o TLGIT P-1
SUPPLEMENT DATED JANUARY 1, 2000
TO THE PROSPECTUS OF
TEMPLETON REGION FUNDS
(TLGIT - TEMPLETON INTERNATIONAL FUND AND TEMPLETON LATIN AMERICA FUND)
DATED AUGUST 1, 1999
The prospectus is amended as follows:
I. On November 12, 1999, shareholders of the Templeton Latin America Fund
approved a change to the classification of the fund from a diversified to a
non-diversified investment company.
The following is added to the "Main Risks" section for the Templeton Latin
America Fund:
DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the securities of one issuer than a diversified
fund. The fund may be more sensitive to economic, business, political or
other changes affecting similar issuers or securities, which may result in
greater fluctuation in the value of the fund's shares. The fund, however,
intends to meet certain tax diversification requirements.
II. The section "Management" on page 19 is replaced with the following:
[Insert graphic of briefcase] MANAGEMENT
Templeton Investment Counsel, Inc., (Investment Counsel), 500 East Broward
Blvd., Ft. Lauderdale, FL 33394-3091, is the fund's investment manager.
Together, Investment Counsel and its affiliates manage over $218 billion in
assets.
The fund's lead portfolio manager is:
HEIDI S. ANDERSEN CFA, VICE PRESIDENT OF INVESTMENT COUNSEL
Ms. Andersen has been a manager of the fund since March 1999. She joined
the Franklin Templeton Group in 1995.
The following individual has secondary portfolio management
responsibilities:
MARK R. BEVERIDGE CFA, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Beveridge has been a manager of the fund since 1997. He joined the
Franklin Templeton Group in 1985.
The fund pays Investment Counsel a fee for managing the fund's assets and
making its investment decisions. For the fiscal year ended March 31, 1999,
management fees, before any advance waiver, were 1.25% of the fund's
average daily net assets. Under an agreement by the manager to limit its
fees, the fund paid 0.57% of its average daily net assets to the manager.
The manager may end this arrangement at any time upon notice to the fund's
Board of Trustees.
III. The following sentence is added after the minimum investments table on
page 26:
Please note that you may only buy shares of a fund eligible for sale in your
state or jurisdiction.
IV. In the Selling Shares table on page 32 the section "By Wire" is replaced
with the following:
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[Insert graphic of You can call or write to have redemption proceeds sent
three lightning to a bank account. See the policies above for selling
bolts] shares by mail or phone.
BY ELECTRONIC FUNDS Before requesting to have redemption proceeds sent to a
TRANSFER (ACH) bank account, please make sure we have your bank account
information on file. If we do not have this information,
you will need to send written instructions with your
bank's name and address, a voided check or savings
account deposit slip, and a signature guarantee if the
ownership of the bank and fund accounts is different.
If we receive your request in proper form by 1:00 p.m.
Pacific time, proceeds sent by ACH generally will be
available within two to three business days.
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V. The section "Sales Charge Waivers" on page 26 is replaced with the
following:
SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales
charge. The CDSC for each class may be waived for certain redemptions and
distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. For information about retirement plans, you may call
Retirement Plan Services at 1-800/527-2020. A list of available sales charge
waivers also may be found in the Statement of Additional Information (SAI).
VI. The section "Dealer compensation" on page 35 is replaced with the
following:
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A CLASS C
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COMMISSION (%) - 2.00
Investment under $50,000 5.00 -
$50,000 but under $100,000 3.75 -
$100,000 but under $250,000 2.80 -
$250,000 but under $500,000 2.00 -
$500,000 but under $1 million 1.60 -
$1 million or more up to 1.00 1 -
12B-1 FEE TO DEALER 0.35 1.00 2
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
VII. The section "Statements and reports" on page 33 is replaced with the
following:
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the fund's financial reports every six months. To reduce
fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the fund.
Please keep this supplement for future reference.
PAGE
o TLGIT PA-1
SUPPLEMENT DATED JANUARY 1, 2000
TO THE PROSPECTUS OF
TEMPLETON REGION FUNDS - ADVISOR CLASS
(TLGIT - TEMPLETON INTERNATIONAL FUND AND TEMPLETON LATIN AMERICA FUND)
DATED AUGUST 1, 1999
The prospectus is amended as follows:
I. On November 12, 1999, shareholders of the Templeton Latin America Fund
approved a change to the classification of the fund from a diversified to a
non-diversified investment company.
The following is added to the "Main Risks" section for the Templeton Latin
America Fund:
DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the securities of one issuer than a diversified
fund. The fund may be more sensitive to economic, business, political or
other changes affecting similar issuers or securities, which may result in
greater fluctuation in the value of the fund's shares. The fund, however,
intends to meet certain tax diversification requirements.
II. The section "Management" on page 17 is replaced with the following:
[Insert graphic of briefcase] MANAGEMENT
Templeton Investment Counsel, Inc., (Investment Counsel), 500 East Broward
Blvd., Ft. Lauderdale, FL 33394-3091, is the fund's investment manager.
Together, Investment Counsel and its affiliates manage over $218 billion in
assets.
The fund's lead portfolio manager is:
HEIDI S. ANDERSEN CFA, VICE PRESIDENT OF INVESTMENT COUNSEL
Ms. Andersen has been a manager of the fund since March 1999. She joined the
Franklin Templeton Group in 1995.
The following individual has secondary portfolio management responsibilities:
MARK R. BEVERIDGE CFA, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Beveridge has been a manager of the fund since 1997. He joined the
Franklin Templeton Group in 1985.
The fund pays Investment Counsel a fee for managing the fund's assets and
making its investment decisions. For the fiscal year ended March 31, 1999,
management fees, before any advance waiver, were 1.25% of the fund's average
daily net assets. Under an agreement by the manager to limit its fees, the
fund paid 0.57% of its average daily net assets to the manager. The manager
may end this arrangement at any time upon notice to the fund's Board of
Trustees.
III. In the Selling Shares table on page 27 the section "By Wire" is replaced
with the following:
- -----------------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption proceeds
three lightning bolts] sent to a bank account. See the policies above for
selling shares by mail or phone.
BY ELECTRONIC FUNDS Before requesting to have redemption proceeds sent
TRANSFER (ACH) to a bank account, please make sure we have your
bank account information on file. If we do not
have this information, you will need to send
written instructions with your bank's name and
address, a voided check or savings account deposit
slip, and a signature guarantee if the ownership
of the bank and fund accounts is different.
If we receive your request in proper form by 1:00
p.m. Pacific time, proceeds sent by ACH generally
will be available within two to three business
days.
- -----------------------------------------------------------------------------
IV. The section "Statements and reports" on page 28 is replaced with the
following:
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the fund's financial reports every six months. To reduce
fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the fund.
Please keep this supplement for future reference.
PAGE
TLGIT SAA-1
SUPPLEMENT DATED JANUARY 1, 2000
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
TEMPLETON GLOBAL INVESTMENT TRUST - ADVISOR CLASS
DATED AUGUST 1, 1999
The Statement of Additional Information is amended as follows:
I. The section "Goals and Strategies - Repurchase agreements" is replaced with
the following:
REPURCHASE AGREEMENTS Each fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, each fund may enter into repurchase agreements.
Under a repurchase agreement, the fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the fund in each repurchase agreement. The manager will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
fund's ability to sell the underlying securities. The fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.
II. The first sentence under the section "Goals and Strategies - Borrowing" is
replaced with the following two sentences:
International Fund may borrow up to one-third of the value of its total assets
from banks to increase its holdings of portfolio securities. Latin America Fund
may borrow up to one-third of the value of its total assets from banks or
affiliated investment companies to increase its holdings of portfolio
securities.
III. In the section "Investment restrictions," found under "Goals and
Strategies" on page 7, the list of fundamental policies and the paragraph
immediately following are replaced with the following: International Fund may
not:
1. Invest in real estate or mortgages on real estate (although the fund may
invest in marketable securities secured by real estate or interests therein);
invest in other open-end investment companies (except in connection with a
merger, consolidation, acquisition or reorganization); invest in interests
(other than publicly issued debentures or equity stock interests) in oil, gas or
other mineral exploration or development programs; or purchase or sell commodity
contracts (except futures contracts as described in the fund's prospectus).
2. Purchase any security (other than obligations of the U.S. government, its
agencies or instrumentalities) if, as a result, as to 75% of the fund's total
assets (a) more than 5% of the fund's total assets would then be invested in
securities of any single issuer, or (b) the fund would then own more than 10% of
the voting securities of any single issuer.
3. Act as an underwriter; issue senior securities except as set forth in
investment restriction 6 below; or purchase on margin or sell short, except that
the fund may make margin payments in connection with futures, options and
currency transactions.
4. Loan money, except that the fund may (a) purchase a portion of an issue of
publicly distributed bonds, debentures, notes and other evidences of
indebtedness, (b) enter into repurchase agreements and (c) lend its portfolio
securities.
5. Borrow money, except that the fund may borrow money from banks in an amount
not exceeding 331/3% 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 "Buying and Selling Shares" as to transactions in the same
securities for the fund, other clients and/or other mutual funds within the
Franklin Templeton Group of Funds.)
Latin America Fund may not:
1. Borrow money, except that the fund may borrow money from banks or affiliated
investment companies to the extent permitted by the 1940 Act, or any exemptions
therefrom which may be granted by the U.S. Securities and Exchange Commission,
or for temporary or emergency purposes and then in an amount not exceeding
331/3% of the value of the fund's total assets (including the amount borrowed).
2. Act as an underwriter except to the extent the fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own shares.
3. Make loans to other persons except (a) through the lending of its portfolio
securities, (b) through the purchase of debt securities, loan participations
and/or engaging in direct corporate loans in accordance with its investment
objectives and policies, and (c) to the extent the entry into a repurchase
agreement is deemed to be a loan. The fund may also make loans to affiliated
investment companies to the extent permitted by the 1940 Act or any exemptions
therefrom which may be granted by the U.S. Securities and Exchange Commission.
4. Purchase or sell real estate and commodities, except that the fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into futures contracts on securities, currencies, and
other indices or any other financial instruments, and may purchase and sell
options on such futures contracts.
5. Issue securities senior to the fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the fund from (a) making any permitted borrowings, loans, mortgages or
pledges, (b) entering into options, futures contracts, forward contracts,
repurchase transactions, or reverse repurchase transactions, or (c) making short
sales of securities to the extent permitted by the 1940 Act and any rule or
order thereunder, or U.S. Securities and Exchange Commission staff
interpretations thereof.
6. Concentrate (invest more than 25% of its net assets) in securities of issuers
in a particular industry (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities or securities of other
investment companies).
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 International
Fund's Investment restrictions 2 or 7 above and Latin America Fund's Investment
restriction 6 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.
IV. The first sentence under the section "Organization, Voting Rights and
Principal Holders" is replaced with the following: International Fund is a
diversified series and Latin America Fund is a non-diversified series of
Templeton Global Investment Trust, an open-end management investment company,
commonly called a mutual fund.
Please keep this supplement for future reference.
PAGE
TEMPLETON GLOBAL
INVESTMENT TRUST
TEMPLETON AMERICAS GOVERNMENT SECURITIES FUND - CLASS A
TEMPLETON INTERNATIONAL FUND - CLASS A & C
TEMPLETON LATIN AMERICA FUND - CLASS A & C
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999, AS AMENDED JANUARY 1, 2000
[Insert Franklin Templeton "Butterball" logo]
P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN(R)
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This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in each fund's
prospectus. Each fund's prospectus, dated August 1, 1999, which we may amend
from time to time, contains the basic information you should know before
investing in the funds. You should read this SAI together with each fund's
prospectus.
The audited financial statements and auditor's report in each fund's Annual
Report to Shareholders, for the fiscal year ended March 31, 1999, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call
1-800/DIAL BEN (1-800/342-5236).
