Templeton Global
Bond Managers division. The Investment Management Agreements,
dated March 14, 1994, relating to Growth and Income Fund and
Infrastructure Fund were approved by the Board of Trustees,
including a majority of the Trustees who were not parties to the
Agreements or interested persons of any such party, at a meeting
on February 25, 1994, and by Templeton Global Investors, Inc., as
sole Shareholder of Growth and Income Fund and Infrastructure
Fund, on March 11, 1994 and will run through July 31, 1995. The
Investment Management Agreement, dated June 27, 1994, relating to
Americas Government Securities Fund was approved by the Board of
Trustees, including a majority of the Trustees who were not
interested parties to the Agreement or interested persons of any
such party, at a meeting held on March 18, 1994, and by Templeton
Global Investors, Inc., as sole Shareholder of Americas
Government Securities Fund, on June 27, 1994, and will run
through July 31, 1995. The Investment Management Agreements,
dated May 8, 1995, relating to Greater European Fund and Latin
America Fund were approved by the Board of Trustees, including a
majority of the Trustees who were not parties to the Agreements
or interested persons of any such party, at a meeting on April
25, 1995, and by Templeton Global Investors, Inc., as sole
Shareholder of Greater European Fund and Latin America Fund, on
May 8, 1995, and will run through July 31, 1996. The Investment
Management Agreements 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 each 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
Agreements or interested persons of any such party in person at a
meeting called for the purpose of voting on such approval.
Each Investment Management Agreement requires a Fund's
Investment Manager to manage the investment and reinvestment of
the Fund's assets. The Investment Managers are not required to
furnish any personnel, overhead items or facilities for the
Funds, including daily pricing or trading desk facilities,
- 26 -
although such expenses are paid by investment advisers of some
other investment companies.
Each Investment Management Agreement provides that a Fund's
Investment Manager will select brokers and dealers for execution
of a Fund's portfolio transactions consistent with the Trust'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 Managers and other investment
advisory clients of the Investment Managers and of their
affiliates, as well as the Funds, the value of such services is
indeterminable and the Investment Managers' fees are not reduced
by any offset arrangement by reason thereof.
When the Investment Manager of a Fund determines to buy or
sell the same security for a 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 Objectives and
Policies -- Trading Policies." Records of securities
transactions of persons who know when orders are placed by a Fund
are available for inspection at least four times annually by the
compliance officer of the Trust 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.
Each Investment Management Agreement provides that a Fund's
Investment Manager shall have no liability to the Trust, a Fund
or any Shareholder of a 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. Each Investment Management Agreement will
terminate automatically in the event of its assignment, and may
be terminated by the Trust on behalf of a Fund at any time
without payment of any penalty on 60 days' written notice, with
the approval of a majority of the Trustees in office at the time
or by vote of a majority of the outstanding voting securities of
that Fund (as defined in the 1940 Act).
Management Fees. For its services, Growth and Income Fund
pays TGH a monthly fee equal on an annual basis to 0.75% of its
average daily net assets. Infrastructure Fund pays TICI a
monthly fee equal on an annual basis to 0.75% of its average
- 27 -
daily net assets. Americas Government Securities Fund pays TICI
a monthly fee equal on an annual basis to 0.60% of its average
daily net assets. Greater European Fund pays TGH a monthly fee
equal on an annual basis to 0.75% of its average daily net
assets. Latin America Fund pays TGH a monthly fee equal on an
annual basis to 1.25% of its average daily net assets. The fees
of the Growth and Income Fund, Infrastructure Fund, Greater
European Fund and Latin America Fund are higher than those paid
by most other U.S. investment companies. Each class of Shares of
each Fund pays a portion of the fee, determined by the proportion
of a Fund that it represents.
Each Fund's Investment Manager will comply with any
applicable state regulations which may require it to make
reimbursements to a 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 a 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.
During the fiscal year ended March 31, 1995, TGH received
from Growth and Income Fund fees of $25,969, and TICI received
from Infrastructure Fund fees of $75,663. During the period from
June 27, 1994 (commencement of operations) through March 31,
1995, TICI received from Americas Government Securities Fund fees
of $7,036.
The Investment Managers. The Investment Managers are
indirect wholly owned subsidiaries 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
Trust) and Rupert H. Johnson, Jr. are principal shareholders of
Franklin and own, respectively, approximately 24% and 16% of its
outstanding shares. Messrs. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers.
