TEMPLETON GLOBAL INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1996
700 CENTRAL AVENUE
ST. PETERSBURG, FL 33701 1-800/DIAL BEN
TABLE OF CONTENTS
How Do the Funds Invest Their Assets?........................ 3
What Are the Funds' Potential Risks?.........................13
Investment Restrictions......................................20
Officers and Trustees........................................23
Investment Advisory and Other Services.......................31
How Do the Funds Buy Securities For Their Portfolios?........35
How Do I Buy, Sell and Exchange Shares?......................38
How Are Fund Shares Valued?..................................45
Additional Information on Distributions and Taxes............47
The Funds' Underwriter.......................................56
How Do the Funds Measure Performance?........................62
Miscellaneous Information....................................70
Financial Statements.........................................74
Useful Terms and Definitions.................................75
Appendix.....................................................78
WHEN READING THE SAI, YOU WILL
SEE CERTAIN TERMS IN CAPITAL LETTERS.
THIS MEANS THE TERM IS
EXPLAINED UNDER "USEFUL TERMS AND DEFINITIONS."
The Templeton Global Investment Trust (the "Trust") is an open-end management
investment company with five separate series. This SAI describes each series.
There are four diversified series, each offering two classes of shares:
Templeton Growth and Income Fund ("Growth and Income Fund") - Class I and Class
II; Templeton Global Infrastructure Fund ("Infrastructure Fund") - Class I and
Class II; Templeton Greater European Fund ("Greater European Fund") - Class I
and Class II; and Templeton Latin America Fund ("Latin America Fund") - Class I
and Class II. There is also one non-diversified series, offering one class of
shares: Templeton Americas Government Securities Fund ("Americas Government
Securities Fund").
Each Fund may, separately or collectively, be referred to as the "Fund" or
"Funds," or individually by its name.
Growth and Income Fund's investment objective is high total return, which it
seeks to achieve primarily by investing in equity and debt securities of
domestic and foreign companies. The Fund changed its name from Templeton Global
Rising Dividends Fund on July 10, 1995.
Infrastructure Fund's investment objective is long-term capital growth, which it
seeks to achieve primarily by investing in securities of domestic and foreign
companies that are principally engaged in the development, operation or
rehabilitation of the physical and social infrastructures of various nations.
Greater European Fund's investment objective is long-term capital growth, which
it seeks to achieve by investing in equity securities of companies in Greater
Europe (Western, Central and Eastern Europe and Russia).
Latin America Fund's investment objective is long-term capital growth, which it
seeks to achieve by investing in equity securities and debt obligations of
issuers in Latin American countries.
Americas Government Securities Fund's investment objective is a high level of
current income. A secondary objective is total return. It seeks to achieve this
objective by investing in debt securities of governmental entities located in
the Western Hemisphere.
Each Fund's Prospectus, dated August 1, 1996, as may be amended from time to
time, contains the basic information you should know before investing in a Fund.
For a free copy, call 1-800/DIAL BEN or write a Fund at the address shown.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE
FUNDS, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK;
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
HOW DO THE FUNDS INVEST THEIR ASSETS?
INVESTMENT POLICIES. The investment objective and policies of each Fund are
described in each Fund's Prospectus under the heading "How Do the Funds Invest
Their Assets?"
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which the buyer
of a security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under a repurchase agreement, the seller is required
to maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. The Investment Manager of each Fund will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price. Repurchase agreements may involve risks in the
event of default or insolvency of the seller, including possible delays or
restrictions upon a Fund's ability to dispose of the underlying securities. A
Fund will enter into repurchase agreements only with parties who meet
creditworthiness standards approved by the Board, I.E., banks or broker-dealers
which have been determined by a Fund's Investment Manager to present no serious
risk of becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase transaction.
DEBT SECURITIES. The Funds may invest in debt securities that are rated in any
rating category by S&P or Moody's or that are unrated by any rating agency. As
an operating policy, which may be changed by the Board without shareholder
approval, neither Growth and Income Fund, Infrastructure Fund, Greater European
Fund, nor Latin America Fund will invest more than 5% of its assets in debt
securities rated lower than Baa by Moody's or BBB by S&P. The market value of
debt securities generally varies in response to changes in interest rates and
the financial condition of each issuer. During periods of declining interest
rates, the value of debt securities generally increases. Conversely, during
periods of rising interest rates, the value of such securities generally
declines. These changes in market value will be reflected in a Fund's net asset
value.
Bonds which are rated Baa by Moody's are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated C by
Moody's are the lowest rated class of bonds, and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Bonds rated BBB by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories. Bonds rated D by S&P are
the lowest rated class of bonds, and generally are in payment default. The D
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Although they may offer higher yields than do higher rated securities,
high-risk, low rated debt securities (commonly referred to as "junk bonds") and
unrated debt securities generally involve greater volatility of price and risk
of principal and income, including the possibility of default by, or bankruptcy
of, the issuers of the securities. In addition, the markets in which low rated
and unrated debt securities are traded are more limited than those in which
higher rated securities are traded. The existence of limited markets for
particular securities may diminish a Fund's ability to sell the securities at
fair value either to meet redemption requests or to respond to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for a Fund to obtain accurate market
quotations for the purposes of valuing the Fund's portfolio. Market quotations
are generally available on many low rated or unrated securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of a Fund to achieve its investment
objective may, to the extent of investment in low rated debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the Fund
were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated debt securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in low rated debt securities prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of low
rated debt securities defaults, a Fund may incur additional expenses seeking
recovery.
A Fund may accrue and report interest income on high yield bonds, such as zero
coupon bonds or pay-in-kind securities, even though it receives no cash interest
until the security's maturity or payment date. In order to qualify for
beneficial tax treatment afforded regulated investment companies, and to
generally be relieved of federal tax liabilities, a Fund must distribute all of
its net income and gains to shareholders (see "Additional Information on
Distributions and Taxes") generally on an annual basis. A Fund may have to
dispose of portfolio securities under disadvantageous circumstances to generate
cash or leverage itself by borrowing cash in order to satisfy the distribution
requirement.
Recent legislation, which requires federally insured savings and loan
associations to divest their investments in low rated debt securities, may have
a material adverse effect on a Fund's net asset value and investment practices.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities in which
each Fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or purchase
by an entity, such as a corporation or trust, of specified instruments and the
issuance by that entity of one or more classes of securities ("structured
investments") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions. The extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
each Fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
Each 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 each 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 such Fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investment in these
structured investments may be limited by the restrictions contained in the 1940
Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments. To the extent such investments are illiquid, they will be subject
to a Fund's restrictions on investments in illiquid securities.
CONVERTIBLE SECURITIES. The Funds may invest in convertible securities,
including convertible debt and convertible preferred stock. Convertible
securities are fixed-income securities which may be converted at a stated price
within a specific amount of time into a specified number of shares of common
stock. These securities are usually senior to common stock in a corporation's
capital structure, but usually are subordinated to non-convertible debt
securities. In general, the value of a convertible security is the higher of its
investment value (its value as a fixed-income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). The investment value of a convertible security generally increases
when interest rates decline and generally decreases when interest rates rise.
The conversion value of a convertible security is influenced by the value of the
underlying common stock.
FUTURES CONTRACTS. Each Fund may purchase and sell financial futures contracts.
Although some financial futures contracts call for making or taking delivery of
the underlying securities, in most cases these obligations are closed out before
the settlement date. The closing of a contractual obligation is accomplished by
purchasing or selling an identical offsetting futures contract. Other financial
futures contracts by their terms call for cash settlements.
Each Fund may also buy and sell index futures contracts with respect to any
stock or bond index traded on a recognized stock exchange or board of trade. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. The
index futures contract specifies that no delivery of the actual securities
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the index at the expiration
of the contract.
At the time a Fund purchases a futures contract, an amount of cash, U.S.
government securities, or other highly liquid debt securities equal to the
market value of the contract will be deposited in a segregated account with the
Fund's custodian. When writing a futures contract, a Fund will maintain with its
custodian liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, a Fund may "cover" its
position by owning the instruments underlying the contract or, in the case of an
index futures contract, owning a portfolio with a volatility substantially
similar to that of the index on which the futures contract is based, or holding
a call option permitting the Fund to purchase the same futures contract at a
price no higher than the price of the contract written by the Fund (or at a
higher price if the difference is maintained in liquid assets with the Fund's
custodian).
OPTIONS ON SECURITIES, INDICES AND FUTURES. Each Fund may write covered put and
call options and purchase put and call options on securities, securities indices
and futures contracts that are traded on U.S. and foreign exchanges and in the
over-the-counter markets.
An option on a security or a futures contract is a contract that gives the
purchaser of the option, in return for the premium paid, the right to buy a
specified security or futures contract (in the case of a call option) or to sell
a specified security or futures contract (in the case of a put option) from or
to the writer of the option at a designated price during the term of the option.
An option on a securities index gives the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option.
Each Fund may write a call or put option only if the option is "covered." A call
option on a security or futures contract written by a Fund is "covered" if the
Fund owns the underlying security or futures contract covered by the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security or futures contract is also covered if a
Fund holds a call on the same security or futures contract and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or high grade U.S. Government securities in a
segregated account with its custodian. A put option on a security or futures
contract written by a Fund is "covered" if the Fund maintains cash or
fixed-income securities with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same security or futures
contract and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
A Fund will cover call options on securities indices that it writes by owning
securities whose price changes, in the opinion of the Investment Manager, are
expected to be similar to those of the index, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where a Fund covers a call option
on a securities index through ownership of securities, such securities may not
match the composition of the index. In that event, a Fund will not be fully
covered and could be subject to risk of loss in the event of adverse changes in
the value of the index. A Fund will cover put options on securities indices that
it writes by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations.
A Fund will receive a premium from writing a put or call option, which increases
its gross income in the event the option expires unexercised or is closed out at
a profit. If the value of a security, index or futures contract on which a Fund
has written a call option falls or remains the same, the Fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the portfolio securities
being hedged. If the value of the underlying security, index or futures contract
rises, however, a Fund will realize a loss in its call option position, which
will reduce the benefit of any unrealized appreciation in its investments. By
writing a put option, a Fund assumes the risk of a decline in the underlying
security, index or futures contract. To the extent that the price changes of the
portfolio securities being hedged correlate with changes in the value of the
underlying security, index or futures contract, writing covered put options will
increase a Fund's losses in the event of a market decline, although such losses
will be offset in part by the premium received for writing the option.
Each Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, a Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of a Fund's investments does not
decline as anticipated, or if the value of the option does not increase, each
Funds' loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
accuracy of the correlation between the changes in value of the underlying
security, index or futures contract and the changes in value of a Fund's
security holdings being hedged.
A Fund may purchase call options on individual securities or futures contracts
to hedge against an increase in the price of securities or futures contracts
that it anticipates purchasing in the future. Similarly, a Fund may purchase
call options on a securities index to attempt to reduce the risk of missing a
broad market advance, or an advance in an industry or market segment,
at a time when the Fund holds uninvested cash or short-term debt securities
awaiting investment. When purchasing call options, a Fund will bear the risk of
losing all or a portion of the premium paid if the value of the underlying
security, index or futures contract does not rise.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although a Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, it may experience losses in some cases as a result of such
inability. The value of over-the-counter options purchased by a Fund, as well as
the cover for options written by a Fund, are considered not readily marketable
and are subject to the Trust's limitation on investments in securities that are
not readily marketable. See "Investment Restrictions."
FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against foreign
currency exchange rate risks, each Fund may enter into forward foreign currency
exchange contracts and foreign currency futures contracts, as well as purchase
put or call options on foreign currencies, as described below. Each Fund may
also conduct its foreign currency exchange transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market.
A Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. A Fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security. In addition, for example, when a Fund believes that a
foreign currency may suffer or enjoy a substantial movement against another
currency, it may enter into a forward contract to sell an amount of the former
foreign currency approximating the value of some or all of its portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as "cross-hedging." Because in connection with a Fund's
forward foreign currency transactions, an amount of its assets equal to the
amount of the purchase will be held aside or segregated to be used to pay for
the commitment, a Fund will always have cash, cash equivalents or high quality
debt securities available in an amount sufficient to cover any commitments under
these contracts or to limit any potential risk. The segregated account will be
marked-to-market on a daily basis. While these contracts are not presently
regulated by the Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate forward contracts. In such event, the
Funds' ability to utilize forward contracts in the manner set forth above may be
restricted. Forward contracts may limit potential gain from a positive change in
the relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a Fund
than if it had not engaged in such contracts.
A Fund may purchase and write put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of foreign securities to be
acquired. As is the case with other kinds of options, however, the writing of an
option on foreign currency will constitute only a partial hedge up to the amount
of the premium received, and a Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective hedge
against fluctuation in exchange rates, although, in the event of rate movements
adverse to its position, a Fund may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by a Fund will be traded on U.S. and foreign exchanges or
over-the-counter.
A Fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of a
Fund's portfolio securities or adversely affect the prices of securities that a
Fund intends to purchase at a later date. The successful use of foreign currency
futures will usually depend on the ability of the Investment Manager to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, a Fund may not achieve the anticipated benefits of foreign
currency futures or may realize losses.
WHAT ARE THE FUNDS' POTENTIAL RISKS?
Each Fund has the right to purchase securities in any foreign country, developed
or developing. You should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. The Funds, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its net asset value. Foreign markets have
substantially less volume than the NYSE and securities of some foreign companies
are less liquid and more volatile than securities of comparable U.S. companies.
Commission rates in foreign countries, which are generally fixed rather than
subject to negotiation as in the U.S., are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the U.S.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.
To the extent of the Communist Party's influence, investments in such countries
may involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, a Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, no accounting standards exist in Eastern European countries. Finally,
even though certain Eastern European currencies may be convertible into U.S.
dollars, the conversion rates may be artificial to the actual market values and
may be adverse to Fund shareholders.
Certain Eastern European countries, which do not have market economies, are
characterized by an absence of developed legal structures governing private and
foreign investments and private property. Certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
of foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals.
Governments in certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of a Fund's assets
invested in such country. To the extent such governmental or quasi-governmental
authorities do not satisfy the requirements of the 1940 Act to act as foreign
custodians of a Fund's cash and securities, the Fund's investment in such
countries may be limited or may be required to be effected through
intermediaries. The risk of loss through governmental confiscation may be
increased in such countries.
The Infrastructure Fund, Growth and Income Fund, and Greater European Fund may
each invest a portion of its assets in Russian securities. There can be no
assurance that appropriate sub-custody arrangements will be available to the
Funds if and when one or more of the Funds seeks to invest a portion of its
assets in Russian securities. As a non-fundamental policy, none of these Funds
will invest more than 5% of its total assets in Russian securities.
Investing in Russian securities involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include: (i)
delays in settling portfolio transactions and risk of loss arising out of
Russia's system of share registration and custody; (ii) the risk that it may be
impossible or more difficult than in other countries to obtain and/or enforce a
judgment; (iii) pervasiveness of corruption and crime in the Russian economic
system; (iv) currency exchange rate volatility and the lack of available
currency hedging instruments; (v) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation); (vi) controls on
foreign investment and local practices disfavoring foreign investors and
limitations on repatriation of invested capital, profits and dividends, and on a
Fund's ability to exchange local currencies for U.S. dollars; (vii) the risk
that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (viii) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (ix)
dependency on exports and the corresponding importance of international trade;
(x) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (xi) possible
difficulty in identifying a purchaser of securities held by a Fund due to the
underdeveloped nature of the securities markets.
There is little historical data on Russian securities markets because they are
relatively new and a substantial proportion of securities transactions in Russia
are privately negotiated outside of stock exchanges. Because of the recent
formation of the securities markets as well as the underdeveloped state of the
banking and telecommunications systems, settlement, clearing and registration of
securities transactions are subject to significant risks. Ownership of shares
(except where shares are held through depositories that meet the requirements of
the 1940 Act) is defined according to entries in the company's share register
and normally evidenced by extracts from the register or by formal share
certificates. However, there is no central registration system for shareholders
and these services are carried out by the companies themselves or by registrars
located throughout Russia. These registrars are not necessarily subject to
effective state supervision and it is possible for a Fund to lose its
registration through fraud, negligence or even mere oversight. While a Fund will
endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent inspecting the share
register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive a Fund of
its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for a Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent a Fund from
investing in the securities of certain Russian issues deemed suitable by its
Investment Manager. Further, this also could cause a delay in the sale of
Russian
securities by a Fund if a potential purchaser is deemed unsuitable, which may
expose the Fund to potential loss on the investment.
Investing in Latin American issuers involves a high degree of risk and special
considerations not typically associated with investing in the U. S. and other
more developed securities markets, and should be considered highly speculative.
Such risks include: (i) restrictions or controls on foreign investment and
limitations on repatriation of invested capital and Latin America Fund's ability
to exchange local currencies for U.S. dollars; (ii) higher and sometimes
volatile rates of inflation (including the risk of social unrest associated with
periods of hyper-inflation); (iii) the risk that certain Latin American
countries, which are among the largest debtors to commercial banks and foreign
governments and which have experienced difficulty in servicing sovereign debt
obligations in the past, may negotiate to restructure sovereign debt
obligations; (iv) the risk that it may be impossible or more difficult than in
other countries to obtain and/or enforce a judgment; (v) currency exchange rate
fluctuations and the lack of available currency hedging instruments; (vi) more
substantial government involvement in and control over the local economies; and
(vii) dependency on exports and the corresponding importance of international
trade.
Latin American countries may be subject to a greater degree of economic,
political, and social instability than is the case in the U.S., Japan, or
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, including changes in governmental
control through extra-constitutional means; (ii) popular unrest associated with
demands for improved political, economic, and social conditions; (iii) internal
insurgencies and terrorist activities; (iv) hostile relations with neighboring
countries; (v) ethnic, religious and racial disaffection; and (vi) drug
trafficking.
Each Fund endeavors to buy and sell foreign currencies on as favorable a basis
as practicable. Some price spread on currency exchange (to cover service
charges) may be incurred, particularly when a Fund changes investments from one
country to another or when proceeds of the sale of shares in U.S. dollars are
used for the purchase of securities in foreign countries. Also, some countries
may adopt policies which would prevent a Fund from transferring cash out of the
country or withhold portions of interest and dividends at the source. There is
the possibility of cessation of trading on national exchanges, expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or other amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations.
The Funds may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Some countries in which the Funds may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be internationally traded. Certain of these
currencies have experienced a steady devaluation relative to the U.S. dollar.
Any devaluations in the currencies in which the Funds' portfolio securities are
denominated may have a detrimental impact on the Funds. Through the flexible
policy of the Funds, the Investment Managers endeavor to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time they place the Funds' investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Board considers at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Funds' assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Board also considers the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories (see "Investment Advisory and Other Services"). However,
in the absence of willful misfeasance, bad faith or gross negligence on the part
of an Investment Manager, any losses resulting from the holding of portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of the shareholders. No assurance can be given that the Board's
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments will not occur.
A Fund's ability to reduce or eliminate its futures and related options
positions will depend upon the liquidity of the secondary markets for such
futures and options. The Funds intend to purchase or sell futures and related
options only on exchanges or boards of trade where there appears to be an active
secondary market, but there is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. Use of futures and
options for hedging may involve risks because of imperfect correlations between
movements in the prices of the futures or options and movements in the prices of
the securities being hedged. Successful use of futures and related options by a
Fund for hedging purposes also depends upon the Investment Manager's ability to
predict correctly movements in the direction of the market, as to which no
assurance can be given.
There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when a Fund seeks to close out an
option position. If a Fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by the Fund, it would not be able to close out
the option. If restrictions on exercise were imposed, a Fund might be unable to
exercise an option it has purchased. Except to the extent that a call option on
an index written by a Fund is covered by an option on the same index purchased
by the Fund, movements in the index may result in a loss to the Fund; however,
such losses may be mitigated by changes in the value of the Fund's securities
during the period the option was outstanding.
Additional risks may be involved with the Funds' special investment techniques,
including loans of portfolio securities and borrowing for investment purposes.
These risks are described under the heading "How Do the Funds Invest Their
Assets? - Types of Securities the Funds May Invest In" in each Fund's
Prospectus.
INVESTMENT RESTRICTIONS
The Funds have adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of a Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of a Fund or (ii) 67% or
more of the shares of a Fund present at a shareholder meeting if more than 50%
of the outstanding shares of the Fund are represented at the meeting in person
or by proxy, whichever is less. Each Fund MAY NOT:
1. Invest in real estate or mortgages on real estate (although
the Funds may invest in marketable securities secured by real
estate or interests therein); invest in other open-end
investment companies (except in connection with a merger,
consolidation, acquisition or reorganization); invest in
interests (other than publicly issued debentures or equity
stock interests) in oil, gas or other mineral exploration or
development programs; or purchase or sell commodity contracts
(except futures contracts as described in the Fund's
Prospectus).
2. Purchase any security (other than obligations of the U.S.
government, its agencies or instrumentalities) if, as a
result, as to 75% of a Fund's total assets (a) more than 5% of
the Fund's total assets would then be invested in securities
of any single issuer, or (b) the Fund would then own more than
10% of the voting securities of any single issuer; provided,
however, that this restriction does not apply to Americas
Government Securities Fund.
3. Act as an underwriter; issue senior securities except as set
forth in investment restriction 6 below; or purchase on margin
or sell short, except that each Fund may make margin payments
in connection with futures, options and currency transactions.
4. Loan money, except that a Fund may (a) purchase a portion of
an issue of publicly distributed bonds, debentures, notes and
other evidences of indebtedness, (b) enter into repurchase
agreements and (c) lend its portfolio securities.
5. Borrow money, except that a Fund may borrow money from banks
in an amount not exceeding 33-1/3% of the value of its total
assets (including the amount borrowed).
6. Mortgage, pledge or hypothecate its assets (except as may be
necessary in connection with permitted borrowings); provided,
however, this does not prohibit escrow, collateral or margin
arrangements in connection with its use of options, futures
contracts and options on future contracts.
