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TEMPLETON AMERICAS
GOVERNMENT SECURITIES FUND PROSPECTUS -- JUNE 27, 1994
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INVESTMENT The primary investment objective of Templeton Americas
OBJECTIVES Government Securities Fund (the "Fund") is a high level of
AND POLICIES current income. Total return is a secondary objective. The
Fund seeks to achieve its objectives by investing at least 65%
of its total assets in debt securities issued or guaranteed by
governments, government agencies, political subdivisions, and
other government entities of countries located in the Western
Hemisphere (i.e., North, South and Central America and the
surrounding waters). The Fund is a series of Templeton Global
Investment Trust. THE FUND MAY ENGAGE IN VARIOUS INVESTMENT
TECHNIQUES (SUCH AS BORROWING MONEY FOR INVESTMENT PURPOSES
AND INVESTING UP TO 15% OF ITS ASSETS IN ILLIQUID SECURITIES,
INCLUDING UP TO 10% OF ITS ASSETS IN RESTRICTED SECURITIES)
WHICH MAY INVOLVE SIGNIFICANT RISKS AND INCREASED FUND
EXPENSES. SEE "RISK FACTORS." INVESTORS SHOULD CAREFULLY
CONSIDER THESE RISKS BEFORE INVESTING.
SUBSTANTIALLY ALL THE FUND'S ASSETS AT ANY ONE TIME MAY BE
INVESTED IN NON-INVESTMENT GRADE DEBT INSTRUMENTS (I.E., JUNK
BONDS) THAT INVOLVE GREATER RISKS, INCLUDING THE RISK OF
DEFAULT, AND THAT ARE PREDOMINANTLY SPECULATIVE. INVESTORS
SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. THE
FUND MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "RISK
FACTORS."
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PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Account Services Department. The Fund's Shares may be
purchased at a price equal to their net asset value plus a
sales charge not exceeding 4.25% of the Offering Price. The
minimum initial investment is $100 ($25 minimum for subsequent
investments).
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PROSPECTUS This Prospectus sets forth concisely information about the
INFORMATION Fund that a prospective investor ought to know before
investing. Investors are advised to read and retain this
Prospectus for future reference. A Statement of Additional
Information ("SAI") dated June 27, 1994 has been filed with
the Securities and Exchange Commission and is incorporated in
its entirety by reference in and made a part of this
Prospectus. The SAI is available without charge upon request
to Franklin/Templeton Distributors, Inc., 700 Central Avenue,
St. Petersburg, Florida 33701-3628 or by calling the Account
Services Department.
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ACCOUNT SERVICES DEPARTMENT--1-800-354-9191 OR 813-823-8712
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TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current
prices, shareholder account balances/values, last transaction and duplicate
account statements) -- 1-800-654-0123
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TABLE OF CONTENTS
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EXPENSE TABLE........ 2
GENERAL DESCRIPTION . 3
Investment Objectives
and Policies........ 3
Brady Bonds.......... 4
Other Debt Securities
of Government
Entities............ 5
Structured
Investments......... 5
Mortgage-Backed and
Asset-Backed
Securities.......... 6
Derivative Mortgage-
Backed Securities... 7
INVESTMENT
TECHNIQUES.......... 8
Temporary
Investments......... 8
Borrowing............ 9
Loans of Portfolio
Securities.......... 9
Options on Securities
or Indices.......... 9
Forward Foreign
Currency Contracts
and Options on
Foreign Currencies.. 9
Futures Contracts.... 10
Repurchase
Agreements.......... 10
Illiquid and
Restricted
Securities.......... 10
Investment Companies. 11
RISK FACTORS......... 11
Foreign Currency
Exchange............ 11
Sovereign Debt....... 11
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Foreign Investments.. 12
High Risk Debt
Securities.......... 13
Tax Considerations... 13
Leverage............. 14
Futures Contracts and
Related Options..... 14
Non-Diversified
Status.............. 14
HOW TO BUY SHARES OF
THE FUND............ 14
Net Asset Value...... 14
Offering Price....... 15
Cumulative Quantity
Discount............ 16
Letter of Intent..... 16
Group Purchases...... 17
Net Asset Value
Purchases........... 17
Automatic Investment
Plan................ 18
Institutional
Accounts............ 18
Account Statements... 18
Templeton STAR
Service............. 18
Retirement Plans..... 18
EXCHANGE PRIVILEGE... 19
Exchanges by Timing
Accounts............ 19
HOW TO SELL SHARES OF
THE FUND............ 20
Reinstatement
Privilege........... 22
Contingent Deferred
Sales Charge........ 22
Systematic Withdrawal
Plan................ 22
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Redemptions by
Telephone........... 23
TELEPHONE
TRANSACTIONS........ 23
Verification
Procedures.......... 23
Restricted Accounts.. 23
General.............. 24
MANAGEMENT OF THE
FUND................ 24
Investment Manager
and Sub-Adviser..... 24
Business Manager..... 25
Transfer Agent....... 25
Custodian............ 25
Plan of Distribution. 25
Brokerage
Commissions......... 25
GENERAL INFORMATION.. 25
Description of
Shares/Share
Certificates........ 25
Meetings of
Shareholders........ 25
Dividends and
Distributions....... 26
Federal Tax
Information......... 26
Inquiries............ 26
Performance
Information......... 26
APPENDIX -- BOND
RATINGS............. 27
WITHHOLDING
INFORMATION......... 28
CORPORATE RESOLUTION. 29
AUTHORIZATION
AGREEMENT........... 30
THE
FRANKLIN/TEMPLETON
GROUP............... 31
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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EXPENSE TABLE
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of Offering
Price)................................................................ 4.25%
Deferred Sales Charge.................................................. None*
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees........................................................ 0.60%
12b-1 Fees............................................................. 0.35%**
Other Expenses (audit, legal, business management, transfer agent and
custodian) (after expense reimbursement).............................. 0.30%
Total Fund Operating Expenses (after expense reimbursement)............ 1.25%
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1 YEAR 3 YEARS
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You would pay the following expenses on a $1,000 investment,
assuming
(1) 5% annual return and (2) redemption at the end of each time
period: $53 $76
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* Investments of $1 million or more are not subject to an initial sales
charge; however, a contingent deferred sales charge of 1% is imposed in the
event of certain redemption transactions within one year following such
investments. See "How to Sell Shares of the Fund -- Contingent Deferred
Sales Charge."
** These expenses may not exceed 0.35% of the Fund's average net assets
annually. (See "Management of the Fund -- Plan of Distribution.") After a
substantial period, these expenses, together with the initial sales charge,
may total more than the maximum sales expense that would have been
permissible if imposed entirely as an initial sales charge.
The information in the table above is an estimate based on the Fund's
expected expenses for the current fiscal year and is provided for purposes of
assisting current and prospective Shareholders in understanding the various
costs and expenses that an investor in the Fund will bear, directly or
indirectly. The information in the table does not reflect the charge of up to
$15 per transaction if a Shareholder requests that redemption proceeds be sent
by express mail or wired to a commercial bank account or an administrative
service fee of $5.00 per exchange for market timing or allocation service
accounts. THE 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF ACTUAL OR EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF
WHICH MAY VARY. For a more detailed discussion of the Fund's fees and
expenses, see "Management of the Fund."
The Fund's Business Manager, Templeton Global Investors, Inc., has
voluntarily agreed to limit the total expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) of the Fund to an annual
rate of 1.25% of the Fund's average daily net assets until December 31, 1994.
If this policy were not in effect, the Fund's "Other Expenses" and "Total Fund
Operating Expenses" would be 1.90% and 2.85%, respectively, and you would pay
the following expenses on a $1,000 investment, assuming 5% annual return and
redemption at the end of each time period: $70 for one year and $127 for three
years. As long as this temporary expense limitation continues, it may lower
the Fund's expenses and increase its yield. After December 31, 1994, the
expense limitation may be terminated or revised at any time, at which time the
Fund's expenses may increase and its yield may be reduced, depending on the
total assets of the Fund.
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GENERAL DESCRIPTION
Templeton Global Investment Trust (the "Trust") was organized as a business
trust under the laws of Delaware on December 21, 1993 and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end
management investment company. It has three series of shares, each of which is
a separate mutual fund: Templeton Americas Government Securities Fund (the
"Fund"), a non-diversified fund, and Templeton Global Rising Dividends Fund
and Templeton Global Infrastructure Fund, both diversified funds. Prospectuses
for Templeton Global Rising Dividends Fund and Templeton Global Infrastructure
Fund are available upon request and without charge from the Principal
Underwriter.
INVESTMENT OBJECTIVES AND POLICIES. The primary investment objective of the
Fund is a high level of current income. Total return is a secondary objective.
The Fund seeks to achieve its objectives by investing at least 65% of its
total assets in debt securities issued or guaranteed by governments,
government agencies, political subdivisions, and other government entities
("Government Entities") of countries located in the Western Hemisphere (i.e.,
North, South and Central America and the surrounding waters). The Fund's
investment objective and the investment restrictions set forth under
"Investment Objectives and Policies -- Investment Restrictions" in the SAI are
fundamental and may not be changed without Shareholder approval. All other
investment policies and practices described in this Prospectus are not
fundamental, and may be changed by the Board of Trustees without Shareholder
approval. There can be no assurance that the Fund's investment objectives will
be achieved.
The Fund's investment manager, Templeton Investment Counsel, Inc., acting
through its Templeton Global Bond Managers division (the "Investment
Manager"), and the Fund's sub-adviser, Franklin Advisers, Inc. (the "Sub-
Adviser"), will actively manage the Fund's assets in response to market,
political and general economic conditions, and will seek to adjust the Fund's
investments based on their perception of which investments would best enable
the Fund to achieve its investment objectives. In their analysis, the
Investment Manager and the Sub-Adviser will consider various factors,
including their views regarding interest and currency exchange rate changes
and credit risks. Such professional investment management may be attractive to
investors, particularly individuals, who lack the time, information,
capability or inclination to effect such an investment strategy directly.
The Fund's investments in debt obligations of Government Entities will
consist of (i) fixed income or floating rate bonds, notes, bills and
debentures issued or guaranteed by governments, governmental agencies or
instrumentalities, or government owned, controlled or sponsored entities
(including central banks located in the Western Hemisphere), including
warrants for any such obligations, and (ii) debt obligations issued by
entities organized and operated for the purpose of restructuring the
investment characteristics of securities issued by any of the entities
described above, including indexed or currency-linked securities. Such
obligations may be issued in either registered or bearer form. Many of these
securities are trading at substantial discounts to their par value and it is
expected that initially a significant portion of the Fund's assets will be
invested in securities purchased at a discount to par value. Such securities
involve special tax considerations which may adversely affect the Fund. See
"Risk Factors -- Tax Considerations."
The Fund may invest up to 35% of its total assets in securities of
corporations and financial institutions in countries located in the Western
Hemisphere, including corporate and commercial obligations such as medium-term
notes and commercial paper, which may be indexed to foreign currency exchange
rates. Indexed notes and commercial paper typically provide that the principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect fluctuations in the exchange rate between two currencies during the
period the obligation is outstanding, depending on the terms of the specific
security. In selecting the two currencies, the Investment Manager will
consider the correlation and relative yields of various currencies. The Fund
will purchase an indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the issuer at
maturity, however, will vary (i.e., increase or decrease) in response to the
change (if any) in the exchange rate between the two specified currencies
during the period from the date the instrument is issued to its maturity date.
The potential for realizing gains as a result of changes in foreign currency
exchange rates may enable the Fund to hedge the currency in which the
obligation is denominated (or to effect cross-hedges against other currencies)
against a decline in the U.S. Dollar value of
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investments denominated in foreign currencies while generating interest income
on the obligation. However, indexed notes involve the risk of loss (i.e.,
reduced principal payable on the note) in the event that exchange rate
movements are not accurately predicted. Such obligations may be deemed liquid
investments if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of the
Fund's net asset value per Share; otherwise, they will be deemed illiquid
investments subject to the restrictions set forth in the SAI under "Investment
Restrictions."
The Fund may invest in securities denominated in or indexed to the currency
of one country in the Western Hemisphere although issued by a governmental
entity, corporation or financial institution of another such country. For
example, the Fund may invest in a Mexican peso denominated obligation issued
by a U.S. corporation. Such investments involve credit risks associated with
the issuer and currency risks associated with the currency in which the
obligation is denominated.
The Fund also may invest in participations in, or bonds and notes backed by,
pools of mortgage, credit card, automobile or other types of receivables.