On October 21, 1999, Templeton Global Bond Fund acquired the assets of
Templeton Americas Government Securities Fund. In exchange, Templeton
Americas Government Securities Fund received shares of Templeton Global Bond
Fund, which it distributed to its shareholders. All references to the
Templeton Americas Government Securities Fund in this SAI are deleted.
CONTENTS
Goals and Strategies .......................... 2
Risks ......................................... 11
Officers and Trustees ......................... 14
Management and Other Services ................. 18
Portfolio Transactions ........................ 19
Distributions and Taxes ....................... 20
Organization, Voting Rights
and Principal Holders ........................ 22
Buying and Selling Shares ..................... 23
Pricing Shares ................................ 30
The Underwriter ............................... 30
Performance ................................... 32
Miscellaneous Information ..................... 35
Description of Ratings ........................ 35
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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TLGIT SAI 01/00
GOALS AND STRATEGIES
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Americas Government Securities Fund's investment goal is to provide a high
level of current income, with total return as a secondary goal. The fund
tries to achieve its investment goal by investing, under normal market
conditions, at least 65% of its total assets in debt securities, issued or
guaranteed by government entities of Western Hemisphere countries (located in
North, South and Central America and the surrounding waters).
International (formerly known as Templeton Greater European) Fund's
investment goal is long-term capital appreciation. The fund tries to achieve
its investment goal by investing, under normal market conditions, at least
75% of its total assets in equity securities of companies located in any
developed country outside the U.S.
Latin America Fund's investment goal is long-term capital appreciation. The
fund tries to achieve its investment goal by investing at least 65% of its
total assets in the equity and debt securities of Latin American issuers. The
Latin America Fund may invest the remaining 35% of its total assets in any
combination of: (a) equity and debt securities of issuers domiciled outside
Latin America; and (b) short-term and medium-term debt securities as
described below under "Temporary investments."
Each fund's goal is fundamental, which means that it may not be changed
without shareholder approval.
GENERAL Each fund, except the International Fund, may invest up to 100% of
its total assets in developing or emerging markets, including up to 5% of its
total assets in Russian securities. The International Fund excludes
investments in any emerging or developing countries. The definition of
emerging markets as used by each fund's manager may differ from the
definition of the same terms as used in managing other Franklin Templeton
funds.
EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner
of an equity security may participate in a company's success through the
receipt of dividends which are distributions of earnings by the company to
its owners. Equity security owners may also participate in a company's
success or lack of success through increases or decreases in the value of the
company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive
less appreciation than common stockholders and may have greater voting rights
as well. Equity securities may also include convertible securities, warrants
or rights. Convertible securities typically are debt securities or preferred
stocks which are convertible into common stock after certain time periods or
under certain circumstances. Warrants or rights give the holder the right to
purchase a common stock at a given time for a specified price.
DEPOSITARY RECEIPTS are certificates that give their holders the right to
receive securities (a) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary
Receipts, "GDRs" or European Depositary Receipts, "EDRs").
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.
DEBT SECURITIES A debt security typically has a fixed payment schedule, which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it
declares and pays any dividend to holders of its equity securities. Bonds,
notes, debentures and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods
of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in a fund's net asset value.
The International Fund may invest up to 25% of its total assets, and each
other fund may invest without limit in debt securities. Each fund may buy
both rated and unrated debt securities. Independent rating organizations rate
debt securities based upon their assessment of the financial soundness of the
issuer. Generally, a lower rating indicates higher risk. At present, each
fund, except Americas Government Securities Fund, intends not to invest more
than 5% of its total assets in non-investment grade securities rated lower
than BBB by Standard & Poor's Corporation ("S&P")or Baa by Moody's Investors
Services, Inc. ("Moody's") and may invest up to 5% of its total assets in
defaulted debt securities.
BRADY BONDS The Latin America and Americas Government Securities Funds may
invest a portion of their assets in U.S. dollar-denominated, collateralized
Brady Bonds, which may be fixed rate par bonds or floating rate discount
bonds, generally collateralized in full as to principal by U.S. Treasury zero
coupon bonds which have the same maturity as the Brady Bonds. These are
public-issue bonds of developing countries that are created through an
exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with a debt restructuring plan introduced by former
U.S. Treasury Secretary, Nicholas F. Brady (the "Brady Plan"). Interest
payments on these Brady Bonds generally are collateralized on a one-year or
longer rolling-forward basis by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of interest payments
or, in the case of floating rate bonds, initially is equal to at least one
year's interest payments based on the applicable interest rate at that time
and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments. Brady Bonds are often
viewed as having three or four valuation components: (i) the collateralized
repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). There can be no assurance that Brady
Bonds in which the funds may invest will not be subject to restructuring
arrangements or to requests for new credit, which may cause a fund to suffer
a loss of interest or principal on any of its holdings.
Brady Plan debt restructurings have been implemented in a number of countries
to date including Argentina, Brazil, Costa Rica, the Dominican Republic,
Ecuador, Mexico, Panama, Peru, Uruguay, and Venezuela (collectively, the
"Brady Countries").
Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or
comparable collateral denominated in other currencies) and interest coupon
payments collateralized on an 18-month rolling-forward basis by funds held in
escrow by an agent for the bondholders. A significant portion of Venezuelan
Brady Bonds and Argentine Brady Bonds issued to date have principal
repayments at final maturity collateralized by U.S. Treasury zero coupon
bonds (or comparable collateral denominated in other currencies) and/or
interest coupon payments collateralized on a 14-month (for Venezuela) or
12-month (for Argentina) rolling-forward basis by securities held by the
Federal Reserve Bank of New York as collateral agent.
In light of the residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds
are generally considered speculative. In addition, many Brady Bonds currently
are rated below investment grade. The Latin America Fund's investments in
Brady Bonds are subject to its current policy of not investing more than 5%
of its total assets in non-investment grade securities.
INDEXED OR CURRENCY-LINKED SECURITIES In selecting debt securities, Americas
Government Securities Fund may include indexed obligations. The fund will
purchase an indexed obligation using the currency in which it is denominated
and, at maturity, will receive interest and principal payments thereon in
that currency. The amount of principal payable by the issuer at maturity,
however, will vary (i.e., increase or decrease) in response to the change (if
any) in the exchange rate between the two specified currencies during the
period from the date the instrument is issued to its maturity date. The
potential for realizing gains as a result of changes in foreign currency
exchange rates may enable the fund to hedge the currency in which the
obligation is denominated (or to effect cross-hedges against other
currencies) against a decline in the U.S. dollar value of investments
denominated in foreign currencies while generating interest income on the
obligation.
The fund may invest in securities denominated in or indexed to the currency
of one country in the Western Hemisphere although issued by a governmental
entity, corporation or financial institution of another such country. For
example, the fund may invest in a Mexican peso denominated obligation issued
by a U.S. corporation. Such investments involve credit risks associated with
the issuer and currency risks associated with the currency in which the
obligation is denominated.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES The mortgage-backed securities in
which Americas Government Securities Fund may invest will primarily be
guaranteed by the Government National Mortgage Association ("GNMA") or issued
by the Federal National Mortgage Association ("FNMA") or the Federal Home
Loan Mortgage Corporation ("FHLMC"). Certain of the asset-backed securities
in which the fund will invest may be guaranteed by the Small Business
Administration ("SBA") or issued in programs originated by the Resolution
Trust Corporation ("RTC"). GNMA, FNMA, FHLMC, SBA and RTC are agencies or
instrumentalities of the U.S.
Certain of the mortgage-backed and asset-backed securities in which the fund
may invest will be issued by private issuers. Private issuers include
originators of or investors in mortgage loans and receivables such as savings
and loan associations, mortgage bankers, commercial banks, investment banks,
finance companies and special purpose finance subsidiaries of any of the
above. Securities issued by private issuers may be subject to certain types
of credit enhancements issued in respect of those securities. Such credit
enhancements may include insurance policies, bank letters of credit,
guarantees by third parties or protections afforded by the structure of a
particular transaction (e.g., the use of reserve funds,
over-collateralization or the issuance of subordinated securities as
protection for more senior securities being purchased by the fund). In
purchasing securities for the fund, the investment manager will take into
account not only the creditworthiness of the issuer of the securities but
also the creditworthiness of the provider of any external credit enhancement
of the securities.
The fund may invest in pass-through mortgage-backed securities that represent
ownership interests in a pool of mortgages on single-family or multi-family
residences. Such securities represent interests in pools of residential
mortgage loans originated by U.S. governmental or private lenders and
guaranteed, to the extent provided in such securities, by the U.S.
government, one of its agencies or instrumentalities or by private
guarantors. Such securities, which are ownership interests in the underlying
mortgage loans, differ from conventional debt securities, which provide for
periodic payment of interest in fixed amounts (usually semiannually) and
principal payments at maturity or on specified call dates. Mortgage
pass-through securities provide for monthly payments that "pass-through" the
monthly interest and principal payments (including any prepayments) made by
the individual borrowers on the pooled mortgage loans, net of any fees paid
to the guarantor of such securities and the servicer of the underlying
mortgage loans. The fund may also invest in collateralized mortgage
obligations ("CMOs") which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities.
The yield characteristics of mortgage-backed and asset-backed securities
differ from traditional corporate debt securities. Among the major
differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the fund purchases such a security at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if the fund
purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions. Generally,
however, prepayments on fixed rate mortgage loans will increase during a
period of falling interest rates and decrease during a period of rising
interest rates. Accordingly, amounts available for reinvestment by the fund
are likely to be greater during a period of declining interest rates and, as
a result, likely to be reinvested at lower interest rates than during a
period of rising interest rates. Although asset-backed securities generally
are less likely to experience substantial prepayments than are
mortgage-backed securities, certain of the factors that affect the rate of
prepayments on mortgage-backed securities also affect the rate of prepayments
on asset-backed securities. However, during any particular period, the
predominant factors affecting prepayment rates on mortgage-backed and
asset-backed securities may be different. Mortgage-backed and asset-backed
securities may decrease in value as a result of increases in interest rates
and may benefit less than other fixed income securities from declining
interest rates because of the risk of prepayment.
The fund's yield will also be affected by the yields on instruments in which
the fund is able to reinvest the proceeds of payments and prepayments.
Accelerated prepayments on securities purchased by the fund at a premium also
impose a risk of loss of principal because the premium may not have been
fully amortized at the time the principal is repaid in full.
DERIVATIVE MORTGAGE-BACKED SECURITIES Americas Government Securities Fund's
investments in derivative mortgage-backed securities will primarily consist
of some form of stripped mortgage-backed securities ("SMBS") that commonly
involve different classes of securities that receive disproportionate amounts
of the interest and principal distributions on a pool of mortgage assets.
SMBSs are typically issued by the same types of issuers as are
mortgage-backed securities. The structure of SMBSs, however, is different. A
common variety of SMBS involves a class (the principal-only or PO class) that
receives some of the interest and most of the principal from the underlying
assets, while the other class (the interest-only or IO class) receives most
of the interest and the remainder of the principal. In the most extreme case,
the IO class receives only interest, while the PO class receives only
principal. The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
assets, and a rapid rate of principal payments in excess of that considered
in pricing the securities will have a material adverse effect on an IO
security's yield to maturity. If the underlying mortgage assets experience
greater than anticipated payments of principal, the fund may fail to recoup
fully its initial investment in IOs. In addition, there are certain types of
IOs which represent the interest portion of a particular class as opposed to
the interest portion of the entire pool. The sensitivity of these types of
IOs to interest rate fluctuations may be increased because of the
characteristics of the principal portion to which they relate. The impact of
IOs on the fund's portfolio may be offset to some degree by investments in
mortgage-backed securities and inverse floaters (floating rate securities the
interest rate of which is adjusted up or down inversely to changes in a
specified index). As interest rates fall, presenting a greater risk of
unanticipated prepayments of principal, the negative effect on the fund
because of its holdings of IOs should be diminished somewhat because of the
increased yield on the inverse floating rate CMOs or the increased
appreciation on the fixed rate securities. Under certain interest rate
scenarios, the fund may decide to retain investments in IOs or inverse
floaters yielding less than prevailing interest rates in order to avoid
capital losses on the sale of such investments.
