-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, BHzywNEPKmmrRIY510Bm4ti7V9zsoFIy8BHCC91D0Z1klAMT3NeMgv+p0g9OMj7u Gpr+lwgkhBbB84b9i1Gouw== 0000878087-95-000036.txt : 19950501 0000878087-95-000036.hdr.sgml : 19950501 ACCESSION NUMBER: 0000878087-95-000036 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19950428 EFFECTIVENESS DATE: 19950501 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLETON DEVELOPING MARKETS TRUST CENTRAL INDEX KEY: 0000878087 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-42163 FILM NUMBER: 95532899 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06378 FILM NUMBER: 95532900 BUSINESS ADDRESS: STREET 1: 500 EAST BROWARD BLVD STREET 2: STE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394 BUSINESS PHONE: 3055277500 MAIL ADDRESS: STREET 2: 500 EAST BROWARD BLVD STE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394 485BPOS 1 Registration No. 33-42163 As filed with the Securities and Exchange Commission on April 28, 1995 ________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. __ Post-Effective Amendment No. 4 X and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 6 X (Check appropriate box or boxes) TEMPLETON DEVELOPING MARKETS TRUST (Exact Name of Registrant as Specified in Charter) 700 Central Avenue, P.O. Box 33030, St. Petersburg, Florida 33733-8030 (Address of Principal Executive Offices) Registrant's Telephone Number: (813) 823-8712 Thomas M. Mistele, Esq. Templeton Global Investors, Inc. 500 East Broward Blvd. Fort Lauderdale, Florida 33394 (Name and Address of Agent for Service) Copies to: Jeffrey L. Steele, Esq. Dechert Price & Rhoads 1500 K Street, N.W. Washington, D.C. 20005 It is proposed that this filing will become effective (check appropriate box) ____ Immediately upon filing pursuant to paragraph (b) X on May 1, 1995 pursuant to paragraph (b) ____ 60 days after filing pursuant to paragraph (a) ____ on (date) pursuant to paragraph (a) of Rule 485 CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933 Registrant elects to register an indefinite number of shares of beneficial interest pursuant to Rule 24f-2 under the Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal period ended December 31, 1994 was filed with the Commission on February 28, 1995. TEMPLETON DEVELOPING MARKETS TRUST CROSS-REFERENCE SHEET Part A Item No. Caption 1 Cover Page 2 Expense Table 3 Financial Highlights 4 General Description; Investment Techniques 5 Management of the Fund 5A See Annual Report to Shareholders 6 General Information 7 How to Buy Shares of the Fund 8 How to Sell Shares of the Fund 9 Not Applicable Part B 10 Cover Page 11 Table of Contents 12 General Information and History 13 Investment Objective and Policies 14 Management of the Fund 15 Principal Shareholders 16 Investment Management and Other Services 17 Brokerage Allocation 18 Description of Shares; Part A 19 Purchase, Redemption and Pricing of Shares 20 Tax Status 21 Principal Underwriter 22 Performance Information 23 Financial Statements TEMPLETON PROSPECTUS -- MAY 1, 1995 DEVELOPING MARKETS TRUST - ------------------------------------------------------------------------------- INVESTMENT Templeton Developing Markets Trust (the "Fund") seeks long- OBJECTIVE AND term capital appreciation by investing in securities of POLICIES issuers of countries having developing markets. INVESTMENT IN SUCH SECURITIES INVOLVES CERTAIN CONSIDERATIONS WHICH ARE NOT NORMALLY INVOLVED IN INVESTMENT IN SECURITIES OF U.S. COMPANIES, AND AN INVESTMENT IN THE FUND MAY BE CONSIDERED SPECULATIVE. THE FUND MAY BORROW MONEY FOR INVESTMENT PURPOSES, WHICH MAY INVOLVE GREATER RISK AND ADDITIONAL COSTS TO THE FUND. IN ADDITION, THE FUND MAY INVEST UP TO 10% OF ITS ASSETS IN RESTRICTED SECURITIES, WHICH MAY INVOLVE GREATER RISK AND INCREASED FUND EXPENSES. SEE "RISK FACTORS." - ------------------------------------------------------------------------------- PURCHASE OF Please complete and return the Shareholder Application. If you SHARES need assistance in completing this form, please call our Account Services Department. The Fund offers two classes to its investors: Templeton Developing Markets Trust--Class I ("Class I") and Templeton Developing Markets Trust--Class II ("Class II"). Investors can choose between Class I Shares, which generally bear a higher front-end sales charge and lower ongoing Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and Class II Shares, which generally have a lower front-end sales charge and higher ongoing Rule 12b-1 fees. Investors should consider the differences between the two classes, including the impact of sales charges and distribution fees, in choosing the more suitable class given their anticipated investment amount and time horizon. See "How to Buy Shares of the Fund-- Alternative Purchase Arrangements." The minimum initial investment is $100 ($25 minimum for subsequent investments). - ------------------------------------------------------------------------------- PROSPECTUS This Prospectus sets forth concisely information about the INFORMATION Fund that a prospective investor ought to know before investing. Investors are advised to read and retain this Prospectus for future reference. A Statement of Additional Information ("SAI") dated May 1, 1995 has been filed with the Securities and Exchange Commission (the "SEC") and is incorporated in its entirety by reference in and made a part of this Prospectus. The SAI is available without charge upon request to Franklin Templeton Distributors, Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030 or by calling the Fund Information Department. - ------------------------------------------------------------------------------- FUND INFORMATION DEPARTMENT -- 1-800-292-9293 - ------------------------------------------------------------------------------- TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current prices, shareholder account balances/values, last transaction and duplicate account statements) -- 1-800-654-0123 - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- EXPENSE TABLE......... 2 FINANCIAL HIGHLIGHTS.. 3 GENERAL DESCRIPTION... 4 Investment Objective and Policies......... 4 INVESTMENT TECHNIQUES. 5 Temporary Investments. 5 Borrowing............. 5 Loans of Portfolio Securities........... 6 Options on Securities or Indices........... 6 Forward Foreign Currency Contracts and Options on Foreign Currencies... 6 Closed-End Investment Companies............ 7 Futures Contracts..... 7 Repurchase Agreements. 7 Depositary Receipts... 7 RISK FACTORS.......... 8 HOW TO BUY SHARES OF THE FUND............. 10 Alternative Purchase Arrangements......... 10 Deciding Which Class to Purchase.......... 10 Offering Price........ 11 Class I............... 11 Cumulative Quantity Discount............. 12 Letter of Intent...... 13 Group Purchases....... 13
Page ---- Class II.............. 13 Net Asset Value Purchases (Both Classes)....... 14 Description of Special Net Asset Value Purchases............ 15 Additional Dealer Compensation (Both Classes)....... 15 Purchasing Class I and Class II Shares...... 16 Automatic Investment Plan................. 16 Institutional Accounts............. 17 Account Statements.... 17 Templeton STAR Service.............. 17 Retirement Plans...... 17 Net Asset Value....... 17 EXCHANGE PRIVILEGE.... 18 Exchanges of Class I Shares............... 19 Exchanges of Class II Shares............... 19 Transfers............. 19 Conversion Rights..... 20 HOW TO SELL SHARES OF THE FUND............. 20 Systematic Withdrawal Plan................. 22 Redemptions by Telephone ........... 22 Contingent Deferred Sales Charge......... 23 TELEPHONE TRANSACTIONS......... 24
Page ---- Verification Procedures .......... 24 Restricted Accounts .. 24 General .............. 24 MANAGEMENT OF THE FUND................. 24 Investment Manager.... 25 Business Manager...... 25 Transfer Agent........ 26 Custodian............. 26 Plans of Distribution. 26 Expenses.............. 26 Brokerage Commissions. 27 GENERAL INFORMATION... 27 Description of Shares/Share Certificates......... 27 Voting Rights......... 27 Meetings of Shareholders......... 27 Dividends and Distributions........ 27 Federal Tax Information.......... 28 Inquiries............. 28 Performance Information.......... 28 Statements and Reports.............. 29 WITHHOLDING INFORMATION.......... 30 CORPORATE RESOLUTIONS. 31 AUTHORIZATION AGREEMENT............ 32 THE FRANKLIN TEMPLETON GROUP................ 33
- ------------------------------------------------------------------------------- SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. EXPENSE TABLE The purpose of this table is to assist an investor in understanding the various costs and expenses that a Shareholder will bear directly or indirectly in connection with an investment in the Fund. The figures are estimates of the Fund's expenses for the current fiscal year, restated to reflect current sales charges and Rule 12b-1 fees for each class. SHAREHOLDER TRANSACTION EXPENSES CLASS I CLASS II ------- -------- Maximum Sales Charge Imposed on Purchases (as a percentage of Offering Price)........................................ 5.75% 1.00%/1/ Deferred Sales Charge...................................... None/2/ 1.00%/3/ Exchange Fee (per transaction)............................. None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees............................................ 1.25% 1.25% Rule 12b-1 Fees/4/......................................... 0.35% 1.00% Other Expenses (audit, legal, business management, transfer agent and custodian)...................................... 0.51% 0.51% Total Fund Operating Expenses.............................. 2.11% 2.76%
- --------- /1/ Although Class II has a lower front-end sales charge than Class I, over time the higher Rule 12b-1 fee for Class II may cause Shareholders to pay more for Class II Shares than for Class I Shares. Given the maximum front-end sales charge and the rate of Rule 12b-1 fees for each class, it is estimated that this would take less than six years for Shareholders who maintain total Shares valued at less than $50,000 in the Franklin Templeton Funds. Shareholders with larger investments in the Franklin Templeton Funds will reach the cross-over point more quickly. /2/ Class I investments of $1 million or more are not subject to a front-end sales charge; however, a contingent deferred sales charge of 1%, which has not been reflected in the Example below, is generally imposed on certain redemptions within a "contingency period" of 12 months of the calendar month following such investments. See "How to Sell Shares of the Fund--Contingent Deferred Sales Charge." /3/ Class II Shares redeemed within a "contingency period" of 18 months of the calendar month following such investments are subject to a 1% contingent deferred sales charge. See "How to Sell Shares of the Fund--Contingent Deferred Sales Charge." /4/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets attributable to Class I Shares and 1.00% of the Fund's average net assets attributable to Class II Shares. Consistent with the National Association of Securities Dealers, Inc.'s rules, it is possible that the combination of front-end sales charges and Rule 12b-1 fees could cause long-term Shareholders to pay more than the economic equivalent of the maximum front- end sales charges permitted under those same rules. Investors should be aware that the above table is not intended to reflect in precise detail the fees and expenses associated with an individual's own investment in the Fund. Rather, the table has been provided only to assist investors in gaining a more complete understanding of fees, charges and expenses. For a more detailed discussion of these matters, investors should refer to the appropriate sections of this Prospectus. EXAMPLE As required by SEC regulations, the following example illustrates the expenses, including the maximum front-end sales charge and applicable contingent deferred sales charge, that apply to a $1,000 investment in the Fund over various time periods assuming (1) a 5% annual rate of return and (2) redemption at the end of each time period.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS -------- ----------- ---------- --------- Class I......................... $78 $120 $164 $288 Class II........................ $48 $ 95 $154 $316
THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES, INCLUDING FEES SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund and only indirectly by Shareholders as a result of their investment in the Fund. (See "Management of the Fund" for a description of the Fund's expenses.) In addition, federal securities regulations require the example to assume an annual return of 5%, but the Fund's actual return may be more or less than 5%. 2 FINANCIAL HIGHLIGHTS The following table of selected financial information has been audited by McGladrey & Pullen, LLP, independent certified public accountants, for the periods indicated in their report which is incorporated by reference and which appears in the Fund's 1994 Annual Report to Shareholders. This statement should be read in conjunction with the other financial statements and notes thereto included in the Fund's 1994 Annual Report to Shareholders, which contains further information about the Fund's performance, and which is available to Shareholders upon request and without charge. Information regarding Class II Shares will be included in this table after they have been offered to the public for a reasonable period of time.
OCTOBER 17, 1991 PER SHARE OPERATING YEAR ENDED DECEMBER 31, (COMMENCEMENT PERFORMANCE --------------------------------- OF OPERATIONS) TO 1994 1993 1992 DECEMBER 31, 1991 ---------- ---------- -------- ----------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Net asset value, beginning of period $ 15.27 $ 8.86 $ 10.02 $ 10.00 ---------- ---------- -------- ------- Income from investment operations: Net investment income .14 .04 .08 .01 Net realized and unrealized gain (loss) (1.44) 6.55 (1.06) .03 ---------- ---------- -------- ------- Total from investment operations (1.30) 6.59 (.98) .04 ---------- ---------- -------- ------- Distributions: Dividends from net investment income (.12) (.05) (.07) (.01) Distributions from net realized gains (.43) (.13) (.11) -- Distributions from other sources -- -- -- (.01) ---------- ---------- -------- ------- Total distributions (.55) (.18) (.18) (.02) ---------- ---------- -------- ------- Change in net asset value for the period (1.85) 6.41 (1.16) .02 ---------- ---------- -------- ------- Net asset value, end of period $ 13.42 $ 15.27 $ 8.86 $ 10.02 ========== ========== ======== ======= TOTAL RETURN* (8.64)% 74.50% (9.75)% 0.40% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $2,009,154 $1,396,392 $180,189 $23,744 Ratio of expenses to average net assets 2.11% 2.20% 2.52% 3.78%** Ratio of expenses, net of reimbursement, to average net assets 2.11% 2.20% 2.25% 2.25%** Ratio of net investment income to average net assets 1.08% .57% 1.30% .86%** Portfolio turnover rate 18.57% 16.01% 21.98% --
- ------- *Total return does not reflect sales charges. Not annualized for periods less than one year. **Annualized. 3 GENERAL DESCRIPTION Templeton Developing Markets Trust (the "Fund") was organized as a business trust under the laws of Massachusetts on August 9, 1991, and is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end diversified management investment company. The Fund has two classes of Shares of beneficial interest with a par value of $.01: Templeton Developing Markets Trust--Class I and Templeton Developing Markets Trust-- Class II. All Fund Shares outstanding before May 1, 1995 have been redesignated as Class I Shares, and will retain their previous rights and privileges, except for legally required modifications to Shareholder voting procedures, as discussed in "General Information--Voting Rights." Shares of the Fund may be purchased (minimum investment of $100 initially and $25 thereafter) at the current public Offering Price. The current public Offering Price of the Class I Shares is equal to the net asset value (see "How to Buy Shares of the Fund--Net Asset Value"), plus a variable sales charge not exceeding 5.75% of the Offering Price depending upon the amount invested. The current public Offering Price of the Class II Shares is equal to the net asset value, plus a sales charge of 1.0% of the amount invested. (See "How to Buy Shares of the Fund.") INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is long-term capital appreciation. The Fund seeks to achieve this objective by investing primarily in equity securities of issuers in countries having developing markets. The investment objective of the Fund described above is a fundamental policy of the Fund and may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities, as defined in the 1940 Act. It is currently expected that under normal conditions at least 65% of the Fund's total assets will be invested in developing market equity securities. The Fund and its investment manager, Templeton Investment Management (Hong Kong) Limited (the "Investment Manager"), may, from time to time, use various methods of selecting securities for the Fund's portfolio, and may also employ and rely on independent or affiliated sources of information and ideas in connection with management of the Fund's portfolio. The Investment Manager generally will provide three portfolio managers for the Fund, and such portfolio management assignments may, from time to time, be changed or improved. There can be no assurance that the Fund's investment objective will be achieved. The Fund considers countries having developing markets to be all countries that are generally considered to be developing or emerging countries by the International Bank for Reconstruction and Development (more commonly referred to as the World Bank) and the International Finance Corporation, as well as countries that are classified by the United Nations or otherwise regarded by their authorities as developing. Currently, the countries not included in this category are Ireland, Spain, New Zealand, Australia, the United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the United States, Sweden, Finland, Norway, Japan and Switzerland. In addition, as used in this Prospectus, developing market equity securities means (i) equity securities of companies the principal securities trading market for which is a developing market country, as defined above, (ii) equity securities, traded in any market, of companies that derive 50% or more of their total revenue from either goods or services produced in such developing market countries or sales made in such developing market countries or (iii) equity securities of companies organized under the laws of, and with a principal office in, a developing market country. "Equity securities," as used in this Prospectus, refers to common stock, preferred stock, warrants or rights to subscribe to or purchase such securities and sponsored or unsponsored American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), and Global Depositary Receipts ("GDRs"). Determinations as to eligibility will be made by the Investment Manager based on publicly available information and inquiries made to the companies. (See "Risk Factors" for a discussion of the nature of information publicly available for non-U.S. companies.) The Fund will at all times, except during defensive periods, maintain investments in at least three countries having developing markets. The Fund seeks to benefit from economic and other developments in developing markets. The investment objective of the Fund reflects the belief that investment opportunities may result from an evolving long-term international trend favoring more market-oriented economies, a trend that may especially benefit certain countries having developing markets. This trend may be facilitated by local or international political, economic or financial developments that could benefit the capital markets of such countries. Certain such countries, particularly the emerging market countries (such as Malaysia, Mexico and Thailand) which may be in the process of developing 4 more market-oriented economies, may experience relatively high rates of economic growth. Other countries (such as Portugal and Hong Kong), although having relatively mature developing markets, may also be in a position to benefit from local or international developments encouraging greater market orientation and diminishing governmental intervention in economic affairs. For capital appreciation, the Fund may invest up to 35% of its total assets in debt securities (defined as bonds, notes, debentures, commercial paper, certificates of deposit, time deposits and bankers' acceptances) which are rated at least C by Moody's Investors Service, Inc. ("Moody's") or C by Standard & Poor's Corporation ("S&P") or unrated debt securities deemed to be of comparable quality by the Investment Manager. See "Risk Factors." As an operating policy, which may be changed by the Board of Trustees, the Fund will not invest more than 5% of its total assets in debt securities rated lower than Baa by Moody's or BBB by S&P. Certain debt securities can provide the potential for capital appreciation based on various factors such as changes in interest rates, economic and market conditions, improvement in an issuer's ability to repay principal and pay interest, and ratings upgrades. Additionally, convertible bonds offer the potential for capital appreciation through the conversion feature, which enables the holder of the bond to benefit from increases in the market price of the securities into which they are convertible. The Fund may also lend its portfolio securities and borrow money for investment purposes (i.e., "leverage" its portfolio). In addition, the Fund may enter into transactions in options on securities, securities indices and foreign currencies, forward foreign currency contracts, and futures contracts and related options. When deemed appropriate by the Investment Manager, the Fund may invest cash balances in repurchase agreements and other money market investments to maintain liquidity in an amount to meet expenses or for day-to- day operating purposes. These investment techniques are described below and under the heading "Investment Objective and Policies" in the SAI. When the Investment Manager believes that market conditions warrant, the Fund may adopt a temporary defensive position and may invest without limit in money market securities denominated in U.S. dollars or in the currency of any foreign country. See "Investment Techniques--Temporary Investments." The Fund does not emphasize short-term trading profits and usually expects to have an annual portfolio turnover rate not exceeding 50%. INVESTMENT TECHNIQUES The Fund is authorized to use the various investment techniques described below. Although these strategies are regularly used by some investment companies and other institutional investors in various markets, some of these strategies cannot at the present time be used to a significant extent by the Fund in some of the markets in which the Fund will invest and may not be available for extensive use in the future. TEMPORARY INVESTMENTS. For temporary defensive purposes, the Fund may invest up to 100% of its total assets in the following money market securities, denominated in U.S. dollars or in the currency of any foreign country, issued by entities organized in the United States or any foreign country: short-term (less than twelve months to maturity) and medium-term (not greater than five years to maturity) obligations issued or guaranteed by the U.S. Government or the governments of foreign countries, their agencies or instrumentalities; finance company and corporate commercial paper, and other short-term corporate obligations, in each case rated Prime-1 by Moody's or A or better by S&P or, if unrated, of comparable quality as determined by the Investment Manager; obligations (including certificates of deposit, time deposits and bankers' acceptances) of banks; and repurchase agreements with banks and broker-dealers with respect to such securities. BORROWING. The Fund may borrow up to one-third of the value of its total assets from banks to increase its holdings of portfolio securities. Under the 1940 Act, the Fund is required to maintain continuous asset coverage of 300% with respect to such borrowings 5 and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidations of the Fund's holdings may be disadvantageous from an investment standpoint. Leveraging by means of borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities on the Fund's net asset value, and money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the income received from the securities purchased with borrowed funds. LOANS OF PORTFOLIO SECURITIES. The Fund may lend to broker-dealers portfolio securities with an aggregate market value of up to one-third of its total assets to generate income. Such loans must be secured by collateral (consisting of any combination of cash, U.S. Government securities or irrevocable letters of credit) in an amount at least equal (on a daily marked- to-market basis) to the current market value of the securities loaned. The Fund may terminate the loans at any time and obtain the return of the securities loaned within five business days. The Fund will continue to receive any interest or dividends paid on the loaned securities and will continue to retain any voting rights with respect to the securities. In the event that the borrower defaults on its obligation to return borrowed securities, because of insolvency or otherwise, the Fund could experience delays and costs in gaining access to the collateral and could suffer a loss to the extent that the value of the collateral falls below the market value of the borrowed securities. OPTIONS ON SECURITIES OR INDICES. The Fund may write (i.e., sell) covered put and call options and purchase put and call options on securities or securities indices that are traded on United States and foreign exchanges or in the over-the-counter markets. An option on a security is a contract that permits the purchaser of the option, in return for the premium paid, the right to buy a specified security (in the case of a call option) or to sell a specified security (in the case of a put option) from or to the writer of the option at a designated price during the term of the option. An option on a securities index permits the purchaser of the option, in return for the premium paid, the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. The Fund may write a call or put option to generate income, and will do so only if the option is "covered." This means that so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the call, or hold a call at the same or lower exercise price, for the same exercise period, and on the same securities as the written call. A put is covered if the Fund maintains liquid assets with a value at least equal to the exercise price in a segregated account, or holds a put on the same underlying securities at an equal or greater exercise price. The value of the underlying securities on which options may be written at any one time will not exceed 15% of the total assets of the Fund. The Fund will not purchase put or call options if the aggregate premium paid for such options would exceed 5% of its total assets at the time of purchase. FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES. The Fund will normally conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. The Fund will generally not enter into a forward contract with a term of greater than one year. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. The Fund will generally enter into forward contracts only under two circumstances. First, when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security in relation to another currency by entering into a forward contract to buy the amount of foreign currency needed to settle the transaction. Second, when the Investment Manager believes that the currency of a particular foreign country may suffer or enjoy a substantial movement against another currency, it may enter into a forward contract to sell or buy the former foreign currency (or another currency which acts as a proxy for that currency) approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. This second investment practice is generally referred to as "cross-hedging." The Fund will not enter into forward contracts if, as a result, the Fund will have more than 20% of its total assets committed to the consummation of such contracts. Although forward contracts will be used primarily to protect the Fund from adverse currency movements, they also involve the risk that anticipated currency movements will not be accurately predicted. 