These investments are described more fully below under "Mortgage-Backed and
Asset-Backed Securities." Because of liquidity and valuation concerns relating
to investments in certain derivative mortgage-backed securities, investments
in such securities will be restricted as discussed below under "Derivative
Mortgage-Backed Securities."
The Fund has established no rating criteria for the debt securities in which
it may invest and such securities may not be rated at all for
creditworthiness. Investments in debt securities rated in the medium to lower
rating categories of nationally recognized statistical rating organizations
such as Standard & Poor's Corporation ("S&P") and Moody's Investors Service,
Inc. ("Moody's") or in unrated securities of comparable quality involve
special risks which are described more fully below under "Risk Factors." See
the Appendix for a description of the various bond rating categories.
The Fund may invest a portion of its assets in debt instruments issued by
Western Hemisphere companies engaged in the financial services industry,
including banks, thrift institutions, insurance companies, securities firms
and holding companies of any of the foregoing. Such investments may include
certificates of deposit, time deposits, bankers' acceptances, and other
obligations issued by such entities, as well as repurchase agreements entered
into with such entities.
The Fund may also lend its portfolio securities and borrow money for
investment purposes (i.e., "leverage" its portfolio). In addition, the Fund
may enter into transactions in options on securities, securities indices and
foreign currencies, forward foreign currency contracts, and futures contracts
and related options. These are generally referred to as derivative
instruments, and involve special risk factors, which are described below. When
deemed appropriate by the Investment Manager or the Sub-Adviser, the Fund may
invest cash balances in repurchase agreements and other money market
investments to maintain liquidity in an amount to meet expenses or for day-to-
day operating purposes. These investment techniques are described below and
under the heading "Investment Objectives and Policies" in the SAI.
When the Investment Manager believes that market conditions warrant, the
Fund may adopt a temporary defensive position and may invest without limit in
money market securities denominated in U.S. dollars or in the currency of any
foreign country. See "Investment Techniques -- Temporary Investments."
The Fund does not emphasize short-term trading profits and usually expects
to have an annual portfolio turnover rate generally not exceeding 200%. A high
turnover rate (e.g., a rate in excess of 100%) increases transaction costs and
may increase the amount of the Fund's short-term capital gain, which is taxed
as ordinary income when distributed to Shareholders. The U.S. Federal tax
requirement that the Fund derive less than 30% of its gross income from the
sale or disposition of securities and certain other assets held for less than
three months may limit the Fund's ability to dispose of its securities. See
"Tax Status" in the SAI.
BRADY BONDS. The Fund may invest without limit in certain debt obligations
customarily referred to as "Brady Bonds," which are created through the
exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds are
4
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not considered U.S. Government securities and are considered speculative.
Brady Plan debt restructurings have been implemented to date in several
countries, including Mexico, Venezuela, Argentina, Uruguay, Costa Rica, Brazil
and the Philippines (collectively, the "Brady Countries"). Equador has reached
an agreement with its lending banks, but the full consummation of Equador's
Brady Plan is still pending. It is expected that other countries will
undertake a Brady Plan debt restructuring in the future, including Peru and
Panama.
Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are U.S. dollar-denominated) and
they are actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in
full as to principal by U.S. Treasury zero coupon bonds which have the same
maturity as the Brady Bonds. Interest payments on these Brady Bonds generally
are collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest
payments but generally are not collateralized. Brady Bonds are often viewed as
having three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized amounts constitute
the "residual risk").
Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or
comparable collateral denominated in other currencies) and interest coupon
payments collateralized on an 18-month rolling-forward basis by funds held in
escrow by an agent for the bondholders. A significant portion of the
Venezuelan Brady Bonds and the Argentine Brady Bonds issued to date have
principal repayments at final maturity collateralized by U.S. Treasury zero
coupon bonds (or comparable collateral denominated in other currencies) and/or
interest coupon payments collateralized on a 14-month (for Venezuela) or 12-
month (for Argentina) rolling-forward basis by securities held by the Federal
Reserve Bank of New York as collateral agent.
Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds. There can be no assurance
that Brady Bonds in which the Fund may invest will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Fund to suffer a loss of interest or principal on any of its holdings.
OTHER DEBT SECURITIES OF GOVERNMENT ENTITIES. In addition to Brady Bonds,
the Fund may invest in debt obligations of Government Entities, including, but
not limited to, restructured external debt that has not undergone a Brady-
style debt exchange, and internal government debt such as Mexican Treasury
Bills known as Certificados de Tesoreria ("CETES"), Argentine Bonos del Tesoro
("BOTE") and Bonos de Inversion y Crecimiento-Quinta Serie ("BIC V"), and
Venezuelan zero coupon notes.
STRUCTURED INVESTMENTS. Included among the issuers of Western Hemisphere
debt securities in which the Fund may invest are entities organized and
operated solely for the purpose of restructuring the investment
characteristics of various securities. These entities are typically organized
by investment banking firms which receive fees in connection with establishing
each entity and arranging for the placement of its securities. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as Brady Bonds) and the
issuance by that entity of one or more classes of securities ("Structured
Investments") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be
5
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apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities or interest rate provisions. The extent of the payments made with
respect to Structured Investments is dependent on the extent of the cash flow
on the underlying instruments. Because Structured Investments of the type in
which the Fund anticipates investing typically involve no credit enhancement,
their credit risk will generally be equivalent to that of the underlying
instruments.
The Fund is permitted to invest in a class of Structured Investments that is
either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Investments typically have higher yields and
present greater risks than unsubordinated Structured Investments. Although the
Fund's purchase of subordinated Structured Investments would have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of the Fund's assets that may be used for borrowing
activities. See "Investment Techniques -- Borrowing."
Certain issuers of Structured Investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investment in
these Structured Investments may be limited by the restrictions contained in
the 1940 Act described below under "Investment Techniques -- Investment
Companies." Structured Investments are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Investments. To the extent such investments are illiquid, they will be subject
to the restrictions set forth in the SAI under "Investment Objectives and
Policies -- Investment Restrictions."
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest without
limit in mortgage-backed securities issued or guaranteed by Government
Entities, and may invest up to 35% of its total assets in privately issued
mortgage-backed and asset-backed securities. Mortgage-backed securities are
securities that directly or indirectly represent an interest in, or are backed
by and payable from, mortgage loans secured by real property. Asset-backed
securities generally consist of structures similar to mortgage-backed
securities, except that the underlying asset pools are comprised of other
types of financial assets such as credit card, automobile or other types of
receivables and commercial loans. Mortgage-backed and asset-backed securities
are issued in structured financing wherein the sponsor securitizes the
underlying mortgage loans or financial assets in order to liquify the
underlying assets or to achieve certain other financial goals. The special
considerations and risks inherent in investments in mortgage-backed and asset-
backed securities are discussed more fully below.
The mortgage-backed securities in which the Fund may invest will primarily
be guaranteed by the Government National Mortgage Association ("GNMA") or
issued by the Federal National Mortgage Association ("FNMA") or the Federal
Home Loan Mortgage Corporation ("FHLMC"). Certain of the asset-backed
securities in which the Fund will invest may be guaranteed by the Small
Business Administration ("SBA") or issued in programs originated by the
Resolution Trust Corporation ("RTC"). GNMA, FNMA, FHLMC, SBA and RTC are
agencies or instrumentalities of the United States.
Certain of the mortgage-backed and asset-backed securities in which the Fund
may invest will be issued by private issuers. Private issuers include
originators of or investors in mortgage loans and receivables such as savings
and loan associations, mortgage bankers, commercial banks, investment banks,
finance companies and special purpose finance subsidiaries of any of the
above. Securities issued by private issuers may be subject to certain types of
credit enhancements issued in respect of those securities. Such credit
enhancements may include insurance policies, bank letters of credit,
guarantees by third parties or protections afforded by the structure of a
particular transaction (e.g., the use of reserve funds, over-collateralization
or the issuance of subordinated securities as protection for more senior
securities being purchased by the Fund). In purchasing securities for the
Fund, the Investment Manager and the Sub-Adviser will take into account not
only the creditworthiness of the issuer of the securities but also the
creditworthiness of the provider of any external credit enhancement of the
securities.
6
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The Fund may invest in pass-through mortgage-backed securities that
represent ownership interests in a pool of mortgages on single-family or
multi-family residences. Such securities represent interests in pools of
residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government, one of its agencies or instrumentalities or by private guarantors.
Such securities, which are ownership interests in the underlying mortgage
loans, differ from conventional debt securities, which provide for periodic
payment of interest in fixed amounts (usually semiannually) and principal
payments at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that "pass-through" the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees paid to the
guarantor of such securities and the servicer of the underlying mortgage
loans. The Fund may also invest in collateralized mortgage obligations
("CMOs") which are debt obligations collateralized by mortgage loans or
mortgage pass-through securities.
The yield characteristics of mortgage-backed and asset-backed securities
differ from traditional corporate debt securities. Among the major differences
are that interest and principal payments are made more frequently, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if the Fund purchases such a security at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. The Fund may invest a
portion of its assets in derivative mortgage-backed securities, such as
stripped mortgage-backed securities, which are highly sensitive to changes in
prepayment and interest rates. The Investment Manager and the Sub-Adviser will
seek to manage these risks (and potential benefits) by investing in a variety
of such securities and may seek to hedge such investments with the use of
financial futures contracts. See "Investment Techniques -- Futures Contracts."
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. Generally, however,
prepayments on fixed rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Accordingly, amounts available for reinvestment by the Fund are likely to be
greater during a period of declining interest rates and, as a result, likely
to be reinvested at lower interest rates than during a period of rising
interest rates. Although asset-backed securities generally are less likely to
experience substantial prepayments than are mortgage-backed securities,
certain of the factors that affect the rate of prepayments on mortgage-backed
securities also affect the rate of prepayments on asset-backed securities.
However, during any particular period, the predominant factors affecting
prepayment rates on mortgage-backed and asset-backed securities may be
different. Mortgage-backed and asset-backed securities may decrease in value
as a result of increases in interest rates and may benefit less than other
fixed income securities from declining interest rates because of the risk of
prepayment.
The Fund's yield will also be affected by the yields on instruments in which
the Fund is able to reinvest the proceeds of payments and prepayments.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.
DERIVATIVE MORTGAGE-BACKED SECURITIES. The Fund may invest up to 25% of its
total assets in various derivative mortgage-backed securities, which are
synthetic securities designed to be highly sensitive to certain types of
interest rate and principal prepayment scenarios. Derivative instruments
primarily consist of some form of stripped mortgage-backed securities ("SMBS")
that commonly involve different classes of securities that receive
disproportionate amounts of the interest and principal distributions on a pool
of mortgage assets.
SMBSs are typically issued by the same types of issuers as are mortgage-
backed securities. The structure of SMBSs, however, is different. A common
variety of SMBS involves a class (the principal-only or PO class) that
receives some of the interest and most of the
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principal from the underlying assets, while the other class (the interest-only
or IO class) receives most of the interest and the remainder of the principal.
In the most extreme case, the IO class receives only interest, while the PO
class receives only principal. The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying assets, and a rapid rate of principal payments in
excess of that considered in pricing the securities will have a material
adverse effect on an IO security's yield to maturity. If the underlying
mortgage assets experience greater than anticipated payments of principal, the
Fund may fail to recoup fully its initial investment in IOs. In addition,
there are certain types of IOs which represent the interest portion of a
particular class as opposed to the interest portion of the entire pool. The
sensitivity of these types of IOs to interest rate fluctuations may be
increased because of the characteristics of the principal portion to which
they relate. The impact of IOs on the Fund's portfolio may be offset to some
degree by investments in mortgage-backed securities and inverse floaters
(floating rate securities the interest rate of which is adjusted up or down
inversely to changes in a specified index). As interest rates fall, presenting
a greater risk of unanticipated prepayments of principal, the negative effect
on the Fund because of its holdings of IOs should be diminished somewhat
because of the increased yield on the inverse floating rate CMOs or the
increased appreciation on the fixed rate securities. Under certain interest
rate scenarios, the Fund may decide to retain investments in IOs or inverse
floaters yielding less than prevailing interest rates in order to avoid
capital losses on the sale of such investments.