7. Invest more than 25% of its total assets in a single industry.
8. Participate on a joint or a joint and several basis in any
trading account in securities. (See "How Do the Funds Buy
Securities for their Portfolios?") as to transactions in the
same securities for the Funds and/or other mutual funds and
clients with the same or affiliated advisers.)
If a Fund receives from an issuer of securities held by the Fund subscription
rights to purchase securities of that issuer, and if the Fund exercises such
subscription rights at a time when the Fund's portfolio holdings of securities
of that issuer would otherwise exceed the limits set forth in Investment
Restrictions 2 or 7 above, it will not constitute a violation if, prior to
receipt of securities upon exercise of such rights, and after
announcement of such rights, the Fund has sold at least as many securities of
the same class and value as it would receive on exercise of such rights.
ADDITIONAL RESTRICTIONS. Each Fund has adopted the following additional
restrictions which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, a Fund may not:
1. Purchase or retain securities of any company in which Trustees
or officers of the Trust or of a Fund's Investment Manager,
individually owning more than 1/2 of 1% of the securities of
such company, in the aggregate own more than 5% of the
securities of such company.
2. Invest more than 5% of the value of its total assets in
securities of issuers which have been in continuous operation
less than three years.
3. Invest more than 5% of its net assets in warrants whether or
not listed on the NYSE or American Stock Exchange, and more
than 2% of its net assets in warrants that are not listed on
those exchanges. Warrants acquired in units or attached to
securities are not included in this restriction.
4. Purchase or sell real estate limited partnership interests.
5. Purchase or sell interests in oil, gas and mineral leases
(other than securities of companies that invest in or sponsor
such programs).
6. Invest for the purpose of exercising control over management
of any company.
7. Purchase more than 10% of a company's outstanding voting
securities.
8. Invest more than 15% of the Fund's total assets in securities
that are not readily marketable (including repurchase
agreements maturing in more than seven days and
over-the-counter options purchased by the Fund), including no
more than 10% of its total assets in restricted securities.
Rule 144A securities are not subject to the 10% limitation on
restricted securities, although a Fund will limit its
investment in all restricted securities, including Rule 144A
securities, to 15% of its total assets.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the Trust,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Trust who are responsible for
administering the Trust's day-to-day operations. The affiliations of the
officers and Board members and their principal occupations for the past five
years are shown below. Members of the Board who are considered "interested
persons" of the Trust under the 1940 Act are indicated by an asterisk "*".
<TABLE>
<CAPTION>
POSITION AND
OFFICES WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TRUST DURING THE PAST FIVE YEARS
<S> <C> <C>
HARRIS J. ASHTON Trustee Chairman of the board, president, and chief executive
Metro Center officer of General Host Corporation (nursery and craft
1 Station Place centers); and a director of RBC Holdings (U.S.A.) Inc. (a
Stamford, Connecticut bank holding company) and Bar-S Foods.
Age 64
POSITION AND
OFFICES WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TRUST DURING THE PAST FIVE YEARS
NICHOLAS F. BRADY* Trustee Chairman of Templeton Emerging Markets Investment Trust
102 East Dover Street PLC; chairman of Templeton Latin America Investment Trust
Easton, Maryland PLC; chairman of Darby Overseas Investments, Ltd. (an
Age 66 investment firm) (1994-present); chairman and director of
Templeton Central and Eastern European Fund; director of
the Amerada Hess Corporation, Christiana Companies, and
the H.J. Heinz Company; Secretary of the United States
Department of the Treasury (1988-January 1993); and
chairman of the board of Dillon, Read & Co. Inc.
(investment banking) prior thereto.
F. BRUCE CLARKE Trustee Retired; formerly, credit adviser, National Bank of
19 Vista View Blvd. Canada, Toronto.
Thornhill, Ontario
Age 86
MARTIN L. FLANAGAN* Trustee and Vice Senior vice president, treasurer, and chief financial
777 Mariners Island Blvd. President officer of Franklin Resources, Inc.; director, and
San Mateo, California executive vice president of Templeton Investment Counsel,
Age 36 Inc.; director, president and chief executive officer of
Templeton Global Investors, Inc.; accountant with Arthur
Andersen & Company (1982-1983); and a member of the
International Society of Financial Analysts and the
American Institute of Certified Public Accountants.
HASSO-G VON DIERGARDT- Trustee Farmer; and president of Clairhaven Investments, Ltd. and
NAGLO other private investment companies.
R.R. 3
Stouffville, Ontario
Age 80
POSITION AND
OFFICES WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TRUST DURING THE PAST FIVE YEARS
S. JOSEPH FORTUNATO Trustee Member of the law firm of Pitney, Hardin, Kipp & Szuch;
200 Campus Drive and a director of General Host Corporation.
Florham Park, New Jersey
Age 64
JOHN Wm. GALBRAITH Trustee President of Galbraith Properties, Inc. (personal
360 Central Avenue investment company); director of Gulf West Banks, Inc.
Suite 1300 (bank holding company) (1995-present) and Mercantile Bank
St. Petersburg, Florida (1991-1995); vice chairman of Templeton, Galbraith &
Age 74 Hansberger Ltd. (1986-1992); and chairman of Templeton
Funds Management, Inc. (1974-1991).
ANDREW H. HINES, JR. Trustee Consultant for the Triangle Consulting Group; chairman of
150 2nd Avenue N. the board and chief executive officer of Florida Progress
St. Petersburg, Florida Corporation (1982-February 1990) and director of various
Age 73 of its subsidiaries; chairman and director of Precise
Power Corporation; executive-in-residence of Eckerd
College (1991-present); and a director of Checkers
Drive-In Restaurants, Inc.
CHARLES B. JOHNSON* Trustee, Chairman President, chief executive officer, and director of
777 Mariners Island Blvd. of the Board and Franklin Resources, Inc.; chairman of the board and
San Mateo, California Vice President director of Franklin Advisers, Inc. and Franklin Templeton
Age 63 Distributors,
Inc.; director
of Franklin
Administrative
Services,
Inc., and
General Host
Corporation
and Templeton
Global
Investors,
Inc.; and
officer and
director,
trustee or
managing
general
partner, as
the case may
be, of most
other
subsidiaries
of Franklin
Resources,
Inc.
POSITION AND
OFFICES WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TRUST DURING THE PAST FIVE YEARS
BETTY P. KRAHMER Trustee Director or trustee of various civic associations;
2201 Kentmere Parkway formerly, economic analyst, U.S. Government.
Wilmington, Delaware
Age 67
GORDON S. MACKLIN Trustee Chairman of White River Corporation (information
8212 Burning Tree Road services); director of Fund America Enterprises Holdings,
Bethesda, Maryland Inc., MCI Communications Corporation, Fusion Systems
Age 68 Corporation, Infovest Corporation, MedImmune, Inc. Source
One Mortgage Services Corporation, and Shoppers Express,
Inc. (on-line shopping service); formerly held the
following positions: chairman of Hambrecht and Quist
Group; director of H&Q Healthcare Investors and Lockheed
Martin Corporation; and president of the National
Association of Securities Dealers, Inc.
FRED R. MILLSAPS Trustee Manager of personal investments (1978-present); chairman
2665 N.E. 37th Drive and chief executive officer of Landmark Banking
Fort Lauderdale, Florida Corporation (1969-1978); financial vice president of
Age 67 Florida Power and Light (1965-1969); vice president of The
Federal Reserve Bank of Atlanta (1958-1965); and a
director of various other business and nonprofit
organizations.
MARK G. HOLOWESKO President President and director of Templeton Global Advisors
Lyford Cay Limited; chief investment officer of global equity
Nassau, Bahamas research for Templeton Worldwide, Inc.; president or vice
Age 36 president of the Templeton Funds; formerly, investment
administrator with Roy West Trust Corporation (Bahamas)
Limited (1984-1985).
POSITION AND
OFFICES WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TRUST DURING THE PAST FIVE YEARS
RUPERT H. JOHNSON, JR. Vice President Executive vice president and director of Franklin
777 Mariners Island Blvd. Resources, Inc. and Franklin Templeton Distributors, Inc.;
San Mateo, California president and director of Franklin Advisers, Inc.; director
Age 55 of Franklin Templeton Investor Services, Inc.; and officer
and/or director, trustee or managing general partner, as
the case may be, of most other subsidiaries of Franklin
Resources, Inc., and an officer and/or director, as the
case may be, of various investment companies in the
Franklin Templeton Group.
HARMON E. BURNS Vice President Executive vice president, secretary and director of
777 Mariners Island Blvd. Franklin Resources, Inc.; executive vice president and
San Mateo, California director of Franklin Templeton Distributors, Inc.;
Age 51 executive vice president of Franklin Advisers, Inc.;
director of Franklin Templeton Investor Services, Inc.;
officers and/or director, as the case may be of other
subsidiaries of Franklin Resources, Inc.
CHARLES E. JOHNSON Vice President Senior vice president and director of Franklin Resources,
500 East Broward Blvd. Inc.; senior vice president of Franklin Templeton
Ft. Lauderdale, Florida Distributors, Inc.; president and director of Franklin
Age 40 Institutional Service Corporation; president and chief
executive officer of Templeton Worldwide, Inc.; chairman of
the board of Templeton Investment Counsel, Inc.; vice
president and/or director, as the case may be, for some of
the subsidiaries of Franklin Resources, Inc.; and an
officer and/or director, as the case may be, of various
investment companies in the Franklin Templeton Group.
POSITION AND
OFFICES WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TRUST DURING THE PAST FIVE YEARS
DEBORAH R. GATZEK Vice President Senior vice president and general counsel of Franklin
777 Mariners Island Blvd. Resources, Inc.; senior vice president of Franklin
San Mateo, California Templeton Distributors, Inc.; vice president of Franklin
Age 47 Advisers, Inc. and officer of various investment companies
in the Franklin Templeton Group of Funds.
DORIAN FOYIL Vice President Vice president, Portfolio Management/Research, of
Lyford Cay Templeton Global Advisors Limited; formerly, research
Nassau, Bahamas analyst, UBS Phillips & Drew (London).
Age 38
SAMUEL J. FORESTER, JR. Vice President President of the Templeton Global Bond Managers Division
500 East Broward Blvd. of Templeton Investment Counsel, Inc.; president or vice
Fort Lauderdale, Florida president of other Templeton Funds; founder and partner of
Age 48 Forester, Hairston Investment Management (1989-1990);
managing director (Mid-East Region) of Merrill Lynch,
Pierce, Fenner & Smith Inc. (1987-1988); and an advisor
for Saudi Arabian Monetary Agency (1982-1987).
JOHN R. KAY Vice President Vice president of the Templeton Funds; vice president and
500 East Broward Blvd. treasurer of Templeton Global Investors, Inc. and
Fort Lauderdale, Florida Templeton Worldwide, Inc.; assistant vice president of
Age 56 Franklin
Templeton
Distributors,
Inc.;
formerly, vice
president and
controller of
the Keystone
Group, Inc.