The fund may also combine IOs and IO-related derivative mortgage products
with LIBOR-based inverse floaters (LIBOR being the London interbank offered
rate). A LIBOR-based inverse floater is a floating rate security the interest
rate of which is adjusted up or down inversely to changes in LIBOR; as LIBOR
decreases, the interest rate paid by the inverse floater would increase, and
vice versa. Depending on the amount of leverage built into the inverse
floater, the yield could vary in excess of the change in LIBOR because of the
leverage built into the inverse floater formula. The yield on an inverse
floater varies inversely with interest rates because as LIBOR decreases, the
interest payable on the inverse floater increases. The converse is true, of
course, when LIBOR increases. When an inverse floater is combined with an IO
or IO-type derivative product, the result is a synthetic security that tends
to provide a somewhat less volatile yield over a wide range of interest rate
and prepayment rate scenarios.
New types of mortgage-backed and asset-backed securities, derivative
securities and hedging instruments are developed and marketed from time to
time. Consistent with its investment objectives, policies and restrictions,
the fund may, upon disclosure to shareholders, invest in such new types of
securities and instruments that the investment manager believes may assist
the fund in achieving its investment goals.
The staff of the U.S. Securities and Exchange Commission (the "SEC") has
taken the position (which has been adopted as an investment policy of the
fund) that the determination of whether a particular U.S. government issued
IO or PO that is backed by fixed-rate mortgages is liquid may be made by the
investment manager under guidelines and standards established by the Trust's
board. Such a security may be deemed liquid if it can be disposed of promptly
in the ordinary course of business at a value reasonably close to that used
in the calculation of the fund's net asset value per share. The SEC's staff
also has taken the position that all other IOs and POs are illiquid
securities which are subject to the fund's limitation on investments in
illiquid securities, as set forth under "Investment restrictions."
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 leveraged 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 Investment Company Act of 1940, as
amended (the "1940 Act"). A fund's investment in these structured investments
may be limited by its investment restrictions. See "Investment restrictions"
below. 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.
REPURCHASE AGREEMENTS Each fund generally will have a portion of its assets
in cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, each fund may enter into repurchase
agreements. Under a repurchase agreement, the fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
fund in each repurchase agreement. The manager will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price.
Repurchase agreements may involve risks in the event of default or insolvency
of the bank or broker-dealer, including possible delays or restrictions upon
the fund's ability to sell the underlying securities. The fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
ILLIQUID AND RESTRICTED SECURITIES Each fund may invest up to 15% of its
total assets in illiquid securities, for which there is a limited trading
market and for which a low trading volume of a particular security may result
in abrupt and erratic price movements. A fund may be unable to dispose of its
holdings in illiquid securities at then-current market prices and may have to
dispose of such securities over extended periods of time. A fund may also
invest in securities that are sold (i) in private placement transactions
between their issuers and their purchasers and that are neither listed on an
exchange nor traded over-the-counter, or (ii) in transactions between
qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended. Such restricted securities are subject to contractual or
legal restrictions on subsequent transfer. As a result of the absence of a
public trading market, such restricted securities may in turn be less liquid
and more difficult to value than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from the sales could, due to illiquidity, be less than those
originally paid by a fund or less than their fair value. In addition, issuers
whose securities are not publicly traded may not be subject to the disclosure
and other investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed or Rule 144A
securities held by a fund are required to be registered under the securities
laws of one or more jurisdictions before being resold, a fund may be required
to bear the expenses of registration. Each fund will limit its investment in
restricted securities other than Rule 144A securities to 10% of its total
assets, and will limit its investment in all restricted securities, including
Rule 144A securities, to 15% of its total assets. Restricted securities,
other than Rule 144A securities determined by the Trust's board to be liquid,
are considered to be illiquid and are subject to a fund's limitation on
investment in illiquid securities.
CLOSED-END INVESTMENT COMPANIES International Fund and Latin America Fund may
invest in closed-end investment companies, except those for which their
managers serve as investment advisor or sponsor, which invest principally in
securities in which the fund is authorized to invest. Under the 1940 Act,
each fund may invest a maximum of 10% of its total assets in the securities
of other investment companies and not more than 5% of the fund's total assets
in the securities of any one investment company, provided the investment does
not represent more than 3% of the voting stock of the acquired investment
company at the time such shares are purchased. To the extent a fund invests
in other investment companies, a fund's shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. A fund's
investment in certain investment companies will result in special U.S.
federal income tax consequences described under "Distributions and Taxes."
FUTURES CONTRACTS The funds 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 The funds 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 over-the-counter to earn additional income and/or to help protect their
portfolios against market and/or exchange rate movements, although they
presently have no intention of doing so. Each fund will limit the sale of
options on its securities to 15% or less of its total assets. Each fund may
only buy options if the total premiums it paid for such options is 5% or less
of its total assets.
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 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, the
fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
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 each fund'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, the funds 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. The funds have no specific limitation on the percentage of
assets they may commit to forward contracts, subject to their stated
investment goals and policies, except that a fund will not enter into a
forward contract if the amount of assets set aside to cover forward contracts
would impede portfolio management or the fund's ability to meet redemption
requests.
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." The funds will only use forward foreign currency
transactions for the above purposes. 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, it 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.
SECURITIES LENDING To generate additional income and for investment purposes,
each fund may lend its portfolio securities to qualified securities dealers
or other institutional investors. Such loans may not exceed 331/3% of the
value of the fund's total assets measured at the time of the most recent
loan. For each loan, the fund must receive in return collateral with a value
at least equal to 100% of the current market value of the loaned securities.
BORROWING International Fund may borrow up to one-third of the value of its
total assets from banks to increase its holdings of portfolio securities.
Latin America Fund may borrow up to one-third of the value of its total
assets from banks or affiliated investment companies to increase its holdings
of portfolio securities. Under the 1940 Act, each fund is required to
maintain continuous asset coverage of 300% with respect to such borrowings
and to sell (within three days) sufficient portfolio holdings to restore such
coverage if it should decline to less than 300% due to market fluctuations or
otherwise, even if such liquidations of a fund's holdings may be
disadvantageous from an investment standpoint. Leveraging by means of
borrowing may exaggerate the effect of any increase or decrease in the value
of portfolio securities on a fund's net asset value, and money borrowed will
be subject to interest and other costs (which may include commitment fees
and/or the cost of maintaining minimum average balances) which may or may not
exceed the income received from the securities purchased with borrowed funds.
TEMPORARY INVESTMENTS When the manager of a fund believes that the securities
trading markets or the economy are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist, it may invest a
fund's portfolio in a temporary defensive manner.
Under such circumstances, each fund may invest up to 100% of its assets in
money market securities denominated in the currency of any nation. These may
include:
o short-term (maturities of less than 12 months) and medium-term
(maturities up to 5 years) securities issued or guaranteed by the U.S. or
a foreign government, their agencies or instrumentalities;
o finance company and corporate commercial paper, and other short-term
corporate obligations, rated A by S&P or Prime-1 by Moody's or, if
unrated, determined by the fund to be of comparable quality;
o bank obligations (including CDs, time deposits and bankers' acceptances);
and
o repurchase agreements with banks and broker-dealers.
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 the fund or (ii) 67% or more of the shares of the 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.
International Fund may not:
1. Invest in real estate or mortgages on real estate (although the fund may
invest in marketable securities secured by real estate or interests therein);
invest in other open-end investment companies (except in connection with a
merger, consolidation, acquisition or reorganization); invest in interests
(other than publicly issued debentures or equity stock interests) in oil, gas
or other mineral exploration or development programs; or purchase or sell
commodity contracts (except futures contracts as described in the fund's
prospectus).
2. Purchase any security (other than obligations of the U.S. government,
its agencies or instrumentalities) if, as a result, as to 75% of the fund's
total assets (a) more than 5% of the fund's total assets would then be
invested in securities of any single issuer, or (b) the fund would then own
more than 10% of the voting securities of any single issuer; 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 the fund may make margin payments in connection with futures, options
and currency transactions.
4. Loan money, except that the fund may (a) purchase a portion of an issue
of publicly distributed bonds, debentures, notes and other evidences of
indebtedness, (b) enter into repurchase agreements and (c) lend its portfolio
securities.
5. Borrow money, except that the fund may borrow money from banks in an
amount not exceeding 331/3% 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 "Buying and Selling Shares" as to transactions in
the same securities for the fund, other clients and/or other mutual funds
within the Franklin Templeton Group of Funds.)
Latin America Fund may not:
1. Borrow money, except that the fund may borrow money from banks or
affiliated investment companies to the extent permitted by the 1940 Act, or
any exemptions therefrom which may be granted by the U.S. Securities and
Exchange Commission, or for temporary or emergency purposes and then in an
amount not exceeding 331/3% of the value of the fund's total assets
(including the amount borrowed).
2. Act as an underwriter except to the extent the fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own
shares.
3. Make loans to other persons except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance with
its investment objectives and policies, and (c) to the extent the entry into
a repurchase agreement is deemed to be a loan. The fund may also make loans
to affiliated investment companies to the extent permitted by the 1940 Act or
any exemptions therefrom which may be granted by the U.S. Securities and
Exchange Commission.
4. Purchase or sell real estate and commodities, except that the fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into futures contracts on securities, currencies,
and other indices or any other financial instruments, and may purchase and
sell options on such futures contracts.
5. Issue securities senior to the fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the fund from (a) making any permitted borrowings, loans, mortgages
or pledges, (b) entering into options, futures contracts, forward contracts,
repurchase transactions, or reverse repurchase transactions, or (c) making
short sales of securities to the extent permitted by the 1940 Act and any
rule or order thereunder, or U.S. Securities and Exchange Commission staff
interpretations thereof.
6. Concentrate (invest more than 25% of its net assets) in securities of
issuers in a particular industry (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities or
securities of other investment companies).
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
International Fund's Investment restrictions 2 or 7 above and Latin America
Fund's Investment restriction 6 above, it will not constitute a violation if,
prior to receipt of securities upon exercise of such rights, and after
announcement of such rights, the fund has sold at least as many securities of
the same class and value as it would receive on exercise of such rights.
The funds presently have the following additional restrictions which are not
fundamental and may be changed without shareholder approval. Each 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 the 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 each fund will limit its investment in all restricted securities,
including Rule 144A securities, to 15% of its total assets.
If a bankruptcy or other extraordinary event occurs concerning a particular
security a fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund
is not required to sell a security because circumstances change and the
security no longer meets one or more of the fund's policies or restrictions.
If a percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
RISKS
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FOREIGN SECURITIES Each fund, except the International Fund, has the right to
purchase securities in any foreign country, developed or developing. The
International Fund will limit its investments to securities of companies
located in foreign developed countries only. 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.
Most foreign companies are not generally subject to uniform accounting and
financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies. Each fund,
therefore, may encounter difficulty in obtaining market quotations for
purposes of valuing its portfolio and calculating its net asset value.
Foreign markets have substantially less volume than the New York Stock
Exchange (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; and (v) the absence of developed structures governing private or
foreign investment or allowing for judicial redress for injury to private
property.
Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include,
together with Russia's continuing political and economic instability and the
slow-paced development of its market economy, the following: (a) delays in
settling portfolio transactions and risk of loss arising out of Russia's
system of share registration and custody; (b) the risk that it may be
impossible or more difficult than in other countries to obtain and/or enforce
a judgment; (c) pervasiveness of corruption, insider trading, and crime in
the Russian economic system; (d) currency exchange rate volatility and the
lack of available currency hedging instruments; (e) higher rates of inflation
(including the risk of social unrest associated with periods of
hyper-inflation); (f) controls on foreign investment and local practices
disfavoring foreign investors and limitations on repatriation of invested
capital, profits and dividends, and on a fund's ability to exchange local
currencies for U.S. dollars; (g) the risk that the government of Russia or
other executive or legislative bodies may decide not to continue to support
the economic reform programs implemented since the dissolution of the Soviet
Union and could follow radically different political and/or economic policies
to the detriment of investors, including non-market-oriented policies such as
the support of certain industries at the expense of other sectors or
investors, a return to the centrally planned economy that existed prior to
the dissolution of the Soviet Union, or the nationalization of privatized
enterprises; (h) the risks of investing in securities with substantially less
liquidity and in issuers having significantly smaller market capitalizations,
when compared to securities and issuers in more developed markets; (i) the
difficulties associated in obtaining accurate market valuations of many
Russian securities, based partly on the limited amount of publicly available
information; (j) the financial condition of Russian companies, including
large amounts of inter-company debt which may create a payments crisis on a
national scale; (k) dependency on exports and the corresponding importance of
international trade; (l) the risk that the Russian tax system will not be
reformed to prevent inconsistent, retroactive and/or exorbitant taxation or,
in the alternative, the risk that a reformed tax system may result in the
inconsistent and unpredictable enforcement of the new tax laws; (m) possible
difficulty in identifying a purchaser of securities held by a fund due to the
underdeveloped nature of the securities markets; (n) the possibility that
pending legislation could restrict the levels of foreign investment in
certain industries, thereby limiting the number of investment opportunities
in Russia; (o) the risk that pending legislation would confer to Russian
courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes
before an internationally-accepted third-country arbitrator; and (p) the
difficulty in obtaining information about the financial condition of Russian
issuers, in light of the different disclosure and accounting standards
applicable to Russian companies.
There is little long-term historical data on Russian securities markets
because they are relatively new and a substantial proportion of securities
transactions in Russia are privately negotiated outside of stock exchanges.
Because of the recent formation of the securities markets as well as the
underdeveloped state of the banking and telecommunications systems,
settlement, clearing and registration of securities transactions are subject
to significant risks. Ownership of shares (except where shares are held
through depositories that meet the requirements of the 1940 Act) is defined
according to entries in the company's share register and normally evidenced
by extracts from the register or by formal share certificates. However, there
is no central registration system for shareholders and these services are
carried out by the companies themselves or by registrars located throughout
Russia. These registrars are not necessarily subject to effective state
supervision nor are they licensed with any governmental entity and it is
possible for a fund to lose its registration through fraud, negligence or
even mere oversight. While each fund will endeavor to ensure that its
interest continues to be appropriately recorded either itself or through a
custodian or other agent inspecting the share register and by obtaining
extracts of share registers through regular confirmations, these extracts
have no legal enforceability and it is possible that subsequent illegal
amendment or other fraudulent act may deprive the fund of its ownership
rights or improperly dilute its interests. In addition, while applicable
Russian regulations impose liability on registrars for losses resulting from
their errors, it may be difficult for 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 500 shareholders is required by law to contract out the maintenance
of its shareholder register to an independent entity that meets certain
criteria, in practice this regulation has not always been strictly enforced.
Because of this lack of independence, management of a company may be able to
exert considerable influence over who can purchase and sell the company's
shares by illegally instructing the registrar to refuse to record
transactions in the share register. In addition, so-called
"financial-industrial groups" have emerged in recent years that seek to deter
outside investors from interfering in the management of companies they
control. These practices may prevent a fund from investing in the securities
of certain Russian companies deemed suitable by its investment manager.
Further, this also could cause a delay in the sale of Russian company
securities by a fund if a potential purchaser is deemed unsuitable, which may
expose the fund to potential loss on the investment.
Investing in Latin American issuers involves a high degree of risk and
special considerations not typically associated with investing in the 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's investment manager endeavors to buy and sell foreign currencies
on as favorable a basis as practicable. Some price spread in currency
exchange (to cover service charges) will 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, economic 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.
LOW-RATED SECURITIES 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 goal may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be
less sensitive to interest rate changes than higher rated investments, but
more sensitive to adverse economic downturns or individual corporate
developments. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in low rated debt
securities prices because the advent of a recession could lessen the ability
of a highly leveraged company to make principal and interest payments on its
debt securities. If the issuer of low rated debt securities defaults, 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 "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.
The purchase of defaulted debt securities involves significant additional
risks, such as the possibility of complete loss of the investment in the
event the issuer does not restructure or reorganize to enable it to resume
paying interest and principal to holders.
Based upon the monthly weighted average ratings of debt securities held
during the Americas Government Securities Fund's fiscal year ended March 31,
1999, the fund had 91.9% of its total assets invested in debt securities that
received a rating from Moody's and/or S&P, and 8.1% of its total assets
invested in debt securities that were not so rated. The fund had the
following percentages of its total assets invested in rated securities: AAA
and/or Aaa: 43.9%, BB and/or Ba: 30.0%, and B: 18.0%. Included within the
8.1% unrated category are securities that have been determined by the manager
to be comparable to securities rated B or below.
DERIVATIVE SECURITIES 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 an 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.
OFFICERS AND TRUSTEES
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The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of each
fund's investment activities. The board, in turn, elects the officers of the
trust who are responsible for administering the trust's day-to-day
operations. The board also monitors each fund (except Americas Government
Securities Fund, which has only one class of shares) to ensure no material
conflicts exist among share classes. While none is expected, the board will
act appropriately to resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the trust, and principal occupations during
the past five years are shown below.
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 48 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
*Nicholas F. Brady (69)
16 North Washington Street, Easton, MD 21601
TRUSTEE
Chairman, Templeton Emerging Markets Investment Trust PLC, Templeton Latin
America Investment Trust PLC, Darby Overseas Investments, Ltd. and Darby
Emerging Markets Investments LDC (investment firms) (1994-present); Director,
Templeton Global Strategy Funds, Amerada Hess Corporation (exploration and
refining of natural gas), Christiana Companies, Inc. (operating and
investment companies), and H.J. Heinz Company (processed foods and allied
products); director or trustee, as the case may be, of 20 of the investment
companies in the Franklin Templeton Group of Funds; and FORMERLY, Secretary
of the United States Department of the Treasury (1988-1993) and Chairman of
the Board, Dillon, Read & Co., Inc. (investment banking) (until 1988).
*Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers, LLC;
Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President, Chief Operating Officer and
Director, Templeton Investment Counsel, Inc.; Executive Vice President and
Chief Financial Officer, Franklin Advisers, Inc.; Chief Financial Officer,
Franklin Advisory Services, LLC and Franklin Investment Advisory Services,
Inc.; President and Director, Franklin Templeton Services, Inc.; officer
and/or director of some of the other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 52 of
the investment companies in the Franklin Templeton Group of Funds.
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; director or trustee,
as the case may be, of 50 of the investment companies in the Franklin
Templeton Group of Funds.
John Wm. Galbraith (77)
360 Central Avenue, Suite 1300, St. Petersburg, FL 33701
TRUSTEE
President, Galbraith Properties, Inc. (personal investment company); Director
Emeritus, Gulf West Banks, Inc. (bank holding company) (1995-present);
director or trustee, as the case may be, of 19 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Director, Mercantile
Bank (1991-1995), Vice Chairman, Templeton, Galbraith & Hansberger Ltd.
(1986-1992), and Chairman, Templeton Funds Management, Inc. (1974-1991).
Andrew H. Hines, Jr. (76)
150 2nd Avenue N., St. Petersburg, FL 33701
TRUSTEE
Consultant,Triangle Consulting Group; Executive-in-Residence, Eckerd College
(1991-present); director or trustee, as the case may be, of 21 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Director, Precise Power Corporation (1990-1997), Director,
Checkers Drive-In Restaurant, Inc. (1994-1997), and Chairman of the Board and
Chief Executive Officer, Florida Progress Corporation (holding company in the
energy area) (1982-1990) and director of various of its subsidiaries.
Edith E. Holiday (47)
3239 38th Street, N.W., Washington, DC 20016
TRUSTEE
Director, Amerada Hess Corporation (exploration and refining of natural gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present) and
H.J. Heinz Company (processed foods and allied products) (1994-present);
director or trustee, as the case may be, of 24 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman (1995-1997) and
Trustee (1993-1997), National Child Research Center, Assistant to the
President of the United States and Secretary of the Cabinet (1990-1993),
General Counsel to the United States Treasury Department (1989-1990), and
Counselor to the Secretary and Assistant Secretary for Public Affairs and
Public Liaison-United States Treasury Department (1988-1989).
*Charles B. Johnson (66)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin
Investment Advisory Services, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and Franklin Templeton
Services, Inc.; officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 49 of the
investment companies in the Franklin Templeton Group of Funds.
Betty P. Krahmer (70)
2201 Kentmere Parkway, Wilmington, DE 19806
TRUSTEE
Director or trustee of various civic associations; director or trustee, as
the case may be, of 20 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Economic Analyst, U.S. government.
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 48 of the investment companies in
the Franklin Templeton Group of Funds; and formerly, Chairman, White River
Corporation (financial services) and Hambrecht and Quist Group (investment
banking), and President, National Association of Securities Dealers, Inc.
Fred R. Millsaps (70)
2665 NE 37th Drive, Fort Lauderdale, FL 33308
TRUSTEE
Manager of personal investments (1978-present); director of various business
and nonprofit organizations; director or trustee, as the case may be, of 21
of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman and Chief Executive Officer, Landmark Banking Corporation
(1969-1978), Financial Vice President, Florida Power and Light (1965-1969),
and Vice President, Federal Reserve Bank of Atlanta (1958-1965).
James R. Baio (45)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
TREASURER
Certified Public Accountant; Senior Vice President, Templeton Worldwide,
Inc., Templeton Global Investors, Inc. and Templeton Funds Trust Company;
officer of 21 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Senior Tax Manager, Ernst & Young (certified public
accountants) (1977-1989).
Harmon E. Burns (54)
777 Mariners Island Blvd., San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc. and Franklin/Templeton Investor Services, Inc.; and
officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 52 of the investment
companies in the Franklin Templeton Group of Funds.
Gary R. Clemons (42)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Senior Vice President, Templeton Investment Counsel, Inc.; and FORMERLY,
Research Analyst, Templeton Quantitative Advisors, Inc.
Samuel J. Forester, Jr. (51)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Managing Director, Templeton Worldwide, Inc.; Vice President and Director,
Templeton Global Income Portfolio Ltd.; Director, Closed Joint-Stock Company
Templeton and Templeton Trust Services Pvt. Ltd.; officer of 10 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Templeton Global Bond Managers, a division of Templeton Investment
Counsel, Inc., Founder and Partner, Forester, Hairston Investment Management,
Inc. (1989-1990), Managing Director (Mid-East Region), Merrill Lynch, Pierce,
Fenner & Smith Inc. (1987-1988), and Advisor for Saudi Arabian Monetary
Agency (1982-1987).
Deborah R. Gatzek (50)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC;
Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 53 of the investment
companies in the Franklin Templeton Group of Funds.
Barbara J. Green (51)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
SECRETARY
Senior Vice President, Templeton Worldwide, Inc. and Templeton Global
Investors, Inc.; officer of 20 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Deputy Director, Division of
Investment Management, Executive Assistant and Senior Advisor to the
Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow,
U.S. Securities and Exchange Commission (1986-1995), Attorney, Rogers &
Wells, and Judicial Clerk, U.S. District Court (District of Massachusetts).