The Fund may also combine IOs and IO-related derivative mortgage products
with LIBOR-based inverse floaters (LIBOR being the London interbank offered
rate). A LIBOR-based inverse floater is a floating rate security the interest
rate of which is adjusted up or down inversely to changes in LIBOR; as LIBOR
decreases, the interest rate paid by the inverse floater would increase, and
vice versa. Depending on the amount of leverage built into the inverse
floater, the yield could vary in excess of the change in LIBOR because of the
leverage built into the inverse floater formula. The yield on an inverse
floater varies inversely with interest rates because as LIBOR decreases, the
interest payable on the inverse floater increases. The converse is true, of
course, when LIBOR increases. When an inverse floater is combined with an IO
or IO-type derivative product, the result is a synthetic security that tends
to provide a somewhat less volatile yield over a wide range of interest rate
and prepayment rate scenarios.
New types of mortgage-backed and asset-backed securities, derivative
securities and hedging instruments are developed and marketed from time to
time. Consistent with its investment objectives, policies and restrictions,
the Fund may, upon disclosure to Shareholders, invest in such new types of
securities and instruments that the Investment Manager and/or the Sub-Adviser
believe may assist the Fund in achieving its investment objectives.
The staff of the Securities and Exchange Commission (the "SEC") has taken
the position (which has been adopted as an investment policy of the Fund) that
the determination of whether a particular U.S. Government issued IO or PO that
is backed by fixed-rate mortgages is liquid may be made by the Investment
Manager or the Sub-Adviser under guidelines and standards established by the
Trust's Board of Trustees. Such a security may be deemed liquid if it can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's net asset value per share.
The SEC's staff also has taken the position that all other IOs and POs are
illiquid securities which are subject to the Fund's limitation on investments
in illiquid securities, as set forth in the SAI under "Investment Objectives
and Policies -- Investment Restrictions."
INVESTMENT TECHNIQUES
TEMPORARY INVESTMENTS. For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in the following money market securities,
denominated in U.S. dollars or in the currency of any foreign country, issued
by entities organized in the United States or any foreign country: short-term
(less than twelve months to maturity) and medium-term (not greater than five
years to maturity) obligations issued or guaranteed by the U.S. Government or
the governments of foreign countries, their agencies or instrumentalities;
finance company and corporate commercial paper, and other short-term corporate
obligations, in each case rated Prime-1 by Moody's or A or better by S&P or,
if unrated, of comparable quality as determined by the Investment Manager;
obligations (including certificates
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of deposit, time deposits and bankers' acceptances) of banks; and repurchase
agreements with banks and broker-dealers with respect to such securities.
BORROWING. The Fund may borrow up to one-third of the value of its total
assets from banks to increase its holdings of portfolio securities. Under the
1940 Act, the Fund is required to maintain continuous asset coverage of 300%
with respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if such liquidations of the
Fund's holdings may be disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of portfolio securities on the Fund's net asset value,
and money borrowed will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average
balances) which may or may not exceed the income received from the securities
purchased with borrowed funds.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of the Fund's
total assets to generate income for the purpose of offsetting operating
expenses. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. Government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. The Fund may terminate the
loans at any time and obtain the return of the securities loaned within five
business days. The Fund will continue to receive any interest or dividends
paid on the loaned securities and will continue to retain any voting rights
with respect to the securities. In the event that the borrower defaults on its
obligation to return borrowed securities, because of insolvency or otherwise,
the Fund could experience delays and costs in gaining access to the collateral
and could suffer a loss to the extent that the value of the collateral falls
below the market value of the borrowed securities.
OPTIONS ON SECURITIES OR INDICES. The Fund may write (i.e., sell) covered
put and call options and purchase put and call options on securities or
securities indices that are traded on United States and foreign exchanges or
in the over-the-counter markets. An option on a security is a contract that
permits the purchaser of the option, in return for the premium paid, the right
to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the writer of the
option at a designated price during the term of the option. An option on a
securities index permits the purchaser of the option, in return for the
premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of
the option. The Fund may write a call or put option only if the option is
"covered." This means that so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities subject to the call, or
hold a call at the same or lower exercise price, for the same exercise period,
and on the same securities as the written call. A put is covered if the Fund
maintains liquid assets with a value equal to the exercise price in a
segregated account, or holds a put on the same underlying securities at an
equal or greater exercise price. The value of the underlying securities on
which options may be written at any one time will not exceed 15% of the total
assets of the Fund. The Fund will not purchase put or call options if the
aggregate premium paid for such options would exceed 5% of its total assets at
the time of purchase.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES. The
Fund will normally conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward contracts to
purchase or sell foreign currencies. The Fund will generally not enter into a
forward contract with a term of greater than one year. A forward contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers.
The Fund will generally enter into forward contracts only under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign currency needed
to settle the transaction. Second, when the Investment Manager believes that
the currency of a particular foreign country may suffer or enjoy a substantial
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movement against another currency, it may enter into a forward contract to
sell or buy the former foreign currency (or another currency which acts as a
proxy for that currency) approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging." The Fund has
no specific limitation on the percentage of assets it may commit to forward
contracts, subject to its stated investment objectives and policies, except
that the Fund will not enter into a forward contract if the amount of assets
set aside to cover forward contracts would impede portfolio management or the
Fund's ability to meet redemption requests. Although forward contracts will be
used primarily to protect the Fund from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted.
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign currency denominated portfolio securities
and against increases in the U.S. dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, it may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund are traded on U.S. and
foreign exchanges or over-the-counter.
FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell
financial futures contracts, stock and bond index futures contracts, foreign
currency futures contracts and options on any of the foregoing. A financial
futures contract is an agreement between two parties to buy or sell a
specified debt security at a set price on a future date. An index futures
contract is an agreement to take or make delivery of an amount of cash based
on the difference between the value of the index at the beginning and at the
end of the contract period. A futures contract on a foreign currency is an
agreement to buy or sell a specified amount of a currency for a set price on a
future date.
When the Fund enters into a futures contract, it must make an initial
deposit, known as "initial margin," as a partial guarantee of its performance
under the contract. As the value of the security, index or currency
fluctuates, either party to the contract is required to make additional margin
payments, known as "variation margin," to cover any additional obligation it
may have under the contract. In addition, when the Fund enters into a futures
contract, it will segregate assets or "cover" its position in accordance with
the 1940 Act. See "Investment Objectives and Policies -- Futures Contracts" in
the SAI.
REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash
management purposes, the Fund may enter into repurchase agreements with U.S.
banks and broker-dealers. Under a repurchase agreement, the Fund acquires a
security from a U.S. bank or a registered broker-dealer and simultaneously
agrees to resell the security back to the bank or broker-dealer at a specified
time and price. The repurchase price is in excess of the original purchase
price paid by the Fund by an amount which reflects an agreed-upon rate of
return and which is not tied to any coupon rate on the underlying security.
Under the 1940 Act, repurchase agreements are considered to be loans
collateralized by the underlying security and therefore will be fully
collateralized. However, if the bank or broker-dealer should default on its
obligation to repurchase the underlying security, the Fund may experience a
delay or difficulties in exercising its rights to realize upon the security
and might incur a loss if the value of the security declines, as well as
disposition costs in liquidating the security.
ILLIQUID AND RESTRICTED SECURITIES. The Fund may invest up to 15% of its
total assets in illiquid securities, for which there is a limited trading
market and for which a low trading volume of a particular security may result
in abrupt and erratic price movements. The Fund may be unable to dispose of
its holdings in illiquid securities at then current market prices and may have
to dispose of such
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securities over extended periods of time. The Fund may also invest in
securities that are sold (i) in private placement transactions between their
issuers and their purchasers and that are neither listed on an exchange nor
traded over-the-counter, or (ii) in transactions between qualified
institutional buyers pursuant to Rule 144A under the U.S. Securities Act of
1933, as amended (the "1933 Act"). Such restricted securities are subject to
contractual or legal restrictions on subsequent transfer. As a result of the
absence of a public trading market, such restricted securities may in turn be
less liquid and more difficult to value than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from the sales could, due to illiquidity, be less than
those originally paid by the Fund or less than their fair value. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable
if their securities were publicly traded. If any privately placed or Rule 144A
securities held by the Fund are required to be registered under the securities
laws of one or more jurisdictions before being resold, the Fund may be
required to bear the expenses of registration. The Fund will limit its
investment in restricted securities other than Rule 144A securities to 10% of
its total assets, and will limit its investment in all restricted securities,
including Rule 144A securities, to 15% of its total assets. Restricted
securities, other than Rule 144A securities determined by the Board of
Trustees to be liquid, are considered to be illiquid and are subject to the
Fund's limitation on investment in illiquid securities.
INVESTMENT COMPANIES. The Fund may invest in other investment companies,
other than those for which the Investment Manager or its affiliates serve as
investment adviser or sponsor, which invest principally in securities in which
the Fund is authorized to invest. Under the 1940 Act, the Fund may invest a
maximum of 10% of its total assets in the securities of other investment
companies and not more than 5% of its total assets in the securities of any
one investment company, provided the investment does not represent more than
3% of the voting stock of the acquired investment company at the time such
shares are purchased. To the extent the Fund invests in other investment
companies, the Fund's Shareholders will incur certain duplicative fees and
expenses, including investment advisory fees. The Fund's investment in certain
investment companies will result in special U.S. federal income tax
consequences described under "Tax Status" in the SAI.
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objectives will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions, market
factors and currency exchange rates. Additionally, investment decisions made
by the Investment Manager will not always be profitable or prove to have been
correct. The Fund is not intended as a complete investment program.
FOREIGN CURRENCY EXCHANGE. Since the Fund is authorized to invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates relative to the U.S. dollar will
affect the value of securities in the portfolio and the unrealized
appreciation or depreciation of investments insofar as U.S. investors are
concerned. Changes in foreign currency exchange rates relative to the U.S.
dollar will also affect the Fund's yield on assets denominated in currencies
other than the U.S. dollar.
SOVEREIGN DEBT. The debt obligations ("sovereign debt") issued or guaranteed
by Latin American governmental entities in which the Fund may invest involve
great risk and are deemed to be the equivalent in terms of quality to high
risk, low rated securities (i.e., junk bonds, as discussed below) and are
subject to many of the same risks as such securities. Similarly, the Fund may
have difficulty disposing of certain sovereign debt obligations because there
may be a thin trading market for such securities.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. The issuer or governmental authority that
controls the repayment of sovereign debt may not be willing or able to repay
the principal and/or pay interest when due in accordance with the terms of
such obligations. A Government Entity's willingness or ability to repay
principal and pay
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interest due in a timely manner may be affected by, among other factors, its
cash flow situation, and, in the case of a government debtor, the extent of
its foreign reserves, the availability of sufficient foreign exchange on the
date a payment is due, the relative size of the debt service burden to the
economy as a whole, the Government Entity's dependence on expected
disbursements from third parties, the Government Entity's policy toward the
International Monetary Fund and the political constraints to which a
Government Entity may be subject. Government Entities may default on their
sovereign debt and may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce
principal and interest arrearages on their debt. The commitment on the part of
these governments, agencies and others to make such disbursements may be
conditioned on a debtor's implementation of economic reforms or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the government debtor, which may further
impair such debtor's ability or willingness to timely service its debts.
Holders of sovereign debt (including the Fund) may be requested to participate
in the rescheduling of such debt and to extend further loans to Government
Entities.
As a result of the foregoing, a government obligor may default on its
obligations. If such an event occurs, the Fund may have limited legal recourse
against the issuer and guarantor. Remedies must, in some cases, be pursued in
the courts of the defaulting party itself, and the ability of the holder of
foreign government debt securities to obtain recourse may be subject to the
political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to
the holders of other foreign government debt obligations in the event of
default under their commercial bank loan agreements.
Government obligors in developing and emerging market countries are among
the world's largest debtors to commercial banks, other governments,
international financial organizations and other financial institutions. The
issuers of the government debt securities in which the Fund expects to invest
have in the past experienced substantial difficulties in servicing their
external debt obligations, which led to defaults on certain obligations and
the restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and obtaining new
credit to finance interest payments. Holders of certain foreign government
debt securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no
assurance that the Brady Bonds and other foreign government debt securities in
which the Fund may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely affect the
Fund's holdings. Furthermore, certain participants in the secondary market for
such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to
other market participants.