6 The Fund may purchase put and call options and write covered put and call options on foreign currencies for the purpose of protecting against declines in the U.S. dollar value of foreign currency-denominated portfolio securities and against increases in the U.S. dollar cost of such securities to be acquired. As in the case of other kinds of options, however, the writing of an option on a foreign currency constitutes only a partial hedge, up to the amount of the premium received, and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on a foreign currency may constitute an effective hedge against fluctuations in exchange rates although, in the event of rate movements adverse to the Fund's position, it may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies to be written or purchased by the Fund are traded on U.S. and foreign exchanges or over-the-counter. CLOSED-END INVESTMENT COMPANIES. Some countries, such as South Korea, Chile and India, have authorized the formation of closed-end investment companies to facilitate indirect foreign investment in their capital markets. In accordance with the 1940 Act, the Fund may invest up to 10% of its total assets in securities of closed-end investment companies. This restriction on investments in securities of closed-end investment companies may limit opportunities for the Fund to invest indirectly in certain developing markets. Shares of certain closed-end investment companies may at times be acquired only at market prices representing premiums to their net asset values. If the Fund acquires shares of closed-end investment companies, Shareholders would bear both their proportionate share of expenses of the Fund (including management and advisory fees) and, indirectly, the expenses of such closed-end investment companies. FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell financial futures contracts, stock index futures contracts, foreign currency futures contracts and options on any of the foregoing. A financial futures contract is an agreement between two parties to buy or sell a specified debt security at a set price on a future date. An index futures contract is an agreement to take or make delivery of an amount of cash based on the difference between the value of the index at the beginning and at the end of the contract period. A futures contract on a foreign currency is an agreement to buy or sell a specified amount of a currency for a set price on a future date. When the Fund enters into a futures contract, it must make an initial deposit, known as "initial margin," as a partial guarantee of its performance under the contract. As the value of the security, index or currency fluctuates, either party to the contract is required to make additional margin payments, known as "variation margin," to cover any additional obligation it may have under the contract. In addition, when the Fund enters into a futures contract, it will segregate assets or "cover" its position in accordance with the 1940 Act. See "Investment Objective and Policies--Futures Contracts" in the SAI. The Fund may not commit more than 5% of its total assets to initial margin deposits on futures contracts and related options. The value of the underlying securities on which futures contracts will be written at any one time will not exceed 25% of the total assets of the Fund. REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash management purposes, the Fund may enter into repurchase agreements with U.S. banks and broker-dealers. Under a repurchase agreement the Fund acquires a security from a U.S. bank or a registered broker-dealer who simultaneously agrees to repurchase the security at a specified time and price. The repurchase price is in excess of the purchase price by an amount which reflects an agreed-upon rate of return, which is not tied to the coupon rate on the underlying security. Under the 1940 Act, repurchase agreements are considered to be loans collateralized by the underlying security and therefore will be fully collateralized. However, if the seller should default on its obligation to repurchase the underlying security, the Fund may experience delay or difficulty in exercising its rights to realize upon the security and might incur a loss if the value of the security declines, as well as incur disposition costs in liquidating the security. DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored ADRs, EDRs and GDRs (collectively, "Depositary Receipts"). ADRs are Depositary Receipts typically issued by a U.S. bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs and GDRs are typically issued by foreign banks or trust companies, although they also may be issued by U.S. banks or trust companies, and evidence ownership of underlying securities issued by either a foreign or a United States corporation. Generally, Depositary Receipts in registered form are designed for use in the U.S. securities market and Depositary 7 Receipts in bearer form are designed for use in securities markets outside the United States. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary Receipts may be issued pursuant to sponsored or unsponsored programs. In sponsored programs, an issuer has made arrangements to have its securities traded in the form of Depositary Receipts. In unsponsored programs, the issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, in some cases it may be easier to obtain financial information from an issuer that has participated in the creation of a sponsored program. Accordingly, there may be less information available regarding issuers of securities underlying unsponsored programs and there may not be a correlation between such information and the market value of the Depositary Receipts. Depositary Receipts also involve the risks of other investments in foreign securities, as discussed below. For purposes of the Fund's investment policies, the Fund's investments in Depositary Receipts will be deemed to be investments in the underlying securities. RISK FACTORS Shareholders should understand that all investments involve risk and there can be no guarantee against loss resulting from an investment in the Fund, nor can there be any assurance that the Fund's investment objective will be attained. As with any investment in securities, the value of, and income from, an investment in the Fund can decrease as well as increase, depending on a variety of factors which may affect the values and income generated by the Fund's portfolio securities, including general economic conditions and market factors. In addition to the factors which affect the value of individual securities, a Shareholder may anticipate that the value of the Shares of the Fund will fluctuate with movements in the broader equity and bond markets. A decline in the stock market of any country in which the Fund is invested may also be reflected in declines in the price of the Shares of the Fund. Changes in currency valuations will also affect the price of the Shares of the Fund. History reflects both decreases and increases in worldwide stock markets and currency valuations, and these may reoccur unpredictably in the future. Additionally, investment decisions made by the Investment Manager will not always be profitable or prove to have been correct. The Fund is not intended as a complete investment program. The Fund has the right to purchase securities in any foreign country, developed or developing. Investors should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in domestic investments. These risks are often heightened for investments in developing markets, including certain Eastern European countries. See "Risk Factors" in the SAI. There is the possibility of expropriation, nationalization or confiscatory taxation, taxation of income earned in foreign nations (including, for example, withholding taxes on interest and dividends) or other taxes imposed with respect to investments in foreign nations, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), foreign investment controls on daily stock market movements, default in foreign government securities, political or social instability or diplomatic developments which could affect investment in securities of issuers in foreign nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the United States. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. The Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. Further, the Fund may encounter difficulties or be unable to vote proxies, exercise shareholder rights, pursue legal remedies, and obtain judgments in foreign courts. Prior governmental approval of foreign investments may be required under certain circumstances in some developing countries, and the extent of foreign investment in domestic companies may be subject to limitation in other developing countries. Foreign ownership limitations also may be imposed by the charters of individual companies in developing countries to prevent, among other concerns, violation of foreign investment limitations. 8 Repatriation of investment income, capital and proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. The Fund could be adversely affected by delays in or a refusal to grant any required governmental registration or approval for such repatriation. Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. Brokerage commissions, custodial services, and other costs relating to investment in developing markets are generally more expensive than in the United States. Foreign securities markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser. In many developing markets, there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the United States. There is an increased risk, therefore, of uninsured loss due to lost, stolen, or counterfeit stock certificates. In addition, the foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid, and subject to greater price volatility than those in the United States. As an open-end investment company, the Fund may invest no more than 15% of its total assets in illiquid securities. The Fund usually effects currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange market. However, some price spread on currency exchange transactions (to cover service charges) will be incurred when the Fund converts assets from one currency to another. The Fund is authorized to invest in medium quality or high-risk, lower quality debt securities that are rated between BBB and as low as C by S&P, and between Baa and as low as C by Moody's or, if unrated, are of equivalent investment quality as determined by the Investment Manager. As an operating policy, which may be changed by the Board of Trustees without Shareholder approval, the Fund will not invest more than 5% of its total assets in debt securities rated lower than BBB by S&P or Baa by Moody's. The Board may consider a change in this operating policy if, in its judgment, economic conditions change such that a higher level of investment in high-risk, lower quality debt securities would be consistent with the interests of the Fund and its Shareholders. High-risk, lower quality debt securities, commonly referred to as "junk bonds," 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 obligation and may be in default. Unrated debt securities are not necessarily of lower quality than rated securities but they may not be attractive to as many buyers. Regardless of rating levels, all debt securities considered for purchase (whether rated or unrated) will be carefully analyzed by the Investment Manager to insure, to the extent possible, that the planned investment is sound. The Fund may, from time to time, purchase defaulted debt securities if, in the opinion of the Investment Manager, the issuer may resume interest payments in the near future. As a fundamental policy, the Fund will not invest more than 10% of its total assets (at the time of purchase) in defaulted debt securities, which may be illiquid. Leveraging by means of borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities on the Fund's net asset value, and money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the income received from the securities purchased with borrowed funds. 9 Successful use of futures contracts and related options is subject to special risk considerations. A liquid secondary market for any futures or options contract may not be available when a futures or options position is sought to be closed. In addition, there may be an imperfect correlation between movements in the securities or foreign currency on which the futures or options contract is based and movements in the securities or currency in the Fund's portfolio. Successful use of futures or options contracts is further dependent on the Investment Manager's ability to correctly predict movements in the securities or foreign currency markets and no assurance can be given that its judgement will be correct. Successful use of options on securities or stock indices is subject to similar risk considerations. In addition, by writing covered call options, the Fund gives up the opportunity, while the option is in effect, to profit from any price increase in the underlying security above the option exercise price. There are further risk factors, including possible losses through the holding of securities in domestic and foreign custodian banks and depositories, described elsewhere in the Prospectus and in the SAI. HOW TO BUY SHARES OF THE FUND Shares of the Fund may be purchased at the Offering Price through any broker which has a dealer agreement with Franklin Templeton Distributors, Inc. ("FTD"), the Principal Underwriter of the Shares of the Fund, or directly from FTD upon receipt by FTD of a completed Shareholder Application and check. The minimum initial investment is $100, and subsequent investments must be $25 or more. These minimums may be waived when the Shares are being purchased through retirement plans providing for regular periodic investments, as described below under "Retirement Plans." ALTERNATIVE PURCHASE ARRANGEMENTS. The difference between Class I and Class II Shares lies primarily in their front-end and contingent deferred sales charges and Rule 12b-1 fees as described below. Class I. All Fund Shares outstanding before the implementation of the multiclass structure have been redesignated as Class I Shares, and will retain their previous rights and privileges. Class I Shares are generally subject to a variable sales charge upon purchase and not subject to any sales charge upon redemption. Class I Shares are subject to Rule 12b-1 fees of up to an annual maximum of 0.35% of average daily net assets of such Shares. With this multiclass structure, Class I Shares have higher front-end sales charges than Class II Shares and comparatively lower Rule 12b-1 fees. Class I Shares may be purchased at reduced front-end sales charges, or at net asset value if certain conditions are met. In most circumstances, contingent deferred sales charges will not be assessed against redemptions of Class I Shares. See "Management of the Fund" and "How to Sell Shares of the Fund" for more information. Class II. The current public Offering Price of Class II Shares is equal to the net asset value, plus a front-end sales charge of 1.0% of the amount invested. Class II Shares are also subject to a contingent deferred sales charge of 1.0% if Shares are redeemed within 18 months of the calendar month following purchase. In addition, Class II Shares are subject to Rule 12b-1 fees of up to a maximum of 1.0% of average daily net assets of such Shares. Class II Shares have lower front-end sales charges than Class I Shares and comparatively higher Rule 12b-1 fees. See "How to Sell Shares of the Fund-- Contingent Deferred Sales Charge." Purchases of Class II Shares are limited to purchases below $1 million. Any purchases of $1 million or more will automatically be invested in Class I Shares, since that is more beneficial to investors. Such purchases, however, may be subject to a contingent deferred sales charge. Investors may exceed $1 million in Class II Shares by cumulative purchases over a period of time. Investors who intend to make investments exceeding $1 million, however, should consider purchasing Class I Shares through a Letter of Intent instead of purchasing Class II Shares. DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their anticipated investment amount and time horizon prior to determining which class of Shares to purchase. Generally, an investor who expects to invest less than $50,000 in the Franklin 10 Templeton Funds and who expects to make substantial redemptions within approximately six years or less of investment should consider purchasing Class II Shares. However, the higher annual Rule 12b-1 fees on the Class II Shares will result in slightly higher operating expenses and lower income dividends for Class II Shares, which will accumulate over time to outweigh the difference in front-end sales charges. For this reason, Class I Shares may be more attractive to long-term investors even if no sales charge reductions are available to them. Investors who qualify to purchase Class I Shares at reduced sales charges definitely should consider purchasing Class I Shares, especially if they intend to hold their Shares approximately six years or more. Investors who qualify to purchase Class I Shares at reduced sales charges but who intend to hold their Shares less than approximately six years should evaluate whether it is more economical to purchase Class I Shares through a Letter of Intent or under Cumulative Quantity Discount rather than purchasing Class II Shares. INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED FROM PURCHASING CLASS II SHARES. Each class represents the same interest in the investment portfolio of the Fund and has the same rights, except that each class has a different sales charge, bears the separate expenses of its Rule 12b-1 distribution plan, and has exclusive voting rights with respect to such plan. The two classes also have separate exchange privileges. In determining which Shares are more appropriate for a Shareholder's investment objectives and income needs, a Shareholder should also consider that the higher Rule 12b-1 fees for Class II will generally result in lower dividends and consequently lower yields for Class II Shares as compared to Class I Shares. OFFERING PRICE. Shares of both classes of the Fund are offered at their respective public Offering Prices, which are determined by adding the net asset value per share plus a front-end sales charge, next computed (i) after the Shareholder's securities dealer receives the order which is promptly transmitted to the Fund or (ii) after receipt of an order by mail from the Shareholder directly in proper form (which generally means a completed Shareholder Application accompanied by a negotiable check). CLASS I. The sales charge for Class I Shares is a variable percentage of the Offering Price depending upon the amount of the sale. A description of the method of calculating net asset value per share is included under the caption "Net Asset Value" below. The price to the public on purchases of Class I Shares made by a single purchaser, by an individual, his or her spouse and their children under age 21, or by a single trust account or fiduciary account, other than an employee benefit plan holding Shares of the Fund on or before February 1, 1995, is the net asset value per Share plus a sales charge not exceeding 5.75% of the Offering Price (6.10% of the net asset value), which is reduced on larger sales as shown below:
TOTAL SALES CHARGE ----------------------------------------------- AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL AMOUNT OF SALE OFFERING PRICE NET ASSET VALUE OFFERING PRICE AT OFFERING PRICE OF THE SHARES PURCHASED OF THE SHARES PURCHASED RETAINED BY DEALERS/1/,/3/ - ----------------- ----------------------- ----------------------- -------------------------- Less than $50,000....... 5.75% 6.10% 5.00% $50,000 but less than $100,000............... 4.50% 4.71% 3.75% $100,000 but less than $250,000............... 3.50% 3.63% 2.80% $250,000 but less than $500,000............... 2.50% 2.56% 2.00% $500,000 but less than $1,000,000............. 2.00% 2.04% 1.60% $1,000,000 or more...... none none (see below)/2/
- --------- /1/ Financial institutions or their affiliated brokers may receive an agency transaction fee in the percentages set forth above. 11 /2/ The following commissions will be paid by FTD, from its own resources, to securities dealers who initiate and are responsible for purchases of $1 million or more: 1% on sales of $1 million but less than $2 million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales of $100 million or more. Dealer concession breakpoints are reset every 12 months for purposes of additional purchases. /3/ At the discretion of FTD, all sales charges may at times be reallowed to the securities dealer. If 90% or more of the sales commission is allowed, such securities dealer may be deemed to be an underwriter as that term is defined in the Securities Act of 1933. No front-end sales charge applies on investments of $1 million or more, but a contingent deferred sales charge of 1% is imposed on certain redemptions of all or a portion of investments of $1 million or more within 12 months of the calendar month following such investments ("contingency period"). See "How to Sell Shares of the Fund--Contingent Deferred Sales Charge." The size of a transaction which determines the applicable sales charge on the purchase of Class I Shares is determined by adding the amount of the Shareholder's current purchase plus the cost or current value (whichever is higher) of a Shareholder's existing investment in one or more of the funds in the Franklin Group of Funds(R) and the Templeton Family of Funds. Included for these aggregation purposes are (a) the mutual funds in the Franklin Group of Funds except Franklin Valuemark Funds and Franklin Government Securities Trust (the "Franklin Funds"); (b) other investment products underwritten by FTD or its affiliates (although certain investments may not have the same schedule of sales charges and/or may not be subject to reduction); and (c) the U.S.- registered mutual funds in the Templeton Family of Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds and Templeton Funds are collectively referred to as the "Franklin Templeton Funds.") Sales charge reductions based upon aggregate holdings of (a), (b) and (c) above ("Franklin Templeton Investments") may be effective only after notification to FTD that the investment qualifies for a discount. Other Payments to Securities Dealers. FTD, or one of its affiliates, may make payments, from its own resources, of up to 1% of the amount purchased to securities dealers who initiate and are responsible for purchases made at net asset value by certain designated retirement plans (as defined below) (excluding IRA and IRA rollovers), certain non-designated plans (as defined below), certain trust companies and trust departments of banks and certain retirement plans of organizations with collective retirement plan assets of $10 million or more. See definitions under "Description of Special Net Asset Value Purchases" below and as set forth in the SAI. A sales charge of 4% of the Offering Price (4.17% of the net asset value) is applicable to all purchases of Shares made for any qualified or non-qualified employee benefit plan which is a Shareholder in the Fund on or before February 1, 1995. Of the 4% sales charge applicable to such purchases, 3.20% of the Offering Price will be retained by dealers. CUMULATIVE QUANTITY DISCOUNT. The schedule of reduced sales charges also may be applied to qualifying sales of Class I Shares on a cumulative basis. For this purpose, the dollar amount of the sale is added to the higher of (i) the value (calculated at the applicable Offering Price) or (ii) the purchase price, of Franklin Templeton Investments. The cumulative quantity discount applies to Franklin Templeton Investments owned at the time of purchase by the purchaser, his or her spouse, and their children under age 21. In addition, the aggregate investments of a trustee or other fiduciary account (for an account under exclusive investment authority) may be considered in determining whether a reduced sales charge is available, even though there may be a number of beneficiaries of the account. For example, if the investor held Class I Shares valued at $40,000 (or, if valued at less than $40,000, had been purchased for $40,000) and purchased an additional $20,000 of the Fund's Class I Shares, the sales charge for the $20,000 purchase would be at the rate of 4.50%. It is FTD's policy to make available to investors the best sales charge rate possible; however, there can be no assurance that an investor will receive the appropriate discount unless, at the time of placing the purchase order, the investor or the dealer makes a request for the discount and gives FTD sufficient information to determine whether the purchase will qualify for the discount. On telephone orders from dealers for the purchase of Class I Shares to be registered in "street name," FTD will accept the dealer's 12 instructions with respect to the applicable sales commission rate to be applied. The Cumulative Quantity Discount may be amended or terminated at any time. LETTER OF INTENT. Investors may also reduce sales charges on all investments in Class I Shares by means of a Letter of Intent ("LOI") which expresses the investor's intention to invest a certain amount within a 13-month period in Class I Shares of the Fund or any other Franklin Templeton Fund. See the Shareholder Application. Except for certain employee benefit plans, the minimum initial investment under an LOI is 5% of the total LOI amount. Except for Shares purchased by certain employee benefit plans, Shares purchased with the first 5% of such amount will be held in escrow to secure payment of the higher sales charge applicable to the Shares actually purchased if the full amount indicated is not purchased, and such escrowed Shares will be involuntarily redeemed to pay the additional sales charge, if necessary. A purchase not originally made pursuant to an LOI may be included under a subsequent LOI executed within 90 days of the purchase. Any redemptions made by Shareholders, other than by certain employee benefit plans, during the 13- month period will be subtracted from the amount of the purchases for purposes of determining whether the terms of the LOI have been completed. For a further description of the LOI, see "Purchase, Redemption and Pricing of Shares-- Letter of Intent" in the SAI. GROUP PURCHASES. An individual who is a member of a qualified group may also purchase Class I Shares of the Fund at the reduced sales charge applicable to the group as a whole. The sales charge is based upon the aggregate dollar value of Class I Shares previously purchased and still owned by the group, plus the amount of the current purchase. For example, if members of the group had previously invested and still held $80,000 of Class I Shares and now were investing $25,000, the sales charge would be 3.50%. Information concerning the current sales charge applicable to a group may be obtained by contacting FTD. A "qualified group" is one which (i) has been in existence for more than six months, (ii) has a purpose other than acquiring Fund Shares at a discount, and (iii) satisfies uniform criteria which enable FTD to realize economies of scale in its costs of distributing Shares. A qualified group must have more than 10 members, must be available to arrange for group meetings between representatives of the Fund or FTD and the members, must agree to include sales and other materials related to the Fund in its publications and mailings to members at reduced or no cost to FTD, and must seek to arrange for payroll deduction or other bulk transmission of investments to the Fund. If an investor selects a payroll deduction plan, subsequent investments will be automatic and will continue until such time as the investor notifies the Fund and the investor's employer to discontinue further investments. Due to the varying procedures to prepare, process and forward the payroll deduction information to the Fund, there may be a delay between the time of the payroll deduction and the time the money reaches the Fund. The investment in the Fund will be made at the Offering Price per Share determined on the day that both the check and payroll deduction data are received in required form by the Fund. CLASS II. Unlike Class I Shares, the front-end sales charges and dealer concessions for Class II Shares do not vary depending on the amount of purchase. The total sales charges or underwriting commissions and dealer concessions for Class II Shares are set forth below.