GARY CLEMONS Vice President Research analyst for Templeton Investment Counsel, Inc.
500 East Broward Blvd. (1993-present); formerly, research analyst for Templeton
Fort Lauderdale, Florida Quantitative Advisors, Inc.
Age 39
POSITION AND
OFFICES WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TRUST DURING THE PAST FIVE YEARS
DOUGLAS R. LEMPEREUR Vice President Senior vice president of the Templeton Global Bond
500 East Broward Blvd. Managers Division of Templeton Investment Counsel, Inc.;
Fort Lauderdale, Florida formerly, securities analyst for Colonial Management
Age 47 Associates
(1985-1988),
Standish, Ayer
& Wood
(1977-1985),
and The First
National Bank
of Chicago
(1974-1977).
NEIL S. DEVLIN Vice President Senior vice president, Portfolio Management/Research, of
500 East Broward Blvd. the Templeton Global Bond Managers division of Templeton
Fort Lauderdale, Florida Investment Counsel, Inc.; formerly, portfolio manager and
Age 39 bond analyst for Constitutional Capital Management
(1985-1987); and a bond trader and research analyst for
Bank of New England (1982-1985).
JAMES R. BAIO Treasurer Certified public accountant; treasurer of the Templeton
500 East Broward Blvd. Funds; senior vice president of Templeton Worldwide, Inc.,
Fort Lauderdale, Florida Templeton Global Investors, Inc., and Templeton Funds
Age 42 Trust
Company;
formerly,
senior tax
manager for
Ernst & Young
(certified
public
accountants)
(1977-1989).
</TABLE>
The table above shows the officers and Board members who are affiliated with
Distributors and the Investment Managers. Nonaffiliated members of the Board and
Mr. Brady are currently paid an annual retainer and/or fees for attendance at
Board and Committee meetings, the amount of which is based on the level of
assets in each Fund. Accordingly, the Trust currently pays the independent
Trustees and Mr. Brady an annual retainer of $1,000 and a fee of $100 per
meeting of the Board and its portion of a flat fee of $2,000 for each Audit
Committee meeting and/or Nominating and Compensation Committee meeting attended.
As shown above, some of the nonaffiliated Board members also serve as directors,
trustees or managing general partners of other investment companies in the
Franklin Templeton Group of Funds. They may receive fees from these funds for
their services. The following table provides the total fees paid to
nonaffiliated Board members and Mr. Brady by the Trust and by other funds in the
Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS IN THE
TOTAL FEES RECEIVED FROM FRANKLIN TEMPLETON GROUP
TOTAL FEES RECEIVED THE FRANKLIN TEMPLETON OF FUNDS ON WHICH EACH
FROM THE TRUST* GROUP OF FUNDS** SERVES***
NAME
<S> <C> <C> <C>
Harris J. Ashton $425 $ 327,925 55
Nicholas F. Brady 425 98,225 23
F. Bruce Clarke 479 83,350 19
Hasso-G von Diergardt-
Naglo 425 77,350 19
S. Joseph Fortunato 425 344,745 57
John Wm. Galbraith 325 70,100 22
Andrew H. Hines, Jr. 809 106,325 23
Betty P. Krahmer 425 93,475 23
Gordon S. Macklin 755 321,525 52
Fred R. Millsaps 479 104,325 23
</TABLE>
* For the fiscal year ended March 31, 1996.
** For the calendar year ended December 31, 1995.
*** We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment
company for which the Board members are responsible. The Franklin
Templeton Group of Funds currently includes 60 registered investment
companies, with approximately 164 U.S. based funds or series.
Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each fund
in the Franklin Templeton Group of Funds for which they serve as director,
trustee or managing general partner. No officer or Board member received any
other compensation, including pension or retirement benefits, directly or
indirectly from the Trust or other funds in the Franklin Templeton Group of
Funds. Certain officers or Board members who are shareholders of Resources may
be deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As of June 25, 1996, the officers and Board members, as a group, owned less than
1% of each class of each Fund.
Many of the Board members also own shares in other funds in the Franklin
Templeton Group of Funds. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers and the father and uncle, respectively, of Charles E. Johnson.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGERS AND SERVICES PROVIDED. Growth and Income Fund's and Greater
European Fund's Investment Manager is TGA. Infrastructure Fund's and Latin
America Fund's Investment Manager is TICI. Americas Government Securities Fund's
Investment Manager is TICI, through its TGBM division. Each Fund's Investment
Manager, provides investment research and portfolio management services,
including the selection of securities for the Fund to buy, hold or sell and the
selection of brokers through whom the Fund's portfolio transactions are
executed. TGA renders its services to Growth and Income Fund and Greater
European Fund from outside the U.S. Each Investment Manager's activities are
subject to the review and supervision of the Board to whom the Investment
Manager renders periodic reports of the Fund's investment activities. Each
Investment Manager is covered by fidelity insurance on its officers, directors
and employees for the protection of the Trust.
The Investment Managers and their affiliates act as investment managers to
numerous other investment companies or funds and accounts. Each Investment
Manager may give advice and take action with respect to any of the other funds
it manages, or for its own account, that may differ from action taken by the
Investment Manager on behalf of each Fund. Similarly, with respect to a Fund,
the Investment Manager is not obligated to recommend, buy or sell, or to refrain
from recommending, buying or selling any security that the Investment Manager
and access persons, as defined by the 1940 Act, may buy or sell for its or their
own account or for the accounts of any other fund. The Investment Manager is not
obligated to refrain from investing in securities held by a Fund or other funds
that it manages. Of course, any transactions for the accounts of an Investment
Manager and other access persons will be made in compliance with the Trust's
Code of Ethics.
INVESTMENT MANAGEMENT AGREEMENTS. Under its investment management agreement,
Growth and Income Fund pays TGA a monthly fee equal on an annual basis to 0.75%
of its average daily net assets. Infrastructure Fund pays TICI a monthly fee
equal on an annual basis to 0.75% of its average daily net assets. Americas
Government Securities Fund pays TICI a monthly fee equal on an annual basis to
0.60% of its average daily net assets. Greater European Fund pays TGA a monthly
fee equal on an annual basis to 0.75% of its average daily net assets. Latin
America Fund pays TICI a monthly fee equal on an annual basis to 1.25% of its
average daily net assets.
The investment management fee will be reduced as necessary to comply with the
most stringent limits on Fund expenses of any state where a Fund offers it
shares. Currently, the most restrictive limitation on a fund's allowable
expenses for each fiscal year, as a percentage of its average net assets, is
2.5% of the first $30 million in assets, 2% of the next $70 million, and 1.5% of
assets over $100 million. Expense reductions have not been necessary based on
state requirements.
An investment management agreement for a Fund may continue in effect for
successive annual periods if its continuance is specifically approved at least
annually by a vote of the Board or by a vote of the holders of a majority of the
Fund's outstanding voting securities, and in either event by a majority vote of
the Board members who are not parties to the investment management agreement or
interested persons of any such party (other than as members of the Board), cast
in person at a meeting called for that purpose. Each investment management
agreement may be terminated without penalty at any time by the Board or by a
vote of the holders of a majority of a Fund's outstanding voting securities, or
by the respective Investment Manager on 60 days' written notice, and will
automatically terminate in the event of its assignment, as defined in the 1940
Act.
SUB-ADVISORY AGREEMENT. Under a sub-advisory agreement between TICI and
Advisers, Advisers provides TICI with investment advisory assistance and
portfolio management advice with respect to Americas Government Securities
Fund's portfolio. Advisers provides TICI on an ongoing basis with research
services, including information, analytical reports, computer screening studies,
statistical data and factual resumes pertaining to securities.
The sub-advisory agreement may continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of Americas Government
Securities Fund's outstanding voting securities, and in either event by a
majority vote of the Board members who are not parties to the sub-advisory
agreement or interested persons of any such party (other than as members of the
Board) cast in person at a meeting called for that purpose. The sub-advisory
agreement may be terminated without penalty at any time by the Trust's Board or
by vote of a majority of Americas Government Securities Fund's outstanding
shares or by either TICI or Advisers upon not less than 60 days' written notice,
and will automatically terminate in the event of its assignment, as defined in
the 1940 Act.
SUB-ADVISORY FEES. For its services, TICI pays to Advisers a fee in U.S. dollars
at an annual rate of 0.25% of Americas Government Securities Fund's average
daily net assets. During the fiscal year ended March 31, 1996 and the period
June 27, 1994 to March 31, 1995, Advisers received sub-advisory fees of $8,033
and $2,932.
BUSINESS MANAGER AND SERVICES PROVIDED. The Business Manager provides office
space and furnishings, facilities and equipment required for managing the
business affairs of the Funds. The Business Manager also maintains all internal
bookkeeping, clerical, secretarial and administrative personnel and services and
provides certain telephone and other mechanical services. The Business Manager
is covered by fidelity insurance on its officers, directors and employees for
the protection of the Trust.
BUSINESS MANAGEMENT AGREEMENT. Under its business management agreement, the
Business Manager receives a monthly fee equal on an annual basis to 0.15% of the
first $200,000,000 of the Trust's aggregate average daily net assets (I.E.,
total of the Funds), reduced to 0.135% annually of the Trust's aggregate net
assets in excess of $200,000,000, further reduced to 0.1% annually of such net
assets in excess of $700,000,000, and further reduced to 0.075% annually of such
net assets in excess of $1,200 million. The fee is allocated between the Funds
according to their respective average daily net assets. Each class of shares of
each Fund pays a portion of the fee, determined by the proportion of the Fund
that it represents.
INVESTMENT MANAGEMENT AND BUSINESS MANAGEMENT FEES. For the fiscal years and
periods indicated below, before fee reductions and expense limitations, the
Funds' investment management and business management fees totaled:
<TABLE>
<CAPTION>
ONE YEAR ONE YEAR MARCH 14, 1994
ENDED ENDED TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
GROWTH & INCOME FUND
Investment management fees $64,366 -0- $25,969
Business management fees 12,868 -0- 5,188
INFRASTRUCTURE FUND
Investment management fees $158,648 -0- $75,663
Business management fees 31,729 -0- 15,126
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR JUNE 27, 1994
ENDED TO
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
AMERICAS GOVERNMENT SECURITIES FUND
Investment management fees
Business management fees $19,280 $7,036
4,822 1,752
</TABLE>
MAY 8, 1995
TO
MARCH 31, 1996
GREATER EUROPEAN FUND
Investment management fees $24,741
Business management fees 4,949
LATIN AMERICA FUND
Investment management fees 44,350
Business management fees 5,322
Under an agreement by the respective Investment Manager and the Business Manager
to limit their fees, each Fund (except for Infrastructure Fund) paid no
investment management or business management fees for the fiscal years and
periods indicated above. The agreement to limit the expenses of Infrastructure
Fund was terminated on April 15, 1995. Infrastructure Fund paid investment
management and business management fees for the fiscal year and period as
follows:
<TABLE>
<CAPTION>
ONE YEAR MARCH 14, 1994
ENDED TO
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Investment management fees $158, 648 $75,663
Business management fees 31,729 15,126
</TABLE>
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
CUSTODIAN. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, New York 11245, and at the offices of its branches and
agencies throughout the world, acts as custodian of the each Fund's. The
custodian does not participate in decisions relating to the purchase and sale of
portfolio securities.