FOREIGN INVESTMENTS. The Fund has the right to purchase securities in any
foreign country, developed or underdeveloped. Investors should consider
carefully the substantial risks involved in investing in securities issued by
companies and governments of foreign nations, which are in addition to the
usual risks inherent in domestic investments. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations (including, for example, withholding taxes on
interest and dividends) or other taxes imposed with respect to investments in
foreign nations, foreign exchange controls (which may include suspension of
the ability to transfer currency from a given country), political or social
instability or diplomatic developments which could affect investment in
securities of issuers in foreign nations. Some countries may withhold portions
of interest and dividends at the source. In addition, in many countries there
is less publicly available information about issuers than is available in
reports about companies in the United States. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to United States companies. Further, the Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. Commission rates in foreign countries, which are sometimes
fixed rather than subject to negotiation as in the United States, are likely
to be higher. Foreign securities markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement
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could result in temporary periods when assets of the Fund are uninvested and
no return is earned thereon. The inability of the Fund to make intended
security purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. In many foreign countries there is less
government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States. The
foreign securities markets of many of the countries in which the Fund may
invest may also be smaller, less liquid, and subject to greater price
volatility than those in the United States. As an open-end investment company,
the Fund is limited in the extent to which it may invest in illiquid
securities. See "Investment Objectives and Policies -- Investment
Restrictions" in the SAI.
HIGH RISK DEBT SECURITIES. The Fund has established no rating criteria for
the debt securities in which it may invest, and such securities may not be
rated at all for creditworthiness. Although they may offer higher yields than
do higher rated securities, high risk, low rated debt securities (commonly
referred to as "junk bonds") and unrated debt securities generally involve
greater volatility of price and risk of principal and income, including the
possibility of default by, or bankruptcy of, the issuers of the securities. In
addition, the markets in which low rated and unrated debt securities are
traded are more limited than those in which higher rated securities are
traded. The existence of limited markets for particular securities may
diminish the Fund's ability to sell the securities at fair value either to
meet redemption requests or to respond to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain low rated or unrated debt securities also may make it
more difficult for the Fund to obtain accurate market quotations for purposes
of valuing the Fund's portfolio. Market quotations are generally available on
many low rated or unrated securities only from a limited number of dealers and
may not necessarily represent firm bids of such dealers or prices for actual
sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments.
A projection of an economic downturn or of a period of rising interest rates,
for example, could cause a decline in low rated debt securities prices because
the advent of a recession could lessen the ability of a highly leveraged
company to make principal and interest payments on its debt securities. If the
issuer of low rated debt securities defaults, the Fund may incur additional
expenses seeking recovery.
TAX CONSIDERATIONS. The Fund may accrue and report interest income on debt
securities, such as zero coupon bonds, pay-in-kind securities or debt
securities issued or acquired at a discount, 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, the Fund must distribute all
of its net income and gains to Shareholders (see "General Information--Federal
Tax Information") generally on an annual basis. The Fund may have to dispose
of portfolio securities under disadvantageous circumstances to generate cash
or leverage itself by borrowing cash in order to satisfy the distribution
requirement.
If, as a result of exchange controls or other foreign laws or restrictions
regarding repatriation of capital, the Fund were unable to distribute an
amount equal to substantially all of its investment company taxable income (as
determined for U.S. tax purposes) within applicable time periods, the Fund
would not qualify for the favorable federal income tax treatment afforded
regulated investment companies, or, even if it did so qualify, it might become
liable for federal taxes on undistributed income. In addition, the ability of
the Fund to obtain timely and accurate information relating to its investments
is a significant factor in complying with the requirements
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<PAGE>
applicable to regulated investment companies and in making tax-related
computations. Thus, if the Fund were unable to obtain accurate information on
a timely basis, it might be unable to qualify as a regulated investment
company or its tax computations might be subject to revisions (which could
result in the imposition of taxes, interest and penalties). See "Tax Status"
in the SAI.
LEVERAGE. Leveraging by means of borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities on the Fund's net
asset value, and money borrowed will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds. The use of leverage will
significantly increase the Fund's investment risk.
FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts
and related options is subject to special risk considerations. A liquid
secondary market for any futures or options contract may not be available when
a futures or options position is sought to be closed. In addition, there may
be an imperfect correlation between movements in the securities or foreign
currency on which the futures or options contract is based and movements in
the securities or currency in the Fund's portfolio. Successful use of futures
or options contracts is further dependent on the Investment Manager's ability
to correctly predict movements in the securities or foreign currency markets,
and no assurance can be given that its judgment will be correct. Successful
use of options on securities or indices is subject to similar risk
considerations. In addition, by writing covered call options, the Fund gives
up the opportunity, while the option is in effect, to profit from any price
increase in the underlying security above the option exercise price.
NON-DIVERSIFIED STATUS. The Fund is a "non-diversified" investment company,
which means the Fund is not limited in the proportion of its assets that may
be invested in the securities of a single issuer. However, the Fund intends to
conduct its operations so as to qualify as a "regulated investment company"
for purposes of the Internal Revenue Code of 1986, as amended (the "Code"),
which generally will relieve the Fund of any liability for Federal income tax
to the extent its earnings are distributed to Shareholders. See "General
Information -- Federal Tax Information." To so qualify, among other
requirements, the Fund will limit its investments so that, in general, at the
close of each quarter of the taxable year, (i) not more than 25% of the market
value of the Fund's total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. The Fund's
investments in U.S. Government securities and other regulated investment
companies are not subject to these limitations. Because the Fund, as a non-
diversified investment company, may invest in a smaller number of individual
issuers than a diversified investment company, and may be more susceptible to
any single economic, political or regulatory occurrence, an investment in the
Fund may present greater risk to an investor than an investment in a
diversified company.
There are further risk factors, including risks associated with mortgage-
backed securities (particularly derivative mortgage-backed securities) and
illiquid and restricted securities, which are described under "General
Description -- Investment Objectives and Policies" in this Prospectus, and
possible losses through the holding of securities in domestic and foreign
custodian banks and depositories, described under "Risk Factors" in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin/Templeton Distributors, Inc.
("FTD"), the Principal Underwriter for Shares of the Fund, or directly from
FTD upon receipt by FTD of a completed Shareholder Application and check. The
minimum initial purchase order is $100 (other than in monthly investment
plans, such as sponsored payroll deduction, automatic investment, split-
funding or comparable plans, which require a minimum of $25), with subsequent
investments of $25 or more.
NET ASSET VALUE. The net asset value of the Shares of the Fund is computed
as of the close of trading on each day the New York Stock Exchange is open for
trading, by dividing the value of the Fund's securities plus any cash and
other assets (including accrued
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interest and dividends receivable) less all liabilities (including accrued
expenses) by the number of Shares outstanding, adjusted to the nearest whole
cent. A security listed or traded on a recognized stock exchange or NASDAQ is
valued at its last sale price on the principal exchange on which the security
is traded. The value of a foreign security is determined in its national
currency as of the close of trading on the foreign exchange on which it is
traded, or as of 4:00 p.m., New York time, if that is earlier, and that value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at noon, New York time, on the day the value of the foreign security
is determined. If no sale is reported at that time, the mean between the
current bid and asked price is used. Occasionally, events which affect the
values of such securities and such exchange rates may occur between the times
at which they are determined and the close of the New York Stock Exchange, and
will therefore not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at fair value as
determined by the management and approved in good faith by the Board of
Trustees. All other securities for which over-the-counter market quotations
are readily available are valued at the mean between the current bid and asked
price. Securities for which market quotations are not readily available and
other assets are valued at fair value as determined by the management and
approved in good faith by the Board of Trustees.
OFFERING PRICE. The Offering Price to the public on purchases of the Fund's
Shares made at one time by a single purchaser, by an individual, his or her
spouse and their children under age 21, or by a single trust or fiduciary
account other than an employee benefit plan, is the net asset value per Share
plus a sales charge not exceeding 4.25% of the Offering Price (equivalent to
4.44% of the net asset value), which is reduced on larger sales as shown
below:
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SINGLE SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS
--------------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C>
Less than $100,000...... 4.25% 4.44% 4.00%
$100,000 but less than
$250,000............... 3.50% 3.63% 3.25%
$250,000 but less than
$500,000............... 2.75% 2.83% 2.50%
$500,000 but less than
$1,000,000............. 2.15% 2.20% 2.00%
$1,000,000 or more...... none none (see below)*
</TABLE>
- -------
* The following commissions will be paid by FTD to dealers who initiate and
are responsible for purchases of $1 million or more or for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $10 million or more: 1.00% on sales of up to $2
million, plus 0.80% on sales of $2 million to $3 million, plus 0.50% on
sales of $3 million to $50 million, plus 0.25% on sales of $50 million to
$100 million, plus 0.15% on sales in excess of $100 million.
No initial sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions
within one year of the purchase. (See "How to Sell Shares of the Fund --
Contingent Deferred Sales Charge.")
A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan. Of the 4% sales charge applicable to such purchases,
3.20% of the Offering Price will be retained by dealers.
At the discretion of FTD, the entire sales commission may at times be
reallowed to dealers. During periods when 90% or more of the sales commission
is reallowed, such dealers may be deemed to be underwriters as that term is
defined in the 1933 Act. FTD or its affiliates, at their expense, may also
provide additional compensation to dealers in connection with sales of Shares
of the Fund and other funds in the Franklin Group of Funds (R) and the
Templeton Family of Funds (collectively, the "Franklin/Templeton Group").
Compensation may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising, sales campaigns and/or shareholder services and programs
regarding one or more funds in the Franklin/Templeton Group and other dealer-
sponsored programs or events. In some instances, this compensation may be
15
<PAGE>
made available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of such Shares. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their
families to locations within or outside of the U.S. for meetings or seminars
of a business nature. Dealers may not use sales of the Fund's Shares to
qualify for this compensation to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the National Association
of Securities Dealers, Inc. None of the aforementioned additional compensation
is paid for by the Fund or its Shareholders.
A continuing trail fee will be paid to qualifying dealers at the annual rate
of 0.25% of the average daily net asset value of Fund Shares registered in the
name of that broker-dealer as nominee or held in a Shareholder account that
designates that broker-dealer as dealer of record. This fee is paid in order
to promote selling efforts and to compensate dealers for providing certain
services, including processing purchase and redemption transactions,
establishing Shareholder accounts and providing certain information and
assistance with respect to the Fund.
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange and
transmit it to FTD by 5:00 p.m., New York time, for the investor to receive
that day's Offering Price. Payment for such orders must be by check in U.S.
currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the Offering Price next
computed after the purchase order accompanied by payment has been received by
FTD. Such payment must be by check in U.S. currency drawn on a commercial bank
in the United States and, if over $100,000, may not be deemed to have been
received until the proceeds have been collected unless the check is certified
or issued by such bank. Any subscription may be rejected by FTD or by the
Fund.
An investor should promptly check the confirmation advice that is mailed
after each purchase (or redemption) in order to ensure that it has been
accurately recorded in the investor's account.
CUMULATIVE QUANTITY DISCOUNT. The schedule of reduced sales charges also may
be applied to qualifying sales on a cumulative basis. For this purpose, the
dollar amount of the sale is added to the higher of (1) the value (calculated
at the applicable Offering Price) or (2) the purchase price, of any other
Shares of the Fund and/or any other funds in the Franklin/Templeton Group
owned at that time by the purchaser, his or her spouse, and their children
under age 21. In addition, the aggregate investments of a trustee or other
fiduciary account (for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is available, even
though there may be a number of beneficiaries of the account. For example, if
the investor held Shares valued at $90,000 (or, if valued at less than
$90,000, had been purchased for $90,000) and purchased an additional $10,000
of the Fund's Shares, the sales charge for the $10,000 purchase would be at
the rate of 3.50%. It is FTD's policy to give investors the best sales charge
rate possible; however, there can be no assurance that an investor will
receive the appropriate discount unless, at the time of placing the purchase
order, the investor or the dealer makes a request for the discount and gives
FTD sufficient information to determine whether the purchase will qualify for
the discount. On telephone orders from dealers for the purchase of Shares to
be registered in "street name," FTD will accept the dealer's instructions with
respect to the applicable sales charge rate to be applied. The Cumulative
Quantity Discount may be amended or terminated at any time.
LETTER OF INTENT. Investors may also reduce sales charges on all investments
by means of a Letter of Intent ("LOI") which expresses the investor's
intention to invest a certain amount within a 13-month period in Shares of the
Fund or any other fund in the Franklin/Templeton Group. See the Shareholder
Application. The minimum initial investment under an LOI is 5% of the total
LOI amount. Shares purchased with the first 5% of such amount will be held in
escrow to secure payment of the higher sales charge applicable to the Shares
actually purchased if the full amount indicated is not purchased, and such
escrowed Shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. A purchase not originally made pursuant to an LOI may be
included under a subsequent LOI executed within 90 days of the purchase. Any
redemptions made by the Shareholder during the 13-month period will be
subtracted
16
<PAGE>
from the amount of the purchases for purposes of determining whether the terms
of the LOI have been completed. For a further description of the LOI, see
"Purchase, Redemption and Pricing of Shares -- Letter of Intent" in the SAI.