TOTAL SALES CHARGE ----------------------------------------------- AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL AMOUNT OF SALE OFFERING PRICE NET ASSET VALUE OFFERING PRICE AT OFFERING PRICE OF THE SHARES PURCHASED OF THE SHARES PURCHASED RETAINED BY DEALERS* - ----------------- ----------------------- ----------------------- -------------------- any amount.............. 1.00% 1.01% 1.00%
- ------- * FTD, or one of its affiliates, may make additional payments to securities dealers, from its own resources, of up to 1.0% of the amount invested. During the first year following a purchase of Class II Shares, FTD will keep a portion of the Rule 12b-1 fees assessed on those Shares to partially recoup fees FTD pays to securities dealers. 13 Class II Shares redeemed within 18 months of their purchase will be assessed a contingent deferred sales charge of 1.0% on the lesser of the then-current net asset value or the net asset value of such Shares at the time of purchase, unless such charge is waived as described under "How To Sell Shares of the Fund--Contingent Deferred Sales Charge." NET ASSET VALUE PURCHASES (BOTH CLASSES). Class I Shares may be purchased without the imposition of a front-end sales charge ("net asset value") or a contingent deferred sales charge by (i) officers, trustees, directors, and full-time employees of the Fund, any of the Franklin Templeton Funds, or of the Franklin Templeton Group, and their spouses and family members, including any subsequent payments made by such parties after cessation of employment; (ii) companies exchanging Shares with or selling assets pursuant to a merger, acquisition or exchange offer; (iii) insurance company separate accounts for pension plan contracts; (iv) accounts managed by the Franklin Templeton Group; (v) shareholders of Templeton Institutional Funds, Inc. reinvesting redemption proceeds from that fund under an employee benefit plan qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), in Shares of the Fund; (vi) certain unit investment trusts and unit holders of such trusts reinvesting their distributions from the trusts in the Fund; (vii) registered securities dealers and their affiliates, for their investment account only; and (viii) registered personnel and employees of securities dealers, and their spouses and family members, in accordance with the internal policies and procedures of the employing securities dealer. For either Class I or Class II, the same class of Shares of the Fund may be purchased at net asset value by persons who have redeemed, within the previous 120 days, their Shares of the Fund or another of the Franklin Templeton Funds which were purchased with a front-end sales charge or assessed a contingent deferred sales charge on redemption. If a different class of Shares is purchased, the full front-end sales charge must be paid at the time of purchase of the new Shares. An investor may reinvest an amount not exceeding the redemption proceeds. While credit will be given for any contingent deferred sales charge paid on the Shares redeemed and subsequently repurchased, a new contingency period will begin. Shares of the Fund redeemed in connection with an exchange into another fund (see "Exchange Privilege") are not considered "redeemed" for this privilege. In order to exercise this privilege, a written order for the purchase of Shares of the Fund must be received by the Fund or the Fund's Transfer Agent within 120 days after the redemption. The 120 days, however, do not begin to run on redemption proceeds placed immediately after redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD (including any rollover) matures. Reinvestment at net asset value may also be handled by a securities dealer or other financial institution, who may charge the Shareholder a fee for this service. The redemption is a taxable transaction but reinvestment without a sales charge may affect the amount of gain or loss recognized and the tax basis of the Shares reinvested. If there has been a loss on the redemption, the loss may be disallowed if a reinvestment in the same fund is made within a 30-day period. Information regarding the possible tax consequences of such a reinvestment is included under "General Information--Federal Tax Information" of this Prospectus and in the SAI. For either Class I or Class II, the same class of Shares of the Fund or of another of the Franklin Templeton Funds may be purchased at net asset value and without a contingent deferred sales charge by persons who have received dividends and capital gain distributions in cash from investments in that class of Shares of the Fund within 120 days of the payment date of such distribution. To exercise this privilege, a written request to reinvest the distribution must accompany the purchase order. Additional information may be obtained from Account Services at 1-800-393-3001. See "General Information-- Dividends and Distributions." Class I Shares may be purchased at net asset value and without the imposition of a contingent deferred sales charge by investors who have, within the past 60 days, redeemed an investment in a mutual fund which is not part of the Franklin Templeton Funds and which charged the investor a contingent deferred sales charge upon redemption, and which has investment objectives similar to those of the Fund. Class I Shares may be purchased at net asset value and without the imposition of a contingent deferred sales charge by broker-dealers who have entered into a supplemental agreement with FTD, or by registered investment advisers affiliated with such broker-dealers, on behalf of their clients who are participating in a comprehensive fee program (also known as a wrap fee program). 14 Class I Shares may be purchased at net asset value and without the imposition of a contingent deferred sales charge by anyone who has taken a distribution from an existing retirement plan already invested in the Franklin Templeton Funds (including former participants of the Franklin Templeton Profit Sharing 401(k) plan), to the extent of such distribution. In order to exercise this privilege, a written order for the purchase of Shares of the Fund must be received by Franklin Templeton Trust Company ("FTTC"), the Fund, or Franklin Templeton Investor Services, Inc. (the "Transfer Agent") within 120 days after the plan distribution. Class I Shares may also be purchased at net asset value and without the imposition of a contingent deferred sales charge by any state, county or city, or any instrumentality, department, authority or agency thereof which has determined that the Fund is a legally permissible investment and which is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered management investment company (an "eligible governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal investors considering investment of proceeds of bond offerings into the Fund should consult with expert counsel to determine the effect, if any, of various payments made by the Fund or its investment manager on arbitrage rebate calculations. If an investment by an eligible governmental authority at net asset value is made through a securities dealer who has executed a dealer agreement with FTD, FTD or one of its affiliates may make a payment, out of its own resources, to such securities dealer in an amount not to exceed 0.25% of the amount invested. Contact Franklin Templeton Institutional Services for additional information. DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES. Class I Shares may also be purchased at net asset value and without the imposition of a contingent deferred sales charge by certain designated retirement plans, including profit-sharing, pension, 401(k) and simplified employee pension plans ("designated plans"), subject to minimum requirements with respect to number of employees or amount of purchase, which may be established by FTD. Currently, those criteria require that the employer establishing the plan have 200 or more employees or that the amount invested or to be invested during the subsequent 13-month period in the Fund or in any of the Franklin Templeton Investments totals at least $1 million. Employee benefit plans not designated above or qualified under Section 401 of the Code ("non-designated plans") may be afforded the same privilege if they meet the above requirements as well as the uniform criteria for qualified groups previously described under "Group Purchases," which enable FTD to realize economies of scale in its sales efforts and sales-related expenses. Class I Shares may be purchased at net asset value and without the imposition of a contingent deferred sales charge by trust companies and bank trust departments for funds over which they exercise exclusive discretionary investment authority and which are held in a fiduciary, agency, advisory, custodial or similar capacity. Such purchases are subject to minimum requirements with respect to amount of purchase, which may be established by FTD. Currently, those criteria require that the amount invested or to be invested during the subsequent 13-month period in the Fund or any of the Franklin Templeton Investments must total at least $1 million. Orders for such accounts will be accepted by mail accompanied by a check, or by telephone or other means of electronic data transfer directly from the bank or trust company, with payment by federal funds received by the close of business on the next business day following such order. Class I Shares may be purchased at net asset value and without the imposition of a contingent deferred sales charge by trustees or other fiduciaries purchasing securities for certain retirement plans of organizations with collective retirement plan assets of $10 million or more, without regard to where such assets are currently invested. Refer to the SAI for further information regarding net asset value purchases of Class I Shares. ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD, or one of its affiliates, from its own resources, may also provide additional compensation to securities dealers in connection with sales of shares of the Franklin Templeton Funds. Compensation may include financial assistance to securities dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising, sales campaigns and/or shareholder services and programs regarding one or more of the Franklin Templeton 15 Funds and other dealer-sponsored programs or events. In some instances, this compensation may be made available only to certain securities dealers whose representatives have sold or are expected to sell significant amounts of shares of the Franklin Templeton Funds. Compensation may include payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and members of their families to locations within or outside of the United States for meetings or seminars of a business nature. Securities dealers may not use sales of the Fund's Shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. In addition, FTD or its affiliates may make ongoing payments to brokerage firms, financial institutions (including banks) and others to facilitate the administration and servicing of shareholder accounts. None of the aforementioned additional compensation is paid for by the Fund or its Shareholders. Ongoing payments will be made to qualifying dealers at the annual rate of 0.25% of the average daily net asset value of Class I Shares, and 1.00% of the average daily net asset value of Class II Shares, registered in the name of that broker-dealer as nominee or held in a Shareholder account that designates that broker-dealer as dealer of record. These payments are made in order to promote selling efforts and to compensate dealers for providing certain services, including processing purchase and redemption transactions, establishing Shareholder accounts and providing certain information and assistance with respect to the Fund. For purchases on or after February 1, 1995 of Class I Shares that are subject to a contingent deferred sales charge, the dealer will receive ongoing payments beginning in the thirteenth month after the date of purchase. For all purchases of Class II Shares that are subject to a contingent deferred sales charge, the dealer will receive payments representing a service fee (0.25% of average daily net asset value of the Shares) beginning in the first month after the date of the purchase, and will receive payments representing compensation for distribution (0.75% of average daily net asset value of the Shares) beginning in the thirteenth month after the date of the purchase. PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders, investors should clearly indicate which class of Shares they intend to purchase. A purchase order that fails to specify a class will automatically be invested in Class I Shares. Purchases of $1 million or more in a single payment will be invested in Class I Shares. There are no conversion features attached to either class of Shares. Investors who qualify to purchase Class I Shares at net asset value should purchase Class I rather than Class II Shares. See the section "Net Asset Value Purchases (Both Classes)" and "Description of Special Net Asset Value Purchases" above for a discussion of when Shares may be purchased at net asset value. As to telephone orders placed with FTD by dealers, the dealer must receive the investor's order before the close of the New York Stock Exchange ("NYSE") and transmit it to FTD by 5:00 p.m., New York time, for the investor to receive that day's Offering Price. Payment for such orders must be by check in U.S. currency and must be promptly submitted to FTD. Orders mailed to FTD by dealers or individual investors are effected at the net asset value of the Fund's Shares next computed after the purchase order accompanied by payment has been received by FTD. Such payment must be by check in U.S. currency drawn on a commercial bank in the United States and, if over $100,000, may not be deemed to have been received until the proceeds have been collected unless the check is certified or issued by such bank. Any subscription may be rejected by FTD or by the Fund. The Fund may impose a $10 charge against a Shareholders account in the event that a check or a draft submitted for the purchase of Fund Shares is returned unpaid to the Fund. An investor should promptly check the confirmation advice that is mailed after each purchase (or redemption) in order to ensure that the purchase (or redemption) of Shares has been accurately recorded in the investor's account. AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly each month by means of automatic debits to their checking accounts ($25 minimum). Forms for this purpose are in the Shareholder Application in this Prospectus. Such a plan is voluntary 16 and may be discontinued by written notice to FTD, which must be received at least 10 days prior to the collection date, or by FTD upon written notice to the investor at least 30 days prior to the collection date. INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to complete an institutional account application. There may be additional methods of opening accounts, purchasing, redeeming or exchanging Shares of the Fund available for institutional accounts. To obtain an institutional account application or additional information regarding institutional accounts, contact Franklin Templeton Institutional Services at 1-800-321-8563. ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the Shareholder's registration instructions. Transactions in the account, such as additional investments and dividend reinvestments, will be reflected on regular confirmation statements from the Transfer Agent. TEMPLETON STAR SERVICE. From a touch tone phone, Templeton and Franklin Shareholders may access an automated system (day or night) which offers the following features. By calling the Templeton STAR Service, Shareholders may obtain current price and yield information specific to a Templeton Fund, regardless of class, or Franklin Class II shares; obtain account information; and request duplicate confirmation or year-end statements and money fund checks, if applicable. By calling the Franklin TeleFACTS system, Class I Shareholders may obtain current price, yield or other performance information specific to a Franklin Fund; process an exchange into an identically registered Franklin account; obtain account information; and request duplicate confirmation or year-end statements, money fund checks, if applicable, and deposit slips. Share prices and account information specific to Templeton Class I or II Shares and Franklin Class II shares may also be accessed on TeleFACTS by Franklin Class I and Class II shareholders. The Templeton STAR Service is accessible by calling 1-800-654-0123. The TeleFACTS system is accessible by calling 1-800-247-1753. Templeton Class I and Class II Share codes for the Fund, which will be needed to access system information, are 711 and 791, respectively. The system's automated operator will prompt the caller with easy to follow step-by-step instructions from the main menu. Other features may be added in the future. RETIREMENT PLANS. Shares of the Fund may be purchased through various retirement plans including the following plans for which FTTC or its affiliate acts as trustee or custodian: IRAs, Simplified Employee Pensions, 403(b) plans, qualified plans for corporations, self-employed individuals or partnerships, and 401(k) plans. For further information about any of the plans, agreements, applications and annual fees, contact Franklin Templeton Distributors, Inc. To determine which retirement plan is appropriate, an investor should contact his or her tax adviser. NET ASSET VALUE. The net asset value per Share of each class of the Fund is determined as of the scheduled closing time of the NYSE (generally 4:00 p.m., New York time) each day that the NYSE is open for trading, by dividing the value of the Fund's securities plus any cash and other assets (including accrued interest and dividends receivable) less all liabilities (including accrued expenses) by the number of Shares outstanding, adjusted to the nearest whole cent. A security listed or traded on a recognized stock exchange or NASDAQ is valued at its last sale price on the principal exchange on which the security is traded. The value of a foreign security is determined in its national currency as of the close of trading on the foreign exchange on which it is traded or as of the scheduled closing time of the NYSE (generally 4:00 p.m., New York time), if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York time, on the day the value of the foreign security is determined. If no sale is reported at that time, the mean between the current bid and asked price is used. Occasionally, events which affect the values of 17 such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE, and will therefore not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value as determined by the management and approved in good faith by the Board of Trustees. All other securities for which over-the-counter market quotations are readily available are valued at the mean between the current bid and asked price. Securities for which market quotations are not readily available and other assets are valued at fair value as determined by the management and approved in good faith by the Board of Trustees. Each of the Fund's classes will bear, pro-rata, all of the common expenses of the Fund. The net asset value of all outstanding Shares of each class of the Fund will be computed on a pro-rata basis for each outstanding Share based on the proportionate participation in the Fund represented by the value of Shares of such classes, except that the Class I and Class II Shares will bear the Rule 12b-1 expenses payable under their respective plans. Due to the specific distribution expenses and other costs that will be allocable to each class, the dividends paid to each class of the Fund may vary. EXCHANGE PRIVILEGE A Shareholder may exchange Shares for the same class of shares of other Franklin Templeton Funds which are eligible for sale in the Shareholder's state of residence and in conformity with such fund's stated eligibility requirements and investment minimums. Some funds, however, may not offer Class II shares. Class I Shares may be exchanged for Class I shares of any Franklin Templeton Funds. Class II Shares may be exchanged for Class II shares of any Franklin Templeton Funds. No exchanges between different classes of shares will be allowed. A contingent deferred sales charge will not be imposed on exchanges. If the exchanged Shares were subject to a contingent deferred sales charge in the original fund purchased, and Shares are subsequently redeemed within 12 months (Class I Shares) or 18 months (Class II Shares) of the calendar month of the original purchase date, a contingent deferred sales charge will be imposed. The period will be tolled (or stopped) for the period Class I Shares are exchanged into and held in a Franklin or Templeton money market fund. See also "How to Sell Shares of the Fund--Contingent Deferred Sales Charge." Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. Exchanges of the same class of shares are made on the basis of the net asset values of the class involved, except as set forth below. Exchanges of shares of a class which were originally purchased without a sales charge will be charged a sales charge in accordance with the terms of the prospectus of the fund and the class of shares being purchased, unless the original investment on which no sales charge was paid was transferred in from a fund on which the investor paid a sales charge. Exchanges of shares from the Franklin Templeton Money Funds are subject to applicable sales charges on the funds being purchased, unless the Franklin Templeton Money Fund shares were acquired by an exchange from a fund having a sales charge, or by reinvestment of dividends or capital gain distributions. Exchanges of Class I Shares of the Fund which were purchased with a lower sales charge to a fund which has a higher sales charge will be charged the difference, unless the shares were held in the original fund for at least six months prior to executing the exchange. All exchanges are permitted only after at least 15 days have elapsed from the date of the purchase of the Shares to be exchanged. A Shareholder may exchange Shares by writing to the Transfer Agent (see "How to Sell Shares of the Fund"), by contacting his or her investment dealer or-- if the Shareholder Application indicates that the Shareholder has not declined the option--by telephoning 1-800-393-3001. Telephone exchange instructions must be received by FTD by the scheduled closing time of the NYSE (generally 4:00 p.m., New York time). Telephonic exchanges can involve only Shares in non-certificated form. Shares held in certificate form are not eligible, but may be returned and qualify for these services. All accounts involved in a telephonic exchange must have the same registration and dividend option as the account from which the Shares are being exchanged. The Fund and the Transfer Agent will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Please refer to "Telephone Transactions--Verification Procedures." Forms for declining the telephone exchange privilege and prospectuses of the other funds in 18 the Franklin Templeton Group may be obtained from FTD. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. (See "How to Buy Shares of the Fund-- Offering Price.") A gain or loss for tax purposes generally will be realized upon the exchange, depending on the tax basis of the Shares redeemed. This exchange privilege is available only in states where shares of the fund being acquired may legally be sold and may be modified, limited or terminated at any time by the Fund upon 60 days' written notice. A Shareholder who wishes to make an exchange should first obtain and review a current prospectus of the fund into which he or she wishes to exchange. Broker-dealers who process exchange orders on behalf of their customers may charge a fee for their services. Such fee may be avoided by making requests for exchange directly to the Transfer Agent. EXCHANGES OF CLASS I SHARES. The contingency period of Class I Shares will be tolled (or stopped) for the period such Shares are exchanged into and held in a Franklin or Templeton money market fund. If a Class I account has Shares subject to a contingent deferred sales charge, Class I Shares will be exchanged into the new account on a "first-in, first-out" basis. See also "How to Sell Shares of the Fund--Contingent Deferred Sales Charge." EXCHANGES OF CLASS II SHARES. When an account is composed of Class II Shares subject to the contingent deferred sales charge, and Shares that are not, the Shares will be transferred proportionately into the new fund. Shares received from reinvestment of dividends and capital gains are referred to as "free Shares," Shares which were originally subject to a contingent deferred sales charge but to which the contingent deferred sales charge no longer applies are called "matured Shares," and Shares still subject to the contingent deferred sales charge are referred to as "CDSC liable Shares." CDSC liable Shares held for different periods of time are considered different types of CDSC liable Shares. For instance, if a Shareholder has $1,000 in free Shares, $2,000 in matured Shares, and $3,000 in CDSC liable Shares, and the Shareholder exchanges $3,000 into a new fund, $500 will be exchanged from free Shares, $1,000 from matured Shares, and $1,500 from CDSC liable Shares. Similarly, if CDSC liable Shares have been purchased at different periods, a proportionate amount will be taken from Shares held for each period. If, for example, the Shareholder holds $1,000 in Shares bought three months ago, $1,000 bought six months ago, and $1,000 bought nine months ago, and the Shareholder exchanges $1,500 into a new Fund, $500 from each of these Shares will be exchanged into the new fund. The only Money Market Fund exchange option available to Class II Shareholders is the Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II accounts, nor may Shareholders purchase shares of Money Fund II directly. Class II Shares exchanged for shares of Money Fund II will continue to age and a contingent deferred sales charge will be assessed if CDSC liable Shares are redeemed. No other money market funds are available for Class II Shareholders for exchange purposes. Class I Shares may be exchanged for shares of any of the money market funds in the Franklin Templeton Funds except Money Fund II. Draft writing privileges and direct purchases are allowed on these money market funds as described in their respective prospectuses. To the extent Shares are exchanged proportionately, as opposed to another method, such as "first-in, first-out," or free Shares followed by CDSC liable Shares, the exchanged Shares may, in some instances, be CDSC liable even though a redemption of such Shares, as discussed elsewhere herein, may no longer be subject to a CDSC. The proportional method is believed by management to more closely meet and reflect the expectations of Class II Shareholders in the event Shares are redeemed during the contingency period. For federal income tax purposes, the cost basis of Shares redeemed or exchanged is determined under the Code without regard to the method of transferring Shares chosen by the Fund for purposes of exchanging or redeeming Shares. TRANSFERS. Transfers between accounts in the same fund and class are treated as non-monetary and non-taxable events, and are not subject to a contingent deferred sales charge. The transferred Shares will continue to age from the date of original purchase. Like exchanges, Class II Shares will be moved proportionately from each type of Share in the original account. 