AUDITORS. McGladrey & Pullen LLP, 555 Fifth Avenue, New York, New York 10017 are
the Funds' independent auditors. During the fiscal year ended March 31, 1996,
their auditing services consisted of rendering opinions on the financial
statements of each Fund included in the Funds' Annual Report to Shareholders for
the fiscal year ended March 31, 1996, and review of the Trust's filings with the
SEC and the IRS.
HOW DO THE FUNDS BUY SECURITIES FOR THEIR PORTFOLIOS?
The selection of brokers and dealers to execute transactions in each Fund's
portfolio is made by the Fund's Investment Manager in accordance with criteria
set forth in the investment management agreement and any directions that the
Board may give.
When placing a portfolio transaction, each Investment Manager seeks to obtain
prompt execution of orders at the most favorable net price. When portfolio
transactions are done on a securities exchange, the amount of commission paid by
a Fund is negotiated between the Investment Manager and the broker executing the
transaction. The determination and evaluation of the reasonableness of the
brokerage commissions paid in connection with portfolio transactions are based
to a large degree on the professional opinions of the persons responsible for
the placement and review of the transactions. These opinions are based on, among
others, the experience of these individuals in the securities industry and
information available to them about the level of commissions being paid by other
institutional investors of comparable size. Each Investment Manager will
ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of the Investment Manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
The amount of commission is not the only factor an Investment Manager considers
in the selection of a broker to execute a trade. If an Investment Manager
believes it is in a Fund's best interest, the Investment Manager may place
portfolio transactions with brokers who provide the types of services described
below, even if it means the Fund will pay a higher commission than if no weight
were given to the broker's furnishing of these services. This will be done only
if, in the opinion of an Investment Manager, the amount of any additional
commission is reasonable in relation to the value of the services. Higher
commissions will be paid only when the brokerage and research services received
are bona fide and produce a direct benefit to a Fund or assist an Investment
Manager in carrying out its responsibilities to a Fund, or when it is otherwise
in the best interest of a Fund to do so, whether or not such services may also
be useful to the Investment Manager in advising other clients.
When an Investment Manager believes several brokers are equally able to provide
the best net price and execution, it may decide to execute transactions through
brokers who provide quotations and other services to a Fund, in an amount of
total brokerage as may reasonably be required in light of these services.
Specifically, these services may include providing the quotations necessary to
determine a Fund's net asset value, as well as research, statistical and other
data.
It is not possible to place a dollar value on the special executions or on the
research services received by an Investment Manager from dealers effecting
transactions in portfolio securities. The allocation of transactions in order to
obtain additional research services permits each Investment Manager to
supplement its own research and analysis activities and to receive the views and
information of individuals and research staff of other securities firms. As long
as it is lawful and appropriate to do so, each Investment Manager and its
affiliates may use this research and data in their investment advisory
capacities with other clients. If the Trust's officers are satisfied that the
best execution is obtained, the sale of Fund shares (which shall be deemed to
include also shares of other funds which have either the same investment adviser
or an investment adviser affiliated with a Fund's Investment Manager) may also
be considered a factor in the selection of broker-dealers to execute a Fund's
portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it may sometimes receive certain fees when a Fund tenders portfolio
securities pursuant to a tender-offer solicitation. As a means of recapturing
brokerage for the benefit of a Fund, any portfolio securities tendered by a Fund
will be tendered through Distributors if it is legally permissible to do so. In
turn, the next investment management fee payable to that Fund's Investment
Manager will be reduced by the amount of any fees received by Distributors in
cash, less any costs and expenses incurred in connection with the tender.
If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by an Investment Manager are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by the Investment Manager, taking into account the respective sizes of the funds
and the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as a Fund is concerned. In other cases it is possible that the ability to
participate in volume transactions and to negotiate lower brokerage commissions
will be beneficial to a Fund.
During the fiscal years and periods indicated below, each Fund paid the
following brokerage commissions:
<TABLE>
<CAPTION>
ONE YEAR ONE YEAR MARCH 14, 1994
ENDED ENDED TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Growth & Income Fund $26,767 $11,237 -0-
Infrastructure Fund 56,451 63,971 -0-
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR JUNE 27, 1994
ENDED TO
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Americas Government Securities Fund
-0- -0-
</TABLE>
MARCH 8, 1945
TO
MARCH 31, 1996
Greater European Fund $17,067
Latin America Fund 20,945
As of March 31, 1996, each Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
Each Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities Dealers may at times receive the entire
sales charge. A Securities Dealer who receives 90% or more of the sales charge
may be deemed an underwriter under the Securities Act of 1933, as amended.
Securities laws of states where a Fund offers its shares may differ from federal
law. Banks and financial institutions that sell shares of a Fund may be required
by state law to register as securities dealers. Financial institutions or their
affiliated brokers may receive an agency transaction fee in the percentages
indicated in the table under "How Do I Buy Shares? - Purchase Price of Fund
Shares" in the respective Prospectus.
When you buy shares, if you submit a check or a draft that is returned unpaid to
a Fund we may impose a $10 charge against your account for each returned item.
Under agreements with certain banks in Taiwan, Republic of China, the Funds'
shares are available to these banks' trust accounts without a sales charge. The
banks may charge service fees to their customers who participate in the trusts.
A portion of these service fees may be paid to Distributors or one of its
affiliates to help defray expenses of maintaining a service office in Taiwan,
including expenses related to local literature fulfillment and communication
facilities.
Class I shares of a Fund may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class I
shares may be offered with the following schedule of sales charges for all Funds
except Americas Government Securities Fund:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE
Under $30,000 3.0%
$30,000 but less than $50,000 2.5%
$50,000 but less than $100,000 2.0%
$100,000 but less than $200,000 1.5%
$200,000 but less than $400,000 1.0%
$400,000 or more 0%
In conformity with local business practices in Taiwan, shares of Americas
Government Securities Fund may be offered with the following schedule of sales
charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE
Under $30,000 3.0%
$30,000 but less than $100,000 2.0%
$100,000 but less than $400,000 1.0%
$400,000 or more 0%
OTHER PAYMENTS TO SECURITIES DEALERS. For all Funds, except for Americas
Government Securities Fund, Distributors will pay the following commissions, out
of its own resources, to Securities Dealers who initiate and are responsible for
purchases of Class I shares of $1 million or more: 1% on sales of $1 million 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 of $100 million or more.
For Americas Government Securities Fund, Distributors will pay the following
commissions, out of its own resources, to Securities Dealers who initiate and
are responsible for purchases of Class I shares of $1 million or more: 0.75% on
sales of $1 million to $2 million, plus 0.60% 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 of $100 million or more.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to Securities Dealers who initiate and are responsible for
purchases of Class I shares by certain retirement plans pursuant to a sales
charge waiver, as discussed in the respective Prospectus: 1% on sales of
$500,000 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 of $100 million or more. Distributors may
make these payments in the form of contingent advance payments, which may be
recovered from the securities dealer or set off against other payments due to
the dealer if shares are sold within 12 months of the calendar month of
purchase. Other conditions may apply. All terms and conditions may be imposed by
an agreement between Distributors, or one of its affiliates, and the securities
dealer.
These breakpoints are reset every 12 months for purposes of additional
purchases.
LETTER OF INTENT. You may qualify for a reduced sales charge when you buy Class
I shares, or shares of Americas Government Securities Fund, as described in each
Fund's Prospectus. At any time within 90 days after the first investment that
you want to qualify for a reduced sales charge, you may file with a Fund a
signed shareholder application with the Letter of Intent section completed.
After the Letter is filed, each additional investment will be entitled to the
sales charge applicable to the level of investment indicated on the Letter.
Sales charge reductions based on purchases in more than one Franklin Templeton
Fund will be effective only after notification to Distributors that the
investment qualifies for a discount. Your holdings in the Franklin Templeton
Funds, including Class II shares, acquired more than 90 days before the Letter
is filed, will be counted towards completion of the Letter but will not be
entitled to a retroactive downward adjustment in the sales charge. Any
redemptions you make during the 13-month period, except in the case of certain
retirement plans, will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter have been completed. If
the Letter is not completed within the 13-month period, there will be an upward
adjustment of the sales charge, depending on the amount actually purchased (less
redemptions) during the period. The upward adjustment does not apply to certain
retirement plans. If you execute a Letter prior to a change in the sales charge
structure of a Fund, you may complete the Letter at the lower of the new sales
charge structure or the sales charge structure in effect at the time the Letter
was filed.
As mentioned in each Fund's Prospectus, five percent (5%) of the amount of the
total intended purchase will be reserved in Class I shares of the Fund
registered in your name until you fulfill the Letter. This policy of reserving
shares does not apply to certain retirement plans. If total purchases, less
redemptions, equal the amount specified under the Letter, the reserved shares
will be deposited to an account in your name or delivered to you or as you
direct. If total purchases, less redemptions, exceed the amount specified under
the Letter and is an amount that would qualify for a further quantity discount,
a retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made pursuant to the Letter (to reflect such
further quantity discount) on purchases made within 90 days before and on those
made after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the offering price applicable to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the
Letter, you will remit to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount of sales charge that
would have applied to the aggregate purchases if the total of the purchases had
been made at a single time. Upon remittance, the reserved shares held for your
account will be deposited to an account in your name or delivered to you or as
you direct. If within 20 days after written request the difference in sales
charge is not paid, the redemption of an appropriate number of reserved shares
to realize the difference will be made. In the event of a total redemption of
the account prior to fulfillment of the Letter, the additional sales charge due
will be deducted from the proceeds of the redemption, and the balance will be
forwarded to you.
If a Letter is executed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at net asset value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
each Fund's Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of a Fund under the exchange privilege, the Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
each Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment objective exist
immediately. This money will then be withdrawn from the short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at net asset value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in each Fund's Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by a Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the first business day of the month in
which a payment is scheduled.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from a Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
A Fund may discontinue a systematic withdrawal plan by notifying you in writing
and will automatically discontinue a systematic withdrawal plan if all shares in
your account are withdrawn or if a Fund receives notification of the
shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to a Fund in a
timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your securities dealer.
REDEMPTIONS IN KIND. Each Fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of a Fund's net assets at the beginning of the 90-day period. This commitment is
irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of a Fund, in case of
an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of a Fund. In these circumstances, the
securities distributed would be valued at the price used to compute a Fund's net
assets and you may incur brokerage fees in converting the securities to cash.
Each Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to a Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at net asset value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of a Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
SPECIAL SERVICES. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by a Fund.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with a Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such owners. For each beneficial owner in
the omnibus account, a Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the net asset value per share of each class of each Fund separately
as of the scheduled close of the NYSE, generally 4:00 p.m. Eastern time, each
day that the NYSE is open for trading. As of the date of this SAI, the Trust is
informed that the NYSE observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of each Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by an Investment Manager.
Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
a Fund is its last sale price on the relevant exchange prior to the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the net asset value of each class for each Fund is not calculated. Thus,
the calculation of the net asset value of each class for each Fund does not take
place contemporaneously with the determination of the prices of many of the
portfolio securities used in the calculation and, if events materially affecting
the values of these foreign securities occur, the securities will be valued at
fair value as determined by management and approved in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the net asset value of each class is determined as of such times. Occasionally,
events affecting the values of these securities may occur between the times at
which they are determined and the scheduled close of the NYSE that will not be
reflected in the computation of the net asset value of each class. If events
materially affecting the values of these securities occur during this period,
the securities will be valued at their fair value as determined in good faith by
the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, a
Fund may utilize a pricing service, bank or securities dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from a Fund:
1. INCOME DIVIDENDS. A Fund receives income generally in the form of dividends,
interest and other income derived from its investments. This income, less the
expenses incurred in a Fund's operations, is its net investment income from
which income dividends may be distributed. Thus, the amount of dividends paid
per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. A Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by a Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made twice each year. One distribution may be made in December to reflect any
net short-term and net long-term capital gains realized by a Fund as of October
31 of that year. Any net short-term and net long-term capital gains realized by
a Fund during the remainder of the fiscal year may be distributed following the
end of the fiscal year. These distributions, when made, will generally be fully
taxable to a Fund's shareholders. Each Fund may make one distribution derived
from net short-term and net long-term capital gains in any year or adjust the
timing of its distributions for operational or other reasons.
TAXES
As stated in each Fund's Prospectus, the Fund has elected to be treated as a
regulated investment company under Subchapter M of the Code. The Board reserves
the right not to maintain the qualification of a Fund as a regulated investment
company if it determines this course of action to be beneficial to shareholders.
In that case, a Fund will be subject to federal and possibly state corporate
taxes on its taxable income and gains, and distributions to shareholders will be
taxable to the extent of a Fund's available earnings and profits.
The following discussion summarizes certain U.S. federal tax considerations
incident to an investment in a Fund.
Each Fund intends to qualify as a regulated investment company under the Code.
To so qualify, each Fund must, among other things: (a) derive at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities and gains
from the sale or other disposition of foreign currencies, or other income
(including gains from options, futures contracts and forward contracts) derived
with respect to the Fund's business of investing in stocks, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of the following assets held for less than three months: (i) stock
and securities, (ii) options, futures and forward contracts (other than options,
futures and forward contracts on foreign currencies), and (iii) foreign
currencies (and options, futures and forward contracts on foreign currencies)
which are not directly related to the Fund's principal business of investing in
stocks and securities (or options and futures with respect to stock or
securities); (c) diversify its holdings so that, at the end of each quarter, (i)
at least 50% of the value of the Fund's total assets is represented by cash and
cash items, U.S. government securities, securities of other regulated investment
companies, and other securities, with such other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the Fund's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's total assets is
invested in the securities (other than U.S. government securities or securities
of other regulated investment companies) of any one issuer or of any two or more
issuers that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses; and (d) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses) each taxable year.
The Treasury Department is authorized to issue regulations providing that
foreign currency gains that are not directly related to a Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) will be excluded from the income which qualifies
for purposes of the 90% gross income requirement described above. To date,
however, no such regulations have been issued.
The status of the Funds as regulated investment companies does not involve
government supervision of management or of their investment practices or
policies. As a regulated investment company, a Fund generally will be relieved
of liability for U.S. federal income tax on that portion of its net investment
income and net realized capital gains which it distributes to its shareholders.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement also are subject to a nondeductible 4% excise tax. To
prevent application of the excise tax, each Fund intends to make distributions
in accordance with the calendar year distribution requirement.
Dividends of net investment income and net short-term capital gains are taxable
to you as ordinary income. Distributions of net investment income may be
eligible for the corporate dividends-received deduction to the extent
attributable to a Fund's qualifying dividend income. However, the alternative
minimum tax applicable to corporations may reduce the benefit of the
dividends-received deduction. Distributions of net capital gains (the excess of
net long-term capital gains over net short-term capital losses) designated by a
Fund as capital gain dividends are taxable to you as long-term capital gains,
regardless of the length of time you have held the Fund's shares, and are not
eligible for the dividends-received deduction. Generally, dividends and
distributions are taxable to you, whether received in cash or reinvested in
shares of a Fund. Any distributions that are not from a Fund's net investment
income or net capital realized gain may be characterized as a return of capital
to you or, in some cases, as capital gain. You will be notified annually as to
the federal tax status of dividends and distributions you receive and any tax
withheld thereon.
Distributions by a Fund reduce the net asset value of the Fund shares. Should a
distribution reduce the net asset value below your cost basis, the distribution
nevertheless would be taxable to you as ordinary income or capital gain as
described above, even though, from an investment standpoint, it may constitute a
partial return of capital. In particular, you should be careful to consider the
tax implication of buying shares just prior to a distribution by a Fund. The
price of shares purchased at that time includes the amount of the forthcoming
distribution, but the distribution will generally be taxable to you.
Certain of the debt securities acquired by the Funds may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Funds, original issue discount that accrues on a
debt security in a given year generally is treated for Federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements of the Code.
Some of the debt securities may be purchased by the Funds at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of a Fund, at a constant yield to maturity which takes into
account the semiannual compounding of interest.
A Fund may invest in debt securities issued in bearer form. Special rules
applicable to bearer debt may in some cases result in (i) treatment of gain
realized with respect to such a debt security as ordinary income and (ii)
disallowance of deductions for losses realized on dispositions of such debt
securities. If these special rules apply, the amount that must be distributed to
Fund shareholders may be increased as compared to a fund that did not invest in
debt securities issued in bearer form.
A Fund may invest in stocks of foreign companies that are classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
company is classified as a PFIC if at least one-half of its assets constitute
investment-type assets or 75% or more of its gross income is investment-type
income. Under the PFIC rules, an "excess distribution" received with respect to
PFIC stock is treated as having been realized ratably over the period during
which a Fund held the PFIC stock. A Fund itself will be subject to tax on the
portion, if any, of the excess distribution that is allocated to that Fund's
holding period in prior taxable years (and an interest factor will be added to
the tax, as if the tax had actually been payable in such prior taxable years)
even though the Fund distributes the corresponding income to shareholders.
Excess distributions include any gain from the sale of PFIC stock as well as
certain distributions from a PFIC. All excess distributions are taxable as
ordinary income.
A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking-to-market the Funds' PFIC
shares at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would generally be eliminated, but the Funds could, in limited circumstances,
incur nondeductible interest charges. Each Fund's intention to qualify annually
as a regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC stock, as well as subject a Fund itself to tax on
certain income from PFIC stock, the amount that must be distributed to
shareholders, and which will be taxed to you as ordinary income or long-term
capital gain, may be increased or decreased substantially as compared to a fund
that did not invest in PFIC stock.
Income received by a Fund from sources within foreign countries may be subject
to withholding and other income or similar taxes imposed by such countries. If
more than 50% of the value of a Fund's total assets at the close of its taxable
year consists of securities of foreign corporations, that Fund will be eligible
and intends to elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by that Fund. Pursuant to this election, you will be required
to include in gross income (in addition to taxable dividends actually received)
your pro rata share of the foreign taxes paid by a Fund, and will be entitled
either to deduct (as an itemized deduction) your pro rata share of foreign
income and similar taxes in computing your taxable income or to use it as a
foreign tax credit against your U.S. federal income tax liability, subject to
limitations. No deduction for foreign taxes may be claimed if you do not itemize
deductions, but in such case you may be eligible to claim the foreign tax credit
(see below). You will be notified within 60 days after the close of the relevant
Fund's taxable year whether the foreign taxes paid by the Fund will "pass
through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed your U.S. tax attributable to your foreign source taxable income. For
this purpose, if the pass-through election is made, the source of a Fund's
income flows through to its Shareholders. With respect to a Fund, gains from the
sale of securities will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign
currency-denominated debt securities, receivables and payables, will be treated
as ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit), including the foreign source passive income
passed through by a Fund. You may be unable to claim a credit for the full
amount of your proportionate share of the foreign taxes paid by a Fund. Foreign
taxes may not be deducted in computing alternative minimum taxable income and
the foreign tax credit can be used to offset only 90% of the alternative minimum
tax (as computed under the Code for purposes of this limitation) imposed on
corporations and individuals. If a Fund is not eligible to make the election to
"pass through" to its shareholders its foreign taxes, the foreign income taxes
it pays generally will reduce investment company taxable income and the
distributions by a Fund will be treated as U.S. source income.
Certain options, futures, and foreign currency forward contracts in which the
Funds may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"); however, foreign currency gains or losses (as
discussed below) arising from certain section 1256 contracts may be treated as
ordinary income or loss. Also, section 1256 contracts held by a Fund at the end
of each taxable year (and on certain other dates as prescribed under the Code)
are "marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to shareholders.
A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If a Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to you as ordinary income or long-term
capital gain may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
Requirements relating to each Fund's tax status as a regulated investment
company may limit the extent to which a Fund will be able to engage in
transactions in options, futures, and foreign currency forward contracts.
If a Fund invests in another investment company, it is possible that the Fund
would not receive information or distributions from the underlying investment
company in a time frame that permits the Fund to meet its tax-related
requirements in an optimal manner. However, it is anticipated that the Fund
would seek to minimize these risks. The diversification and distribution
requirements applicable to each Fund may limit the extent to which each Fund
will be able to invest in other investment companies.
Under the Code, gains or losses attributable to fluctuations in foreign currency
exchange rates which occur between the time a Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time a Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of a
Fund's net investment income to be distributed to its shareholders as ordinary
income. For example, fluctuations in exchange rates may increase the amount of
income that a Fund must distribute in order to qualify for treatment as a
regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If section 988 losses exceed
other net investment income during a taxable year, a Fund would not be able to
make ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as return of capital to shareholders for
Federal income tax purposes, rather than as an ordinary dividend, reducing your
basis in your Fund shares, or as a capital gain.
Upon the sale or exchange of your shares, you will realize a taxable gain or
loss depending upon your basis in the shares. Such gain or loss will be treated
as capital gain or loss if the shares are capital assets in your hands, and
generally will be long-term if your holding period for the shares is more than
one year and generally otherwise will be short-term. Any loss realized on a sale
or exchange will be disallowed to the extent that the shares disposed of are
replaced (including replacement through the reinvesting of dividends and capital
gain distributions in a Fund) within a period of 61 days beginning 30 days
before and ending 30 days after the disposition of the shares. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss. Any loss realized by you on the sale of a Fund's shares held by you for
six months or less will be treated for federal income tax purposes as a
long-term capital loss to the extent of any distributions of long-term capital
gains you received with respect to such shares.
In some cases, you will not be permitted to take sales charges into account for
purposes of determining the amount of gain or loss realized on the disposition
of your shares. This prohibition generally applies where (i) you incur a sales
charge in acquiring the stock of a regulated investment company, (ii) the stock
is disposed of before the 91st day after the date on which it was acquired, and
(iii) you subsequently acquire shares of the same or another regulated
investment company and the otherwise applicable sales charge is reduced or
eliminated under a "reinvestment right" received upon the initial purchase of
shares of stock. In that case, the gain or loss recognized will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales charge with respect to the newly
acquired shares is reduced as a result of having incurred a sales charge
initially. Sales charges affected by this rule are treated as if they were
incurred with respect to the stock acquired under the reinvestment right. This
provision may be applied to successive acquisitions of stock.