GROUP PURCHASES. An individual who is a member of a qualified group may also
purchase Shares of the Fund at the reduced sales charge applicable to the
group as a whole. The sales charge is based upon the aggregate dollar value of
Shares previously purchased and still owned by the group, plus the amount of
the current purchase. For example, if members of the group had previously
invested and still held $90,000 of Fund Shares and now were investing $10,000,
the sales charge would be 3.50%. Information concerning the current sales
charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per Share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.
NET ASSET VALUE PURCHASES. Shares of the Fund may be purchased at net asset
value without imposition of a sales charge by the following persons: (i)
trustees or other fiduciaries purchasing securities for certain retirement
plans with assets of $10 million or more; (ii) directors, trustees and
officers of the investment companies sponsored by Templeton Worldwide, Inc.
and its affiliates (the "Templeton Group"), directors, officers and employees
(current or retired) in the Templeton Group (and their families) and
retirement plans established by the Templeton Group for employees; (iii)
companies exchanging shares with or selling assets to the Fund pursuant to a
merger, acquisition or exchange offer; (iv) dealers or brokers who have a
sales agreement with FTD, for their own accounts, or for retirement plans for
their employees or sold to registered representatives or full time employees
(and their families) that certify to FTD at the time of purchase that such
purchase is for their own account (or for the benefit of their families); (v)
insurance company separate accounts; (vi) accounts managed by the Templeton
Group; (vii) shareholders of Templeton Institutional Funds, Inc. reinvesting
redemption proceeds from that fund under an employee benefit plan qualified
under Section 401 of the Code in Shares of the Fund; (viii) certain unit
investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; and (ix) employees (and their
families) of financial institutions which have, directly or through
affiliates, signed an agreement with FTD.
Shares of the Fund may also be purchased at net asset value by employee
benefit plans qualified under Section 401 of the Code, including salary
reduction plans qualified under Section 401(k) of the Code, subject to minimum
requirements with respect to number of employees or amount of purchase, which
may be established by FTD. Currently, those criteria require that the employer
establishing the plan have 500 or more employees or that the amount invested
or to be invested during the subsequent 13-month period in the Fund or any
other fund in the Franklin/Templeton Group must total at least $1 million.
Employee benefit plans not qualified under Section 401 of the Code may be
afforded the same privilege if they meet the above requirements as well as the
uniform criteria for qualified groups described above under "Group Purchases"
which enable FTD to realize economies of scale in its sales efforts and sales-
related expenses.
17
<PAGE>
Shares of the Fund may be purchased at net asset value by trust companies
and bank trust departments for funds over which they exercise exclusive
discretionary investment authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any other fund
in the Franklin/Templeton Group must total at least $1 million. Orders for
such accounts will be accepted by mail accompanied by a check, or by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Shares of the Fund may also be purchased at net asset value by any state,
county or city, or any instrumentality, department, authority or agency
thereof, which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered management investment company (an "eligible governmental
authority"). Such investors should consult their own legal advisers to
determine whether and to what extent the Shares of the Fund constitute legal
investments for them. Municipal investors considering investment of proceeds
of bond offerings into the Fund should consult with expert counsel to
determine the effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an investment by an
eligible governmental authority at net asset value is made through a dealer
who has executed a dealer agreement with FTD, FTD or one of its affiliates may
make a payment, out of their own resources, to such dealer in an amount not to
exceed 0.25% of the amount invested. Contact Templeton's Institutional Account
Services Department for additional information.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received at least 10 days prior to the collection date,
or by FTD upon written notice to the investor at least 30 days prior to the
collection date.
INSTITUTIONAL ACCOUNTS. There may be additional methods of purchasing,
redeeming or exchanging shares of the Fund available for institutional
accounts. For further information, contact Templeton's Institutional Account
Services Department at 1-800-684-4001.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from Franklin/Templeton Investor Services,
Inc. (the "Transfer Agent").
TEMPLETON STAR SERVICE. Shareholders may check the current prices of Shares,
account balances/values, a description of the last transaction and duplicate
account statements, 24 hours a day, 365 days a year, with Templeton STAR
Service by calling 1-800-654-0123 from a touch-tone telephone. A fund code
(the Fund's code is 416) and the Shareholder's account number are necessary
for accessing information (other than Share prices) from Templeton STAR
Service.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which Templeton Funds Trust
Company or its affiliate acts as trustee or custodian: IRAs, Simplified
Employee Pensions, 403(b) plans, qualified plans for corporations, self-
employed individuals and partnerships, and 401(k) plans. For further
information about any of the plans, agreements, applications and annual fees,
contact Franklin/Templeton Distributors, Inc. To determine which retirement
plan is appropriate, an investor should contact his or her tax adviser.
18
<PAGE>
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares into other funds in the Franklin/Templeton
Group (except Templeton American Trust, Inc., Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund and Franklin Valuemark II). However, Shares purchased at net asset
value and subject to a contingent deferred sales charge (see "How To Sell
Shares of the Fund -- Contingent Deferred Sales Charge") are not eligible for
exchange between the Templeton Family of Funds and the Franklin Group of
Funds (R) (this restriction does not apply to exchanges within an employee
benefit plan).
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. However, exchanges of
shares from the Franklin/Templeton Money Funds are subject to applicable sales
charges on the funds being purchased, unless the Franklin/Templeton Money Fund
shares were acquired by an exchange from a fund having a sales charge, or by
reinvestment of dividends or capital gains distributions. Exchanges of shares
of a fund which were purchased with a lower sales charge to a fund which has a
higher sales charge will be charged the difference, unless the shares were
held in the original fund for at least six months prior to executing the
exchange. All exchanges are permitted only after at least 15 days have elapsed
from the date of the purchase of the Shares to be exchanged.
A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or --
if the Shareholder Application indicates that the Shareholder has not
declined the option -- by telephoning 1-800-354-9191. Telephone exchange
instructions must be received by FTD by 4:00 p.m., New York time. Telephonic
exchanges can involve only Shares in non-certificated form. Shares held in
certificate form are not eligible, but may be returned and qualify for these
services. All accounts involved in a telephonic exchange must have the same
registration and dividend option as the account from which the Shares are
being exchanged. The Fund and the Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please refer to "Telephone Transactions -- Verification Procedures." Forms for
declining the telephone exchange privilege and prospectuses of the other funds
in the Franklin/Templeton Group may be obtained from FTD. Exchange redemptions
and purchases are processed simultaneously at the Share prices next determined
after the exchange order is received. (See "How to Buy Shares of the Fund --
Offering Price.") A gain or loss for tax purposes generally will be realized
upon the exchange, depending on the tax basis of the Shares redeemed.
This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold and may be modified, limited or terminated
at any time by the Fund upon 60 days' written notice. A Shareholder who wishes
to make an exchange should first obtain and review a current prospectus of the
fund into which he or she wishes to exchange. Broker-dealers who process
exchange orders on behalf of their customers may charge a fee for their
services. Such fee may be avoided by making requests for exchange directly to
the Transfer Agent.
The equivalent of an exchange involving retirement accounts (including IRAs)
between the Templeton Family of Funds and the Franklin Group of Funds (R)
requires the completion of additional documentation before it can be effected.
Call 1-800-354-9191 for further information and forms.
EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin/Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.
19
<PAGE>
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing
Account or any person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund; (ii) makes more than two exchanges out of
the Fund per calendar quarter; or (iii) exchanges shares equal in value to at
least $5 million, or more than 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem
or purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
In addition, the Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in the
Investment Manager's judgement, the Fund would be unable to invest effectively
in accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund may
be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Fund and therefore may be refused.
Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.
HOW TO SELL SHARES OF THE FUND
Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL OF THE FOLLOWING REQUIREMENTS:
1. It must be in writing, signed by the Shareholder(s) exactly in the manner
as the Shares are registered, and must specify either the number of Shares, or
the dollar amount of Shares, to be redeemed and sent to Franklin/Templeton
Investor Services, Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; (3)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (4)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A notarized
signature will not be sufficient for the request to be in Proper Order. If the
Shares are registered in more than one name, the signature of each of the
redeeming Shareholders must be guaranteed. A signature guarantee is not
required for redemptions of $50,000 or less, requested by and payable to all
Shareholders of record, to be sent to the address of record for that account.
However, the Fund reserves the right to require signature guarantees on all
redemptions. A signature guarantee is required in connection with any written
request for transfer of Shares. Also, a signature guarantee is required if the
Fund or the Transfer Agent believes that a signature guarantee would protect
against potential claims based on the transfer instructions, including, for
example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an
agent, not the actual registered owner, (e) the Fund determines that joint
owners who are married to each other are separated or may be the subject of
divorce proceedings, or (f) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;
20
<PAGE>
4. Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
. Corporation -- (i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory to the Transfer Agent;
. Partnership -- (i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;
. Trust -- (i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust
document listing the trustee(s) or a certificate of incumbency if the
trustee(s) are not listed on the account registration;
. Custodial (other than a retirement account) -- Signature guaranteed
letter of instruction from the custodian;
. Accounts under court jurisdiction -- Check court documents and the
applicable state law since these accounts have varying requirements,
depending upon the state of residence; and
5. Redemption of Shares held in a retirement plan for which Templeton Funds
Trust Company or its affiliate acts as trustee or custodian must conform to
the distribution requirements of the plan and the Fund's redemption
requirements above. Distributions from such plans are subject to additional
requirements under the Code, and certain documents (available from the
Transfer Agent) must be completed before the distribution may be made. For
example, distributions from retirement plans are subject to withholding
requirements under the Code, and the IRS Form W-4P (available from the
Transfer Agent) may be required to be submitted to the Transfer Agent with the
distribution request, or the distribution will be delayed. The Transfer Agent
and its affiliates assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not be
responsible for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Account Services Department by
calling 1-800-354-9191 or 813-823-8712.
The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. Payment of the redemption price ordinarily will be made by check (or by
wire at the sole discretion of the Transfer Agent if wire transfer is
requested, including name and address of the bank and the Shareholder's
account number to which payment of the redemption proceeds is to be wired)
within seven days after receipt of the redemption request in Proper Order.
However, if Shares have been purchased by check, the Fund will make redemption
proceeds available when a Shareholder's check received for the Shares
purchased has been cleared for payment by the Shareholder's bank, which,
depending upon the location of the Shareholder's bank, could take up to
fifteen days or more. The check will be mailed by first-class mail to the
Shareholder's registered address (or as otherwise directed). Remittance by
wire (to a commercial bank account in the same name(s) as the Shares are
registered) or express mail, if requested, are subject to a handling charge of
up to $15, which will be deducted from the redemption proceeds.
The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the New York Stock Exchange on that day. Dealers have
the responsibility of submitting such repurchase requests by calling not later
than 5:00 p.m., New York time, on such day in order to obtain that day's
applicable redemption price. Repurchase of Shares is for the convenience of
Shareholders and does not involve a charge by the Fund; however, securities
dealers may impose a charge on the Shareholder for transmitting the notice of
repurchase to the Fund. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect Shareholders
seeking redemption through the repurchase procedure. Ordinarily, payment will
be made to the securities dealer within seven days after receipt of a
repurchase order and Share certificate (if any) in "Proper Order" as set forth
above. The Fund also will accept, from member firms of the New York Stock
Exchange, orders to repurchase Shares for which no certificates have been
issued by wire or telephone without a redemption request signed by the
Shareholder, provided the
21
<PAGE>
member firm indemnifies the Fund and FTD from any liability resulting from the
absence of the Shareholder's signature. Forms for such indemnity agreement can
be obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, provided that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date, and Shares will be
redeemed at net asset value at the close of business on that date, unless
sufficient additional Shares are purchased to bring the aggregate account
value up to $100 or more, or unless a certified taxpayer identification number
(or such other information as the Fund has requested) has been provided, as
the case may be. A check for the redemption proceeds will be mailed to the
investor at the address of record.
REINSTATEMENT PRIVILEGE. A former Shareholder of any eligible Templeton Fund
may reinvest proceeds from a redemption or a dividend or capital gains
distribution, without a sales charge, in any other eligible Templeton Fund by
sending a written request and a check to the Transfer Agent within 120 days
after the date of the redemption or distribution. Reinvestment will be at the
next calculated net asset value after receipt. However, if a Shareholder's
original investment was in a fund with a lower sales charge, or no sales
charge, the Shareholder must pay the difference. Credit will be given for any
contingent deferred sales charge paid on the Shares redeemed. The amount of
gain or loss resulting from a redemption may be affected by exercise of the
reinstatement privilege if the Shares redeemed were held for 90 days or less,
or if a Shareholder reinvests in the same fund within 30 days.