Sub-Advisory Agreement. Under a Sub-Advisory Agreement
between TICI and Franklin Advisers, Inc. ("Franklin Advisers"),
Franklin Advisers provides TICI with investment advisory
assistance and portfolio management advice with respect to
Americas Government Securities Fund's portfolio. Franklin
Advisers provides TICI on an ongoing basis with research
services, including information, analytical reports, computer
screening studies, statistical data and factual resumes
pertaining to securities. For its services, TICI pays to
Franklin Advisers a fee in U.S. dollars at an annual rate of
0.25% of Americas Government Securities Fund's average daily net
- 28 -
assets. During the fiscal year ended March 31, 1995, Franklin
Advisers received sub-advisory fees of $2,932.
The Sub-Advisory Agreement provides that it will terminate
automatically in the event of its assignment and that it may be
terminated by the Trust on 60 days' written notice to TICI and to
Franklin Advisers, without penalty, provided that such
termination by the Trust is approved by the vote of a majority of
the Trust's Board of Trustees or by vote of a majority of
Americas Government Securities Fund's outstanding Shares. The
Sub-Advisory Agreement also provides that it may be terminated by
either TICI or Franklin Advisers upon not less than 60 days'
written notice to the other party. The Sub-Advisory Agreement
dated June 27, 1994 was approved by the Board of Trustees at a
meeting held on March 18, 1994, was approved by Templeton Global
Investors, Inc. as sole Shareholder of Americas Government
Securities Fund on June 27, 1994, and will run through July 31,
1995. The Sub-Advisory 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 Americas
Government Securities 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 Sub-Advisory Agreement or
interested persons of any such party in person at a meeting
called for the purpose of voting on such approval. Franklin
Advisers is relieved of liability to the Trust for any act or
omission in the course of its performance under the Sub-Advisory
Agreement, in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations under
the Agreement.
Business Manager. Templeton Global Investors, Inc. performs
certain administrative functions as Business Manager for the
Funds, including:
o providing office space, telephone, office equipment and
supplies for the Trust;
o paying compensation of the Trust's officers for
services rendered as such;
o authorizing expenditures and approving bills for
payment on behalf of the Funds;
o 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;
- 29 -
o daily pricing of each Fund's investment portfolio and
preparing and supervising publication of daily
quotations of the bid and asked prices of each Fund's
Shares, earnings reports and other financial data;
o monitoring relationships with organizations serving the
Funds, including the custodian and printers;
o providing trading desk facilities for the Funds;
o supervising compliance by the Funds with recordkeeping
requirements under the 1940 Act and regulations
thereunder, with state regulatory requirements,
maintaining books and records for the Funds (other than
those maintained by the custodian and transfer agent),
and preparing and filing tax reports other than the
Funds' income tax returns;
o monitoring the qualifications of tax-deferred
retirement plans providing for investment in Shares of
the Funds; and
o providing executive, clerical and secretarial help
needed to carry out these responsibilities.
For its services, the Business Manager receives a monthly
fee equal on an annual basis to 0.15% of the first $200,000,000
of the Trust's aggregate average daily net assets (i.e., total of
the Funds), reduced to 0.135% annually of the Trust's aggregate
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. The fee is allocated between the Funds
according to their respective average daily net assets. Each
class of Shares of each Fund pays a portion of the fee,
determined by the proportion of the Fund that it represents.
Since the Business Manager's fee covers services often provided
by investment advisers to other funds, each Fund's combined
expenses for advisory and administrative services together may be
higher than those of some other investment companies. During the
Fiscal year ended March 31, 1995, the Business Manager received
from Growth and Income Fund and Infrastructure Fund business
management fees of $5,188 and $15,126, respectively. During the
period from June 27, 1994 (commencement of operation) through
March 31, 1995, the Business Manager received from Americas
Government Securities Fund business management fees of $1,752.
The Business Manager is relieved of liability to the Trust
for any act or omission in the course of its performance under
the Business Management Agreement, in the absence of willful
- 30 -
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 Trust on behalf of
a Fund at any time on 60 days' written notice without payment of
penalty, provided that such termination by the Trust shall be
directed or approved by vote of a majority of the Trustees of the
Trust in office at the time or by vote of a majority of the
outstanding voting securities of that 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 Trust'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
Funds' 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 an annual fee of
$13.74 per Shareholder account plus out-of-pocket expenses from
Growth and Income Fund, Infrastructure Fund, Greater European
Fund and Latin America Fund and an annual fee of $14.77 per
Shareholder account plus out-of-pocket expenses from Americas
Government Securities Fund. 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 Trust.