Each Fund generally will be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid, capital gain distributions, and
redemption proceeds to you if (i) you fail to furnish a Fund with your correct
taxpayer identification number or social security number and to make such
certifications as a Fund may require, (ii) the IRS notifies you or a Fund that
you have failed to report properly certain interest and dividend income to the
IRS and to respond to notices to that effect, or (iii) when required to do so,
you fail to certify that you are not subject to backup withholding. Any amounts
withheld may be credited against your federal income tax liability.
Dividends, including capital gain dividends, declared in October, November, or
December with a record date in such month and paid during the following January
will be treated as having been paid by a Fund and received by shareholders on
December 31 of the calendar year in which declared, rather than the calendar
year in which the dividends are actually received.
Distributions also may be subject to state, local and foreign taxes. U.S. tax
rules applicable to foreign investors may differ significantly from those
outlined above. This discussion does not purport to deal with all of the tax
consequences applicable to shareholders. You are advised to consult your own tax
advisers for details with respect to the particular tax consequences of an
investment in a Fund.
THE FUNDS' UNDERWRITER
Pursuant to underwriting agreements, Distributors acts as principal underwriter
in a continuous public offering for all classes of each Fund's shares. Each
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of a Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 60 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
In connection with the offering of each Fund shares, the following table sets
forth aggregate underwriting commissions, the net underwriting discounts and
commissions retained by Distributors after allowances to dealers, and
compensation received by Distributors in connection with redemptions or
repurchases of Fund shares, for each of the fiscal years and periods indicated
below.
<TABLE>
<CAPTION>
ONE YEAR ONE YEAR MARCH 14, 1994
ENDED ENDED TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
GROWTH AND INCOME FUND
Total underwriting commissions paid
$145,909 $181,252 -0-
Net underwriting discounts and
commissions received $29,842 $22,379 -0-
GLOBAL INFRASTRUCTURE
Total underwriting commissions paid
$211,424 $677,878 -0-
Net underwriting discounts and
commissions received $25,501 $52,041 -0-
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR JUNE 27, 1994
ENDED TO
MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C>
AMERICAS GOVERNMENT SECURITIES FUND
Total underwriting commissions paid
$19,359 $7,179
Net underwriting discounts and
commissions received $2,021 $963
</TABLE>
MAY 8, 1995
TO
GREATER EUROPEAN FUND MARCH 31, 1996
Total underwriting commissions paid
$112,442
Net underwriting discounts and
commissions received ($1,130)
LATIN AMERICA FUND
Total underwriting commissions paid
$190,756
Net underwriting discounts and
commissions received $9,226
Distributors may be entitled to reimbursement under the Rule 12b-1 plan for each
class, as discussed below. Except as noted, Distributors received no other
compensation from a Fund for acting as underwriter.
THE RULE 12B-1 PLANS
Each Fund has adopted a distribution plan or "Rule 12b-1 plan" with respect to
each class of shares pursuant to Rule 12b-1 of the 1940 Act.
THE CLASS I PLANS. Under the Class I plans (which includes the plan for all
shares issued by Americas Government Securities Fund), each Fund may reimburse
Distributors or others up to a maximum of 0.35% per year of Class I's average
daily net assets, payable quarterly, for costs and expenses incurred in
connection with any activity which is primarily intended to result in the sale
of the Funds' shares. Under the Class I plans, the costs and expenses not
reimbursed in any one given quarter (including costs and expenses not reimbursed
because they exceed 0.35% of a Fund's average daily net assets attributable to
Class I shares) may be reimbursed in subsequent quarters or years.
THE CLASS II PLAN. Under the Class II plan, Growth and Income Fund,
Infrastructure Fund, Greater European Fund and Latin America Fund each pays
Distributors up to 0.75% per year of Class II's average daily net assets,
payable quarterly, for costs and expenses incurred by Distributors or others in
connection with any activity which is primarily intended to result in the sale
of the Funds' shares. Up to 0.25% of such net assets may be paid to dealers for
personal service and/or maintenance of shareholder accounts.
During the first year after a purchase of Class II shares, Distributors may keep
this portion of the Rule 12b-1 fees associated with the Class II purchase.
THE CLASS I AND CLASS II PLANS. For both the Class I and Class II plans,
payments to Distributors or others could be for various types of activities,
including (i) payments to broker-dealers who provide certain services of value
to each Fund's shareholders (sometimes referred to as a "trail fee"); (ii)
reimbursement of expenses relating to selling and servicing efforts or of
organizing and conducting sales seminars; (iii) payments to employees or agents
of the Distributors who engage in or support distribution of shares; (iv)
payments of the costs of preparing, printing and distributing prospectuses and
reports to prospective investors and of printing and advertising expenses; (v)
payment of dealer commissions and wholesaler compensation in connection with
sales of the Funds' shares and interest or carrying charges in connection
therewith; and (vi) such other similar services as the Board determines to be
reasonably calculated to result in the sale of shares.
In no event shall the aggregate asset-based sales charges, which include
payments made under each plan, plus any other payments deemed to be made
pursuant to a plan, exceed the amount permitted to be paid pursuant to the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.,
Article III, Section 26(d)4.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
Each plan has been approved in accordance with the provisions of Rule 12b-1. The
plans are renewable annually by a vote of the Board, including a majority vote
of the Board members who are not interested persons of a Fund and who have no
direct or indirect financial interest in the operation of the plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such Board members be done by the non-interested
members of the Board. The plans and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an assignment of the
distribution agreement or by vote of a majority of the outstanding shares of the
class. Distributors or any dealer or other firm may also terminate their
respective distribution or service agreement at any time upon written notice.
The plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the class, and all material amendments to the plans
or any related agreements shall be approved by a vote of the non-interested
members of the Board, cast in person at a meeting called for the purpose of
voting on any such amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the plans should be continued.
For the fiscal year ended March 31, 1996, the total amounts paid by each Fund
pursuant to the Class I and Class II plans, and the purposes for which they were
used, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
GROWTH AND INCOME FUND CLASS I CLASS II
Total Amount Paid $221,717 $38,729
Advertising 58,677 5,483
Printing and mailing of prospectuses
other than to current shareholders 17,563 1,166
Payments to underwriters 2,034 19,675
Payments to broker-dealers 18,633 7,497
Other 124,810 4,908
INFRASTRUCTURE FUND CLASS I CLASS II
Total Amount Paid $479,470 $26,195
Advertising 233,959 5,170
Printing and mailing of prospectuses
other than to current shareholders 57,101 1,190
Payments to underwriters 4,610 11,144
Payments to broker-dealers 50,652 6,636
Other 133,148 2,055
GREATER EUROPEAN FUND CLASS I CLASS II
Total Amount Paid $ 91,078 $47,669
Advertising 64,438 27,012
Printing and mailing of prospectuses
other than to current shareholders 16,478 6,908
Payments to underwriters 2,102 4,386
Payments to broker-dealers 6,073 8,530
Other 1,987 833
LATIN AMERICA FUND CLASS I CLASS II
Total Amount Paid $120,345 $44,579
Advertising 87,905 24,724
Printing and mailing of prospectuses
other than to current shareholders 18,442 5,187
Payments to underwriters 2,794 6,526
Payments to broker-dealers 7,211 7,019
Other 3,993 1,123
AMERICAS GOVERNMENT SECURITIES FUND
Total Amount Paid $ 7,019
Advertising 1,118
Printing and mailing of prospectuses
other than to current shareholders 2,930
Payments to underwriters 122
Payments to broker-dealers 2,837
Other 12
</TABLE>
HOW DO THE FUNDS MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and average annual total return quotations used by the Funds are
based on the standardized methods of computing performance mandated by the SEC.
If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the Funds to compute or express performance for each class follows. Regardless
of the method used, past performance is not necessarily indicative of future
results, but is an indication of the return to shareholders only for the limited
historical period used.
TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year
periods, or fractional portion thereof, that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes the maximum front-end sales charge is deducted from the initial $1,000
purchase, and income dividends and capital gain distributions are reinvested at
net asset value. The quotation assumes the account was completely redeemed at
the end of each one-, five- and ten-year period and the deduction of all
applicable charges and fees. If a change is made to the sales charge structure,
historical performance information will be restated to reflect the maximum
front-end sales charge currently in effect.
When considering the average annual total return quotations, you should keep in
mind that the maximum front-end sales charge reflected in each quotation is a
one time fee charged on all direct purchases, which will have its greatest
impact during the early stages of your investment. This charge will affect
actual performance less the longer you retain your investment in the Fund. The
average annual total return for Class I for the one-year period ended on March
31, 1996, if applicable, and for the period from commencement of operations
through March 31, 1996, and for Class II, the period from the commencement of
sales to March 31, 1996:
<TABLE>
<CAPTION>
ONE YEAR MARCH 14, 1994 MAY 1, 1995
ENDED TO TO
MARCH 31, 1996 MARCH 31, 1996 MARCH 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
GROWTH AND INCOME FUND
Class I 11.98% 6.45%
Class II 14.39%
INFRASTRUCTURE FUND
Class I 5.31% -0.12%
Class II 5.58%
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR JUNE 27, 1994
ENDED TO
MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C>
AMERICAS GOVERNMENT SECURITIES FUND
10.58% 5.10%
</TABLE>
MAY 8, 1995
TO
MARCH 31, 1996
GREATER EUROPEAN FUND
Class I -2.07%
Class II 1.19%
LATIN AMERICA FUND
Class I 0.26%
Class II 3.63%
These figures were calculated according to the SEC formula:
P(1+T)n = ERV
where:
P =a hypothetical initial payment of $1,000
T =average annual total return
n =number of years
ERV =ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
CUMULATIVE TOTAL RETURN. The Fund may also quote the cumulative total return for
each class, in addition to the average annual total return. These quotations are
computed the same way, except the cumulative total return will be based on the
actual return for each class for a specified period rather than on the average
return over the period. The cumulative total return for Class I for the one-year
period ended on March 31, 1996, if applicable; for the period from commencement
of operations through March 31, 1996; and for Class II, the period from the
commencement of sales to March 31, 1996:
<TABLE>
<CAPTION>
ONE YEAR MARCH 14, 1994 MAY 1, 1995
ENDED TO TO
MARCH 31, 1996 MARCH 31, 1996 MARCH 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
GROWTH AND INCOME FUND
Class I 11.98% 13.67%
Class II 14.39%
INFRASTRUCTURE FUND
Class I 5.31% -.24%
Class II 5.58%
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR JUNE 27, 1994
ENDED TO
MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C>
AMERICAS GOVERNMENT SECURITIES FUND
10.58% 9.11%
</TABLE>
MAY 8, 1995
TO
MARCH 31, 1996
GREATER EUROPEAN FUND
Class I -2.07%
Class II 1.19%
LATIN AMERICA FUND
Class I .26%
Class II 3.63%
YIELD
CURRENT YIELD. Current yield of Americas Government Securities Fund shows the
income per share earned by the Fund. It is calculated by dividing the net
investment income per share of each class earned during a 30-day base period by
the applicable maximum offering price per share on the last day of the period
and annualizing the result. Expenses accrued for the period include any fees
charged to all shareholders of the class during the base period. The yield for
the 30-day period ended on March 31, 1996, was 6.0%.