19 CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will be converted to Class I Shares. A Shareholder may, however, sell Class II Shares and use the proceeds to purchase Class I Shares, subject to all applicable sales charges. The Fund's exchange privilege is not intended to afford Shareholders a way to speculate on short-term movements in developing markets. Accordingly, in order to prevent excessive use of the exchange privilege that may potentially disrupt the management of the Fund and increase transaction costs, the Fund has established a policy of prohibiting exchanges by timing or allocation services. HOW TO SELL SHARES OF THE FUND Shares will be redeemed, without charge, on request of the Shareholder in "Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO REDEEM MUST MEET ALL OF THE FOLLOWING REQUIREMENTS: 1. Except as provided below under "Redemptions by Telephone," it must be in writing, signed by the Shareholder(s) exactly in the manner as the Shares are registered, and must specify either the number of Shares, or the dollar amount of Shares, to be redeemed and sent to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030; 2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an "eligible guarantor," including (1) national or state banks, savings associations, savings and loan associations, trust companies, savings banks, industrial loan companies and credit unions; (2) national securities exchanges, registered securities associations and clearing agencies; (3) securities broker-dealers which are members of a national securities exchange or a clearing agency or which have minimum net capital of $100,000; or (4) institutions that participate in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized signature medallion program. A notarized signature will not be sufficient for the request to be in Proper Order. If the Shares are registered in more than one name, the signature of each of the redeeming Shareholders must be guaranteed. A signature guarantee is not required for redemptions of $50,000 or less, requested by and payable to all Shareholders of record, to be sent to the address of record for that account. However, the Fund reserves the right to require signature guarantees on all redemptions. A signature guarantee is required in connection with any written request for transfer of Shares. Also, a signature guarantee is required if the Fund or the Transfer Agent believes that a signature guarantee would protect against potential claims based on the transfer instructions, including, for example, when (a) the current address of one or more joint owners of an account cannot be confirmed; (b) multiple owners have a dispute or give inconsistent instructions to the Fund; (c) the Fund has been notified of an adverse claim; (d) the instructions received by the Fund are given by an agent, not the actual registered owner; (e) the Fund determines that joint owners who are married to each other are separated or may be the subject of divorce proceedings; or (f) the authority of a representative of a corporation, partnership, association, or other entity has not been established to the satisfaction of the Fund; 3. Any outstanding certificates must accompany the request together with a stock power signed by the Shareholder(s), with signature(s) guaranteed as described in Item 2 above; 4. Liquidation requests of corporate, partnership, trust and custodianship accounts, and accounts under court jurisdiction, require the following documentation to be in proper form: . Corporation--(i) Signature guaranteed letter of instruction from the authorized officer(s) of the corporation, and (ii) a corporate resolution in a form satisfactory to the Transfer Agent; . Partnership--(i) Signature guaranteed letter of instruction from a general partner and, if necessary, (ii) pertinent pages from the partnership agreement identifying the general partners or other documentation in a form satisfactory to the Transfer Agent; . Trust--(i) Signature guaranteed letter of instruction from the trustee(s), and (ii) a copy of the pertinent pages of the trust document listing the trustee(s) or a certificate of incumbency if the trustee(s) are not listed on the account registration; 20 . Custodial (other than a retirement account)--Signature guaranteed letter of instruction from the custodian; . Accounts under court jurisdiction--Check court documents and the applicable state law since these accounts have varying requirements, depending upon the state of residence; and 5. Redemption of Shares held in a retirement plan for which FTTC or its affiliate acts as trustee or custodian must conform to the distribution requirements of the plan and the Fund's redemption requirements above. Distributions from such plans are subject to additional requirements under the Code, and certain documents (available from the Transfer Agent) must be completed before the distribution may be made. For example, distributions from retirement plans are subject to withholding requirements under the Code, and the IRS Form W-4P (available from the Transfer Agent) may be required to be submitted to the Transfer Agent with the distribution request, or the distribution will be delayed. Franklin Templeton Investor Services, Inc. and its affiliates assume no responsibility to determine whether a distribution satisfies the conditions of applicable tax laws and will not be responsible for any penalties assessed. To avoid delay in redemption or transfer, Shareholders having questions about these requirements should contact the Account Services Department at 1- 800-393-3001 or 813-823-8712. The redemption price will be the net asset value of the Shares next computed after the redemption request in Proper Order is received by the Transfer Agent. Payment of the redemption price ordinarily will be made by check (or by wire at the sole discretion of the Transfer Agent if wire transfer is requested, including name and address of the bank and the Shareholder's account number to which payment of the redemption proceeds is to be wired) within seven days after receipt of the redemption request in Proper Order. However, if Shares have been purchased by check, the Fund will make redemption proceeds available when a Shareholder's check received for the Shares purchased has been cleared for payment by the Shareholder's bank, which, depending upon the location of the Shareholder's bank, could take up to 15 days or more. The check will be mailed by first-class mail to the Shareholder's registered address (or as otherwise directed). Remittance by wire (to a commercial bank account in the same name(s) as the Shares are registered) or express mail, if requested, are subject to a handling charge of up to $15, which will be deducted from the redemption proceeds. The Fund, through FTD, also repurchases Shares (whether in certificate or book-entry form) through securities dealers. The Fund normally will accept orders to repurchase such Shares by wire or telephone from dealers for their customers at the net asset value next computed after the dealer has received the Shareholder's request for repurchase, if the dealer received such request before closing time of the NYSE on that day. Dealers have the responsibility of submitting such repurchase requests by calling not later than 5:00 p.m., New York time, on such day in order to obtain that day's applicable redemption price. Repurchase of Shares is for the convenience of Shareholders and does not involve a charge by the Fund; however, securities dealers may impose a charge on the Shareholder for transmitting the notice of repurchase to the Fund. The Fund reserves the right to reject any order for repurchase, which right of rejection might adversely affect Shareholders seeking redemption through the repurchase procedure. Ordinarily, payment will be made to the securities dealer within seven days after receipt of a repurchase order and Share certificate (if any) in "Proper Order" as set forth above. The Fund will also accept, from member firms of the NYSE, orders to repurchase Shares for which no certificates have been issued by wire or telephone without a redemption request signed by the Shareholder, provided the member firm indemnifies the Fund and FTD from any liability resulting from the absence of the Shareholder's signature. Forms for such indemnity agreement can be obtained from FTD. The Fund may involuntarily redeem an investor's Shares if the net asset value of such Shares is less than $100, provided that involuntary redemptions will not result from fluctuations in the value of an investor's Shares. In addition, the Fund may involuntarily redeem the Shares of any investor who has failed to provide the Fund with a certified taxpayer identification number or such other tax-related certifications as the Fund may require. A notice of redemption sent by first-class mail to the investor's address of record will fix a date not less than 30 days after the mailing date, and Shares will be redeemed at the net asset value at the close of business on that date, unless sufficient additional Shares are purchased to bring the aggregate account value up to $100 or more, or unless a certified 21 taxpayer identification number (or such other information as the Fund has requested) has been provided, as the case may be. A check for the redemption proceeds will be mailed to the investor at the address of record. SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic Withdrawal Plan ("Plan") and receive regular periodic payments from the account provided that the net asset value of the Shares held by the Shareholder is at least $5,000. There are no service charges for establishing or maintaining a Plan. The minimum amount which the Shareholder may withdraw is $50 per withdrawal transaction although this is merely the minimum amount allowed under the Plan and should not be mistaken for a recommended amount. The Plan may be established on a monthly, quarterly, semiannual or annual basis. If the Shareholder establishes a Plan, any capital gain distributions and income dividends paid by the Fund to the Shareholder's account must be reinvested for the Shareholder's account in additional Shares at net asset value. Payments are then made from the liquidation of Shares at net asset value on the day of the liquidation (which is generally on or about the 25th of the month) to meet the specified withdrawals. Payments are generally received three to five days after the date of liquidation. By completing the "Special Payment Instructions for Distributions" section of the Shareholder Application included with this Prospectus, a Shareholder may direct the selected withdrawals to another of the Franklin Templeton Funds, to another person, or directly to a checking account. Liquidation of Shares may reduce or possibly exhaust the Shares in the Shareholder's account, to the extent withdrawals exceed Shares earned through dividends and distributions, particularly in the event of a market decline. If the withdrawal amount exceeds the total Plan balance, the account will be closed and the remaining balance will be sent to the Shareholder. As with other redemptions, a liquidation to make a withdrawal payment is a sale for federal income tax purposes. Because the amount withdrawn under the Plan may be more than the Shareholder's actual yield or income, part of such a Plan payment may be a return of the Shareholder's investment. Maintaining a Plan concurrently with purchases of additional Shares of the Fund would be disadvantageous because of the sales charge on the additional purchases. Also, redemptions of Class I Shares and Class II Shares may be subject to a contingent deferred sales charge if the Shares are redeemed within 12 months (Class I Shares) or 18 months (Class II Shares) of the calendar month of the original purchase date. The Shareholder should ordinarily not make additional investments of less than $5,000 or three times the annual withdrawals under the Plan during the time such a Plan is in effect. With respect to Class I Shares, the contingent deferred sales charge is waived for redemptions through a Systematic Withdrawal Plan set up prior to February 1, 1995. With respect to Systematic Withdrawal Plans set up on or after February 1, 1995, the applicable contingent deferred sales charge is waived for Class I and Class II Share redemptions of up to 1% monthly of an account's net asset value (12% annually, 6% semiannually, 3% quarterly). For example, if a Class I account maintained an annual balance of $1,000,000, only $120,000 could be withdrawn through a once-yearly Systematic Withdrawal Plan free of charge; any amount over that $120,000 would be assessed a 1% (or applicable) contingent deferred sales charge. Likewise, if a Class II account maintained an annual balance of $10,000, only $1,200 could be withdrawn through a once-yearly Systematic Withdrawal Plan free of charge. A Plan may be terminated on written notice by the Shareholder or the Fund, and it will terminate automatically if all Shares are liquidated or withdrawn from the account, or upon the Fund's receipt of notification of the death or incapacity of the Shareholder. Shareholders may change the amount (but not below $50) and schedule of withdrawal payments or suspend one such payment by giving written notice to the Transfer Agent at least seven business days prior to the end of the month preceding a scheduled payment. Share certificates may not be issued while a Plan is in effect. REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption Authorization Agreement (the "Agreement") (a copy of which is included in this Prospectus) may redeem Shares of the Fund by telephone, subject to the Restricted Account exception noted under "Telephone Transactions--Restricted Accounts." The Fund and the Transfer Agent will employ reasonable procedures to confirm that instructions given by telephone are genuine. Shareholders, however, bear the risk of loss in certain cases as described under "Telephone Transactions--Verification Procedures." 22 For Shareholder accounts with a completed Agreement on file, redemptions of uncertificated Shares or Shares which have previously been deposited with the Fund or the Transfer Agent may be made for up to $50,000 per day per Fund account. Telephone redemption requests received before the scheduled closing time of the NYSE (generally 4:00 p.m., New York time), on any business day will be processed that same day. The redemption check will be sent within seven days, made payable to all the registered owners on the account, and will be sent only to the address of record. Redemption requests by telephone will not be accepted within 30 days following an address change by telephone. In that case, a Shareholder should follow the other redemption procedures set forth in this Prospectus. Institutional accounts which wish to execute redemptions in excess of $50,000 must complete an Institutional Telephone Privileges Agreement which is available from Franklin Templeton Institutional Services by telephoning 1-800-321-8563. CONTINGENT DEFERRED SALES CHARGE. Class I. In order to recover commissions paid to securities dealers on investments of $1 million or more, a contingent deferred sales charge of 1% applies to redemptions of those investments within the contingency period of 12 months following the calendar month of their purchase. The charge is 1% of the lesser of the net asset value of the Shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the net asset value of such Shares at the time of purchase, and is retained by FTD. The contingent deferred sales charge is waived in certain instances. See "How to Buy Shares of the Fund--Net Asset Value Purchases (Both Classes)." Class II. Class II Shares redeemed within the contingency period of 18 months of the calendar month following their purchase will be assessed a contingent deferred sales charge, unless one of the exceptions described below applies. The charge is 1% of the lesser of the net asset value of the Shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the net asset value at the time of purchase of such Shares, and is retained by FTD. The contingent deferred sales charge is waived in certain instances. See below. Class I and Class II. In determining if a contingent deferred sales charge applies, Shares not subject to a contingent deferred sales charge are deemed to be redeemed first, in the following order: (i) Shares representing amounts attributable to capital appreciation of those Shares held less than the contingency period (12 months in the case of Class I Shares and 18 months in the case of Class II Shares); (ii) Shares purchased with reinvested dividends and capital gain distributions; and (iii) other Shares held longer than the contingency period, and followed by any Shares held less than the contingency period, on a "first in, first out" basis. For tax purposes, a contingent deferred sales charge is treated as either a reduction in redemption proceeds or an adjustment to the cost basis of the Shares redeemed. The contingent deferred sales charge on each class of Shares is waived, as applicable, for: exchanges; any account fees; distributions to participants or beneficiaries in FTTC individual retirement plan accounts due to death, disability or attainment of age 59 1/2; tax-free returns of excess contributions from employee benefit plans; distributions from employee benefit plans, including those due to plan termination or plan transfer; redemptions through a Systematic Withdrawal Plan set up for Shares prior to February 1, 1995 and, for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1% monthly of an account's net asset value (3% quarterly, 6% semiannually or 12% annually); redemptions initiated by the Fund due to a Shareholder's account falling below the minimum specified account size; and redemptions following the death of the Shareholder. All investments made during a calendar month, regardless of when during the month the investment occurred, will age one month on the last day of that month and each subsequent month. Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise specified, will result in additional Shares being redeemed to cover any applicable contingent deferred sales charge, while requests for redemption of a SPECIFIC NUMBER of Shares will result in the applicable contingent deferred sales charge being deducted from the total dollar amount redeemed. 23 TELEPHONE TRANSACTIONS Shareholders of the Fund and their dealer of record, if any, may be able to execute various transactions by calling the Transfer Agent at 1-800-393-3001. All Shareholders will be able to: (i) effect a change in address, (ii) change a dividend option (see "Restricted Accounts" below), (iii) transfer Fund Shares in one account to another identically registered account in the Fund, and (iv) exchange Fund Shares by telephone as described in this Prospectus. In addition, Shareholders who complete and file an Agreement as described under "How to Sell Shares of the Fund--Redemptions by Telephone" will be able to redeem Shares of the Fund. VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. These will include: recording all telephone calls requesting account activity by telephone, requiring that the caller provide certain personal and/or account information requested by the telephone service agent at the time of the call for the purpose of establishing the caller's identification, and sending a confirmation statement on redemptions to the address of record each time account activity is initiated by telephone. So long as the Fund and the Transfer Agent follow instructions communicated by telephone which were reasonably believed to be genuine at the time of their receipt, neither they nor their affiliates will be liable for any loss to the Shareholder caused by an unauthorized transaction. The Fund and the Transfer Agent may be liable for any losses due to unauthorized or fraudulent instructions in the event such reasonable procedures are not followed. Shareholders are, of course, under no obligation to apply for or accept telephone transaction privileges. In any instance where the Fund or the Transfer Agent is not reasonably satisfied that instructions received by telephone are genuine, the requested transaction will not be executed, and neither the Fund, the Transfer Agent, nor their affiliates will be liable for any losses which may occur because of a delay in implementing a transaction. RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may not be accepted on FTTC retirement accounts. To assure compliance with all applicable regulations, special forms are required for any distribution, redemption or dividend payment. Although the telephone exchange privilege is extended to these retirement accounts, a Franklin Templeton Transfer Authorization Form must be on file in order to transfer retirement plan assets between the Franklin Group of Funds (R) and the Templeton Family of Funds within the same plan type. Changes to dividend options for these accounts must also be made in writing. To obtain further information regarding distribution or transfer procedures, including any required forms, FTTC retirement account shareholders may call toll free 1-800-527-2020 or 1-800-354-9191 (press "2"). GENERAL. During periods of drastic economic or market changes, it is possible that the telephone transaction privileges will be difficult to execute because of heavy telephone volume. In such situations, Shareholders may wish to contact their dealer for assistance, or to send written instructions to the Fund as detailed elsewhere in this Prospectus. Neither the Fund nor the Transfer Agent will be liable for any losses resulting from the inability of a Shareholder to execute a telephone transaction. The telephone transaction privilege may be modified or discontinued by the Fund at any time upon 60 days' written notice to Shareholders. MANAGEMENT OF THE FUND The Fund is managed by its Board of Trustees and all powers are exercised by or under authority of the Board. Information relating to the Trustees and Officers is set forth under the heading "Management of the Fund" in the SAI. 24 The Board has carefully reviewed the multiclass structure to ensure that no material conflict exists between the two classes of Shares. Although the Board does not expect to encounter material conflicts in the future, the Board will continue to monitor the Fund and will take appropriate action to resolve such conflicts if any should later arise. In developing the multiclass structure, the Fund has retained the authority to establish additional classes of Shares. It is the Fund's present intention to offer only two classes of Shares, but new classes may be offered in the future. INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton Investment Management (Hong Kong) Limited, a corporation located at Two Exchange Square, Hong Kong. The Investment Manager manages the investment and reinvestment of the Fund's assets. The Investment Manager is an indirect wholly owned subsidiary of Franklin Resources, Inc. ("Franklin"). Through its subsidiaries, Franklin is engaged in various aspects of the financial services industry. The Investment Manager and its affiliates serve as advisers for a wide variety of public investment mutual funds and private clients in many nations. The Templeton organization has been investing globally over the past 52 years and, with its affiliates, provides investment management and advisory services to a worldwide client base, including over 4.3 million mutual fund shareholders, foundations, endowments, employee benefit plans and individuals. The Investment Manager and its affiliates have approximately 4,100 employees in the United States, Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore, Canada and Russia. The Investment Manager uses a disciplined, long-term approach to value- oriented global and international investing. It has an extensive global network of investment research sources. Securities are selected for the Fund's portfolio on the basis of fundamental company-by-company analysis. Many different selection methods are used for different funds and clients and these methods are changed and improved by the Investment Manager's research on superior selection methods. The Investment Manager does not furnish any other services or facilities for the Fund, although such expenses are paid by some investment advisers of other investment companies. As compensation for its services, the Fund pays the Investment Manager a fee which, during the most recent fiscal year, represented 1.25% of its average daily net assets. This fee is higher than advisory fees