Independent Accountants. The firm of McGladrey & Pullen,
LLP, 555 Fifth Avenue, New York, New York 10017, serves as
independent accountants for the Trust. Its audit services
comprise examination of the Funds' financial statements and
- 31 -
review of the Funds' filings with the Securities and Exchange
Commission ("SEC") and the Internal Revenue Service ("IRS").
Reports to Shareholders. The Funds' fiscal years end on
March 31. Shareholders are provided at least semiannually with
reports showing the Funds' portfolios 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/DIAL BEN.
BROKERAGE ALLOCATION
The Investment Management Agreements provide that each
Fund's 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 a 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 a 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 Managers in determining the
overall reasonableness of brokerage commissions.
2. In selecting brokers for portfolio transactions, each
Fund's 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.
- 32 -
3. The Investment Managers are 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 a Fund and/or other
accounts, if any, for which the Investment Managers
exercise 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 a 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 for that
Fund 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 that
Fund and the other accounts, if any, as to which it
exercises investment discretion. In reaching such
determination, the Investment Managers are 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 Managers shall
be prepared to show that all commissions were allocated
and paid for purposes contemplated by the Trust's
brokerage policy; that the research services provide
lawful and appropriate assistance to the Investment
Managers in the performance of their 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 Trust's policies that (a)
obtaining a low commission is deemed secondary to
obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to a Fund
to obtain a favorable price than to pay the lowest
commission; and (b) the quality, comprehensiveness and
frequency of research studies which are provided for
the Investment Managers are useful to the Investment
Managers in performing their advisory services under
their Investment Management Agreements with the Trust.
Research services provided by brokers to the Investment
Managers are considered to be in addition to, and not
- 33 -
in lieu of, services required to be performed by the
Investment Managers under its Investment Management
Agreements with the Trust. Research furnished by
brokers through whom a Fund effects securities
transactions may be used by the Investment Managers for
any of their accounts, and not all such research may be
used by the Investment Managers for the Funds. 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 a 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 a Fund's
Investment Manager, better prices and execution may be
obtained on a commission basis or from other sources.
5. Sales of the Funds' 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 either
Fund's 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 a 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 that
Fund's other policies as stated above; and provided
further, that in every allocation made to a broker in
which the sale of Shares is taken into account there
shall be no increase in the amount of the commissions
or other compensation paid to such broker beyond a
reasonable commission or other compensation determined,
as set forth in paragraph 3 above, on the basis of best
execution alone or best execution plus research
services, without taking account of or placing any
value upon such sale of Shares.
Insofar as known to management, no Trustee or officer of the
Trust, nor the Investment Managers 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 Trust. Franklin Templeton Distributors, Inc., the
- 34 -
Trust's Principal Underwriter, is a registered broker-dealer, but
it does not intend to execute any purchase or sale transactions
for the Funds' portfolios or to participate in any commissions on
any such transactions. The total brokerage commissions on the
portfolio transactions for Growth and Income Fund and
Infrastructure Fund during the year ended March 31, 1995 (not
including any spreads or concessions on principal transactions)
were $11,237 and $63,970, respectively. The total brokerage
commissions on the portfolio transactions for Americas Government
Securities Fund during the period from June 27, 1994
(commencement of operations) through March 31, 1995 (not
including any spreads or concessions on principal transactions)
were $ -0- . All portfolio transactions are allocated to broker-
dealers only when their prices and execution, in the judgment of
the Investment Managers, are equal to the best available within
the scope of the Trust'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
Each Fund's Prospectus describes the manner in which a
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 calculated separately for each
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 Trust'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 each Fund's net asset value is not
calculated. Each 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
- 35 -
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 a
Fund may suspend the determination of net asset value for the
whole or any part of any period during which (i) the NYSE is
closed other than for customary weekend and holiday closings,
(ii) trading on the NYSE is restricted, (iii) an emergency exists
as a result of which disposal of securities owned by a Fund is
not reasonably practicable or it is not reasonably practicable
for a Fund fairly to determine the value of its net assets, or
(iv) for such other period as the SEC may by order permit for the
protection of the holders of a 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, each Fund has the right (but has no
obligation) to: (i) 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 (ii) interplead disputed funds or
accounts with a court of competent jurisdiction. Moreover, the
Fund may surrender ownership of all or a portion of the 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 Trust offers its
Shareholders the opportunity to participate in the following
types of retirement plans:
o For individuals whether or not covered by other
qualified plans;
o For simplified employee pensions;
o For employees of tax-exempt organizations; and
o For corporations, self-employed individuals and
partnerships.