This figure was obtained using the following SEC formula:
Yield = 2 [(A-B + 1)6 - 1]
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
CURRENT DISTRIBUTION RATE
Current yield, which is calculated according to a formula prescribed by the SEC,
is not indicative of the amounts which were or will be paid to shareholders of a
class. Amounts paid to shareholders are reflected in the quoted current
distribution rate. The current distribution rate is usually computed by
annualizing the dividends paid per share by a class during a certain period and
dividing that amount by the current maximum offering price. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gains and is calculated over a different period of time. The current
distribution rate for Americas Government Securities Fund for the 30-day period
ended on March 31, 1996, was 6.76%.
VOLATILITY
Occasionally statistics may be used to show a Fund's volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market, as represented by an
index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
For investors who are permitted to buy Class I shares, including shares of
Americas Government Securities Fund, without a sales charge, sales literature
about Class I may quote a current distribution rate, yield, cumulative total
return, average annual total return and other measures of performance as
described elsewhere in this SAI with the substitution of net asset value for the
public offering price.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
A Fund may include in its advertising or sales material information relating to
investment objectives and performance results of funds belonging to the
Templeton Funds. Resources is the parent company of the advisors and underwriter
of both the Franklin Templeton Funds.
COMPARISONS AND OTHER INFORMATION
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
a Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare a class' performance to the
return on CDs or other investments. You should be aware, however, that an
investment in a Fund involves the risk of fluctuation of principal value, a risk
generally not present in an investment in a CD issued by a bank. For example, as
the general level of interest rates rise, the value of a Fund's fixed-income
investments, if any, as well as the value of its shares that are based upon the
value of such portfolio investments, can be expected to decrease. Conversely,
when interest rates decrease, the value of a Fund's shares can be expected to
increase. CDs are frequently insured by an agency of the U.S. government. An
investment in a Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to a Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by a Fund to calculate its figures. In addition,
there can be no assurance that a Fund will continue its performance as compared
to these other averages.
Performance information for each Fund may be compared, in reports and
promotional literature, to: (i) unmanaged indices so that investors may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities market in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm which ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in a Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for a Fund reflects only the performance of a
hypothetical investment in a Fund during the particular time period on which the
calculations are based. Performance information should be considered in light of
a Fund's investment objective and policies, characteristics and quality of the
portfolio and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future.
From time to time, each Fund and its Investment Manager may also refer
to the following information:
(1) Each Investment Manager's and its affiliates' market share of
international equities managed in mutual funds prepared or published by
Strategic Insight or a similar statistical organization.
(2) The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital International
or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization.
(4) The geographic and industry distribution of the Funds' portfolio and
the Funds' top ten holdings.
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to
a liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, of various countries
as published by various statistical organizations.
(6) To assist investors in understanding the different returns and risk
characteristics of various investments, each Fund may show historical
returns of various investments and published indices (E.G., Ibbotson
Associates, Inc. Charts and Morgan Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as published by
the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
(9) Allegorical stories illustrating the importance of persistent
long-term investing.
(10) Each Fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical Services, Inc. or
Morningstar, Inc.
(11) A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued
or "bargain" securities and its diversification by industry, nation and
type of stocks or other securities.
(12) The number of shareholders in a Fund or the aggregate number of
shareholders of the Franklin Templeton Group of Funds or the dollar
amount of fund and private account assets under management.
(13) Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.
(14) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing, including the following:
"Never follow the crowd. Superior performance is
possible only if you invest differently from the crowd."
"Diversify by company, by industry and by country."
"Always maintain a long-term perspective."
"Invest for maximum total real return."
"Invest - don't trade or speculate."
"Remain flexible and open-minded about types of investment."
"Buy low."
"When buying stocks, search for bargains among quality stocks."
"Buy value, not market trends or the economic outlook."
"Diversify. In stocks and bonds, as in much else, there is safety in
numbers."
"Do your homework or hire wise experts to help you."
"Aggressively monitor your investments."
"Don't panic."
"Learn from your mistakes."
"Outperforming the market is a difficult task."
"An investor who has all the answers doesn't even understand all the
questions."
"There's no free lunch."
"And now the last principle: Do not be fearful or negative too often."
MISCELLANEOUS INFORMATION
A Fund may help you achieve various investment goals such as accumulating money
for retirement, saving for a down payment on a home, college costs and other
long-term goals. The Franklin College Costs Planner may help you in determining
how much money must be invested on a monthly basis in order to have a projected
amount available in the future to fund a child's college education. (Projected
college cost estimates are based upon current costs published by the College
Board.) The Franklin Retirement Planning Guide leads you through the steps to
start a retirement savings program. Of course, an investment in a Fund cannot
guarantee that these goals will be met.
The Trust is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $143
billion in assets under management for more than 4.1 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 114 U.S. based mutual funds to the public. A Fund may identify itself by
its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
As of June 25, 1996, the principal shareholders of each Fund, beneficial or of
record, are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
<S> <C> <C>
GROWTH AND INCOME FUND -CLASS I
Templeton Global Investors, Inc. 106,102 8%
500 E. Broward Blvd. Ste. 2100
Ft. Lauderdale, FL 33394
GROWTH AND INCOME FUND - CLASS II
Smith Barney Inc. 15,637 5%
388 Greenwich Street
New York, NY 10013
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
INFRASTRUCTURE FUND - CLASS II
Raymond James & Associates, Inc. 9,549 5%
FAO John J. Whitehouse TEE
JJ Whitehouse Liv TR
8037 Pebble Creek Lane W
Ponte Vedra Beach , FL 32082
Donaldson Lufkin Jenrette 10,440 6%
Securities Corporation, Inc.
PO Box 2052
Jersey City, NJ 07303
GREATER EUROPEAN FUND - CLASS I
Templeton Global Investors, Inc. 50,144 10%
c/o Barry R. Forbes
500 E. Broward Blvd. Ste. 2100
Ft. Lauderdale, FL 33394
Merrill Lynch Pierce Fenner & Smith, Inc. 34,481 7%
PO Box 45286
Jacksonville, FL 32232-5286
PaineWebber 49,841 10%
FBO American Guaranty & Trust Co.
TTEE Sara Brianne Kiner Trust
PO Box 15627
Wilmington, DE 19850-5627
PaineWebber 24,060 5%
FBO American Guaranty & Trust Co.
Shanika Baldwin Trust
PO Box 15627
Wilmington, DE 19850-5627
GREATER EUROPEAN FUND - CLASS II
Templeton Global Investors, Inc. 49,979 28%
c/o Barry R. Forbes
500 E. Broward Blvd. Ste. 2100
Ft. Lauderdale, FL 33394
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
PaineWebber 49,529 28%
FBO JP Barger
JPB Enterprises
8A Henshaw Street
Woburn, MA 01801-4627
Margaret M. Fields 14,673 8%
610 East Avenue, Apt. 6
Rochester, NY 14607
LATIN AMERICA FUND - CLASS I
Templeton Global Investors, Inc. 50,577 9%
c/o Barry R. Forbes
500 E. Broward Blvd. Ste. 2100
Ft. Lauderdale, FL 33394
AMERICAS GOVERNMENT SECURITIES FUND
Templeton Global Investors, Inc. 283,155 72%
c/o Mike Corcoran
500 E. Broward Blvd. Ste. 2100
Ft. Lauderdale, FL 33394
</TABLE>
From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.
Employees of Resources or its subsidiaries who are access persons under the 1940
Act are permitted to engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed within 24
hours after clearance; (ii) copies of all brokerage confirmations must be sent
to a compliance officer and, within 10 days after the end of each calendar
quarter, a report of all securities transactions must be provided to the
compliance officer; and (iii) access persons involved in preparing and making
investment decisions must, in addition to (i) and (ii) above, file annual
reports of their securities holdings each January and inform the compliance
officer (or other designated personnel) if they own a security that is being
considered for a fund or other client transaction or if they are recommending a
security in which they have an
ownership interest for purchase or sale by a fund or other client.
In the event of disputes involving multiple claims of ownership or authority to
control your account, a Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of a Fund, for the fiscal year ended March 31, 1996, including the auditors'
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc. a wholly owned subsidiary of Resources and
the Sub-Adviser for Americas Government Securities Fund
BOARD - The Board of Trustees of the Trust
BUSINESS MANAGER - Templeton Global Investors, Inc., a wholly owned subsidiary
of Resources
CD - Certificate of deposit
CLASS I AND CLASS II - Each Fund, except for Americas Government Securities
Fund, offers two classes of shares, designated "Class I" and "Class II." The two
classes have proportionate interests in a Fund's portfolio. They differ,
however, primarily in their sales charge structures and Rule 12b-1 plans.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
FRANKLIN ADVISERS - Franklin Advisers, Inc., a wholly owned subsidiary of
Resources and the Sub-Adviser for Americas Government Securities Fund
FRANKLIN FUNDS - the mutual funds in the Franklin Group of Funds(trademark)
except Franklin Valuemark Funds and the Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - the Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - all U.S. registered mutual funds in the
Franklin Group of Funds (trademark) and the Templeton Group of Funds
INVESTMENT MANAGERS - In the case of Growth and Income Fund and Greater European
Fund, the Investment Manager is TGA in the case of Infrastructure Fund and Latin
America Fund, the Investment Manager is TICI; and in the case of Americas
Government Securities Fund, the Investment Manager is TICI, through its TGBM
division (collectively "Investment Managers")
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc.
IRS - Internal Revenue Service
LETTER - Letter of Intent
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - the value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - the New York Stock Exchange
OFFERING PRICE - The public offering price is based on the net asset value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class I (except Americas Government
Securities Fund is 4.25%) and 1% for Class II.
PROSPECTUS - the prospectus for each Fund dated August 1, 1996, as may be
amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - a financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TEMPLETON FUNDS - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TGA - Templeton Global Advisors Limited, the Investment Manager of Growth and
Income Fund and Greater European Fund
TGBM - Templeton Global Bond Managers, a division of TICI, through whom TICI
provides investment advisory services to Americas Government Securities Fund
TICI - Templeton Investment Counsel, Inc., the Investment Manager of
Infrastructure Fund and Latin America Fund. TICI also is the Investment Manager
of Americas Government Securities Fund, through TICI's Templeton Global Bond
Managers division
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or another
wholly-owned subsidiary of Resources.
APPENDIX
CORPORATE BOND RATINGS
MOODY'S
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
BA - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
- --------
* Sir John Templeton sold the Templeton organization to Resources in
October, 1992 and resigned from each Fund's Board on April 16, 1995. He
is no longer involved with the investment management process.