Mark G. Holowesko (39)
Lyford Cay, Nassau, Bahamas
PRESIDENT
President, Templeton Global Advisors Limited; Chief Investment Officer,
Global Equity Group; Executive Vice President and Director, Templeton
Worldwide, Inc.; officer of 20 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Investment Administrator, RoyWest
Trust Corporation (Bahamas) Limited (1984-1985).
Charles E. Johnson (43)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment
Counsel, Inc.; Vice President, Franklin Advisers, Inc.; officer and/or
director of some of the other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may be, of 33 of the
investment companies in the Franklin Templeton Group of Funds.
Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice President,
Franklin Advisory Services, LLC; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 52 of
the investment companies in the Franklin Templeton Group of Funds.
John R. Kay (59)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; officer of 25 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Vice President and
Controller, Keystone Group, Inc.
Elizabeth M. Knoblock (44)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT - COMPLIANCE
General Counsel, Secretary and Senior Vice President, Templeton Investment
Counsel, Inc.; Senior Vice President, Templeton Global Investors, Inc.;
officer of 20 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Vice President and Associate General Counsel, Kidder
Peabody & Co. Inc. (1989-1990), Assistant General Counsel, Gruntal & Co.,
Inc. (1988), Vice President and Associate General Counsel, Shearson Lehman
Hutton Inc. (1988), Vice President and Assistant General Counsel, E.F. Hutton
& Co. Inc. (1986-1988), and Special Counsel, Division of Investment
Management, U.S. Securities and Exchange Commission (1984-1986).
*This board member is considered an "interested person" under federal
securities laws. Mr. Brady's status as an interested person results from his
business affiliations with Franklin Resources, Inc. and Templeton Global
Advisors Limited. Mr. Brady and Franklin Resources, Inc. are both limited
partners of Darby Overseas Partners, L.P. (Darby Overseas). In addition,
Darby Overseas and Templeton Global Advisors Limited are limited partners of
Darby Emerging Markets Fund, L.P.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
The trust pays noninterested board members and Mr. Brady an annual retainer
of $2,000 and a fee of $100 per board meeting attended. Board members who
serve on the audit committee of the trust and other funds in the Franklin
Templeton Group of Funds receive a flat fee of $2,000 per committee meeting
attended, a portion of which is allocated to the trust. Members of a
committee are not compensated for any committee meeting held on the day of a
board meeting. Noninterested board members also may serve as directors or
trustees of other funds in the Franklin Templeton Group of Funds and may
receive fees from these funds for their services. The following table
provides the total fees paid to noninterested board members and Mr. Brady by
the trust and by the Franklin Templeton Group of Funds.
NUMBER OF
BOARDS IN
TOTAL FEES THE FRANKLIN
RECEIVED FROM TEMPLETON
TOTAL FEES THE FRANKLIN GROUP
RECEIVED TEMPLETON OF FUNDS
FROM GROUP ON WHICH
NAME THE TRUST 1 ($) OF FUNDS 2 ($) EACH SERVES 3
- --------------------------------------------------------------------------------
Harris J. Ashton 2,500 361,157 48
Nicholas F. Brady 2,500 140,975 20
S. Joseph Fortunato 2,500 367,835 50
John Wm. Galbraith 2,883 134,425 19
Andrew H. Hines, Jr. 2,883 208,075 21
Edith E. Holiday 2,500 211,400 24
Betty P. Krahmer 2,500 141,075 20
Gordon S. Macklin 2,500 361,157 48
Fred R. Millsaps 2,881 210,075 21
1. For the fiscal year ended March 31, 1999.
2. For the calendar year ended December 31, 1998.
3. We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the board members are responsible. The Franklin Templeton Group of
Funds currently includes 54 registered investment companies, with
approximately 162 U.S. based funds or series.
Noninterested board members and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each
fund in the Franklin Templeton Group of Funds for which they serve as
director or trustee. No officer or board member received any other
compensation, including pension or retirement benefits, directly or
indirectly from the funds or other funds in the Franklin Templeton Group of
Funds. Certain officers or board members who are shareholders of Franklin
Resources, Inc. may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such board
member. Investments in the name of family members or entities controlled by a
board member constitute fund holdings of such board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
- ------------------------------------------------------------------------------
MANAGER AND SERVICES PROVIDED Templeton Investment Counsel, Inc., is the
manager of Latin America Fund, and through its Global Bond Managers division,
of Americas Government Securities Fund. Templeton Global Advisors Limited is
the manager of International Fund. The managers are wholly owned subsidiaries
of Franklin Resources, Inc. (Resources), a publicly owned company engaged in
the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
The managers provide investment research and portfolio management services,
and select the securities for the funds to buy, hold or sell. The managers
also select the brokers who execute the funds' portfolio transactions. The
managers provide periodic reports to the board, which reviews and supervises
the managers' investment activities. To protect the funds, the managers and
their officers, directors and employees are covered by fidelity insurance.
Templeton Global Advisors Limited renders its services to the International
Fund from outside the U.S.
The Templeton organization has been investing globally since 1940. The
managers and their affiliates have offices in Argentina, Australia, Bahamas,
Belgium, Bermuda, Brazil, British Virgin Islands, Canada, China, Cyprus,
France, Germany, Hong Kong, India, Italy, Japan, Korea, Luxembourg,
Mauritius, the Netherlands, Poland, Russia, Singapore, South Africa, Spain,
Sweden, Switzerland, Taiwan, Turkey, United Kingdom, Venezuela, and the U.S.
The managers and their affiliates manage numerous other investment companies
and accounts. A manager may give advice and take action with respect to any
of the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of a fund. Similarly, with respect to a
fund, the manager is not obligated to recommend, buy or sell, or to refrain
from recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell
for its or their own account or for the accounts of any other fund. A manager
is not obligated to refrain from investing in securities held by a fund or
other funds it manages. Of course, any transactions for the accounts of the
manager and other access persons will be made in compliance with the funds'
code of ethics.
Under the funds' code of ethics, employees of the Franklin Templeton Group
who are access persons may 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 by
the close of the business day following the day clearance is granted; (ii)
copies of all brokerage confirmations and statements must be sent to a
compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) 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.
MANAGEMENT FEES Each fund pays its manager a fee equal to an annual rate of
its respective average daily net assets, as shown below:
ANNUAL RATE (%)
- -----------------------------------------------------------------------
Americas Government Securities Fund 0.60
International Fund 0.75
Latin America Fund 1.25
The fee is computed according to the terms of the management agreement. Each
class of the funds' shares pays its proportionate share of the fee.
For the last three fiscal years ended March 31, the funds paid the following
management fees:
MANAGEMENT FEES PAID ($)
1999 1998 1997
- ----------------------------------------------------------------------------
Americas Government
Securities Fund1 57,025 0 0
International Fund2 423,088 29,958 0
Latin America Fund3 122,404 370,115 51,427
1. For the fiscal years ended March 31, 1999, 1998 and 1997, management fees,
before any advance waiver, totaled $131,960, $51,899 and $27,267,
respectively. Under an agreement by the manager to waive or limit its fees,
the fund paid the management fees shown.
2. For the fiscal years ended March 31, 1998 and 1997, management fees,
before any advance waiver, totaled $119,267 and $59,263, respectively. Under
an agreement by the manager to waive or limit its fees, these funds paid the
management fees shown.
3. For the fiscal years ended March 31, 1999, 1998 and 1997, management fees,
before any advance waiver, totaled $266,973, $447,715 and $133,551,
respectively. Under an agreement by the manager to limit its fees, the fund
paid the management fees shown.
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the funds to provide certain administrative
services and facilities for each fund. FT Services is wholly owned by
Resources and is an affiliate of each fund's manager and principal
underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The trust pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the trust's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended March 31, the funds paid the
following administration fees:
ADMINISTRATION FEES PAID ($)
---------------------------
1999 1998 19973
- -------------------------------------------------------------------------
Americas Government
Securities Fund1 32,989 9,342 0
International Fund2 84,618 23,853 9,376
Latin America Fund 32,037 53,726 16,026
1. For the fiscal years ended March 31, 1998 and 1997, administration fees,
before any advance waiver, totaled $12,975 and $6,819, respectively. Under an
agreement by FT Services to waive or limit its fees, the fund paid the
administration fees shown.
2. For the fiscal year ended March 31, 1997, administration fees, before any
advance waiver, totaled $11,851. Under an agreement by the FT Services to
limit its fees, the fund paid the administration fees shown.
3. Before October 1, 1996, Templeton Global Investors, Inc. provided
administrative services to the funds.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the funds' shareholder servicing agent
and acts as the funds' transfer agent and dividend-paying agent. Investor
Services is located at 100 Fountain Parkway, St. Petersburg, FL 33733-8030.
Please send all correspondence to Investor Services to P.O. Box 33030, St.
Petersburg, FL
33733-8030.
For its services, Investor Services receives a fixed fee per account. The
funds also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
funds. The amount of reimbursements for these services per benefit plan
participant fund account per year will not exceed the per account fee payable
by the funds to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of the funds' assets. As foreign
custody manager, the bank selects and monitors foreign sub-custodian banks,
selects and evaluates non-compulsory foreign depositories, and furnishes
information relevant to the selection of compulsory depositories.
AUDITOR McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, is
each fund's independent auditor. The auditor gives an opinion on the
financial statements included in the trust's Annual Report to Shareholders
and reviews the trust's registration statement filed with the U.S. Securities
and Exchange Commission (SEC).
PORTFOLIO TRANSACTIONS
- ------------------------------------------------------------------------------
The managers select brokers and dealers to execute the funds' portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the managers seek to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between a manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The managers
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 a 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 managers may pay certain brokers commissions that are higher than those
another broker may charge, if a manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the managers include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the managers in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the funds. They must, however, be of value to the managers in
carrying out its overall responsibilities to its clients.
Since most purchases by the Americas Government Securities Fund are principal
transactions at net prices, the fund incurs little or no brokerage costs. The
fund deals directly with the selling or buying principal or market maker
without incurring charges for the services of a broker on its behalf, unless
it is determined that a better price or execution may be obtained by using
the services of a broker. 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 prices. The fund seeks to obtain prompt execution of orders at the
most favorable net price. Transactions may be directed to dealers in return
for research and statistical information, as well as for special services
provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services the managers receive from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services allows the managers to supplement
their own research and analysis activities and to receive the views and
information of individuals and research staffs of other securities firms. As
long as it is lawful and appropriate to do so, the managers and their
affiliates may use this research and data in their investment advisory
capacities with other clients. If the funds' officers are satisfied that the
best execution is obtained, the sale of fund shares, as well as shares of
other funds in the Franklin Templeton Group of Funds, also may be considered
a factor in the selection of broker-dealers to execute the funds' portfolio
transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the funds tender portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of a fund,
any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to a manager will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses incurred in
connection with the tender.
If purchases or sales of securities of the funds and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the managers, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the funds are concerned. In other cases it is possible
that the ability to participate in volume transactions may improve execution
and reduce transaction costs to the funds.
During the last three fiscal years ended March 31, the funds paid the
following brokerage commissions:
BROKERAGE FEES PAID ($)
1999 1998 1997
- --------------------------------------------------------------------------
Americas Government
Securities Fund 0 0 0
International Fund 172,738 23,973 21,967
Latin America Fund 96,317 179,185 50,579
For the fiscal year ended March 31, 1999, the funds paid brokerage
commissions from aggregate portfolio transactions to brokers who provided
research services as follows:
FROM
AGGREGATE
BROKERAGE PORTFOLIO
COMMISSIONS TRANSACTIONS
($) OF ($)
- --------------------------------------------------------------------------
Americas Government
Securities Fund 0 0
International Fund 171,807 69,873,207
Latin America Fund 96,317 27,514,736
As of March 31, 1999, the funds did not own any securities of their regular
broker-dealers.