Capital gains and income received by the foregoing plans
generally are exempt from taxation until distribution from the
plans. Investors considering participation in any such plan
should review specific tax laws relating thereto and should
consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan. Additional
- 36 -
information, including the fees and charges with respect to all
of these plans, is available upon request to the Principal
Underwriter. No distribution under a retirement plan will be
made until Franklin Templeton Trust Company ("FTTC") receives the
participant's election on IRS Form W-4P (available on request
from FTTC, and such other documentation as it deems necessary, as
to whether or not U.S. federal 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 a 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 a 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 a 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 a
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.
- 37 -
Letter of Intent. Purchasers who intend to invest $100,000
or more in Shares of Templeton Americas Government Securities
Fund, or $50,000 or more in Class I Shares of Growth and Income
Fund, Infrastructure Fund, Greater European Fund, Latin America
Fund or any other fund in the Franklin Group of Funds and the
Templeton Family of Funds, except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable
Products Series Fund, Franklin Valuemark Funds and Franklin
Government Securities Trust (the "Franklin Templeton Funds"),
within 13 months (whether in one lump sum or in installments, the
first of which may not be less than 5% of the total intended
amount 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 Class I
Shares fully paid for and outstanding simultaneously for at least
one full business day before the expiration of that period,
should execute a Letter of Intent ("LOI") on the form provided in
the Shareholder Application in the Prospectus. Payment for not
less than 5% of the total intended amount must accompany the
executed LOI unless the investor is a Benefit Plan. Except for
purchases of Shares by a Benefit Plan, those Class I Shares
purchased with the first 5% of the intended amount stated in the
LOI will be held as "Escrowed Shares" for as long as the LOI
remains unfulfilled. Although the Escrowed Shares are registered
in the investor's name, his full ownership of them is conditional
upon fulfillment of the LOI. No Escrowed Shares can be redeemed
by the investor for any purpose until the LOI is fulfilled or
terminated. If the LOI is terminated for any reason other than
fulfillment, the Transfer Agent will redeem that portion of the
Escrowed Shares required and apply the proceeds to pay any
adjustment that may be appropriate to the sales commission on all
Class I Shares (including the Escrowed Shares) already purchased
under the LOI and apply any unused balance to the investor's
account. The LOI is not a binding obligation to purchase any
amount of Shares, but its execution will result in the purchaser
paying a lower sales charge at the appropriate quantity purchase
level. A purchase not originally made pursuant to an LOI may be
included under a subsequent LOI executed within 90 days of such
purchase. In this case, an adjustment will be made at the end of
13 months from the effective date of the LOI at the net asset
value per Share then in effect, unless the investor makes an
earlier written request to the Principal Underwriter upon
fulfilling the purchase of Shares under the LOI. In addition,
the aggregate value of any Shares, including Class II Shares,
purchased prior to the 90-day period referred to above may be
applied to purchases under a current LOI in fulfilling the total
intended purchases under the LOI. However, no adjustment of
sales charges previously paid on purchases prior to the 90-day
period will be made.
- 38 -
If an LOI is executed on behalf of a benefit plan (such
plans are described under "How to Buy Shares of the Fund -- Net
Asset Value Purchases (Both Classes)" in the Prospectus), the
level and any reduction in sales charge for these employee
benefit plans will be based on actual plan participation and the
projected investments in the Franklin Templeton Funds under the
LOI. Benefit Plans are not subject to the requirement to reserve
5% of the total intended purchase, or to any penalty as a result
of the early termination of a plan, nor are Benefit Plans
entitled to receive retroactive adjustments in price for
investments made before executing LOIs.
Special Net Asset Value Purchases. As discussed in the
Prospectus under "How to Buy Shares of the Fund -- Description of
Special Net Asset Value Purchases," certain categories of
investors may purchase Class I Shares of a 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
- 39 -
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 Funds' 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 a Fund.
Each Fund intends to qualify as a regulated investment
company under the Code. To so qualify, each 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
- 40 -
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 a 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 such regulations have been issued.