CONTINGENT DEFERRED SALES CHARGE. In order to recover commissions paid to
dealers on qualified investments of $1 million or more, or for purchases made
by certain retirement plans of organizations with collective retirement plan
assets of $10 million or more, a contingent deferred sales charge of 1%
applies to certain redemptions by those investors within the first year after
investing. The charge is 1% of the lesser of the value of the Shares redeemed
(exclusive of reinvested dividends and capital gain distributions) or the
total cost of such Shares, and is retained by FTD. In determining if a charge
applies and the amount of any such charge, the first Shares redeemed are those
purchased with reinvested dividends and capital gain distributions, followed
by others held the longest. The contingent deferred sales charge is waived for
exchanges (except if Shares acquired by exchange were then redeemed within 12
months of the initial purchase); for distributions to participants in
qualified retirement plans due to death, disability or attainment of age 59
1/2; for tax-free returns of excess contributions to qualified plans; for
distributions from employee benefit plans; and for redemptions through the
Systematic Withdrawal Plan.
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive regular monthly, quarterly, semi-annual
or annual payments of $50 or more from the account. It is suggested that the
Shareholder maintain an account balance of $5,000. There are no service
charges for establishing or maintaining a Plan. Capital gain distributions and
income dividends to the Shareholder's account must be reinvested in additional
Shares at net asset value. Payments are then made from the liquidation of
Shares at net asset value on the day of the liquidation (which is generally on
or about the 25th of the month) to meet the specified withdrawals. Payments
are generally received three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a Shareholder may
direct the selected withdrawals to another fund in the Franklin/Templeton
Group, to another person, or directly to a checking account. Liquidation of
Shares may reduce or possibly exhaust the Shares in the Shareholder's account,
to the extent withdrawals exceed Shares earned through dividends and
distributions, particularly in the event of a market decline. No payment
pursuant to a Plan will be made if there are insufficient Shares on deposit on
the date of the scheduled distribution. A subsequent deposit of Shares will
not result in a payment under the Plan retroactive to the distribution date.
As with other redemptions, a liquidation to make a withdrawal payment is a
sale for Federal income tax purposes. The entire Plan payment cannot be
considered as actual yield or income since part of such a Plan payment may be
a return of capital.
22
<PAGE>
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. The Shareholder should ordinarily not make additional investments
of less than $5,000. A Plan may be terminated on written notice by the
Shareholder or the Fund, and it will terminate automatically if all Shares are
liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the Shareholder. Shareholders may
change the amount (but not below $50) and schedule of withdrawal payments or
suspend such payments (for up to one month) by giving written notice to the
Transfer Agent at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Plan is in effect.
REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions -- Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions -- Verification Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before 4:00 p.m., New York
time, on any business day will be processed that same day. The redemption
check will be sent within seven days, made payable to all the registered
owners on the account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, a Shareholder should follow the
other redemption procedures set forth in this Prospectus. Institutional
accounts which wish to execute redemptions in excess of $50,000 must complete
an Institutional Telephone Privileges Agreement which is available from
Templeton's Institutional Account Services Department by telephoning 1-800-
684-4001.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their dealer of record, if any, may be able to
execute various transactions by calling the Transfer Agent at 1-800-354-9191.
All Shareholders will be able to: (i) effect a change in address, (ii) change
a dividend option (see "Restricted Accounts" below), (iii) transfer Fund
Shares in one account to another identically registered account in the Fund,
and (iv) exchange Fund Shares by telephone as described in this Prospectus. In
addition, Shareholders who complete and file an Agreement as described under
"How to Sell Shares of the Fund -- Redemptions by Telephone" will be able to
redeem Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. Shareholders are, of
course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or the Transfer Agent is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund, the Transfer
Agent, nor their affiliates will be liable for any losses which may occur
because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Trust Company ("FTC") or Templeton Funds Trust
Company ("TFTC") retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment. Although the telephone exchange privilege is extended to
these retirement accounts, a Franklin/Templeton Transfer Authorization Form
must be on file in order to transfer retirement plan
23
<PAGE>
assets between the Franklin Group of Funds (R) and the Templeton Family of
Funds within the same plan type. Changes to dividend options for these
accounts must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, FTC retirement account shareholders may call 1-
800-527-2020 (toll free), and TFTC retirement account shareholders may call 1-
800-354-9191 (press "2") (also toll free).
GENERAL. During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be difficult to
execute because of heavy telephone volume. In such situations, Shareholders
may wish to contact their registered dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction.
The telephone transaction privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to Shareholders.
MANAGEMENT OF THE FUND
The Trust is managed by its Board of Trustees and all powers of the Trust
are exercised by or under authority of the Board. Information relating to the
Trustees and executive officers is set forth under the heading "Management of
the Trust" in the SAI.
INVESTMENT MANAGER AND SUB-ADVISER. The Investment Manager of the Fund is
Templeton Global Bond Managers, a division of Templeton Investment Counsel,
Inc., a Florida corporation with offices at Broward Financial Centre, Ft.
Lauderdale, Florida 33394-3091. The Investment Manager furnishes the Fund with
investment research, advice and supervision and has responsibility for
management of the Fund's portfolio. The Investment Manager does not furnish
any overhead items or facilities for the Fund, although such expenses are paid
by some investment advisers of other investment companies. As compensation for
its services, the Fund pays the Investment Manager a monthly fee, equal on an
annual basis to 0.60% of its average daily net assets during the year. The
Fund also pays its own operating expenses, including: (1) its pro rata portion
of the fees and expenses of the Trust's disinterested Trustees; (2) interest
expenses; (3) taxes and governmental fees; (4) brokerage commissions and other
expenses incurred in acquiring or disposing of portfolio securities; (5) the
expenses of registering and qualifying its Shares for sale with the SEC and
with various state securities commissions; (6) expenses of its independent
public accountants and legal counsel; (7) insurance premiums; (8) fees and
expenses of the Custodian and Transfer Agent and any related services; (9)
expenses of obtaining quotations of portfolio securities and of pricing
Shares; (10) its pro rata portion of the expenses of maintaining the Trust's
legal existence and of Shareholders' meetings; (11) expenses of preparation
and distribution to existing Shareholders of periodic reports, proxy materials
and prospectuses; (12) payments made pursuant to the Fund's Distribution Plan
(see "Plan of Distribution"); and (13) fees and expenses of membership in
industry organizations.
The Investment Manager has entered into a sub-advisory agreement with
Franklin Advisers, Inc. (the "Sub-Adviser"), a California corporation with
offices at 777 Mariners Island Boulevard, San Mateo, California 94403-7777,
pursuant to which the Sub-Adviser provides the Investment Manager with
investment advisory assistance and portfolio management advice with regard to
the Fund's investments in securities of U.S. issuers. For its services, the
Investment Manager pays the Sub-Adviser a monthly fee at an annual rate of
0.25% of the Fund's average daily net assets.
The Investment Manager and the Sub-Adviser are indirect wholly owned
subsidiaries of Franklin Resources, Inc. ("Franklin"). Through its
subsidiaries, Franklin is engaged in various aspects of the financial services
industry. The Investment Manager, the Sub-Adviser and their affiliates serve
as advisers for a wide variety of public investment mutual funds and private
clients in many nations. The Investment Manager and its predecessors have been
investing globally over the past 52 years and provide investment management
and advisory services to a worldwide client base, including over 3.0 million
mutual fund shareholders, foundations and endowments,
24
<PAGE>
employee benefit plans and individuals. The Investment Manager and its
affiliates have approximately 3,200 employees in ten different countries and a
global network of over 50 investment research sources. Many different
selection methods are used for different funds and clients, and many are
changed and improved by the Investment Manager's research on superior
selection methods. Currently, the lead portfolio manager for the Fund is D.
William Kohli. Prior to joining the Investment Manager as Senior Vice
President in 1993, Mr. Kohli worked as a global fixed-income portfolio manager
and analyst for several of the mutual funds in the Franklin Group of
Funds (R), beginning in 1988. Prior to that, Mr. Kohli worked for the Sperry
Corporation as a computer programmer for mathematical applications. Serena
Perin and Douglas R. Lempereur also exercise significant portfolio management
responsibilities with respect to the Fund. Ms. Perin joined the Sub-Adviser as
portfolio manager in 1991. Before that she served as a research assistant to a
member of Parliament in London, England. Prior to joining the Investment
Manager in 1988, Mr. Lempereur was employed as a specialist in managing high
yield and non-dollar bonds by Colonial Management Associates. Further
information concerning the Investment Manager and the Sub-Adviser is included
under the heading "Investment Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns and financial reports, monitoring compliance with
regulatory requirements and monitoring tax deferred retirement plans. For its
services, the Fund pays the Business Manager a monthly fee equivalent on an
annual basis to 0.15% of the combined average daily net assets of the funds
included in the Trust (the Fund, Templeton Global Rising Dividends Fund and
Templeton Global Infrastructure Fund), reduced to 0.135% of such combined
assets in excess of $200 million, to 0.10% of such assets in excess of $700
million, and to 0.075% of such assets in excess of $1,200 million.
TRANSFER AGENT. Franklin/Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLAN OF DISTRIBUTION. The Fund has a plan of distribution or "12b-1 Plan"
under which it may reimburse FTD for its costs and expenses for activities
primarily intended to result in the sale of Fund Shares. Expenditures by the
Fund under the plan may not exceed 0.35% annually of the Fund's average daily
net assets. Under the plan, costs and expenses not reimbursed in any one given
month (including costs and expenses not reimbursed because they exceeded the
limit of 0.35% per annum of the Fund's average daily net assets) may be
reimbursed in subsequent months or years, subject to applicable law.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The capitalization of the Trust
consists of an unlimited number of Shares of beneficial interest, par value
$0.01 per Share. The Board of Trustees is authorized, in its discretion, to
classify and allocate the unissued Shares of the Trust in an unlimited number
of separate series and may in the future divide existing series into two or
more classes. Each Share entitles the holder to one vote.
The Fund will not ordinarily issue certificates for Shares purchased. Share
certificates representing whole (not fractional) Shares are issued only upon
the specific request of the Shareholder made in writing to the Transfer Agent.
No charge is made for the issuance of one certificate for all or some of the
Shares purchased in a single order.
MEETINGS OF SHAREHOLDERS. The Trust is not required to hold annual meetings
of Shareholders and may elect not to do so. The Trust will call a special
meeting of Shareholders 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 Trust's outstanding Shares. The Trust is required to assist
Shareholder communications in connection with the calling of Shareholder
meetings to consider removal of a Trustee or Trustees.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS. The Fund intends normally to pay a monthly
dividend representing substantially all of its net investment income and to
distribute at least annually any net realized capital gains. Income dividends
and capital gain distributions paid by the Fund, other than on those Shares
whose owners keep them registered in the name of a broker-dealer, are
automatically reinvested on the payable date in whole or fractional Shares of
the Fund at net asset value as of the ex-dividend date, unless a Shareholder
makes a written or telephonic request for payments in cash. Income dividends
and capital gain distributions will be paid in cash on Shares during the time
their owners keep them registered in the name of a broker-dealer, unless the
broker-dealer has made arrangements with the Transfer Agent for reinvestment.
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to the record date will have the
effect of reducing the per Share net asset value of the Shares by the amount
of the dividend or distribution. All or a portion of such dividend or
distribution, although in effect a return of capital, generally will be
subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested for the Shareholder's account in whole
or fractional Shares at the net asset value next computed after the check has
been received by the Transfer Agent. Subsequent distributions automatically
will be reinvested at net asset value as of the ex-dividend date in additional
whole or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. See the SAI for a summary of requirements that must be satisfied to so
qualify. A regulated investment company generally is not subject to Federal
income tax on income and gains distributed in a timely manner to its
shareholders. The Fund intends to distribute to Shareholders substantially all
of its net investment income and realized capital gains, which generally will
be taxable income or capital gains in their hands. Distributions declared in
October, November or December to Shareholders of record on a date in such
month and paid during the following January will be treated as having been
received by Shareholders on December 31 in the year such distributions were
declared. The Fund will inform Shareholders each year of the amount and nature
of such income or gains. A more detailed description of tax consequences to
Shareholders is contained in the SAI under the heading "Tax Status."