paid by most other U.S. investment companies, primarily because investing in equity securities of companies in developing markets, which are not widely followed by professional analysts, requires the Investment Manager to invest additional time and incur added expense in developing specialized resources, including research facilities. Dr. J. Mark Mobius, Managing Director of the Investment Manager, is the Fund's principal portfolio manager. Prior to joining the Templeton organization in 1987, Dr. Mobius was president of the International Investment Trust Company Limited (investment manager of Taiwan, R.O.C. Fund) (1986-1987) and a director of Vickers da Costa, Hong Kong (an international securities firm) (1983-1986). Dr. Mobius began working in Vickers da Costa's Hong Kong office in 1980 and moved to Taiwan in 1983 to open the firm's office there and to direct operations in India, Indonesia, Thailand, the Philippines, and Korea. Before joining Vickers da Costa, Dr. Mobius operated his own consulting firm in Hong Kong from 1970 until 1980. Messrs. Allan Lam and Tom Wu, Vice Presidents of the Investment Manager, will exercise secondary portfolio management responsibilities with respect to the Fund. Prior to joining the Templeton organization in 1987, Mr. Lam worked as an auditor with two international accounting firms in Hong Kong: Deloitte Haskins & Sells CPA and KPMG Peat Marwick CPA. Prior to joining the Templeton organization in 1987, Mr. Wu worked as an investment analyst, specializing in Hong Kong companies, with Vickers da Costa. Further information concerning the Investment Manager is included under the heading "Investment Management and Other Services" in the SAI. BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain administrative facilities and services for the Fund, including payment of salaries of officers, preparation and maintenance of books and records, preparation of tax returns, preparation of financial reports, monitoring compliance with regulatory requirements and monitoring tax-deferred retirement plans. For its services, the Fund pays the Business Manager a fee equivalent on an annual basis to 0.15% of the average daily net assets of the Fund during the year, reduced to 0.135% of such assets in excess of $200 million, to 0.10% of such assets in excess of $700 million, and to 0.075% of such 25 assets in excess of $1,200 million. The combined investment management and business management fees paid by the Fund are higher than those paid by most other investment companies. TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as transfer agent and dividend disbursing agent for the Fund. CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's assets. PLANS OF DISTRIBUTION. A separate Plan of Distribution has been approved and adopted for each class ("Class I Plan" and "Class II Plan," respectively, or "Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class will be based solely on the distribution and servicing fees attributable to that particular class. Any portion of fees remaining from either Plan after distribution to securities dealers up to the maximum amount permitted under each Plan may be used by the class to reimburse FTD for routine ongoing promotion and distribution expenses incurred with respect to such class. Such expenses may include, but are not limited to, the printing of prospectuses and reports used for sales purposes, expenses of preparing and distributing sales literature and related expenses, advertisements, and other distribution-related expenses, including a prorated portion of FTD's overhead expenses attributable to the distribution of Fund Shares, as well as any distribution or service fees paid to securities dealers or their firms or others who have executed a servicing agreement with the Fund, FTD or its affiliates. The maximum amount which the Fund may pay to FTD or others under the Class I Plan for such distribution expenses is 0.35% per annum of Class I's average daily net assets, payable on a quarterly basis. All expenses of distribution and marketing in excess of 0.35% per annum will be borne by FTD, or others who have incurred them, without reimbursement from the Fund. Under the Class I Plan, costs and expenses not reimbursed in any one given quarter (including costs and expenses not reimbursed because they exceed the applicable limit under the Plan) may be reimbursed in subsequent quarters or years, subject to applicable law. FTD has informed the Fund that the costs and expenses of Class I Shares that may be reimbursable in future quarters or years were $788,625 (3.93% of its net assets) at December 31, 1994. Under the Class II Plan, the maximum amount which the Fund is permitted to pay to FTD or others for distribution expenses and related expenses is 0.75% per annum of Class II's average daily net assets, payable quarterly. All expenses of distribution, marketing and related services over that amount will be borne by FTD, or others who have incurred them, without reimbursement by the Fund. In addition, the Class II Plan provides for an additional payment by the Fund of up to 0.25% per annum of Class II's average daily net assets as a servicing fee, payable quarterly. This fee will be used to pay securities dealers or others for, among other things, assisting in establishing and maintaining customer accounts and records; assisting with purchase and redemption requests; receiving and answering correspondence; monitoring dividend payments from the Fund on behalf of the customers; or similar activities related to furnishing personal services and/or maintaining Shareholder accounts. During the first year after the purchase of Class II Shares, FTD will keep a portion of the Plan fees assessed on Class II Shares to partially recoup fees FTD pays to securities dealers. FTD, or its affiliates, may pay, from its own resources, a commission of up to 1% of the amount invested to securities dealers who initiate and are responsible for purchases of Class II Shares. Both Plans also cover any payments to or by the Fund, the Investment Manager, FTD, or other parties on behalf of the Fund, the Investment Manager or FTD, to the extent such payments are deemed to be for the financing of any activity primarily intended to result in the sale of Shares issued by the Fund within the context of Rule 12b-1. The payments under the Plans are included in the maximum operating expenses which may be borne by each class of the Fund. For more information, including a discussion of the Board's policies with regard to the amount of each Plan's fees, please see the SAI. EXPENSES. For the fiscal year ended December 31, 1994, expenses borne by Class I Shares of the Fund amounted to 2.11% of the average net assets of such class. See the Expense Table for information regarding estimated expenses for the current fiscal year. 26 BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies provide that the receipt of research services from a broker and the sale of Shares by a broker are factors which may be taken into account in allocating securities transactions, so long as the prices and execution provided by the broker equal the best available within the scope of the Fund's brokerage policies. GENERAL INFORMATION DESCRIPTION OF SHARES/SHARE CERTIFICATES. The capitalization of the Fund consists of an unlimited number of Shares of beneficial interest, par value of $.01 per Share. The Board of Trustees is authorized, in its discretion, to classify and allocate the unissued Shares of the Fund, each such class to represent a different portfolio of securities. Each Share entitles the holder to one vote. Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Declaration of Trust disclaims liability of the Shareholders, Trustees and Officers of the Fund for acts or obligations of the Fund, which are binding only on the assets and property of the Fund. The Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any Shareholder held personally liable for the obligations of the Fund. The risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations and, thus, should be considered remote. The Fund will not ordinarily issue certificates for Shares purchased. Share certificates representing the whole (not fractional) Shares are issued only upon the specific request of the Shareholder made in writing to the Transfer Agent. No charge is made for the issuance of one certificate for all or some of the Shares purchased in a single order. VOTING RIGHTS. Shares of each class represent proportionate interests in the assets of the Fund and have the same voting and other rights and preferences as the other class of the Fund for matters that affect the Fund as a whole. For matters that only affect a certain class of the Fund's Shares, however, only Shareholders of that class will be entitled to vote. Therefore, each class of Shares will vote separately on matters (1) affecting only that class, (2) expressly required to be voted on separately by state law, or (3) required to be voted on separately by the 1940 Act or the rules adopted thereunder. For instance, if a change to the Rule 12b-1 plan relating to Class I Shares requires Shareholder approval, only Shareholders of Class I may vote on changes to the Rule 12b-1 plan affecting that class. Similarly, if a change to the Rule 12b-1 plan relating to Class II Shares requires Shareholder approval, only Shareholders of Class II may vote on the change to such plan. On the other hand, if there is a proposed change to the investment objective of the Fund, this affects all Shareholders, regardless of which class of Shares they hold, and therefore, each Share has the same voting rights. MEETINGS OF SHAREHOLDERS. Massachusetts business trust law does not require the Fund to hold annual Shareholder meetings, although special meetings may be called from time to time. The Fund will be required to hold a meeting to elect Trustees to fill any existing vacancies on the Board if, at any time, fewer than a majority of the Trustees have been elected by the Shareholders of the Fund. In addition, the holders of not less than two-thirds of the outstanding Shares or other voting interests of the Fund may remove a person serving as Trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding Shares of the Fund. The Fund is required to assist in Shareholder communications in connection with the calling of a Shareholder meeting to consider the removal of a Trustee or Trustees. DIVIDENDS AND DISTRIBUTIONS. The Fund intends to pay a dividend at least annually representing substantially all of its net investment income and any net realized capital gains. According to the requirements of the Code, dividends and capital gains will be calculated and distributed in the same manner for Class I and Class II Shares. The per share amount of any income dividends will 27 generally differ only to the extent that each class is subject to different Rule 12b-1 fees. Unless otherwise requested, income dividends and capital gain distributions paid by the Fund, other than on those Shares whose owners keep them registered in the name of a broker-dealer, are automatically reinvested on the payment date in whole or fractional Shares at net asset value as of the ex-dividend date, unless a Shareholder makes a written or telephonic request for payments in cash. Dividend and capital gain distributions are only eligible for reinvestment at net asset value in the same class of Shares of the Fund or the same class of another of the Franklin Templeton Funds. The processing date for the reinvestment of dividends may vary from month to month, and does not affect the amount or value of the Shares acquired. Income dividends and capital gain distributions will be paid in cash on Shares during the time that their owners keep them registered in the name of a broker- dealer, unless the broker-dealer has made arrangements with the Transfer Agent for reinvestment. Prior to purchasing Shares of the Fund, the impact of dividends or capital gain distributions which have been declared but not yet paid should be carefully considered. Any dividend or capital gain distribution paid shortly after a purchase by a Shareholder prior to the record date will have the effect of reducing the per Share net asset value of the Shares by the amount of the dividend or distribution. All or a portion of such dividend or distribution, although in effect a return of capital, generally will be subject to tax. Checks are forwarded by first-class mail to the address of record. The proceeds of any such checks which are not accepted by the addressee and returned to the Fund will be reinvested in the Shareholder's account in whole or fractional Shares at net asset value next computed after the check has been received by the Transfer Agent. Subsequent distributions automatically will be reinvested at net asset value as of the ex-dividend date in additional whole or fractional Shares. FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to qualify each year as a regulated investment company. A regulated investment company generally is not subject to federal income tax on income and capital gains distributed in a timely manner to its shareholders. Earnings of the Fund not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To prevent imposition of this tax, the Fund intends to comply with this distribution requirement. The Fund intends to distribute substantially all of its net investment income and net realized capital gains to Shareholders, which generally will be taxable income or capital gains in their hands. Distributions declared in October, November or December to Shareholders of record on a date in such month and paid during the following January will be treated as having been received by Shareholders on December 31 in the year such distributions were declared. The Fund will inform Shareholders each year of the amount and nature of such income or gains. The Fund may be required to withhold federal income tax at the rate of 31% of all taxable distributions (including redemptions) paid to Shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications. A more detailed description of tax consequences to Shareholders is contained in the SAI under the heading "Tax Status." INQUIRES. Shareholders' inquiries will be answered promptly. They should be addressed to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030--telephone 1-800-393-3001 or 813-823-8712. Transcripts of Shareholder accounts less than three-years old are provided on request without charge; requests for transcripts going back more than three years from the date the request is received by the Transfer Agent are subject to a fee of up to $15 per account. PERFORMANCE INFORMATION. The Fund may include its total return in advertisements or reports to Shareholders or prospective investors. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return on a hypothetical investment in the Fund over a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect the deduction of the maximum initial sales charge and deduction of a proportional share of Fund expenses (on an annual basis), and will assume that all dividends and distributions are reinvested when paid. Total return may be expressed in terms of the cumulative value of an investment in the Fund at the end of a defined period of time. For a description of the methods used to determine total return for the Fund, see "Performance Information" in the SAI. 28 Because Class II Shares were not offered prior to May 1, 1995, no performance data is available for these Shares. After a sufficient period of time has passed, Class II performance data will be available. STATEMENTS AND REPORTS. The Fund's fiscal year ends on December 31. Annual reports (containing financial statements audited by independent auditors and additional information regarding the Fund's performance) and semiannual reports (containing unaudited financial statements) are sent to Shareholders each year. Additional copies may be obtained, without charge, upon request to the Account Services Department. The Fund also sends to each Shareholder a confirmation statement after every transaction that affects the Shareholder's account and a year-end historical confirmation statement. 29 INSTRUCTIONS AND IMPORTANT NOTICE SUBSTITUTE W-9 INSTRUCTIONS INFORMATION GENERAL. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service ("IRS"). OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer Identification Number ("SSN/Tin"), you must obtain Form SS-5 or Form SS-4 from your local Social Security or IRS office and apply for one. If you have checked the "Awaiting TIN" box and signed the certification, withholding will apply to payments relating to your account unless you provide a certified TIN within 60 days. WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF - ----------------------------------------------------------------------------------- . Individual Individual . Trust, Estate, or Trust, Estate, or Pension Plan Trust Pension Plan Trust - ----------------------------------------------------------------------------------- . Joint Actual owner of . Corporation, Corporation, Individual account, or if Partnership, or other Partnership, or other combined funds, the organization organization first-named individual - ----------------------------------------------------------------------------------- . Unif. Minor . Broker nominee Broker nominee Gift/Transfer to Minor - ----------------------------------------------------------------------------------- . Sole Owner of business Proprietor - ----------------------------------------------------------------------------------- . Legal Ward, Minor, or Guardian Incompetent - -----------------------------------------------------------------------------------
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient" box if you are an exempt recipient. Exempt recipients generally include: A corporation A real estate investment trust A financial institution A common trust fund operated by a bank under section 584(a) An organization exempt from tax An entity registered at all times under section 501(a), or an under the Investment Company individual retirement plan Act of 1940 A registered dealer in securities or commodities registered in the U.S. or a U.S. possession IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject to an IRS $50 penalty unless your failure is due to reasonable cause and not willful neglect. If you fail to report certain income on your Federal income tax return, you will be treated as negligent and subject to an IRS 20% penalty on any underpayment of tax attributable to such negligence, unless there was reasonable cause for the resulting underpayment and you acted in good faith. If you falsify information on this form or make any other false statement resulting in no backup withholding on an account which should be subject to backup withholding, you may be subject to an IRS $500 penalty and certain criminal penalties including fines and imprisonment. SUBSTITUTE W-8 INSTRUCTIONS INFORMATION EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as a non-resident alien or foreign entity that is not subject to certain U.S. information return reporting or to backup withholding rules. Dividends paid to your account may be subject to withholding of up to 30%. Generally, you are an "Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a U.S. corporation, partnership, estate, or trust. In the case of an individual, an "Exempt Foreign Person" is one who has been physically present in the U.S. for less than 31 days during the current calendar year. An individual who is physically present in the U.S. for at least 31 days during the current calendar year will still be treated as an "Exempt Foreign Person," provided that the total number of days physically present in the current calendar year and the two preceding calendar years does not equal or exceed 183 days (counting all of the days in the current calendar year, only one- third of the days in the first preceding calendar year and only one-sixth of the days in the second preceding calendar year). In addition, lawful permanent residents or green card holders may not be treated as "Exempt Foreign Persons." If you are an individual or an entity, you must not now be, or at this time expect to be, engaged in a U.S. trade or business with respect to which any gain derived from transactions effected by the Fund/Payer during the calendar year is effectively connected to the U.S. PERMANENT ADDRESS. The Shareholder Application must contain your permanent address if you are an "Exempt Foreign Person." If you are an individual, provide your permanent address. If you are a partnership or corporation, provide the address of your principal office. If you are an estate or trust, provide the address of your permanent residence or the principal office of any fiduciary. NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you have provided certification of your foreign status, or if you cease to be an "Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your change in status. Reporting will then begin on the account(s) listed, and backup withholding may also begin unless you certify to the Fund/Payer that (1) the tax payer identification number you have given is correct, and (2) the IRS has not notified you that you are subject to backup withholding because you failed to report certain interest or dividend income. You may use Form W- 9, "Payer's Request for Taxpayer Identification Number and Certification," to make these certifications. If an account is no longer active, you do not have to notify a Fund/Payer or broker of your change in status unless you also have another account with the same Fund/Payer that is still active. If you receive interest from more than one Fund/Payer or have dealings with more than one broker or barter exchange, file a certificate with each. If you have more than one account with the same Fund/Payer, the Fund/Payer may require you to file a separate certificate for each account. WHEN TO FILE. File these certifications with the Fund before a payment is made to you, unless you have already done this in either of the two preceding calendar years. Only certifications that are in proper order will be treated as having been filed with the Fund. HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for three calendar years. A Fund/Payer or broker, however, may require that a new certificate be filed each time a payment is made. On joint accounts for which each joint owner is a foreign person, each must provide a certification of foreign status. 