The status of the Funds as regulated investment companies
does not involve government supervision of management or of their
investment practices or policies. As a regulated investment
company, a 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, each 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 investment income may be eligible for the
corporate dividends-received deduction to the extent attributable
to a Fund's qualifying dividend income. However, the alternative
minimum tax applicable to corporations may reduce the benefit of
the dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-
term capital losses) designated by a 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, and are not eligible for the dividends-received
deduction. Generally, dividends and distributions are taxable to
Shareholders, whether received in cash or reinvested in Shares of
a Fund. Any distributions that are not from a Fund's net
investment income or net capital realized 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 a Fund reduce the net asset value of the
Fund Shares. Should a distribution reduce the net asset value
below a Shareholder's cost basis, the distribution nevertheless
would be taxable to the Shareholder as ordinary income or capital
gain as described above, even though, from an investment
- 41 -
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 a
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 Funds 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 Funds, 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 Funds 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 a Fund at a
constant rate over the time remaining to the debt security's
maturity or, at the election of a Fund, at a constant yield to
maturity which takes into account the semiannual compounding of
interest.
A Fund may invest in debt securities issued in bearer form.
Special rules applicable to bearer debt may in some cases result
in (i) treatment of gain realized with respect to such a debt
security as ordinary income and (ii) disallowance of deductions
for losses realized on dispositions of such debt securities. If
these special rules apply, the amount that must be distributed to
Fund Shareholders may be increased as compared to a fund that did
not invest in debt securities issued in bearer form.
A 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 a Fund held the PFIC stock.
A Fund itself will be subject to tax on the portion, if any, of
- 42 -
the excess distribution that is allocated to that 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.
A Fund may be able to elect alternative tax treatment with
respect to PFIC stock. Under an election that currently may be
available, a 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 Funds' 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 Funds could, in limited circumstances, incur
nondeductible interest charges. Each 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 a Fund itself to tax on certain income
from PFIC stock, the amount that must be distributed to Share-
holders, 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 a 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 a Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, that Fund will be
eligible and intends to elect to "pass through" to the Fund's
Shareholders the amount of foreign taxes paid by that 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 a 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
- 43 -
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 relevant 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 a
Fund's income flows through to its Shareholders. With respect to
a 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 a Fund. Shareholders may be unable to claim a credit
for the full amount of their proportionate share of the foreign
taxes paid by a 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 a 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 a Fund will be treated as United States source
income.
Certain options, futures, and foreign currency forward
contracts in which the Funds 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 a 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 a 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 a Fund. In addition, losses realized by a Fund on
- 44 -
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
a Fund of hedging transactions are not entirely clear. The
hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income
when distributed to Shareholders.
A Fund may make one or more of the elections available under
the Code which are applicable to straddles. If a 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 each Fund's tax status as a
regulated investment company may limit the extent to which a Fund
will be able to engage in transactions in options, futures, and
foreign currency forward contracts.
If a Fund invests in another investment company, it is
possible that the Fund would not receive information or
distributions from the underlying investment company in a time
frame that permits the Fund to meet its tax-related requirements
in an optimal manner. However, it is anticipated that the Fund
would seek to minimize these risks. The diversification and
distribution requirements applicable to each Fund may limit the
extent to which each Fund will be able to invest in other
investment companies.
Under the Code, gains or losses attributable to fluctuations
in foreign currency exchange rates which occur between the time a
Fund accrues income or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time
a 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
- 45 -
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 a 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 a 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, a 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 a
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 a 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 (i) the Shareholder
incurs a sales charge in acquiring the stock of a regulated
investment company, (ii) the stock is disposed of before the 91st
day after the date on which it was acquired, and (iii) the
Shareholder subsequently acquires shares of the same or another
regulated investment company and the otherwise applicable sales
- 46 -
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.
Each 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 (i) the Shareholder fails to furnish a Fund with
the Shareholder's correct taxpayer identification number or
social security number and to make such certifications as a Fund
may require, (ii) the IRS notifies the Shareholder or a 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 (iii) 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.
Dividends, including capital gain dividends, 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 a 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 a Fund.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the
"Principal Underwriter"), 700 Central Avenue, P.O. Box 33030, St.
Petersburg, Florida 33733-8030, toll free telephone (800) 237-
0738, is the Principal Underwriter of each Fund's Shares. FTD is
a wholly owned subsidiary of Franklin.