The Fund may be required to withhold Federal income tax at the rate of 31%
of all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholder's Federal income tax liability.
INQUIRIES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin/Templeton Investor Services, Inc., 700 Central Avenue,
P.O. Box 33030, St. Petersburg, Florida 33733-8030 -- telephone 1-800-354-9191
or 813-823-8712. Transcripts of Shareholder accounts less than three years old
are provided on request without charge; requests for transcripts going back
more than three years from the date the request is received by the Transfer
Agent are subject to a fee of up to $15 per account.
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect
the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see the SAI.
26
<PAGE>
APPENDIX
BOND RATINGS
Bonds rated Aa by Moody's Investors Service, Inc. ("Moody's") are judged by
Moody's to be of high quality by all standards. Together with bonds rated Aaa
(Moody's highest rating), they comprise what are generally known as high-grade
bonds. Aa bonds are rated lower than Aaa bonds because margins of protection
may not be as large as those of Aaa bonds, or fluctuations of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than those applicable to
Aaa securities. Bonds which are rated A by Moody's possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Moody's Baa rated bonds are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment 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 Ba are judged to have speculative elements because
their future cannot be considered as well assured. Uncertainty of position
characterizes bonds in this class, because the protection of interest and
principal payments often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period of time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds rated AAA by Standard & Poor's Corporation ("S&P") are considered by
S&P to be the highest grade obligations and possess the ultimate degree of
protection as to principal and interest. Bonds rated AA are judged by S&P to
be high-grade obligations and in the majority of instances differ only in
small degree from issues rated AAA (S&P's highest rating). Bonds rated A by
S&P have a strong capacity to pay principal and interest, although they are
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
S&P's BBB rated bonds, or medium-grade category bonds, are between sound
obligations and those where the speculative elements begin to predominate.
Although these bonds have adequate asset coverage and normally are protected
by satisfactory earnings, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and principal.
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and
principal in accordance with the terms of the obligation. While such bonds may
have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
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<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number Taxpayer
Identification Number, you must obtain Form SS-5 or Form SS-4 from your local
Social Security or IRS office and apply for one. If you have checked the
"Awaiting TIN" box and signed the certification, withholding will apply to
payments relating to your account unless you provide a certified TIN within 60
days.
WHAT SSN TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE EMPLOYER ID # OF
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- -----------------------------------------------------------------------------------
. Joint Owner who will be . Corporation, Corporation,
Individual paying tax or first- Partnership, or other Partnership, or other
named individual organization organization
- -----------------------------------------------------------------------------------
. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
- -----------------------------------------------------------------------------------
. Sole Owner of business
Proprietor
- -----------------------------------------------------------------------------------
. Legal Ward, Minor, or
Guardian Incompetent
- -----------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A financial institution A common trust fund operated by a bank
under section 584(a)
An organization exempt from tax
under section 501(a), or an An exempt charitable remainder trust
individual retirement plan or a non-exempt trust described in
section 4947(a)(1)
A registered dealer in securities or
commodities registered in the U.S. An entity registered at all times
or a U.S. possession under the Investment Company Act of
1940
IRS PENALTIES. If you do not supply us with your SSN TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. You are an "Exempt
Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a
U.S. corporation, partnership, estate, or trust. In the case of an individual,
an "Exempt Foreign Person" is one who has been physically present in the U.S.
for less than 31 days during the current calendar year. An individual who is
physically present in the U.S. for at least 31 days during the current
calendar year will still be treated as an "Exempt Foreign Person," provided
that the total number of days physically present in the current calendar year
and the two preceding calendar years does not exceed 183 days (counting all of
the days in the current calendar year, only one-third of the days in the first
preceding calendar year and only one-sixth of the days in the second preceding
calendar year). In addition, lawful permanent residents or green card holders
may not be treated as "Exempt Foreign Persons." If you are an individual or an
entity, you must not now be, or at this time expect to be, engaged in a U.S.
trade or business with respect to which any gain derived from transactions
effected by the Fund/Payer during the calendar year is effectively connected
to the U.S. (or your transactions are exempt from U.S. taxes under a tax
treaty).
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the tax payer identification number you have given is correct, and (2) the
Internal Revenue Service has not notified you that you are subject to backup
withholding because you failed to report certain interest or dividend income.
You may use Form W-9. "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer
active, you do not have to notify a Fund/Payer or broker of your change in
status unless you also have another account with the same Fund/Payer that is
still active. If you receive interest from more than one Fund/Payer or have
dealings with more than one broker or barter exchange, file a certificate with
each. If you have more than one account with the same Fund/Payer, the
Fund/Payer may require you to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceeding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
3/94
28
<PAGE>
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that the Fund, Franklin/Templeton Distributors, Inc.,
Franklin/Templeton Investor Services, Inc., the custodian bank and their
affiliates may rely upon these authorizations until revoked or amended by
written notice delivered by registered or certified mail to the Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly
elected _____________ of __________________ a _______________________________
TITLE CORPORATE NAME TYPE OF ORGANIZATION
organized under the laws of the State of _________ and that the following is
STATE
a true and correct copy of a resolution adopted by the Board of Directors at
a meeting duly called and held on __________________________________________
DATE
RESOLVED, that the ________________________________________________ of this
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and
FURTHER RESOLVED, that any of the following _________ officers are authorized
NUMBER
to sign any share assignment on behalf of this Corporation or Association and
to take any other actions as may be necessary to sell or redeem its shares in
the Funds or to sign checks or drafts withdrawing funds from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin/Templeton
Distributors, Inc., Franklin/Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary)
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes ________________________________________________________
NAME AND TITLE
CORPORATE SEAL (if appropriate)
29
<PAGE>
THE FRANKLIN/TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin/Templeton's telephone redemption privilege to redeem
uncertificated Franklin/Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to
Franklin/Templeton Fund shareholders, please sign and return this
authorization to Franklin/Templeton Investor Services, Inc. ("Services"),
transfer agent and shareholder servicing agent for the Franklin/Templeton
Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin/Templeton Group of Funds (a "Franklin/Templeton Fund"
or a "Fund"), now opened or opened at a later date, holding shares registered
as follows:
- ------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT REGISTRATION ("SHAREHOLDER")
- ------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- ------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- ------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY, IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions; (2)
the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin/Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin/Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Trust Company or Templeton Funds Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
Franklin/Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.
30
<PAGE>
THE FRANKLIN/TEMPLETON GROUP
To receive a free brochure and prospectus, which contain more complete
information, including charges and expenses on each of the funds listed below,
call Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236)
or Templeton Fund Information at 1-800-292-9293. Please read the prospectus
carefully before you invest or send money.
TEMPLETON
FAMILY OF FUNDS
Templeton American Trust
Templeton Americas Government
Securities Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Rising
Dividends Fund
Templeton Growth Fund
Templeton Income Fund
Templeton Money Fund
Templeton Real Estate
Securities Fund
Templeton Smaller
Companies Growth Fund
Templeton World Fund
FRANKLIN GROUP
OF FUNDS(R)
FRANKLIN GLOBAL/
INTERNATIONAL FUNDS
Franklin Global Health Care Fund
Franklin Global Government
Income Fund
Franklin Global Utilities Fund
Franklin International Equity Fund
Franklin Pacific Growth Fund
FUNDS SEEKING CAPITAL GROWTH
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin Small Cap Growth Fund
FUNDS SEEKING GROWTH AND
INCOME
Franklin Balance Sheet
Investment Fund
Franklin Convertible
Securities Fund
Franklin Income Fund
Franklin Equity Income Fund
Franklin Utilities Fund
FUNDS SEEKING HIGH CURRENT
INCOME
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Premier Return Fund
Franklin U.S. Government
Securities Fund
FUNDS SEEKING TAX-FREE
INCOME
Franklin Federal Tax-Free
Income Fund
Franklin High Yield Tax-Free
Income Fund
Franklin California High Yield
Municipal Fund
Franklin Alabama Tax-Free
Income Fund
Franklin Arizona Tax-Free
Income Fund
Franklin California Tax-Free
Income Fund
Franklin Colorado Tax-Free
Income Fund
Franklin Connecticut Tax-Free
Income Fund
Franklin Florida Tax-Free
Income Fund
Franklin Georgia Tax-Free
Income Fund
Franklin Hawaii Municipal
Bond Fund
Franklin Indiana Tax-Free
Income Fund
Franklin Kentucky Tax-Free
Income Fund
Franklin Louisiana Tax-Free
Income Fund
Franklin Maryland Tax-Free
Income Fund
Franklin Missouri Tax-Free
Income Fund
Franklin New Jersey Tax-Free
Income Fund
Franklin New York Tax-Free
Income Fund
Franklin North Carolina Tax-Free
Income Fund
Franklin Oregon Tax-Free
Income Fund
Franklin Pennsylvania Tax-Free
Income Fund
Franklin Puerto Rico Tax-Free
Income Fund
Franklin Texas Tax-Free
Income Fund
Franklin Virginia Tax-Free
Income Fund
Franklin Washington Municipal
Bond Fund
FUNDS SEEKING TAX-FREE
INCOME THROUGH INSURED
PORTFOLIOS
Franklin Insured Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free
Income Fund
Franklin California Insured Tax-Free
Income Fund
Franklin Florida Insured Tax-Free
Income Fund
Franklin Massachusetts Insured Tax-Free
Income Fund
Franklin Michigan Insured Tax-Free
Income Fund
Franklin Minnesota Insured Tax-Free
Income Fund
Franklin New York Insured Tax-Free
Income Fund
Franklin Ohio Insured Tax-Free
Income Fund
FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF
PRINCIPAL
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin Short-Intermediate U.S.
Government Securities Fund
FUND SEEKING HIGH AFTER-TAX
INCOME FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
MONEY MARKET FUNDS SEEKING
SAFETY OF PRINCIPAL AND INCOME
Franklin Money Fund
Franklin Federal Money Fund
Franklin Tax-Exempt Money
Fund
Franklin California Tax-Exempt
Money Fund
Franklin New York Tax-Exempt
Money Fund
IFT Franklin U.S. Treasury
Money Market Portfolio
FUNDS FOR
NON-U.S. INVESTORS
FRANKLIN PARTNERS FUNDS(R)
Franklin Tax-Advantaged
High Yield Securities Fund
Franklin Tax-Advantaged
International Bond Fund
Franklin Tax-Advantaged U.S.
Government Securities Fund
31
<PAGE>
TEMPLETON AMERICAS
GOVERNMENT
SECURITIES FUND
PRINCIPAL UNDERWRITER:
Franklin/Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Sales Information
1-800-292-9293
This Prospectus is not an offering of
the securities herein described in any
state in which the offering is not
authorized. No sales representative,
dealer, or other person is authorized
to give any information or make any
representations other than those
contained in this Prospectus. Further
information may be obtained from the
Principal Underwriter.
[RECYCLED PAPER LOGO APPEARS HERE]
TL416 P 06/94
TEMPLETON
AMERICAS
GOVERNMENT
SECURITIES
FUND
Prospectus
June 27, 1994
[LOGO OF TEMPLETON WORLDWIDE APPEARS HERE]
<PAGE>
[LOGO OF TEMPLETON APPEARS HERE]
Mail to: Franklin Templeton Distributors, Inc.
P.O. Box 33031 St. Petersburg, Florida 33733-8031
(800) 393-3001
Please do not use this form for any Retirement Plan for which Templeton Funds
Trust Company or its affiliate serves as custodian or trustee or any of the
following Templeton Funds: Templeton American Trust: Templeton Money Fund;
Templeton Institutional Funds or Templeton Capital Accumulator Fund. Please
request separate Applications and/or Prospectuses.
================================================================================
SHAREHOLDER APPLICATION OR REVISION [_] Please check the box if this is a
revision and see Section 8
================================================================================
<TABLE>
<S> <C> <C>
Date ___________________ [_] Real Estate Securities Fund $______ [_] Global Opportunities Trust $______
[_] Growth Fund $_______ [_] Smaller Companies Growth Fund ______ [_] Americas Government Securities Fund ______
[_] World Fund _________ [_] Income Fund ______ [_] Japan Fund ______
[_] Foreign Fund _______ [_] Global Infrastructure Fund ______ [_] Other ______
[_] Global Rising Dividends Fund ______ [_] Developing Markets Trust ______
</TABLE>
================================================================================
1 ACCOUNT REGISTRATION (PLEASE PRINT)
================================================================================
[_] INDIVIDUAL OR JOINT ACCOUNT
__________________________________________________________ _____-_______-______
First Name Middle Initial Last Name Social Security
Number (SSN)
__________________________________________________________ _____-_______-______
Joint Owner(s) (Joint ownership means "Joint Tenants Social Security
With Rights of Survivorship" unless otherwise specified) Number (SSN)
================================================================================
[_] GIFT/TRANSFER TO A MINOR
__________________ As Custodian For ____________________________________________
Minor's Name (one only)
_____________________ Uniform Gifts/Transfers to Minors Act _____-______-_______
State of Residence Minor's Social
Security Number
Please Note: Custodian's Signature, not Minor's, is required in Section 4.