1/94 30 FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION It will be necessary for corporate shareholders to provide a certified copy of a resolution or other certificate of authority to authorize the purchase as well as sale (redemption) of shares and withdrawals by checks or drafts. You may use the following form of resolution or you may prefer to use your own. It is understood that the Fund, Franklin Templeton Distributors, Inc., Franklin Templeton Investor Services, Inc., the custodian bank and their affiliates may rely upon these authorizations until revoked or amended by written notice delivered by registered or certified mail to the Fund. CERTIFIED COPY OF RESOLUTION (Corporation or Association) The undersigned hereby certifies and affirms that he/she is the duly elected _______________________________ of ____________________________________ TITLE CORPORATE NAME a _________________________ organized under the laws of the State of _________ TYPE OF ORGANIZATION STATE and that the following is a true and correct copy of a resolution adopted by the Board of Directors at a meeting duly called and held on ___________________ DATE RESOLVED, that the _________________________________________________ of this OFFICERS' TITLES Corporation or Association are authorized to open an account in the name of the Corporation or Association with one or more of the Franklin Group of Funds (R) or Templeton Family of Funds (collectively, the "Funds") and to deposit such funds of this Corporation or Association in this account as they deem necessary or desirable; that the persons authorized below may endorse checks and other instruments for deposit to said account or accounts; and FURTHER RESOLVED,that any of the following __________ officers are authorized NUMBER to sign any share assignment on behalf of this Corporation or Association and to take any other actions as may be necessary to sell or redeem its shares in the Funds or to sign checks or drafts withdrawing funds from the account; and FURTHER RESOLVED, that this Corporation or Association shall hold harmless, indemnify, and defend the Funds, their custodian bank, Franklin Templeton Distributors, Inc., Franklin Templeton Investor Services, Inc., and their affiliates, from any claim, loss or liability resulting in whole or in part, directly or indirectly, from their reliance from time to time upon any certifications by the secretary or any assistant secretary of this Corporation or Association as to the names of the individuals occupying such offices and their acting in reliance upon these resolutions until actual receipt by them of a certified copy of a resolution of the Board of Directors of the Corporation or Association modifying or revoking any or all such resolutions. The undersigned further certifies that the below named persons, whose signatures appear opposite their names and office titles, are duly elected officers of the Corporation or Association. (Attach additional list if necessary.) - -------------------------------------- --------------------------------------- NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE - -------------------------------------- --------------------------------------- NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE - -------------------------------------- --------------------------------------- NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE - -------------------------------------- --------------------------------------- NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE - -------------------------------------- --------------------------------------- NAME OF CORPORATION OR ASSOCIATION DATE Certified from minutes ________________________________________________________ NAME AND TITLE CORPORATE SEAL (if appropriate) 31 THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT You may use Franklin Templeton's telephone redemption privilege to redeem uncertificated Franklin Templeton Fund shares for up to $50,000 (or your Shareholder account balance, whichever is less) per day, per fund account in accordance with the terms of the Fund's Prospectus. The telephone redemption privilege is available only to Shareholders who specifically request it. If you would like to add this redemption privilege to the other telephone transaction privileges automatically available to Franklin Templeton Fund shareholders, please sign and return this authorization to Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and shareholder servicing agent for the Franklin Templeton Funds. SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege under the terms described below and in the prospectus for each investment company in the Franklin Templeton Group (a "Franklin Templeton Fund" or a "Fund"), now opened or opened at a later date, holding shares registered as follows: - ------------------------------------- --------------------------------------- PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT REGISTRATION ("SHAREHOLDER") - ------------------------------------- --------------------------------------- ACCOUNT NUMBER(S) I/We authorize each Fund and Services to honor and act upon telephone requests given as provided in this agreement to redeem shares from any Shareholder account: - ------------------------------------- --------------------------------------- SIGNATURE(S) AND DATE - ------------------------------------- --------------------------------------- PRINT NAME(S) (AND TITLE/CAPACITY, IF APPLICABLE) VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and Services will employ reasonable procedures to confirm that redemption instructions communicated by telephone are genuine and that if these confirmation procedures are not followed, the Fund or Services may be liable for any losses due to unauthorized or fraudulent telephone instructions; (2) the confirmation procedures will include the recording of telephone calls requesting redemptions, requiring that the caller provide certain personal and/or account information requested by the telephone service agent at the time of the call for the purpose of establishing the caller's identification, and the sending of confirmation statements to the address of record each time a redemption is initiated by telephone; and (3) so long as the Fund and Services follow the confirmation procedures in acting on instructions communicated by telephone which were reasonably believed to be genuine at the time of receipt, neither they, nor their parent or affiliates, will be liable for any loss, damages or expenses caused by an unauthorized or fraudulent redemption request. JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either joint owners or co-trustees authorizes each Fund and Services to honor telephone redemption requests given by ANY ONE of the signers, or our investment representative of record, if any, ACTING ALONE. APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption requests acting alone, each of us individually makes the following appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my agent(s) (attorney[s]-in-fact) with full power and authority to individually act for me in any lawful way with respect to the issuance of instructions to a Fund or Services in accordance with the telephone redemption privilege we have requested by signing this agreement. This appointment shall not be affected by my subsequent disability or incompetency and shall remain in effect until it is revoked by either written notice from any one of us delivered to a Fund or Services by registered mail, return receipt requested or by a Fund or Services upon receipt of any information that causes a Fund or Services to believe in good faith that there is or that there may be a dispute among any of us with respect to the Franklin Templeton Fund account(s) covered by this agreement. Each of us agrees to notify the Fund or Services immediately upon the death of any of the signers. CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of us signing this agreement on behalf of the Shareholder represent and warrant to each Franklin Templeton Fund and Services that the Shareholder has the authority to enter into this agreement and that each of us is duly authorized to execute this agreement on behalf of the Shareholder. The Shareholder agrees that its election of the telephone redemption privilege means that a Fund or Services may honor a telephone redemption request given by ANY officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE. RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin Templeton Trust Company retirement accounts. PLEASE RETURN THIS FORM TO: Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628. 32 The Franklin Templeton Group Literature Request -- Call today for a free descriptive brochure and prospectus on any of the funds listed below. The prospectus contains more complete information, including fees, charges and expenses, and should be read carefully before investing or sending money. TEMPLETON FUNDS American Trust American Government Securities Fund Developing Markets Trust Foreign Fund Global Infrastructure Fund Global Opportunities Trust Global Rising Dividends Fund Growth Fund Income Fund Japan Fund Money Fund Real Estate Securities Fund Smaller Companies Growth Fund World Fund FRANKLIN FUNDS SEEKING TAX-FREE INCOME Federal Intermediate Term Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund*** Puerto Rico Tax-Free Income Fund FRANKLIN STATE-SPECIFIC FUNDS SEEKING TAX-FREE INCOME Alabama Arizona* Arkansas** California* Colorado Connecticut Florida* Georgia Hawaii** Indiana Kentucky Louisiana Maryland Massachusetts*** Michigan*** Minnesota*** Missouri New Jersey New York* North Carolina Ohio*** Oregon Pennsylvania Tennessee** Texas Virginia Washington** FRANKLIN FUNDS SEEKING CAPITAL GROWTH California Growth Fund DynaTech Fund Equity Fund Global Health Care Fund Gold Fund Growth Fund International Equity Fund Pacific Growth Fund Real Estate Securities Fund Small Cap Growth Fund FRANKLIN FUNDS SEEKING GROWTH AND INCOME Balance Sheet Investment Fund Convertible Securities Fund Equity Income Fund Global Utilities Fund Income Fund Premier Return Fund Rising Dividends Fund Strategic Income Fund Utilities Fund FRANKLIN FUNDS SEEKING HIGH CURRENT INCOME AGE High Income Fund German Government Bond Fund Global Government Income Fund Investment Grade Income Fund U.S. Government Securities Fund FRANKLIN FUNDS SEEKING HIGH CURRENT INCOME AND STABILITY OF PRINCIPAL Adjustable Rate Securities Fund Adjustable U.S. Government Securities Fund Short-Intermediate U.S. Government Securities Fund FRANKLIN FUNDS FOR NON-U.S. INVESTORS Tax-Advantaged High Yield Securities Fund Tax-Advantaged International Bond Fund Tax-Advantaged U.S. Government Securities Fund FRANKLIN TEMPLETON INTERNATIONAL CURRENCY FUNDS Global Currency Fund Hard Currency Fund High Income Currency Fund FRANKLIN MONEY MARKET FUNDS California Tax-Exempt Money Fund Federal Money Fund IFT U.S. Treasury Money Market Portfolio Money Fund New York Tax-Exempt Money Fund Tax-Exempt Money Fund FRANKLIN FUND FOR CORPORATIONS Corporate Qualified Dividend Fund FRANKLIN TEMPLETON VARIABLE ANNUITIES Franklin Valuemark Franklin Templeton Valuemark Income Plus (an intermediate annuity) Toll-free 1-800/DIAL BEN (1-800/342-5236) * Two or more fund options available: Long-term portfolio, intermediate-term portfolio, a portfolio of municipal securities, and a high yield portfolio (CA). ** The fund may invest up to 100% of its assets in bonds that pay interest subject to the federal alternative minimum tax. *** Portfolio of insured municipal securities. 33 NOTES ----- 34 NOTES ----- 35 - -------------------------- TEMPLETON DEVELOPING MARKETS TRUST PRINCIPAL UNDERWRITER: Franklin Templeton Distributors, Inc. 700 Central Avenue St. Petersburg, Florida 33701-3628 Account Services 1-800-393-3001 Fund Information 1-800-292-9293 Institutional Services 1-800-321-8563 This Prospectus is not an offering of the securities herein described in any state in which the offering is not authorized. No sales representative, dealer, or other person is authorized to give any information or make any representations other than those contained in this Prospectus. Further information may be obtained from the Principal Underwriter. - -------------------------- [RECYCLED LOGO APPEARS HERE] TL11 P95 05/95 TEMPLETON DEVELOPING MARKETS TRUST Prospectus May 1, 1995 [LOGO OF FRANKLIN TEMPLETON APPEARS HERE] [LOGO OF FRANKLIN TEMPLETON APPEARS HERE] Mail to: FRANKLIN TEMPLETON DISTRIBUTORS, INC. P.O. Box 33031 St. Petersburg, Florida 33733-8031 (800) 393-3001 Please do not use this form for any Retirement Plan for which Franklin Templeton Trust Company or its affiliate serves as custodian or trustee, or for any of the following Templeton Funds: Templeton Money Fund, Templeton Institutional Funds or Templeton Capital Accumulator Fund. Please request separate Applications and/or Prospectuses. - -------------------------------------------------------------------------------- SHAREHOLDER APPLICATION OR REVISION [_] Please check the box if this is a revision and see Section 8 - -------------------------------------------------------------------------------- Please check Class I or Class II, if applicable, next to your Fund selection. Class I and Class II shares have different sales charges and operating expenses, among other differences, as described in each Fund's prospectus. Date __________________
CLASS CLASS I II I II [_] [_] AMERICAN TRUST $______ [_] [_] GLOBAL INFRASTRUCTURE FUND $______ [_] AMERICAS GOVERNMENT SECURITIES FUND ______ [_] [_] GLOBAL OPPORTUNITIES TRUST ______ [_] [_] DEVELOPING MARKETS TRUST ______ [_] [_] GLOBAL RISING DIVIDENDS FUND ______ [_] [_] FOREIGN FUND ______ [_] [_] GROWTH FUND ______ CLASS CLASS I II I II [_] [_] INCOME FUND $______ [_] [_] WORLD FUND $______ [_] JAPAN FUND ______ [_] [_] OTHER: ______ [_] [_] REAL ESTATE SECURITIES FUND ______ ____________________ [_] [_] SMALLER COMPANIES GROWTH FUND ______
- -------------------------------------------------------------------------------- 1 ACCOUNT REGISTRATION (PLEASE PRINT) - -------------------------------------------------------------------------------- [_] INDIVIDUAL OR JOINT ACCOUNT __________________________________________________ ________-________-__________ First Name Middle Initial Last Name Social Security Number (SSN) __________________________________________________ ________-________-__________ Joint Owner(s) (Joint ownership means "Joint Social Security Number (SSN) Tenants With Rights of Survivorship unless otherwise specified) All owners must sign Section 4. - -------------------------------------------------------------------------------- [_] GIFT/TRANSFER TO A MINOR _______________________________ As Custodian For________________________________ Name of Custodian (one only) Minor's Name (one only) _____________Uniform Gifts/Transfers to Minors Act________-________-____________ State of Residence Minor's Social Security Number Please Note: Custodian's Signature, not Minor's, is required in Section 4. - -------------------------------------------------------------------------------- [_] TRUST, CORPORATION, PARTNERSHIP, RETIREMENT PLAN, OR OTHER ENTITY __________________________________________ ____________-_______________________ Name Taxpayer Identification Number (TIN) ___________________________________________ ___________________________________ Name of Beneficiary (if to be included in Date of Trust Document (must be the Registration) completed for registration) ________________________________________________________________________________ Name of Each Trustee (if to be included in the Registration) - -------------------------------------------------------------------------------- 2 ADDRESS - -------------------------------------------------------------------------------- ___________________________________________ Daytime Phone (___)________________ Street Address Area Code ____________________________________-______ Evening Phone (___)________________ City State Zip Code Area Code I am a Citizen of: [_] U.S. [_]______________________________ Country of Residence - -------------------------------------------------------------------------------- 3 INITIAL INVESTMENT ($100 minimum initial investment) - -------------------------------------------------------------------------------- Check(s) enclosed for $___________________ . (Payable to Franklin Templeton Distributors, Inc. or the Fund(s) indicated above.) - -------------------------------------------------------------------------------- 4 SIGNATURE AND TAX CERTIFICATIONS (All registered owners must sign application) - -------------------------------------------------------------------------------- The Fund reserves the right to refuse to open an account without either a certified Taxpayer Identification Number ("TIN") or a certification of foreign status. Failure to provide tax certifications in this section may result in backup withholding on payments relating to your account and/or in your inability to qualify for treaty withholding rates. I am(We are) not subject to backup withholding because I(we) have not been notified by the IRS that I am(we are) subject to backup withholding as a result of a failure to report all interest or dividends or because the IRS has notified me(us) that I am(we are) no longer subject to backup withholding. (If you are currently subject to backup withholding as a result of a failure to report all interest or dividends, please cross out the preceding statement.) [_] The number shown above is my(our) correct TIN, or that of the Minor named in Section 1. [_] AWAITING TIN. I am(We are) waiting for a number to be issued to me(us). I(We) understand that if I(we) do not provide a TIN to the Fund within 60 days, the Fund is required to commence 31% backup withholding until I(we) provide a certified TIN. [_] EXEMPT RECIPIENT. Individuals cannot be exempt. Check this box only after reading the instructions to see whether you qualify as an exempt recipient. (You should still provide a TIN.) [_] EXEMPT FOREIGN PERSON. Check this box only if the following statement applies: "I am(we are) neither a citizen nor a resident of the United States. I(we) certify to the best of my(our) knowledge and belief, I(we) qualify as an exempt foreign person and/or entity as described in the instructions." Permanent address for tax purposes: ________________________________________________________________________________ Street Address City State Country Personal Code PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint accounts, it is preferred that the primary account owner (or person listed first on the account) list his/her number as requested above. CERTIFICATION - Under the penalties of perjury, I(we) certify that (1) the information provided on this application is true, correct and complete, (2) I(we) have read the prospectus(es) for the Fund(s) in which I am(we are) investing and agree to the terms thereof, and (3) I am(we are) of legal age or an emancipated minor. I (we) acknowledge that Shares of the Fund(s) are not insured or guaranteed by any agency or institution and that an investment in the Shares involves risks, including the possible loss of principal. X X - ---------------------------------------- --------------------------------------- Signature Signature X X - ---------------------------------------- --------------------------------------- Signature Signature Please make a photocopy of this application for your records. - -------------------------------------------------------------------------------- 5 BROKER/DEALER USE ONLY (PLEASE PRINT) - -------------------------------------------------------------------------------- ----------------------- We hereby submit this application for the purchase of Templeton Dealer Number shares of the Fund indicated above in accordance with the terms of our selling agreement with Franklin ----------------------- Templeton Distributors, Inc. ("FTD"), and with the Prospectus for the Fund. We agree to notify FTD of any Purchases of Class I shares which may be eligible for reduced or eliminated sales charges. ----------------------------------------------------------------------------- WIRE ORDER ONLY: The attached check for $_______ should be applied against Wire Order Confirmation Number ___________ Dated___________ For__________ Shares ----------------------------------------------------------------------------- Securities Dealer Name__________________________________________________________ Main Office Address________________ Main Office Telephone Number (___)__________ Branch Number________ Representative Number ________ Representative Name________ Branch Address_________________________ Branch Telephone Number (___)___________ Authorized Signature, Securities Dealer______________________ Title_____________ - -------------------------------------------------------------------------------- ACCEPTED: Franklin Templeton Distributors, Inc. By___________ Date______________ - -------------------------------------------------------------------------------- Please see reverse side for Shareholder Account Privileges: [_] Distribution Options [_] Special Instructions for Distributions [_] Systematic Withdrawal Plan [_] Automatic Investment Plan [_] Telephone Exchange Service [_] Letter of Intent [_] Cumulative Quantity Discount This application must be preceded or accompanied by a prospectus for the Fund(s) being purchased. - -------------------------------------------------------------------------------- 6 DISTRIBUTION OPTIONS (Check one) - -------------------------------------------------------------------------------- Check one - if no box is checked, all dividends and capital gains will be reinvested in additional shares of the Fund. [_] Reinvest all dividends [_] Pay all dividends in cash and capital gains. and reinvest capital gains. [_] Pay capital gains in cash [_] Pay all dividends and and reinvest dividends. capital gains in cash. - -------------------------------------------------------------------------------- 7 OPTIONAL SHAREHOLDER PRIVILEGES - -------------------------------------------------------------------------------- A. SPECIAL PAYMENT INSTRUCTIONS FOR DISTRIBUTIONS (Check one box) [_] Pay Distributions, as noted in Section 6, to another Franklin or Templeton Fund. Fund Name______________________ Existing Account Number___________________ [_] Send my Distributions to the person, named below, instead of as registered in Section 1. Name___________________________ Street Address____________________________ City___________________________ State____________________Zip Code_________ - -------------------------------------------------------------------------------- B. SYSTEMATIC WITHDRAWAL PLAN Please withdraw from my Franklin Templeton account $_____($50 minimum) [_]Monthly [_]Quarterly [_]Semi-Annually or [_]Annually as set forth in the Prospectus, starting in ______________(Month). The net asset value of the shares held must be at least $5,000 at the time the plan is established. Additional restrictions may apply to Class II or other shares subject to contingent deferred sales charge, as described in the prospectus. Send the proceeds to: [_]Address of Record OR [_]the Franklin Templeton Fund or person specified in Section 7(A) - Special Payment Instructions for Distributions. - -------------------------------------------------------------------------------- C. TELEPHONE TRANSACTIONS TELEPHONE EXCHANGE PRIVILEGE: If the Fund does not receive specific instructions from the shareholder, either in writing or by telephone, the Telephone Exchange Privilege (see the prospectus) is automatically extended to each account. The shareholder should understand, however, that the Fund and Franklin Templeton Investor Services, Inc. ("FTI") or Templeton Funds Trust Company and their agents will not be liable for any loss, injury, damage or expense as a result of acting upon instructions communicated by telephone reasonably believed to be genuine. The shareholder agrees to hold the Fund and its agents harmless from any loss, claims, or liability arising from its or their compliance with such instructions. The shareholder understands that this option is subject to the terms and conditions set forth in the prospectus of the fund to be acquired. [_]No, I do NOT wish to participate in the Telephone Exchange Privilege or authorize the Fund or its agents, including FTI or Templeton Funds Trust Company, to act upon instructions received by telephone to exchange shares for shares of any other account(s) within the Franklin Templeton Group of Funds. Telephone Redemption Privilege: This is available to shareholders who specifically request it and who complete the Franklin Templeton Telephone Redemption Authorization Agreement in the back of the Fund's prospectus. - -------------------------------------------------------------------------------- D. AUTOMATIC INVESTMENT PLAN IMPORTANT: ATTACH AN UNSIGNED, VOIDED CHECK (FOR CHECKING ACCOUNTS) OR A SAVINGS ACCOUNT DEPOSIT SLIP HERE, AND COMPLETE THE INFORMATION BELOW. I(We) would like to establish an Automatic Investment Plan (the"Plan") as described in the Prospectus. I(We) agree to reimburse FTI and/or FTD for any expenses or losses that they may incur in connection with my(our) plan, including any caused by my(our) bank's failure to act in accordance with my(our) request. If my(our) bank makes any erroneous payment or fails to make a payment after shares are purchased on my(our) behalf, any such purchase may be cancelled and I(we) hereby authorize redemptions and/or deductions from my(our) account for that purpose. Debit my(our) bank account monthly for $__________($25 minimum) on or about the [_]1st [_]5th [_]15th or [_]20th day starting_______(month), to be invested in (name of Fund)___________________Account Number (if known)_______ - -------------------------------------------------------------------------------- E. INSTRUCTIONS TO BANK - AUTOMATIC INVESTMENT PLAN AUTHORIZATION To:__________________________________ ______________________________________ Name of Your Bank ABA Number ___________________________ _________________ ____________ ______________ Street Address City State Zip Code I(We) authorize you to charge my(our) Checking/Savings Account and to make payment to FTD, upon instructions from FTD. I(We) agree that in making payment for such charges your rights shall be the same as if each were a charge made and signed personally by me(us). This authority shall remain in effect until you receive written notice from me(us) changing its terms or revoking it. Until you actually receive such notice, I(we) agree that you shall be fully protected in paying any charge under this authority. I(we) further agree that if any such charge is not made, whether with or without cause and whether intentionally or inadvertently, you shall be under no liability whatsoever. X_________________________________________________ ___________________________ Signature(s) EXACTLY as shown on your bank records Date ______________________________________ _______________________________________ Print Name(s) Account Number ______________________________ _________________ ____________ ______________ Street Address City State Zip Code - -------------------------------------------------------------------------------- F. LETTER OF INTENT (LOI) -- APPLICABLE TO CLASS I SHARES ONLY [_]I(We) agree to the terms of the LOI and provisions for reservations of Shares and grant FTD the security interest set forth in the Prospectus. Although I am(we are) not obligated to do so, it is my(our) intention to invest over a 13 month period in shares of one or more Franklin or Templeton Funds (including all Money Market Funds in the Franklin Templeton Group) an aggregate amount at least equal to that which is checked below: [_]$50,000-99,999 (except for Income Fund) [_]$100,000-249,999 [_]$250,000-499,999 [_]$500,000-999,999 [_]$1,000,0000 or more