- 47 -
Each Fund, pursuant to Rule 12b-1 under the 1940 Act, has
adopted a Distribution Plan with respect to each class of Shares
(the "Plans"). Under the Plans adopted with respect to Class I
Shares (including all Shares issued by Americas Government
Securities Fund), each Fund may reimburse FTD or others
quarterly (subject to a limit of 0.35% per annum of each Fund's
average daily net assets attributable to Class I Shares) for
costs and expenses incurred by FTD or others in connection with
any activity which is primarily intended to result in the sale of
the Funds' Shares. Growth and Income Fund, Infrastructure Fund,
Greater European Fund and Latin America Fund also have a second
class of Shares, designated Class II Shares. Under the Plans
adopted with respect to Class II Shares, each Fund will pay FTD
or others quarterly (subject to a limit of 1.00% per annum of
each Fund's average daily assets attributable to Class II Shares
of which up to 0.25% of such net assets may be paid to dealers
for personal service and/or maintenance of Shareholder accounts)
for costs and expenses incurred by FTD or others in connection
with any activity which is primarily intended to result in the
sale of the Funds' Shares. Payments to FTD or others could be
for various types of activities, including (i) payments to
broker-dealers who provide certain services of value to each
Fund's Shareholders (sometimes referred to as a "trail fee");
(ii) reimbursement of expenses relating to selling and servicing
efforts or of organizing and conducting sales seminars; (iii)
payments to employees or agents of the Principal Underwriter who
engage in or support distribution of Shares; (iv) payments of the
costs of preparing, printing and distributing Prospectuses and
reports to prospective investors and of printing and advertising
expenses; (v) payment of dealer commissions and wholesaler
compensation in connection with sales of the Funds' Shares and
interest or carrying charges in connection therewith; and (vi)
such other similar services as the Trust's Board of Trustees
determines to be reasonably calculated to result in the sale of
Shares. Under the Plans adopted with respect to Class I Shares,
the costs and expenses not reimbursed in any one given quarter
(including costs and expenses not reimbursed because they exceed
0.35% of a Fund's average daily net assets attributable to Class
I Shares) may be reimbursed in subsequent quarters or years.
During the fiscal year ended March 31, 1995, FTD incurred
costs and expenses (including advanced commissions) of $12,120 in
connection with distribution of Growth and Income Fund's Class I
Shares, and $35,373 in connection with the distribution of
Infrastructure Fund's Class I Shares, which amounts were
reimbursed by the Funds pursuant to the Plans (Class II Shares
were not offered during this period). During the period from
June 27, 1994 (commencement of operations) through March 31,
1995, FTD incurred costs and expenses (including advanced
commissions) of $4,630 in connection with distribution of
- 48 -
Americas Government Securities Fund's Class I Shares (Class II
Shares were not offered during this period), which amounts were
reimbursed by the Fund pursuant to the Plan. FTD had informed
the Funds that it had no unreimbursed expenses under the Plans at
March 31, 1995. In the event that any Plan is terminated, the
Trust will not be liable to FTD for any unreimbursed expense that
have been carried forward from previous months or years. During
the fiscal year ended March 31, 1995, FTD spent, with respect to
Growth and Income Fund, the following amounts on: compensation to
dealers $6,148; sales promotion $130,769; sales materials $-0-;
printing $95,785; advertising $429,842; and wholesaler
commissions $665; and with respect to Infrastructure Fund, the
following amounts on: compensation to dealer $22,699; sales
promotion $142,589; sales materials $ -0-; printing $98,041;
advertising $700,934; and wholesaler commission $2,637. During
the period from June 27, 1994 (commencement of operation) through
March 31, 1995, FTD spent, with respect to Americas Government
Securities Fund, the following amounts on: compensation to
dealers $393; sales promotion $ -0-; sales materials $ -0-;
printing $7,766; advertising $ -0-; and wholesaler commissions
$310.
The Distribution Agreement provides that the Principal
Underwriter will use its best efforts to maintain a broad and
continuous distribution of each 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 each 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 a Fund's Shares may be retained by the
Principal Underwriter or it may reallow all or any part of such
discount to dealers. During the fiscal year ended March 31,
1995, FTD retained of such discount $22,379 or approximately
10.99% of the gross commissions on sales of Growth and Income
Fund and $52,041 or approximately 7.13% of the gross commission
on sales of Infrastructure Fund. During the period from June
27, 1994 (commencement of operations) through March 31, 1995, FTD
retained $963 or approximately 11.83% of the gross commissions on
sales of Americas Government Securities Fund.