================================================================================
[_] TRUST, CORPORATION, PARTNERSHIP, OR OTHER ENTITY
______________________________________________________________-_________________
Name Taxpayer Identification Number (TIN)
________________________________________________________________________________
Name of Beneficiary (if to be included Date of Trust Document (must be
in the Registration) completed for registration)
________________________________________________________________________________
Name of Each Trustee (if to be included in the Registration)
================================================================================
2 ADDRESS
================================================================================
__________________________________________________ Daytime Phone (___)_________
Street Address Area Code
____________________________________________-_____ Evening Phone (___)_________
City State Zip Code Area Code
I am a Citizen of: [_] U.S. [_] _____________________________
Country of Residence
================================================================================
3 INITIAL INVESTMENT ($100 minimum initial investment)
================================================================================
Check(s) enclosed for $____________ (Payable to Franklin Templeton Distributors,
Inc. or the Fund(s) indicated above.)
================================================================================
4 SIGNATURE AND TAX CERTIFICATIONS (All registered owners must sign
application)
================================================================================
The Fund reserves the right to refuse to open an account without either a
certified Taxpayer Identification Number ("TIN") or a certification of foreign
status. Failure to provide tax certifications in this section may result in
backup withholding on payments relating to your account and/or in your inability
to qualify for treaty withholding rates.
I am(We are) not subject to backup withholding because I(we) have not been
notified by the IRS that I am(we are) subject to backup withholding as a result
of a failure to report all interest or dividends or because the IRS has notified
me(us) that I am(we are) no longer subject to backup withholding. (If you are
currently subject to backup withholding as a result of a failure to report all
interest or dividends, please cross out the preceding statement.)
[_] The number shown above is my(our) correct TIN, or that of the Minor named in
Section 1.
[_] Awaiting TIN. I am(We are) waiting for a number to be issued to me(us).
I(We) understand that if I(we) do not provide a TIN to the Fund within 60
days, the Fund is required to commence 31% backup withholding until I(we)
provide a certified TIN.
[_] Exempt Recipient. Individuals cannot be exempt. Check this box only after
reading the instructions to see whether you qualify as an exempt recipient.
(You should still provide a TIN.)
[_] Exempt Foreign Person. Check this box only if the following statement
applies: "I am(we are) neither a citizen nor a resident of the United
States. I(we) certify to the best of my(our) knowledge and belief, I(we)
qualify as an exempt foreign person and/or entity as described in the
instructions."
Permanent address for tax purposes:
________________________________________________________________________________
Street Address City State Country Postal Code
PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint
accounts, it is preferred that the primary account owner (or person listed first
on the account) list his/her number as requested above.
CERTIFICATION - Under the penalties of perjury, I(we) certify that (1) the
information provided on this application is true, correct and complete, (2)
I(we) have read the prospectus(es) for the Fund(s) in which I am(we are)
investing and agree to the terms thereof, and (3) I am(we are) of legal age or
an emancipated minor. I(we) acknowledge that Shares of the Fund(s) are not
insured or guaranteed by any agency or institution and that an investment in the
Shares involves risks, including the possible loss of principal.
X_____________________________________ X________________________________________
Signature Signature
X_____________________________________ X________________________________________
Signature Signature
Please make a photocopy of this application for your records.
================================================================================
5 BROKER/DEALER USE ONLY (PLEASE PRINT)
================================================================================
+ +
+ We hereby submit this application for the purchase of shares of the Fund +
+ indicated above in accordance with the terms of our selling agreement with +
+ Franklin Templeton Distributors, Inc. ("FTD"), and with the Prospectus for +
+ the Fund. We agree to notify FTD of any purchases made under a Letter of +
+ Intent or Cumulative Quantity Discount. +
+ +------------------------------+ +
+ +Templeton Dealer Number + +
+ + + +
+ +------------------------------+ +
+ +
+ +--------------------------------------------------------------------------+ +
+ + WIRE ORDER ONLY: The attached check for $_____ should be applied against + +
+ + Wire Order + +
+ + + +
+ + Confirmation Number ______________ Dated ___________ For ________ Shares + +
+ +--------------------------------------------------------------------------+ +
+ +
+ Securities Dealer Name _____________________________________________________ +
+ +
+ Main Office Address _____________ Main Office Telephone Number(___)_________ +
+ +
+ Branch Number _____ Representative Number _____ Representative Name ________ +
+ +
+ Branch Address _______________________ Branch Telephone Number(___)_________ +
+ +
+ Authorized Signature, Securities Dealer _______________ Title ______________ +
+==============================================================================+
+ +
+ ACCEPTED: Franklin Templeton Distributors, Inc. By ____________ Date _______ +
+==============================================================================+
Please see reverse side for Shareholder Account Privileges:
<TABLE>
<S> <C> <C> <C>
[X] Distribution Options [X] Special Instructions for Distributions [X] Telephone Exchange Service [X] Letter of Intent
[X] Systematic Withdrawal Plan [X] Automatic Investment Plan [X] Cumulative Quantity Discount
</TABLE>
This application must be preceded or accompanied by a prospectus for the Fund(s)
being purchased.
<PAGE>
================================================================================
6. DISTRIBUTION OPTIONS (Check one)
================================================================================
Check one - if no box is checked, all dividends and capital gains will be
reinvested in additional shares of the Fund.
[_] Reinvest all dividends and capital gains.
[_] Pay capital gains in cash and reinvest dividends.
[_] Pay all dividends in cash and reinvest capital gains.
[_] Pay all dividends and capital gains in cash.
================================================================================
7. OPTIONAL SHAREHOLDER PRIVILEGES
================================================================================
A. SPECIAL PAYMENT INSTRUCTIONS FOR DISTRIBUTIONS (Check one box)
[_] Pay Distributions, as noted in Section 6, to another Franklin or Templeton
Fund.
Fund Name ____________________________ Existing Account Number ____________
[_] Send my Distributions to the person, named below, instead of as registered
in Section 1.
Name ___________________________ Street Address ___________________________
City ___________________________ State _________________ Zip Code _________
================================================================================
B. SYSTEMATIC WITHDRAWAL PLAN
Please withdraw from my Franklin Templeton account $_______($50 minimum)
[_] Monthly [_] Quarterly [_] Semi-Annually or [_] Annually as set forth in
the Prospectus, starting in __________________(Month).
Send the proceeds to: [_] Address of Record OR [_] the Franklin Templeton
Fund or person specified in Section 7(A) - Special Payment Instructions for
Distributions.
================================================================================
C. TELEPHONE TRANSACTIONS
Telephone Exchange Privilege: If the Fund does not receive specific
instructions from the shareholder, either in writing or by telephone, the
Telephone Exchange Privilege (see the prospectus) is automatically extended
to each account. The shareholder should understand, however, that the Fund
and Franklin Templeton Investor Services, Inc. ("FTI") or Templeton Funds
Trust Company and their agents will not be liable for any loss, injury,
damage or expense as a result of acting upon instructions communicated by
telephone reasonably believed to be genuine. The shareholder agrees to hold
the Fund and its agents harmless from any loss, claims, or liability arising
from its or their compliance with such instructions. The shareholder
understands that this option is subject to the terms and conditions set
forth in the prospectus of the fund to be acquired.
[_] No, I do NOT wish to participate in the Telephone Exchange Privilege or
authorize the Fund or its agents, including FTI or Templeton Funds Trust
Company, to act upon instructions received by telephone to exchange shares
for shares of any other account(s) within the Franklin Templeton Group of
Funds.
Telephone Redemption Privilege: This is available to shareholders who
specifically request it and who complete the Franklin Templeton Telephone
Redemption Authorization Agreement in the back of the Fund's prospectus.
================================================================================
D. AUTOMATIC INVESTMENT PLAN
Important: Attach an unassigned, voided check (for Checking Accounts) or a
Savings Account deposit slip here, and complete the information below.
I(We) would like to establish an Automatic Investment Plan (the "Plan") as
described in the Prospectus. I(We) agree to reimburse FTI and/or FTD for any
expenses or losses that they may incur in connection with my(our) Plan,
including any caused by my(our) bank's failure to act in accordance with
my(our) request. If my(our) bank makes any erroneous payment or fails to
make a payment after shares are purchased on my(our) behalf, any such
purchase may be cancelled and I(we) hereby authorize redemptions and/or
deductions from my(our) account for that purpose.
Debit my(our) bank account monthly for $______($25 minimum) on or about
the [_] 1st [_] 5th [_] 15th or [_] 20th day starting _____________ (month),
to be invested in (name of Fund)__________________________ Account Number
(if known)_____________________
================================================================================
E. INSTRUCTIONS TO BANK - AUTOMATIC INVESTMENT PLAN AUTHORIZATION
To: __________________________________ __________________________________
Name of Your Bank ABA Number
_______________________________ __________________ ___________ ___________
Street Address City State Zip Code
I(we) authorize you to charge my(our) Checking/Savings Account and to make
payment to FTD, upon instructions from FTD. I(We) agree that in making
payment for such charges your rights shall be the same as if each were a
charge made and signed personally by me(us). This authority shall remain in
effect until you receive written notice from me(us) changing its terms or
revoking it. Until you actually receive such notice, I(we) agree that you
shall be fully protected in paying any charges under this authority. I(we)
further agree that if any such charge is not made, whether with or with out
cause and whether intentionally or inadvertently, you shall be under no
liability whatsoever.
X_____________________________________________________ ___________________
Signature(s) EXACTLY as shown on your bank records Date
________________________________________________ _________________________
Print Name(s) Account Number
_______________________________ __________________ ___________ ___________
Your Street Address City State Zip Code
================================================================================
F. LETTER OF INTENT (LOI)
[_] I(We) agree to the terms of the LOI and provisions for reservations of
shares and grant FTD the security interest set forth in the Prospectus.
Although I am (we are) not obligated to do so, it is my(our) intention to
invest over a 13 month period in shares of one or more Franklin or Templeton
Funds (including all Money Market Funds in the Franklin Templeton Group) an
aggregate amount at least equal to that which is checked below:
[_] $50,000-99,999 (except for Income Fund)
[_] $100,000-249,999
[_] $250,000-499,999
[_] $500,000-999,999
[_] $1,000,000 or more
Purchases made within the last 90 days will be included as part of your LOI.
Please write in your Account Number(s) ___________ ___________ __________
================================================================================
G. CUMULATIVE QUANTITY DISCOUNT
Shares may be purchased at the Offering Price applicable to the dollar
amount of the sale added to the higher of (1) the value (calculated at the
applicable Offering Price) or (2) the purchase price, of any other Shares of
the Fund and/or other Funds in the Franklin Templeton Group owned at that
time by the purchaser, his or her spouse, and their children under age 21,
including all Money Market Funds in the Franklin Templeton Group as stated
in the Prospectus. In order for this Cumulative Quantity Discount to be made
available, the Shareholder or his or her Securities Dealer must notify FTI
or FTD of the total holdings in the Franklin Templeton Group each time an
order is placed.
[_] I(We) own shares of more than one Fund in the Franklin Templeton Group and
qualify for the Cumulative Quantity Discount described above and in the
Prospectus.
My(Our) other Account Number(s) are ____________ ____________ ____________
================================================================================
8. ACCOUNT REVISION (If Applicable)
If you are using this application to revise your Account Registration, or
wish to have Distributions sent to an address other than the address on your
existing Account's Registration, a Signature Guarantee is required.
Signatures of all registered owners must be guaranteed by an "eligible
guarantor" as defined in the "How to Sell Shares of the Fund" section in the
Fund's Prospectus. A Notary Public is not an acceptable guarantor.
X__________________________________________ ______________________________
Signature(s) of Registered Account Owners Account Number(s)
X__________________________________________ ______________________________
X__________________________________________
X__________________________________________ ______________________________
Signature Guarantee Stamp
NOTE: For any change in registration, please send us any outstanding
Certificates by Registered Mail.
================================================================================