Because the funds may, from time to time, invest in broker-dealers, it is
possible that a fund will own more than 5% of the voting securities of one or
more broker-dealers through whom the fund places portfolio brokerage
transactions. In such circumstances, the broker-dealer would be considered an
affiliated person of the fund. To the extent the fund places brokerage
transactions through such a broker-dealer at a time when the broker-dealer is
considered to be an affiliate of the fund, the fund will be required to
adhere to certain rules relating to the payment of commissions to an
affiliated broker-dealer. These rules require the funds to adhere to
procedures adopted by the board relating to ensuring that the commissions
paid to such broker-dealers do not exceed what would otherwise be the usual
and customary brokerage commissions for similar transactions.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
The funds calculate dividends and capital gains the same way for each class.
The amount of any income dividends per share will differ, however, generally
due to the difference in the distribution and service (Rule 12b-1) fees of
each class. The funds do not pay "interest" or guarantee any fixed rate of
return on an investment in their shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The funds receive income generally in
the form of dividends and interest on their investments. This income, less
expenses incurred in the operation of a fund, constitutes a fund's net
investment income from which dividends may be paid to you. Any distributions
by a fund from such income will be taxable to you as ordinary income, whether
you take them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The funds may derive capital gains and losses
in connection with sales or other dispositions of their portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in a fund. Any net capital gains realized by a fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, in order to reduce or eliminate excise or income
taxes on the funds.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by a
fund. Similarly, foreign exchange losses realized by a fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce a fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce a fund's
ordinary income distributions to you, and may cause some or all of a fund's
previously distributed income to be classified as a return of capital.
The funds may be subject to foreign withholding taxes on income from certain
of their foreign securities. If more than 50% of a fund's total assets at the
end of the fiscal year are invested in securities of foreign corporations,
the fund may elect to pass-through to you your pro rata share of foreign
taxes paid by the fund. If this election is made, the year-end statement you
receive from a fund will show more taxable income than was actually
distributed to you. However, you will be entitled to either deduct your share
of such taxes in computing your taxable income or (subject to limitations)
claim a foreign tax credit for such taxes against your U.S. federal income
tax. A fund will provide you with the information necessary to complete your
individual income tax return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The funds will inform you
of the amount of your ordinary income dividends and capital gains
distributions at the time they are paid, and will advise you of their tax
status for federal income tax purposes shortly after the close of each
calendar year. If you have not held fund shares for a full year, a fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the funds.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY Each fund has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code, has qualified as such for its most recent fiscal year,
and intends to so qualify during the current fiscal year. As regulated
investment companies, the funds generally pay no federal income tax on the
income and gains they distribute to you. The board reserves the right not to
maintain the qualification of a fund as a regulated investment company if it
determines such course of action to be beneficial to shareholders. In such
case, a fund will be subject to federal, and possibly state, corporate taxes
on its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires a fund to distribute to you by December 31 of
each year, at a minimum, the following amounts: 98% of its taxable ordinary
income earned during the calendar year; 98% of its capital gain net income
earned during the twelve month period ending October 31; and 100% of any
undistributed amounts from the prior year. Each fund intends to declare and
pay these amounts in December (or in January that are treated by you as
received in December) to avoid these excise taxes, but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are
taxable transactions for federal and state income tax purposes. If you redeem
your fund shares, or exchange your fund shares for shares of a different
Franklin Templeton Fund, the IRS will require that you report a gain or loss
on your redemption or exchange. If you hold your shares as a capital asset,
the gain or loss that you realize will be capital gain or loss and will be
long-term or short-term, generally depending on how long you hold your
shares. Any loss incurred on the redemption or exchange of shares held for
six months or less will be treated as a long-term capital loss to the extent
of any long-term capital gains distributed to you by the funds on those
shares.
All or a portion of any loss that you realize upon the redemption of your
fund shares will be disallowed to the extent that you buy other shares in the
fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in a fund, and
then reinvest the sales proceeds in such fund or in another Franklin
Templeton Fund within 90 days of buying the original shares, the sales charge
that would otherwise apply to your reinvestment may be reduced or eliminated.
The IRS will require you to report gain or loss on the redemption of your
original shares in a fund. In doing so, all or a portion of the sales charge
that you paid for your original shares in the funds will be excluded from
your tax basis in the shares sold (for the purpose of determining gain or
loss upon the sale of such shares). The portion of the sales charge excluded
will equal the amount that the sales charge is reduced on your reinvestment.
Any portion of the sales charge excluded from your tax basis in the shares
sold will be added to the tax basis of the shares you acquire from your
reinvestment.
U.S. GOVERNMENT OBLIGATIONS Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that
must be met by the funds. Investments in Government National Mortgage
Association or Federal National Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
The rules on exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because the income of each fund
is derived primarily from investments in foreign rather than domestic U.S
securities, or consists of interest rather than dividends, no portion of
their distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by such funds for
the most recent calendar year qualified for the deduction, and it is
anticipated that none of the current year's dividends will so qualify.
INVESTMENT IN COMPLEX SECURITIES The funds may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by a fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to a fund and/or defer a fund's ability to recognize losses, and, in
limited cases, subject a fund to U.S. federal income tax on income from
certain of its foreign securities. In turn, these rules may affect the
amount, timing or character of the income distributed to you by a fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- ------------------------------------------------------------------------------
International Fund is a diversified series and Latin America Fund is a
non-diversified series of Templeton Global Investment Trust, an open-end
management investment company, commonly called a mutual fund. The trust was
organized as a Delaware business trust on December 21, 1993, and is
registered with the SEC.
The Americas Government Securities Fund currently offers one class of shares,
Class A. The International Fund and Latin America Fund currently offer three
classes of shares, Class A, Class C and Advisor Class. Before January 1,
1999, Class A shares were designated Class I and Class C shares were
designated Class II. The funds may offer additional classes of shares in the
future. The full title of each class of each fund is:
o Templeton Americas Government Securities Fund - Class A
o Templeton International Fund - Class A
o Templeton International Fund - Class C
o Templeton International Fund - Advisor Class
o Templeton Latin America Fund - Class A
o Templeton Latin America Fund - Class C
o Templeton Latin America Fund - Advisor Class
Shares of each class represent proportionate interests in the funds' assets.
On matters that affect a fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only
one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law. Shares of each class of a series
have the same voting and other rights and preferences as the other classes
and series of the trust for matters that affect the trust as a whole.
Additional series may be offered in the future.
The trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The trust does not intend to hold annual shareholder meetings. The trust or a
series of the trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a board member. A special meeting also may be called by the board in its
discretion.
As of May 11, 1999, the principal shareholders of the Americas Government
Securities Fund, International Fund and Latin America Fund, beneficial or of
record, were:
PERCENTAGE
NAME AND ADDRESS SHARE CLASS (%)
- ----------------------------------------------------------------------------
AMERICAS GOVERNMENT SECURITIES FUND
Templeton Global Investors, Inc.
Corporate Accounting
Attn: Michael Corcoran
555 Airport Blvd 4th Fl.
Burlingame, CA 94010 Class A 13.63
INTERNATIONAL FUND
Dorothy R. Silva & Jeffrey R. Silva &
Christopher W. Silva Jt Ten
1977 Grosse Ave.
Santa Rosa, CA 95404 Advisor Class 8.38
PERCENTAGE
NAME AND ADDRESS SHARE CLASS (%)
- ----------------------------------------------------------------------------
INTERNATIONAL FUND (CONT.)
Michael E. Wagner And
Laura Lee Wagner As Ttees
of the Michael And Laura Wagner
Liv. Family Tr. U/A Dtd 6-29-95
4636 W. Hearn Rd.
Glendale, AZ 85306-4502 Advisor Class 15.12
Wachovia Securities Inc.
FBO 205-83243-16
P.O. Box 1220
Charlotte, NC 28201-1220 Advisor Class 9.23
Franklin Resources Inc.
Corporate Accounting
Attn: Michael Corcoran
555 Airport Blvd 4th Fl.
Burlingame, CA 94010 Advisor Class 15.58
LATIN AMERICA FUND
FTTC CUST for the IRA of
Joseph E. Sedlick
13347 88th Pl. North
Seminole, FL 33776-2410 Advisor Class 5.03
Sam J. Forester
1105 S. Rio Vista Blvd.
Ft Lauderdale, FL 33316 Advisor Class 9.85
Hao Kim Phan And Thanh C. Tu Jt Ten
733 Kathryne Ave.
San Mateo, CA 94401-3122 Advisor Class 12.43
Franklin Resources Inc.
Corporate Accounting
Attn: Michael Corcoran
555 Airport Blvd 4th Fl.
Burlingame, CA 94010 Advisor Class 10.22
Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and/or
trustees of the trust, may be considered beneficial holders of the fund
shares held by Franklin Resources, Inc. (Resources) and Templeton Global
Investors, Inc. (Global Investors). As principal shareholders of Resources,
they may be able to control the voting of Resources' and Global Investors'
shares of the fund.
From time to time, the number of fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.
As of May 11, 1999, the officers and board members, as a group, owned of
record and beneficially 1.8% of the International Fund - Advisor Class, 9.8%
of the Latin America Fund - Advisor Class and less than 1% of the outstanding
shares of the other funds and classes. The board members may own shares in
other funds in the Franklin Templeton Group of Funds.
BUYING AND SELLING SHARES
- ------------------------------------------------------------------------------
On May 19, 1999, the board approved a proposal to merge the Templeton
Americas Government Securities Fund into the Templeton Global Bond Fund,
subject to shareholder approval. The board of trustees of Templeton Income
Trust also approved the merger on behalf of the Templeton Global Bond Fund.
The investment goal of Templeton Global Bond Fund is current income with
capital appreciation and growth of income. The boards believe this proposed
merger will benefit shareholders. It is anticipated that shareholders of
Templeton Americas Government Securities Fund will receive a proxy and proxy
statement requesting their votes on the merger this summer.
The Templeton Americas Government Securities Fund is closed to new investors.
If you were a shareholder of record as of the close of business on June 8,
1999, you may continue to add to your account, subject to your applicable
minimum investment amount, or buy additional shares through the reinvestment
of dividend and capital gain distributions until October 1, 1999. If the
merger is approved by shareholders on October 1, 1999, as of the close of
business on October 1, 1999, the fund will be closed to all purchases,
although you may continue to buy additional shares through reinvestment of
dividend and capital gain distributions or through established automatic
investment plans.
Although you may redeem your shares of Templeton Americas Government
Securities Fund, please keep in mind that if you sell all the shares in your
account, your account will be closed and you will not be allowed to buy
additional shares of the fund or to reopen your account in the fund. If you
sell your shares in the fund, you may reinvest some or all of the proceeds in
most of the other Franklin Templeton Funds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class.
The funds continuously offer their shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the funds. This reference is for convenience only
and does not indicate a legal conclusion of capacity. Banks and financial
institutions that sell shares of the funds may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the funds should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the funds must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid
to a fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.
INITIAL SALES CHARGES The maximum initial sales charge is 5.75% for each
fund's Class A (except Americas Government Securities which has a maximum
initial sales charge of 4.25%) and 1% for Class C.
The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in the Franklin Templeton Funds to take advantage of
the lower sales charges for large purchases. The Franklin Templeton Funds
include the U.S. registered mutual funds in the Franklin Group of Funds and
the Templeton Group of Funds except Franklin Templeton Variable Insurance
Products Trust, Templeton Capital Accumulator Fund, Inc., and Templeton
Variable Products Series Fund.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds. You also may combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you also may add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge
by completing the letter of intent section of your account application. A
letter of intent is a commitment by you to invest a specified dollar amount
during a 13 month period. The amount you agree to invest determines the sales
charge you pay. By completing the letter of intent section of the
application, you acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase
in Class A shares registered in your name until you fulfill your LOI. Your
periodic statements will include the reserved shares in the total shares
you own, and we will pay or reinvest dividend and capital gain
distributions on the reserved shares according to the distribution option
you have chosen.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the LOI or pay the higher sales charge.