The Distribution Agreement provides that each Fund shall pay
the costs and expenses incident to registering and qualifying its
Shares for sale under the Securities Act of 1933 and under the
applicable blue sky laws of the jurisdictions in which the
Principal Underwriter desires to distribute such Shares, and for
preparing, printing and distributing prospectuses and reports to
Shareholders. The Principal Underwriter pays the cost of
printing additional copies of prospectuses and reports to
Shareholders used for selling purposes. (The Funds pay costs of
- 49 -
preparation, set-up and initial supply of their prospectuses 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 Trust 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 Shares of each Fund have the same preferences,
conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications and terms and
conditions of redemption, except as follows: all consideration
received from the sale of Shares of a Fund, together with all
income, earnings, profits and proceeds thereof, belongs to that
Fund and is charged with liabilities in respect to that Fund and
of that Fund's part of general liabilities of the Trust in the
proportion that the total net assets of the Fund bear to the
total net assets of both Funds. The net asset value of a Share
of a Fund is based on the assets belonging to that Fund less the
liabilities charged to that Fund, and dividends are paid on
Shares of a Fund only out of lawfully available assets belonging
to that Fund. In the event of liquidation or dissolution of the
Trust, the Shareholders of each Fund will be entitled, out of
assets of the Trust available for distribution, to the assets
belonging to that particular Fund.
The Trust Instrument provides that the holders of not less
than two-thirds of the outstanding Shares of the Funds 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
Trust.
The Shares have non-cumulative voting rights so that the
holders of a plurality of the Shares voting for the election of
- 50 -
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 Funds may, from time to time, include their total
return, and Americas Government Securities Fund may include its
yield, in advertisements or reports to Shareholders or
prospective investors. Quotations of average annual total return
for the Funds 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 Funds over periods of one, five, or ten years
(up to the life of a 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 March 14, 1994
(commencement of operations) through September 30, 1994, on an
annualized basis, was 2.74% for Growth and Income Fund and 6.36%
for Infrastructure Fund. The total return for the period from
June 27, 1994 (commencement of operations) through September 30,
1994, on an annualized basis, was 0.00% for Americas Government
Securities Fund. The average, annual total return for the one-
year period ended March 31, 1995 was -4.40% for Growth and Income
Fund and -10.84% for Infrastructure Fund. The total return for
the period from June 27, 1994 (commencement of operations)
through March 31, 1995, on an annualized basis, was -5.49% for
Americas Government Securities Fund.
Quotation of yield for Americas Government Securities Fund
will be based on all investment income per share earned during a
particular 30-day period (including dividends and interest and
calculated in accordance with a standardized yield formula
adopted by the SEC, less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of
the period, according to the following formula:
YIELD = 2 [(a-b +1)6 - 1]
cd
- 51 -
where,
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of Shares outstanding
during the period that were entitled to receive
dividends, and
d = the maximum offering price per Share on the last
day of the period.
Americas Government Securities Fund's yield for the 30-day
period ended March 31, 1995 6.60%.
Performance information for each 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 a 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 a Fund reflects only the
performance of a hypothetical investment in a Fund during the
particular time period on which the calculations are based.
Performance information should be considered in light of a 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, each Fund and its 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.
- 52 -
(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 gross national product and populations, including age
characteristics, literacy rates, foreign investment
improvements due to a liberalization of securities laws and
a reduction of foreign exchange controls, and improving
communication technology, of various countries as published
by various statistical organizations.
(6) To assist investors in understanding the different returns
and risk characteristics of various investments, the Fund
may show historical returns of various investments and
published indices (e.g., Ibbotson Associates, Inc. Charts
and Morgan Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as
published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
(9) Allegorical stories illustrating the importance of
persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking relative
to industry standards as published by Lipper Analytical
Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by industry, nation and type of stocks or
other securities.
(12) 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.
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o "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
o "Diversify by company, by industry and by country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among quality
stocks."
o "Buy value, not market trends or the economic outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
In addition, each Fund and the Investment Managers 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.
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FINANCIAL STATEMENTS
The financial statements contained in the Annual Report to
Shareholders of Growth and Income Fund, Infrastructure Fund and
Americas Government Securities Fund, each dated March 31, 1995,
are incorporated herein by reference.
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