After you file your LOI with a fund, you may buy Class A shares at the sales
charge applicable to the amount specified in your LOI. Sales charge
reductions based on purchases in more than one Franklin Templeton Fund will
be effective only after notification to Distributors that the investment
qualifies for a discount. Any Class A purchases you made within 90 days
before you filed your LOI also may qualify for a retroactive reduction in the
sales charge. If you file your LOI with the fund before a change in the
fund's sales charge, you may complete the LOI at the lower of the new sales
charge or the sales charge in effect when the LOI was filed.
Your holdings in the Franklin Templeton Funds acquired more than 90 days
before you filed your LOI will be counted towards the completion of the LOI,
but they will not be entitled to a retroactive reduction in the sales charge.
Any redemptions you make during the 13 month period, except in the case of
certain retirement plans, will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of
your total purchases, less redemptions, is more than the amount specified in
your LOI and is an amount that would qualify for a further sales charge
reduction, a retroactive price adjustment will be made by Distributors and
the securities dealer through whom purchases were made. The price adjustment
will be made on purchases made within 90 days before and on those made after
you filed your LOI and will be applied towards the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases.
If the amount of your total purchases, less redemptions, is less than the
amount specified in your LOI, the sales charge will be adjusted upward,
depending on the actual amount purchased (less redemptions) during the
period. You will need to send Distributors an amount equal to the difference
in the actual dollar amount of sales charge paid and the amount of sales
charge that would have applied to the total purchases if the total of the
purchases had been made at one time. Upon payment of this amount, the
reserved shares held for your account will be deposited to an account in your
name or delivered to you or as you direct. If within 20 days after written
request the difference in sales charge is not paid, we will redeem an
appropriate number of reserved shares to realize the difference. If you
redeem the total amount in your account before you fulfill your LOI, we will
deduct the additional sales charge due from the sale proceeds and forward the
balance to you.
For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the LOI. These plans are not subject to the requirement to reserve 5%
of the total intended purchase or to the policy on upward adjustments in
sales charges described above, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the LOI.
GROUP PURCHASES. If you are a member of a qualified group, you may buy Class
A shares at a reduced sales charge that applies to the group as a whole. The
sales charge is based on the combined dollar value of the group members'
existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased the
fund's Class A shares at a reduced sales charge under the group purchase
privilege before February 1, 1998, may continue to do so.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be
purchased without an initial sales charge or contingent deferred sales charge
(CDSC) by investors who reinvest within 365 days:
o Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same share class.
Certain exceptions apply, however, to Class C shareholders who chose to
reinvest their distributions in Class A shares of the fund before November
17, 1997, and to Advisor Class or Class Z shareholders of a Franklin
Templeton Fund who may reinvest their distributions in the fund's Class A
shares. This waiver category also applies to Class C shares.
o Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
o Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment option
the Franklin Templeton Variable Insurance Products Trust or the Templeton
Variable Products Series Fund. You should contact your tax advisor for
information on any tax consequences that may apply.
o Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
o If you immediately placed your redemption proceeds in a Franklin Bank CD
or a Franklin Templeton money fund, you may reinvest them as described
above. The proceeds must be reinvested within 365 days from the date the
CD matures, including any rollover, or the date you redeem your money fund
shares.
o Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of fund
shares and the CDSC holding period will begin again. We will, however,
credit your fund account with additional shares based on the CDSC you
previously paid and the amount of the redemption proceeds that you
reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
o Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without
an initial sales charge or CDSC by various individuals and institutions due
to anticipated economies in sales efforts and expenses, including:
o Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held
in a fiduciary, agency, advisory, custodial or similar capacity and over
which the trust companies and bank trust departments or other plan
fiduciaries or participants, in the case of certain retirement plans, have
full or shared investment discretion. We will accept orders for these
accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with
payment by federal funds received by the close of business on the next
business day following the order.
o Any state or local government or any instrumentality, department,
authority or agency thereof that has determined the fund is a legally
permissible investment and that can only buy fund shares without paying
sales charges. Please consult your legal and investment advisors to
determine if an investment in the fund is permissible and suitable for you
and the effect, if any, of payments by the fund on arbitrage rebate
calculations.
o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
o Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
o Registered securities dealers and their affiliates, for their investment
accounts only
o Current employees of securities dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
o Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
o Any investor who is currently a Class Z shareholder of Franklin Mutual
Series Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31,
1996, or who sold his or her shares of Mutual Series Class Z within the
past 365 days
o Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
o Accounts managed by the Franklin Templeton Group
o Certain unit investment trusts and their holders reinvesting
distributions from the trusts
o Group annuity separate accounts offered to retirement plans
o Chilean retirement plans that meet the requirements described under
"Retirement plans" below
In addition, Class C shares may be purchased without an initial sales charge
by any investor who buys Class C shares through an omnibus account with
Merrill Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the
shares are sold within 18 months of purchase.
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without an initial sales
charge. Retirement plans that are not qualified retirement plans (employer
sponsored pension or profit-sharing plans that qualify under section 401 of
the Internal Revenue Code, including 401(k), money purchase pension, profit
sharing and defined benefit plans), SIMPLEs (savings incentive match plans
for employees) or SEPs (employer sponsored simplified employee pension plans
established under section 408(k) of the Internal Revenue Code) must also meet
the group purchase requirements described above to be able to buy Class A
shares without an initial sales charge. We may enter into a special
arrangement with a securities dealer, based on criteria established by the
fund, to add together certain small qualified retirement plan accounts for
the purpose of meeting these requirements.
For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply
if the retirement plan is transferred out of the Franklin Templeton Funds or
terminated within 365 days of the retirement plan account's initial purchase
in the Franklin Templeton Funds.
Any retirement plan that does not meet the requirements to buy Class A shares
without an initial sales charge and that was a shareholder of the fund on or
before February 1, 1995, may buy shares of the fund subject to a maximum
initial sales charge of 4% of the offering price, 3.2% of which will be
retained by securities dealers.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, each fund's shares are available to these banks' trust accounts
without a sales charge. The banks may charge service fees to their customers
who participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining
a service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.
Each fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares of each fund except the 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 $50,000 2.5
$50,000 but less than $100,000 2.5
$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, Class A shares of the
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
DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may
be deemed an underwriter under the Securities Act of 1933, as amended.
Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated in the dealer compensation table
in the funds' prospectus.
For each fund, except Americas Government Securities Fund, Distributors may
pay the following commissions, out of its own resources, to securities
dealers who initiate and are responsible for purchases of Class A shares of
$1 million or more: 1% on sales of $1 million to $2 million, plus 0.80% on
sales over $2 million to $3 million, plus 0.50% on sales over $3 million to
$50 million, plus 0.25% on sales over $50 million to $100 million, plus 0.15%
on sales over $100 million.
For Americas Government Securities Fund, Distributors may pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of its shares of $1 million or more: 0.75% on
sales of $1 million to $2 million, plus 0.60% on sales over $2 million to $3
million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on
sales over $50 million to $100 million, plus 0.15% on sales over $100 million.
These breakpoints are reset every 12 months for purposes of additional
purchases.
Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for
purchases of Class A shares by certain retirement plans without an initial
sales charge. These payments may be made in the form of contingent advance
payments, which may be recovered from the securities dealer or set off
against other payments due to the dealer if shares are sold within 12 months
of the calendar month of purchase. Other conditions may apply. All terms and
conditions may be imposed by an agreement between Distributors, or one of its
affiliates, and the securities dealer.
In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of the
Franklin Templeton Group of Funds. This support is based primarily on the
amount of sales of fund shares and/or total assets with the Franklin
Templeton Group of Funds. The amount of support may be affected by: total
sales; net sales; levels of redemptions; the proportion of a securities
dealer's sales and marketing efforts in the Franklin Templeton Group of
Funds; a securities dealer's support of, and participation in, Distributors'
marketing programs; a securities dealer's compensation programs for its
registered representatives; and the extent of a securities dealer's marketing
programs relating to the Franklin Templeton Group of Funds. Financial support
to securities dealers may be made by payments from Distributors' resources,
from Distributors' retention of underwriting concessions and, in the case of
funds that have Rule 12b-1 plans, from payments to Distributors under such
plans. In addition, certain securities dealers may receive brokerage
commissions generated by fund portfolio transactions in accordance with the
rules of the National Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity
discount or letter of intent programs, a CDSC may apply on any shares you
sell within 12 months of purchase. For Class C shares, a CDSC may apply if
you sell your shares within 18 months of purchase. The CDSC is 1% of the
value of the shares sold or the net asset value at the time of purchase,
whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of the Franklin
Templeton Funds or terminated within 365 days of the account's initial
purchase in the Franklin Templeton Funds.
CDSC WAIVERS. The CDSC for any share class generally will be waived for:
o Account fees
o Sales of Class A shares purchased without an initial sales charge by
certain retirement plan accounts if (i) the account was opened before May
1, 1997, or (ii) the securities dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any
payment in connection with the purchase, or (iv) the securities dealer of
record has entered into a supplemental agreement with Distributors
o Redemptions of Class A shares by investors who purchased $1 million or
more without an initial sales charge if the securities dealer of record
waived its commission in connection with the purchase
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February
1, 1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's net asset value depending on the frequency of
your plan
o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R)
o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of money. If this
occurs, it is 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 goals exist immediately. This money will then be withdrawn from
the short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. For retirement plans subject to mandatory distribution
requirements, the $50 minimum will not apply. There are no service charges
for establishing or maintaining a systematic withdrawal plan.
Payments under the plan will be made from the redemption of an equivalent
amount of shares in your account, generally on the 25th day of the month in
which a payment is scheduled. If the 25th falls on a weekend or holiday, we
will process the redemption on the next business day. When you sell your
shares under a systematic withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan also
may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. The funds 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 the fund receives notification of the shareholder's death or
incapacity.
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 the fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (SEC). In the case of redemption requests in excess
of these amounts, the board reserves the right to make payments in whole or
in part in securities or other assets of the fund, in case of an emergency,
or if the payment of such a redemption in cash would be detrimental to the
existing shareholders of the fund. In these circumstances, the securities
distributed would be valued at the price used to compute the fund's net
assets and you may incur brokerage fees in converting the securities to cash.
Redemptions in kind are taxable transactions. The fund does not intend to
redeem illiquid securities in kind. If this happens, however, you may not be
able to recover your investment in a timely manner.
SHARE CERTIFICATES We will credit your shares to your fund account. We do not
issue share certificates unless you specifically request them. This
eliminates the costly problem of replacing lost, stolen or destroyed
certificates. If a certificate is lost, stolen or destroyed, you may have to
pay an insurance premium of up to 2% of the value of the certificate to
replace it.
Any outstanding share certificates must be returned to the fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to 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.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the funds
nor their affiliates will be liable for any loss caused by your failure to
cash such checks. The funds are not responsible for tracking down uncashed
checks, unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, the funds are not bound
to meet any redemption request in less than the seven day period prescribed
by law. Neither the funds nor their agents shall be liable to you or any
other person if, for any reason, a redemption request by wire is not
processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with 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, the fund may reimburse Investor Services an amount not to exceed the
per account fee that the fund normally pays Investor Services. These
financial institutions also may charge a fee for their services directly to
their clients.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the fund in a timely fashion. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, each fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
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When you buy shares, you pay the offering price. The offering price is the
net asset value (NAV) per share plus any applicable sales charge, calculated
to two decimal places using standard rounding criteria. When you sell shares,
you receive the NAV minus any applicable CDSC.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of
shares outstanding.
Each fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. pacific
time). The funds do not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, each fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. The fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the fund values them according to the broadest and most
representative market as determined by the manager.
Each fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the fund holds is its last sale price on the relevant exchange before
the fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the fund values options within
the range of the current closing bid and ask prices if the fund believes the
valuation fairly reflects the contract's market value.
Trading in securities on Latin American, 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
Latin American, 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 funds' NAVs are not
calculated. Thus, the calculation of the funds' NAVs does not take place
contemporaneously with the determination of the prices of many of the
portfolio securities used in the calculation and, if events materially
affecting the values of these foreign securities occur, the securities will
be valued at fair value as determined by management and approved in good
faith by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the board. With the approval of
the board, a fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
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Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the funds' shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances
to dealers, and the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended
March 31:
AMOUNT
RECEIVED IN
CONNECTION
WITH
TOTAL AMOUNT REDEMPTIONS
COMMISSIONS RETAINED BY AND
RECEIVED DISTRIBUTORS REPURCHASES
($) ($) ($)
- -----------------------------------------------------------------------------
1999
Americas Government
Securities Fund 130,003 7,152 0
International Fund 403,559 33,785 19,819
Latin America Fund 86,804 24,218 6,936
1998
Americas Government
Securities Fund 167,684 13,743 0
International Fund 323,121 19,388 3,342
Latin America Fund 496,868 75,850 6,014
1997
Americas Government
Securities Fund 62,167 5,018 0
International Fund 96,312 15,811 6,203
Latin America Fund 215,273 35,174 852
Distributors may be entitled to reimbursement under the Rule 12b-1 plans, as
discussed below. Except as noted, Distributors received no other compensation
from the fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES Each class has a separate distribution
or "Rule 12b-1" plan. Under each plan, the fund shall pay or may reimburse
Distributors or others for the expenses of activities that are primarily
intended to sell shares of the class. These expenses may include, among
others, distribution or service fees paid to securities dealers or others who
have executed a servicing agreement with the fund, Distributors or its
affiliates; a prorated portion of Distributors' overhead expenses; and the
expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
The distribution and service (12b-1) fees charged to each class are based
only on the fees attributable to that particular class.
THE CLASS A PLAN. Payments by the funds under the Class A plan may not exceed
0.35% per year of Class A's average daily net assets, payable quarterly.
Expenses not reimbursed in any quarter may be reimbursed in future quarters
or years. This includes expenses not reimbursed because they exceeded the
applicable limit under the plan. As of March 31, 1999, expenses under the
Class A plan that may be reimbursable in future quarters or years were as
follows:
REIMBURSABLE
EXPENSES ($)
- --------------------------------------------------------------------
Americas Government Securities Fund 78,761
International Fund 225,324
Latin America Fund 210,910
THE CLASS C PLAN. Under the Class C plan, the fund pays Distributors up to
0.75% per year of the class's average daily net assets, payable quarterly, to
pay Distributors or others for providing distribution and related services
and bearing certain expenses. All distribution expenses over this amount will
be borne by those who have incurred them. The fund also may pay a servicing
fee of up to 0.25% per year of the class's average daily net assets, payable
quarterly. This fee may be used to pay securities dealers or others for,
among other things, helping to establish and maintain customer accounts and
records, helping with requests to buy and sell shares, receiving and
answering correspondence, monitoring dividend payments from the fund on
behalf of customers, and similar servicing and account maintenance activities.
The expenses relating to the Class C plan also are used to pay Distributors
for advancing the commission costs to securities dealers with respect to the
initial sale of Class C shares.
THE CLASS A AND C PLANS. The terms and provisions of each plan relating to
required reports, term, and approval are consistent with Rule 12b-1.
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 under the rules of
the National Association of Securities Dealers, Inc.
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 the 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
noninterested members of the fund's board. The plans and any related
agreement may be terminated at any time, without penalty, by vote of a
majority of the noninterested 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 management agreement with the manager
or by vote of a majority of the outstanding shares of the class. The Class A
plan also may be terminated by any act that constitutes an assignment of the
underwriting agreement with Distributors. Distributors or any dealer or other
firm also may 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 noninterested board members, 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, 1999, Distributors' eligible expenditures
for advertising, printing, and payments to underwriters and broker-dealers
pursuant to the plans and the amounts the fund paid Distributors under the
plans were:
DISTRIBUTORS' AMOUNT
ELIGIBLE PAID BY THE
EXPENSES ($) FUND ($)
- -----------------------------------------------------------------------
Americas Government Securities Fund 136,851 77,033
International Fund - Class A 187,754 147,854
International Fund - Class C 162,657 128,946
Latin America Fund - Class A 74,959 58,986
Latin America Fund - Class C 51,109 43,776
PERFORMANCE
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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.
Average annual total return and current yield quotations used by the funds
are based on the standardized methods of computing performance mandated by
the SEC. Performance figures reflect Rule 12b-1 fees from the date of the
plan's implementation. An explanation of these and other methods used by the
funds to compute or express performance follows. Regardless of the method
used, past performance does not guarantee future results, and is an
indication of the return to shareholders only for the limited historical
period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum initial sales charge is
deducted from the initial $1,000 purchase, and income dividends and capital
gain distributions are reinvested at net asset value. The quotation assumes
the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. If a change is made to the
sales charge structure, historical performance information will be restated
to reflect the maximum initial sales charge currently in effect.
When considering the average annual total return quotations, you should keep
in mind that the maximum initial sales charge reflected in each quotation is
a one time fee charged on all direct purchases, which will have its greatest
impact during the early stages of your investment. This charge will affect
actual performance less the longer you retain your investment in the fund.
The average annual total returns for the indicated periods ended March 31,
1999, were:
SINCE
INCEPTION 1 YEAR 5 YEARS INCEPTION
DATE (%) (%) (%)
- ------------------------------------------------------------------------
CLASS A
Americas Government
Securities Fund 6/27/94 -6.65 - 7.52
International Fund 5/8/95 -12.46 - 9.40
Latin America Fund 5/8/95 -38.17 - -5.05
SINCE
INCEPTION 1 YEAR INCEPTION
DATE (%) (%)
- ------------------------------------------------------------------------
CLASS C
International Fund 5/8/95 -9.51 10.06
Latin America Fund 5/8/95 -36.11 -4.49
The following SEC formula was used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are
reinvested at net asset value, the account was completely redeemed at the end
of each period and the deduction of all applicable charges and fees.
Cumulative total return, however, is based on the actual return for a
specified period rather than on the average return over the periods indicated
above. The cumulative total returns for the indicated periods ended March 31,
1999, were:
SINCE
INCEPTION 1 YEAR 5 YEARS INCEPTION
DATE (%) (%) (%)
- --------------------------------------------------------------------------
CLASS A
Americas Government
Securities Fund 6/27/94 -6.65 - 41.18
International Fund 5/8/95 -12.46 - 41.96
Latin America Fund 5/8/95 -38.17 - -18.29
SINCE
INCEPTION 1 YEAR INCEPTION
DATE (%) (%)
- --------------------------------------------------------------------------
CLASS C
International Fund 5/8/95 -9.51 45.30
Latin America Fund 5/8/95 -36.11 -16.39
CURRENT YIELD Current yield shows the income per share earned by the fund. It
is calculated by dividing the net investment income per share 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 Americas Government Securities Fund for the 30-day
period ended March 31, 1999, was 8.30%.
The following SEC formula was used to calculate these figures:
Yield = 2 [(a-b + 1)6 - 1]
---
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
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. 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 March 31, 1999, was 0.59%.
VOLATILITY Occasionally statistics may be used to show a fund's volatility or
risk. Measures of volatility or risk are generally used to compare the fund's
net asset value or performance to a market index. One measure of volatility
is beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities
in which the fund invests. A beta of more than 1.00 indicates volatility
greater than the market and a beta of less than 1.00 indicates volatility
less than the market. Another measure of volatility or risk is standard
deviation. Standard deviation is used to measure variability of net asset
value or total return around an average over a specified period of time. The
idea is that greater volatility means greater risk undertaken in achieving
performance.
OTHER PERFORMANCE QUOTATIONS A fund also may quote the performance of shares
without a sales charge. Sales literature and advertising may quote a
cumulative total return, average annual total return and other measures of
performance with the substitution of net asset value for the public offering
price.
Sales literature referring to the use of a fund as a potential investment for
IRAs, business retirement plans, and other tax-advantaged retirement plans
may quote a total return based upon compounding of dividends on which it is
presumed no federal income tax applies.
A fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to the
Franklin Templeton Group of Funds. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of the Franklin Templeton Group of
Funds.
COMPARISONS To help you better evaluate how an investment in a fund may
satisfy your investment goal, advertisements and other materials about the
fund may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
(i) unmanaged indices so that you may compare the fund's results with those
of a group of unmanaged securities widely regarded by investors as
representative of the securities market in general; (ii) other groups of
mutual funds tracked by Lipper Analytical Services, Inc., a widely used
independent research firm that ranks mutual funds by overall performance,
investment goals and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or
other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment in the fund. Unmanaged
indices may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
From time to time, the funds and the managers also may refer to the following
information:
o The managers' and their affiliates' market share of international
equities managed in mutual funds prepared or published by Strategic
Insight or a similar statistical organization.
o The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital International(R) or
a similar financial organization.
o The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley Capital
International(R) or a similar financial organization.
o The geographic and industry distribution of a fund's portfolio and the
fund's top ten holdings.
o The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to a
liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, of various countries as
published by various statistical organizations.
o To assist investors in understanding the different returns and risk
characteristics of various investments, a fund may show historical returns
of various investments and published indices (E.G., Ibbotson Associates,
Inc. Charts and Morgan Stanley EAFE - Index).
o The major industries located in various jurisdictions as published by the
Morgan Stanley Index.
o Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder
services.
o Allegorical stories illustrating the importance of persistent long-term
investing.
o A fund's portfolio turnover rate and its ranking relative to industry
standards as published by Lipper Analytical Services, Inc. or Morningstar,
Inc.
o A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued or
"bargain" securities and its diversification by industry, nation and type
of stocks or other securities.
o Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions.
o Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing.
*Sir John Templeton sold the Templeton organization to Franklin Resources,
Inc. in October 1992 and resigned from the board on April 16, 1995. He is no
longer involved with the investment management process.
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 the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information also may compare a fund's performance to the
return on certificates of deposit (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 the 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 a fund's performance, you should keep in mind
that the composition of the investments in the reported indices and averages
is not identical to the fund's portfolio, the indices and averages are
generally unmanaged, and the items included in the calculations of the
averages may not be identical to the formula used by the fund to calculate
its figures. In addition, there can be no assurance that the fund will
continue its performance as compared to these other averages.
MISCELLANEOUS INFORMATION
- ------------------------------------------------------------------------------
The funds 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 the funds cannot guarantee that these goals will be met.
The funds are members of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of
the oldest mutual fund organizations and now services more than 4 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together, the
Franklin Templeton Group has over $223 billion in assets under management for
more than 7 million U.S. based mutual fund shareholder and other accounts.
The Franklin Templeton Group of Funds offers 112 U.S. based open-end
investment companies to the public. The fund may identify themselves by their
NASDAQ symbols or CUSIP numbers.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has
already begun making necessary software changes to help the computer systems
that service the fund and its shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources continues
to seek reasonable assurances from all major hardware, software or
data-services suppliers that they will be Year 2000 compliant on a timely
basis. Resources is also beginning to develop a contingency plan, including
identification of those mission critical systems for which it is practical to
develop a contingency plan. However, in an operation as complex and
geographically distributed as Resources' business, the alternatives to use of
normal systems, especially mission critical systems, or supplies of
electricity or long distance voice and data lines are limited.
DESCRIPTION OF RATINGS
- ------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (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 high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION (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 a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
SHORT-TERM DEBT AND COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations for both short-term
debt and commercial paper, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