Purchases made within the last 90 days will be included as part of your LOI. Please write in your Account Number(s)____________ ____________ ____________ - -------------------------------------------------------------------------------- G. CUMULATIVE QUANTITY DISCOUNT -- APPLICABLE TO CLASS I SHARES ONLY Shares may be purchased at the Offering Price applicable to the dollar amount of the sale added to the higher of (1) the value (calculated at the applicable Offering Price) or (2) the purchase price, of any other Shares of the Fund and/or other Funds in the Franklin Templeton Group owned at that time by the purchaser, his or her spouse, and their children under age 21, including all Money Market Funds in the Franklin Templeton Group as stated in the Prospectus. in order for this Cumulative Quantity Discount to be made available, the Shareholder or his or her Securities Dealer must notify FTI or FTD of the total holdings in the Franklin Templeton Group each time an order is placed. [_]I(We) own shares of more than one Fund in the Franklin Templeton Group and qualify for the Cumulative Quantity Discount described above and in the Prospectus. My(Our) other Account Number(s) are ___________ ___________ _______________ - -------------------------------------------------------------------------------- 8 ACCOUNT REVISION (If Applicable) - -------------------------------------------------------------------------------- If you are using this application to revise your Account Registration, or wish to have Distributions sent to an address other than the address on your existing Account's Registration, a Signature Guarantee is required. Signatures of all registered owners must be guaranteed by an "eligible guarantor" as defined in the "How to Sell Shares of the Fund" section in the Fund's Prospectus. A Notary Public is not an acceptable guarantor. X________________________________________ ____________________________________ Signature(s) of Registered Account Owners Account Number(s) X________________________________________ ____________________________________ X________________________________________ X________________________________________ ____________________________________ Signature Guarantee Stamp NOTE: For any change in registration, please send us any outstanding Certificates by Registered Mail. - -------------------------------------------------------------------------------- TLGOF APP 05/95 TEMPLETON DEVELOPING MARKETS TRUST THIS STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995 IS NOT A PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF TEMPLETON DEVELOPING MARKETS TRUST DATED MAY 1, 1995, WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST TO THE PRINCIPAL UNDERWRITER, FRANKLIN TEMPLETON DISTRIBUTORS, INC., 700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030 TOLL FREE TELEPHONE: (800) 237-0738 TABLE OF CONTENTS General Information and History -Legal Counsel Investment Objective and Policies -Independent Accountants -Investment Policies -Reports to Shareholders -Repurchase Agreements Brokerage Allocation -Debt Securities Purchase, Redemption and -Futures Contracts Pricing of Shares -Options on Securities or Indices -Ownership and Authority -Foreign Currency Hedging Disputes Transactions -Tax Deferred Retirement -Investment Restrictions Plans -Risk Factors -Letter of Intent -Trading Policies -Special Net Asset Value -Personal Securities Transactions Purchases Management of the Fund Tax Status Trustee Compensation -Distributions Principal Shareholders -Options and Hedging Investment Management and Other Transactions Services -Currency Fluctuations -- -Investment Management Agreement "Section -Management Fees 988" Gains or Losses -Templeton Investment Management -Sale of Shares (Hong Kong) Limited -Foreign Taxes -Business Manager -Backup Withholding -Custodian and Transfer Agent -Foreign Shareholders -Other Taxation Principal Underwriter Description of Shares Performance Information Financial Statements GENERAL INFORMATION AND HISTORY Templeton Developing Markets Trust (the "Fund") was organized as a Massachusetts business trust on August 9, 1991, and is registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end diversified management investment company. INVESTMENT OBJECTIVE AND POLICIES Investment Policies. The Fund's Investment Objective and Policies are described in the Prospectus under the heading "General Description -- Investment Objective and Policies." Repurchase Agreements. Repurchase agreements are contracts under which the buyer of a security simultaneously commits to resell the security to the seller at an agreed-upon price and date. Under a repurchase agreement, the seller is required to maintain the value of the securities subject to the repurchase agreement at not less than their repurchase price. Templeton Investment Management (Hong Kong) Limited (the "Investment Manager") will monitor the value of such securities daily to determine that the value equals or exceeds the repurchase price. Repurchase agreements may involve risks in the event of default or insolvency of the seller, including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. The Fund will enter into repurchase agreements only with parties who meet creditworthiness standards approved by the Board of Trustees, i.e., banks or broker-dealers which have been determined by the Investment Manager to present no serious risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase transaction. Debt Securities. The Fund may invest in debt securities which are rated at least C by Moody's Investors Service, Inc. ("Moody's") or C by Standard & Poor's Corporation ("S&P") or unrated debt securities deemed to be of comparable quality by the Investment Manager. As an operating policy, the Fund will invest no more than 5% of its assets in debt securities rated lower than Baa by Moody's or BBB by S&P. The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of such securities generally declines. These changes in market value will be reflected in the Fund's net asset value. Bonds which are rated 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 C by S&P are obligations on which no interest is being paid. Although they may offer higher yields than do higher rated securities, low rated and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish the Fund's ability to sell the securities at fair value either to meet redemption requests or to respond to a specific economic event such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain low rated or unrated debt securities may also make it more difficult for the Fund to obtain accurate market quotations for the purposes of valuing the Fund's portfolio. Market quotations are generally available on many low rated or unrated securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of the Fund to achieve its investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if the Fund were investing in higher rated securities. Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, the Fund may incur additional expenses to seek recovery. Recent legislation, which requires federally insured savings and loan associations to divest their investments in low rated debt securities, may have a material adverse effect on the Fund's net asset value and investment practices. Futures Contracts. The Fund may purchase and sell financial futures contracts. Although some financial futures contracts call for making or taking delivery of the underlying securities, in most cases these obligations are closed out before the settlement date. The closing of a contractual obligation is accomplished by purchasing or selling an identical offsetting futures contract. Other financial futures contracts by their terms call for cash settlements. The Fund may also buy and sell index futures contracts with respect to any stock 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 stock index futures contract specifies that no delivery of the actual stocks 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 stock index at the expiration of the contract. At the time the Fund purchases a futures contract, an amount of cash, U.S. Government securities, or other highly liquid debt securities equal to the market value of the futures contract will be deposited in a segregated account with the Fund's custodian. When writing a futures contract, the Fund will maintain with its custodian liquid assets that, when added to the amounts deposited with a futures commission merchant or broker as margin, are equal to the market value of the instruments underlying the contract. Alternatively, the Fund may "cover" its position by owning the instruments underlying the contract (or, in the case of an index futures contract, 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 or Indices. The Fund may write covered call and put options and purchase call and put options on securities or stock indices that are traded on United States and foreign exchanges and in the over-the-counter markets.1 _______________ 1 All option transactions entered into by the Fund will be traded on a recognized exchange, or will be cleared through a recognized formal clearing arrangement. An option on a security is a contract that gives the purchaser of the option, in return for the premium paid, the right to buy a specified security (in the case of a call option) or to sell a specified security (in the case of a put option) from or to the writer of the option at a designated price during the term of the option. An option on a securities index gives the purchaser of the option, in return for the premium paid, the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. The Fund may write a call or put option only if the option is "covered." A call option on a security written by the Fund is "covered" if the Fund owns the underlying security 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 is also "covered" if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (1) is equal to or less than the exercise price of the call written or (2) 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 written by the Fund is "covered" if the Fund maintains cash or fixed income securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. The Fund will cover call options on stock indices that it writes by owning securities whose price changes, in the opinion of the Investment Manager, are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where the Fund covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Fund will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Fund will cover put options on stock indices that it writes by segregating assets equal to the option's exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. The Fund will receive a premium from writing a put or call option, which increases the Fund's gross income in the event the option expires unexercised or is closed out at a profit. If the value of a security or an index on which the Fund has written a call option falls or remains the same, the Fund will realize a profit in the form of the premium received (less transaction costs) that could offset all or a portion of any decline in the value of the portfolio securities being hedged. If the value of the underlying security or index rises, however, the Fund will realize a loss in its call option position, which will reduce the benefit of any unrealized appreciation in the Fund's investments. By writing a put option, the Fund assumes the risk of a decline in the underlying security or index. To the extent that the price changes of the portfolio securities being hedged correlate with changes in the value of the underlying security or index, writing covered put options on indices or securities will increase the Fund's losses in the event of a market decline, although such losses will be offset in part by the premium received for writing the option. The Fund may also purchase put options to hedge its investments against a decline in value. By purchasing a put option, the Fund will seek to offset a decline in the value of the portfolio securities being hedged through appreciation of the put option. If the value of the Fund's investments does not decline as anticipated, or if the value of the option does not increase, 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 correlation between the changes in value of the underlying security or index and the changes in value of the Fund's security holdings being hedged. The Fund may purchase call options on individual securities to hedge against an increase in the price of securities that the Fund anticipates purchasing in the future. Similarly, the Fund may purchase call options on a securities index to attempt to reduce the risk of missing a broad market advance, or an advance in an industry or market segment, at a time when the Fund holds uninvested cash or short-term debt securities awaiting investment. When purchasing call options, the Fund will bear the risk of losing all or a portion of the premium paid if the value of the underlying security or index does not rise. There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers, or the options exchange could suspend trading after the price has risen or fallen more than the maximum specified by the exchange. Although the Fund may be able to offset to some extent any adverse effects of being unable to liquidate an option position, the Fund may experience losses in some cases as a result of such inability. Foreign Currency Hedging Transactions. In order to hedge against foreign currency exchange rate risks, the Fund may enter into forward foreign currency exchange contracts and foreign currency futures contracts, as well as purchase put or call options on foreign currencies, as described below. The Fund may also conduct its foreign currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market. The Fund may enter into forward foreign currency exchange contracts ("forward contracts") to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currencies. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. The Fund may enter into a forward contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security. In addition, for example, when the Fund believes that a foreign currency may suffer or enjoy a substantial movement against another currency, it may enter into a forward contract to sell an amount of the former foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. This second investment practice is generally referred to as "cross- hedging." Because in connection with the Fund's forward foreign currency transactions an amount of the Fund's assets equal to the amount of the purchase will be held aside or segregated to be used to pay for the commitment, the Fund will always have cash, cash equivalents or high quality debt securities available sufficient to cover any commitments under these contracts or to limit any potential risk. In addition, when the Fund sells a forward contract, it will cover its obligation under the contract by segregating cash, cash equivalents or high quality debt securities, or by owning securities denominated in the corresponding currency and with a market value equal to or greater than the Fund's obligation. Assets used as cover for forward contracts will be marked to market on a daily basis. While these contracts are not presently regulated by the Commodity Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority to regulate forward contracts. In such event, the Fund's ability to utilize forward contracts in the manner set forth above may be restricted. Forward contracts may limit potential gain from a positive change in the relationship between the U.S. dollar and foreign currencies. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not engaged in such contracts. The Fund may purchase and write put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of foreign portfolio securities and against increases in the dollar cost of foreign securities to be acquired. As is the case with other kinds of options, however, the writing of an option on foreign currency will constitute only a partial hedge, up to the amount of the premium received, and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuation in exchange rates, although, in the event of rate movements adverse to the Fund's position, the Fund may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies to be written or purchased by the Fund will be traded on U.S. and foreign exchanges or over-the-counter. The Fund may enter into exchange-traded contracts for the purchase or sale for future delivery of foreign currencies ("foreign currency futures"). This investment technique will be used only to hedge against anticipated future changes in exchange rates which otherwise might adversely affect the value of the Fund's portfolio securities or adversely affect the prices of securities that the Fund intends to purchase at a later date. The successful use of foreign currency futures will usually depend on the Investment Manager's ability to forecast currency exchange rate movements correctly. Should exchange rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of foreign currency futures or may realize losses. Investment Restrictions. The Fund has imposed upon itself certain Investment Restrictions, which together with its Investment Objective, are fundamental policies except as otherwise indicated. No changes in the Fund's Investment Objective or these Investment Restrictions can be made without approval of the Fund's Shareholders. For this purpose, the provisions in the 1940 Act require the affirmative vote of the lesser of either (a) 67% or more of the Shares present at a Shareholders' meeting at which more than 50% of the outstanding Shares are present or represented by proxy or (b) more than 50% of the outstanding Shares of the Fund. In accordance with these restrictions, the Fund will not: 1. Invest in real estate or mortgages on real estate (although the Fund may invest in marketable securities secured by real estate or interests therein or issued by companies or investment trusts which invest in real estate or interests therein); invest in interests (other than debentures or equity stock interests) in oil, gas or other mineral exploration or development programs; purchase or sell commodity contracts (except futures contracts as described in the Fund's Prospectus); or invest in other open-end investment companies except as permitted by the 1940 Act.2 _______________ 2 As a non-fundamental policy, the Fund will not invest more than 10% of its assets in real estate investment trusts. In addition, the Fund has undertaken with a state securities commission that (1) the Fund will invest in other open-end investment companies only (a) for short term investment of cash balances in money market funds, or (b) for investment in securities in the portfolios of such other open-end investment companies, direct investment in which is unavailable to the Fund; and (2) the Fund will not pay an investment management fee with respect to any portion of its portfolio comprising shares of other open-end investment companies. 2. Purchase or retain securities of any company in which Trustees or officers of the Fund or of its 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. 3. Purchase any security (other than obligations of the U.S. Government, its agencies and instrumentalities) if, as a result, as to 75% of the Fund's total assets (i) more than 5% of the Fund's total assets would be invested in securities of any single issuer, or (ii) the Fund would then own more than 10% of the voting securities of any single issuer.3 _______________ 3 The Fund has undertaken with a state securities commission that, with respect to 100% of its assets, the Fund will not purchase more than 10% of a company's outstanding voting securities. 4. Act as an underwriter; issue senior securities except as set forth in Investment Restriction 6 below; or purchase on margin or sell short (but the Fund may make margin payments in connection with options on securities or securities indices, foreign currencies, futures contracts and related options, and forward contracts and related options). 5. Loan money, apart from the purchase of a portion of an issue of publicly distributed bonds, debentures, notes and other evidences of indebtedness, although the Fund may enter into repurchase agreements and lend its portfolio securities. 6. Borrow money, except that the Fund may borrow money from banks in an amount not exceeding 33-1/3% of the value of the Fund's total assets (including the amount borrowed), or pledge, mortgage or hypothecate its assets for any purpose, except to secure borrowings and then only to an extent not greater than 15% of the Fund's total assets. Arrangements with respect to margin for futures contracts, forward contracts and related options are not deemed to be a pledge of assets. 7. Invest more than 5% of the value of the Fund's total assets in securities of issuers, including their predecessors, which have been in continuous operation less than three years. 8. Invest more than 5% of the Fund's total assets in warrants, whether or not listed on the New York or American Stock Exchange, including no more than 2% of its total assets which may be invested in warrants that are not listed on those exchanges. Warrants acquired by the Fund in units or attached to securities are not included in this restriction. 9. Invest more than 25% of the Fund's total assets in a single industry. 10. Participate on a joint or a joint and several basis in any trading account in securities. (See "Investment Objective and Policies -- Trading Policies" as to transactions in the same securities for the Fund and other Templeton Funds and clients.) 11. Invest more than 15% of the Fund's total assets in securities of foreign issuers that are not listed on a recognized United States or foreign securities exchange, including no more than 10% of its total assets in restricted securities, securities that are not readily marketable, repurchase agreements having more than seven days to maturity, and over-the-counter options purchased by the Fund. Assets used as cover for over-the-counter options written by the Fund are considered not readily marketable.4 _______________ 4 As a non-fundamental policy, the Fund will not invest more than 10% of its total assets in restricted securities, securities that are not readily marketable, securities of issuers, including their predecessors, that have been in continuous operation less than three years, repurchase agreements having more than seven days to maturity, and over-the-counter options purchased by the Fund. Assets used as cover for over-the-counter options written by the Fund are considered not readily marketable. Under the 1940 Act, the Fund may invest up to 15% of its total assets in illiquid securities. Whenever any investment policy or investment restriction states a maximum percentage of the Fund's assets which may be invested in any security or other property, it is intended that such maximum percentage limitation be determined immediately after and as a result of the Fund's acquisition of such security or property. Assets are calculated as described in the Prospectus under the heading "How to Buy Shares of the Fund." If the Fund receives from an issuer of securities held by the Fund subscription rights to purchase securities of that issuer, and if the Fund exercises such subscription rights at a time when the Fund's portfolio holdings of securities of that issuer would otherwise exceed the limits set forth in investment restrictions 3 or 9 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 Fund may borrow up to 5% of the value of its total assets to meet redemptions and for other temporary purposes. Risk Factors. Investors should consider carefully the substantial risks involved in securities of companies and governments of foreign nations, which are in addition to the usual risks inherent in domestic investments. There may be less publicly available information about foreign companies comparable to the reports and ratings published about companies in the United States. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to United States companies. The 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 and securities of some foreign companies are less liquid and more volatile than securities of comparable United States companies. Commission rates in foreign countries, which are generally fixed rather than subject to negotiation as in the United States, are likely to be higher. In many foreign countries there is less government supervision and regulation of stock exchanges, brokers and listed companies than in the United States. Investments in companies domiciled in developing countries may be subject to potentially higher risks than investments in developed countries. These risks include (i) less social, political and economic stability; (ii) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict the Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until recently in certain Eastern European countries, of a capital market structure or market-oriented economy; and (vii) the possibility that recent favorable economic developments in Eastern Europe may be slowed or reversed by unanticipated political or social events in such countries. In addition, many countries in which the Fund may invest have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain countries. Moreover, the economies of some developing countries may differ favorably or unfavorably from the United States economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Despite the recent dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain Eastern European countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, the Fund could lose a substantial portion of any investments it has made in the affected countries. Further, no accounting standards exist in Eastern European countries. Finally, even though certain Eastern European currencies may be convertible into U.S. dollars, the conversion rates may be artificial to the actual market values and may be adverse to Fund Shareholders. Certain Eastern European countries, which do not have market economies, are characterized by an absence of developed legal structures governing private and foreign investments and private property. Certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Authoritarian governments in certain Eastern European countries may require that a governmental or quasi-governmental authority act as custodian of the Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the 1940 Act to act as foreign custodians of the Fund's cash and securities, the Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. The Fund endeavors to buy and sell foreign currencies on as favorable a basis as practicable. Some price spread on currency exchange (to cover service charges) may be incurred, particularly when the Fund changes investments from one country to another or when proceeds of the sale of Shares in U.S. dollars are used for the purchase of securities in foreign countries. Also, some countries may adopt policies which would prevent the Fund from transferring cash out of the country, withhold portions of interest and dividends at the source, or impose other taxes, with respect to the Fund's investments in securities of issuers of that country. Although the management places the Fund's investments only in foreign nations which it considers as having relatively stable and friendly governments, there is the possibility of cessation of trading on national exchanges, expropriation, nationalization, confiscatory or other taxation, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments that could affect investments in securities of issuers in those nations. The Fund may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations, by exchange control regulations and by indigenous economic and political developments. Some countries in which the Fund may invest may also have fixed or managed currencies that are not free-floating against the U.S. dollar. Further, certain currencies have experienced a steady devaluation relative to the U.S. dollar. Any devaluations in the currencies in which the Fund's portfolio securities are denominated may have a detrimental impact on the Fund. Through the Fund's flexible policy, management endeavors to avoid unfavorable consequences and to take advantage of favorable developments in particular nations where from time to time it places the Fund's investments. The exercise of this flexible policy may include decisions to purchase securities with substantial risk characteristics and other decisions such as changing the emphasis on investments from one nation to another and from one type of security to another. Some of these decisions may later prove profitable and others may not. No assurance can be given that profits, if any, will exceed losses. The Trustees consider at least annually the likelihood of the imposition by any foreign government of exchange control restrictions which would affect the liquidity of the Fund's assets maintained with custodians in foreign countries, as well as the degree of risk from political acts of foreign governments to which such assets may be exposed. The Trustees also consider the degree of risk involved through the holding of portfolio securities in domestic and foreign securities depositories (see "Investment Management and Other Services -- Custodian and Transfer Agent"). However, in the absence of willful misfeasance, bad faith or gross negligence on the part of the Investment Manager, any losses resulting from the holding of the Fund's portfolio securities in foreign countries and/or with securities depositories will be at the risk of the Shareholders. No assurance can be given that the Trustees' appraisal of the risks will always be correct or that such exchange control restrictions or political acts of foreign governments might not occur. The Fund's ability to reduce or eliminate its futures and related options positions will depend upon the liquidity of the secondary markets for such futures and options. The Fund intends to purchase or sell futures and related options only on exchanges or boards of trade where there appears to be an active secondary market, but there is no assurance that a liquid secondary market will exist for any particular contract or at any particular time. Use of stock index futures and related options for hedging may involve risks because of imperfect correlations between movements in the prices of the futures or related options and movements in the prices of the securities being hedged. Successful use of futures and related options by the Fund for hedging purposes also depends upon the Investment Manager's ability to predict correctly movements in the direction of the market, as to which no assurance can be given. Trading Policies. The Investment Manager and its affiliated companies serve as investment manager to other investment companies and private clients. Accordingly, the respective portfolios of these funds and clients may contain many or some of the same securities. When any two or more of these funds or clients are engaged simultaneously in the purchase or sale of the same security, the transactions will be placed for execution in a manner designed to be equitable to each party. The larger size of the transaction may affect the price of the security and/or the quantity which may be bought or sold for each party. If the transaction is large enough, brokerage commissions may be negotiated below those otherwise chargeable. Sale or purchase of securities, without payment of brokerage commissions, fees (except customary transfer fees) or other remuneration in connection therewith, may be effected between any of these funds, or between funds and private clients, under procedures adopted pursuant to Rule 17a-7 under the 1940 Act. Personal Securities Transactions. Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j) under the 1940 Act, who are employees of Franklin Resources, Inc. or their subsidiaries, are permitted to engage in personal securities transactions subject to the following general restrictions and procedures: (1) The trade must receive advance clearance from a Compliance Officer and must be completed within 24 hours after this clearance; (2) Copies of all brokerage confirmations must be sent to the Compliance Officer and within 10 days after the end of each calendar quarter, a report of all securities transactions must be provided to the Compliance Officer; (3) In addition to items (1) and (2), access persons involved in preparing and making investment decisions must file annual reports of their securities holdings each January and also inform the Compliance Officer (or other designated personnel) if they own a security that is being considered for a fund or other client 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 OF THE FUND The name, address, principal occupation during the past five years and other information with respect to each of the Trustees and Principal Executive Officers of the Fund are as follows: CHARLES E. JOHNSON* Senior vice president, Franklin 777 Mariners Island Blvd. Resources, Inc. and Franklin San Mateo, California Templeton Distributors, Inc.; Trustee president, Franklin Institutional Service Corporation; chairman of the board of Templeton Investment Counsel, Inc.; director and/or president of certain Templeton Funds; vice president and/or director, as the case may be, for some of the subsidiaries of Franklin Resources, Inc.; and vice president and/or trustee, as the case may be, of some of the investment companies in the Franklin Group of Funds. CONSTANTINE DEAN TSERETOPOULOS Physician, Lyford Cay Hospital Lyford Cay Hospital (July 1987-present); Cardiology P.O. Box N-7776 Fellow, University of Maryland Nassau, Bahamas (July 1985 - July 1987); Trustee Internal Medicine Intern, Greater Baltimore Medical Center (July 1982 - July 1985); a director or trustee of other Templeton Funds. FRANK J. CROTHERS President, Atlantic Equipment & P.O. Box N-3238 Power Ltd.; a director or Nassau, Bahamas trustee Trustee of other Templeton Funds. HARRIS J. ASHTON Chairman of the board, Metro Center, 1 Station Place president, and chief executive Stamford, Connecticut officer of General Host Trustee Corporation (nursery and craft centers); director of RBC Holdings Inc. (a bank holding company) and Bar-S Foods; director or trustee of other Templeton Funds; and director, trustee or managing general partner, as the case may be, for most of the investment companies in the Franklin Group of Funds. S. JOSEPH FORTUNATO Member of the law firm of 200 Campus Drive Pitney, Hardin, Kipp & Szuch; Florham Park, New Jersey director of General Host Trustee Corporation; director or trustee of other Templeton Funds; and director, trustee or managing partner, as the case may be, for most of the investment companies in the Franklin Group of Funds. ANDREW H. HINES, JR. Consultant, Triangle Consulting 150 2nd Avenue N. Group; chairman of the board and St. Petersburg, Florida chief executive officer of Trustee Florida Progress Corporation (1982-February 1990) and director of various of its subsidiaries; chairman and director of Precise Power Corporation; Executive-in- Residence of Eckerd College (1991-present); director of Checkers Drive-In Restaurants, Inc.; a director or trustee of other Templeton Funds. JOHN G. BENNETT, JR. A director or trustee of other 3 Radnor Corporate Center Templeton Funds; founder, Suite 150 chairman of the board, and 100 Matsonford Road president of the Foundation for Radnor, Pennsylvania New Era Philanthropy; president Trustee and chairman of the boards of the Evelyn M. Bennett Memorial Foundation and NEP International Trust; chairman of the board and chief executive officer of The Bennett Group International, LTD; chairman of the boards of Human Service Systems, Inc. and Multi-Media Communicators, Inc.; a director or trustee of many national and international organizations, universities, and grant-making foundations serving in various executive board capacities; member of the Public Policy Committee of the Advertising Council. FRED R. MILLSAPS A director or trustee of other 2665 N.E. 37th Drive Templeton Funds; manager of Fort Lauderdale, Florida personal investments (1978- Trustee present); chairman and chief executive officer of Landmark Banking Corporation (1969-1978); financial vice president of Florida Power and Light (1965- 1969); vice president of Federal Reserve Bank of Atlanta (1958- 1965); and director of various business and nonprofit organizations. GORDON S. MACKLIN Chairman of White River 8212 Burning Tree Road Corporation (information Bethesda, Maryland services); director of Fund Trustee America Enterprise Holdings, Inc., Martin Marietta Corporation, MCI Communications Corporation and Medimmune, Inc.; director or trustee of other Templeton Funds; director, trustee, or managing general partner, as the case may be, of most of the investment companies in the Franklin Group of Funds; formerly: chairman, Hambrecht and Quist Group; director, H&Q Healthcare Investors; and president, National Association of Securities Dealers, Inc. NICHOLAS F. BRADY* A director or trustee of other The Bullitt House Templeton Funds; chairman of 102 East Dover Street Templeton Emerging Markets Easton, Maryland Investment Trust PLC; chairman Trustee and president of Darby Advisors, Inc. (an investment firm) since January, 1993; director of the H. J. Heinz Company, Capital Cities/ABC, Inc. and the Christiana Companies; Secretary of the United States Department of the Treasury from 1988 to January, 1993; chairman of the board of Dillon, Read & Co. Inc. (investment banking) prior thereto. BETTY P. KRAHMER Director or trustee of various 2201 Kentmere Parkway civic associations; former Wilmington, Delaware economic analyst, U.S. Trustee Government. J. MARK MOBIUS Director and executive vice Two Exchange Square president of Templeton, Hong Kong Galbraith & Hansberger Ltd.; President managing director of Templeton Investment Management (Hong Kong) Limited; president of International Investment Trust Company Limited (investment manager of Taiwan R.O.C. Fund) (1986-1987); director of Vickers da Costa, Hong Kong (1983-1986). CHARLES B. JOHNSON President, chief executive 777 Mariners Island Blvd. officer, and director, Franklin San Mateo, California Resources, Inc.; chairman of the Vice President board, Franklin Templeton Distributors, Inc.; chairman of the board and director, Franklin Advisers, Inc.; director of Templeton Global Investors, Inc.; director, Franklin Administrative Services, Inc. and General Host Corporation; director of Templeton Global Investors, Inc.; director or trustee of other Templeton Funds; and officer and director, trustee or managing partner, as the case may be, of most other subsidiaries of Franklin and of most of the investment companies in the Franklin Group of Funds. MARK G. HOLOWESKO President and director of Lyford Cay Templeton, Galbraith & Nassau, Bahamas Hansberger Ltd.; director of Vice President global equity research for Templeton Worldwide, Inc.; president or vice president of other Templeton Funds; investment administrator with Roy West Trust Corporation (Bahamas) Limited (1984-1985). MARTIN L. FLANAGAN Senior vice president, treasurer 777 Mariners Island Blvd. and chief financial officer of San Mateo, California Franklin Resources, Inc.; Vice President director and executive vice president of Templeton Investment Counsel, Inc. and Templeton Global Investors, Inc.; president or vice president of the Templeton Funds; accountant, Arthur Andersen & Company (1982-1983); member of the International Society of Financial Analysts and the American Institute of Certified public Accountants. JOHN R. KAY Vice president of the Templeton 500 East Broward Blvd. Funds; vice president and Fort Lauderdale, Florida treasurer of Templeton Global Vice President Investors, Inc. and Templeton Worldwide, Inc.; assistant vice president of Franklin Templeton Distributors, Inc.; formerly, vice president and controller of the Keystone Group, Inc. THOMAS M. MISTELE Senior vice president of 700 Central Avenue Templeton Global Investors, St. Petersburg, Florida Inc.; vice president of Franklin Secretary Templeton Distributors, Inc.; secretary of the Templeton Funds; attorney, Dechert Price & Rhoads (1985 - 1988) and Freehill, Hollingdale & Page (1988); judicial clerk, U.S. District Court (Eastern District of Virginia) (1984 - 1985). JAMES R. BAIO Certified public accountant; 500 East Broward Blvd. treasurer of the Templeton Fort Lauderdale, Florida Funds; senior vice president of Treasurer Templeton Worldwide, Inc., Templeton Global Investors, Inc., and Templeton Funds Trust Company; formerly, senior tax manager of Ernst & Young (certified public accountants) (1977-1989). JACK L. COLLINS Assistant treasurer of the 700 Central Avenue Templeton Funds; assistant vice St. Petersburg, Florida president of Franklin Templeton Assistant Treasurer Investor Services, Inc.; former partner of Grant Thornton, independent public accountants. JEFFREY L. STEELE Partner, Dechert Price & Rhoads. 1500 K Street, N.W. Washington, D.C. Assistant Secretary ______________________ * These Trustees are "interested persons" of the Fund as that term is defined in the 1940 Act. Mr. Brady and Franklin Resources, Inc. are limited partners of Darby Overseas Partners, L.P. ("Darby Overseas"). Mr. Brady established Darby Overseas in February, 1994, and is Chairman and a shareholder of the corporate general partner of Darby Overseas. In addition, Darby Overseas and Templeton, Galbraith & Hansberger, Ltd. are limited partners of Darby Emerging Markets Fund, L.P. TRUSTEE COMPENSATION All of the Fund's officers and Trustees also hold positions with other investment companies in the Franklin Templeton Group. No compensation is paid by the Fund to any officer or Trustee who is an officer, trustee or employee of the Investment Manager or its affiliates. Each Templeton Fund pays its independent directors and trustees and Mr. Brady an annual retainer and/or fees for attendance at Board and Committee meetings, the amount of which is based on the level of assets in each fund. Accordingly, based upon the assets of the Fund as of December 31, 1994, the Fund will pay the independent Trustees and Mr. Brady an annual retainer of $________ and a fee of $________ per meeting attended of the Board and its Committees. The independent Trustees and Mr. Brady are reimbursed for any expenses incurred in attending meetings, paid pro rata by each Franklin Templeton fund in which they serve. No pension or retirement benefits are accrued as part of Fund expenses. The following table shows the total compensation paid to the Trustees by the Fund and by all investment companies in the Franklin Templeton Group for the fiscal year ended December 31, 1994: Number of Franklin Total Aggregate Templeton Fund Compensation Compensation Boards on from All Funds from the Which Director in Franklin Name of Director Fund Serves Templeton Group Harris J. Ashton $ 54 $319,925 John G. Bennett, Jr. 23 105,625 Nicholas F. Brady 23 86,125 Frank J. Crothers 4 12,850 S. Joseph Fortunato 56 336,065 Andrew H. Hines, Jr. 23 106,125 Betty P. Krahmer 19 75,275 Gordon S. Macklin 51 303,685 Fred R. Millsaps 23 106,125 Constantine Dean 4 12,850 Tseretopoulos PRINCIPAL SHAREHOLDERS As of ____________, 1995, there were _______________ Fund Shares outstanding. As of that date, __________ Shares, representing less than 1%, were owned beneficially by the Trustees and officers of the Fund. As of that date, to the knowledge of management, no person owned beneficially 5% or more of the Fund's outstanding Shares, except that Merrill Lynch, Pierce, Fenner & Smith Inc., P.O. Box 45286, Jacksonville, Florida 32232-5286, owned ___________ Shares (_____%) and Smith Barney Shearson Inc., 388 Greenwich Street, New York, New York 10013-2339, owned ___________ Shares (______%). INVESTMENT MANAGEMENT AND OTHER SERVICES Investment Management Agreement. The Investment Manager of the Fund is Templeton Investment Management (Hong Kong) Limited, a Hong Kong company with offices at Two Exchange Square, Hong Kong. The Investment Management Agreement, dated October 30, 1992, was approved by Shareholders of the Fund on October 30, 1992, and was last approved by the Board of Trustees, including a majority of the Trustees who were not parties to the Agreement or interested persons of any such party, at a meeting on February 24, 1995, and will continue through April 30, 1996. The Investment Management Agreement will continue from year to year thereafter, subject to approval annually by the Board of Trustees or by vote of the holders of a majority of the outstanding shares of the Fund (as defined in the 1940 Act) and also, in either event, with the approval of a majority of those Trustees who are not parties to the Investment Management Agreement or interested persons of any such party in person at a meeting called for the purpose of voting on such approval. The Agreement requires the Investment Manager to manage the investment and reinvestment of the Fund's assets. The Investment Manager is not required to furnish any personnel, overhead items or facilities for the Fund, including daily pricing or trading desk facilities, although such expenses are paid by investment advisers of some other investment companies. The Agreement provides that the Investment Manager will select brokers and dealers for execution of the Fund's portfolio transactions consistent with the Fund's brokerage policies (see "Brokerage Allocation"). Although the services provided by broker-dealers in accordance with the brokerage policies incidentally may help reduce the expenses of or otherwise benefit the Investment Manager and other investment advisory clients of the Investment Manager and of its affiliates, as well as the Fund, the value of such services is indeterminable and the Investment Manager's fee is not reduced by any offset arrangement by reason thereof. The Investment Manager renders its services to the Fund from outside the United States. When the Investment Manager determines to buy or sell the same security for the Fund that the Investment Manager or one or more of its affiliates has selected for one or more of its other clients or for clients of its affiliates, the orders for all such securities transactions are placed for execution by methods determined by the Investment Manager, with approval by the Board of Trustees, to be impartial and fair, in order to seek good results for all parties. See "Investment Objective and Policies -- Trading Policies." Records of securities transactions of persons who know when orders are placed by the Fund are available for inspection at least four times annually by the compliance officer of the Fund so that the non-interested Trustees (as defined in the 1940 Act) can be satisfied that the procedures are generally fair and equitable to all parties. The Agreement provides that the Investment Manager shall have no liability to the Fund or any Shareholder of the Fund for any error of judgment, mistake of law, or any loss arising out of any investment or other act or omission in the performance by the Investment Manager of its duties under the Agreement, except liability resulting from willful misfeasance, bad faith or gross negligence on the Investment Manager's part or reckless disregard of its duties under the Agreement. The Agreement will terminate automatically in the event of its assignment, and may be terminated by the Fund at any time without payment of any penalty on 60 days' written notice, with the approval of a majority of the Trustees in office at the time or by vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act.) Management Fees. For its services, the Fund pays the Investment Manager a monthly fee equal on an annual basis to 1.25% of its average daily net assets during the year. Each class of Shares pays a portion of the fee, determined by the proportion of the Fund that it represents. This fee is higher than advisory fees paid by most other U.S. investment companies, primarily because investing in equity securities of companies with smaller capital markets, many of which are not widely followed by professional analysts, requires the Investment Manager to invest additional time and incur added expense in developing specialized resources, including research facilities. During the fiscal years ended December 31, 1994, 1993 and 1992, the Investment Manager (and, prior to October 30, 1992, Templeton, Galbraith & Hansberger Ltd., the Fund's previous investment manager) received fees from the Fund of ___________, $6,765,008, and $1,615,491, respectively. The Investment Manager will comply with any applicable state regulations which may require the Investment Manager to make reimbursements to the Fund in the event that the Fund's aggregate operating expenses, including the advisory fee, but generally excluding distribution expenses, interest, taxes, brokerage commissions and extraordinary expenses, are in excess of specific applicable limitations. The strictest rule currently applicable to the Fund is 2.5% of the first $30,000,000 of net assets, 2.0% of the next $70,000,000 of net assets and 1.5% of the remainder. Templeton Investment Management (Hong Kong) Limited. The Investment Manager is an indirect wholly owned subsidiary of Franklin Resources, Inc. ("Franklin"), a publicly traded company whose shares are listed on the New York Stock Exchange. Charles B. Johnson (an officer of the Fund), Rupert H. Johnson, Jr., and R. Martin Wiskemann are principal shareholders of Franklin and own, respectively, approximately 20%, 16% and 9.2% of its outstanding shares. Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Business Manager. Templeton Global Investors, Inc. performs certain administrative functions as Business Manager for the Fund, including: - providing office space, telephone, office equipment and supplies for the Fund; - paying compensation of the Fund's officers for services rendered as such; - authorizing expenditures and approving bills for payment on behalf of the Fund; - supervising preparation of annual and semi-annual reports to Shareholders, notices of dividends, capital gains distributions and tax credits, and attending to correspondence and other special communications with individual Shareholders; - daily pricing of the Fund's investment portfolio and supervising publication of daily quotations of the bid and asked prices of the Fund's Shares, earnings reports and other financial data; - providing trading desk facilities for the Fund; - monitoring relationships with organizations serving the Fund, including custodians, transfer agents and printers; - supervising compliance by the Fund with recordkeeping requirements under the 1940 Act and regulations thereunder and with state regulatory requirements, maintaining books and records for the Fund (other than those maintained by the Custodian and Transfer Agent), and preparing and filing tax reports other than the Fund's income tax returns; - monitoring the qualifications of tax deferred retirement plans providing for investment in Shares of the Fund; and - providing executive, clerical and secretarial help needed to carry out these responsibilities. For its services, the Business Manager receives a monthly fee equal on an annual basis to 0.15% of the first $200,000,000 of the Fund's average daily net assets, reduced to 0.135% annually of the Fund's net assets in excess of $200,000,000, further reduced to 0.1% annually of such net assets in excess of $700,000,000, and further reduced to 0.075% annually of such net assets in excess of $1,200,000,000. Each class of Shares pays a portion of the fee, determined by the proportion of the Fund that it represents. During the fiscal years ended December 31, 1994, 1993 and 1992, the Business Manager (and, prior to April 1, 1993, Templeton Funds Management, Inc., the previous business manager) received business management fees of ____________, $760,331, and $193,944, respectively. The Business Manager is relieved of liability to the Fund for any act or omission in the course of its performance under the Business Management Agreement, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations under the Agreement. The Agreement may be terminated by the Fund at any time on 60 days' written notice without payment of penalty, provided that such termination by the Fund shall be directed or approved by vote of a majority of the Trustees of the Fund in office at the time or by vote of a majority of the outstanding voting securities of the Fund, and shall terminate automatically and immediately in the event of its assignment. Templeton Global Investors, Inc. is a wholly owned subsidiary of Franklin. Custodian and Transfer Agent. The Chase Manhattan Bank, N.A., serves as Custodian of the Fund's assets, which are maintained at the Custodian's principal office, MetroTech Center, Brooklyn, New York 11245, and at the offices of its branches and agencies throughout the world. The Custodian has entered into agreements with foreign sub-custodians approved by the Trustees pursuant to Rule 17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians generally domestically, and frequently abroad, do not actually hold certificates for the securities in their custody, but instead have book records with domestic and foreign securities depositories, which in turn have book records with the transfer agents of the issuers of the securities. Compensation for the services of the Custodian is based on a schedule of charges agreed on from time to time. Franklin Templeton Investor Services, Inc. serves as the Fund's Transfer Agent. Services performed by the Transfer Agent include processing purchase and redemption orders; making dividend payments, capital gain distributions and reinvestments; and handling routine communications with Shareholders. The Transfer Agent receives from the Fund an annual fee of $13.74 per Shareholder account plus out-of-pocket expenses. These fees are adjusted each year to reflect changes in the Department of Labor Consumer Price Index. Legal Counsel. Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, is legal counsel for the Fund. Independent Accountants. McGladrey & Pullen, 555 Fifth Avenue, New York, New York 10017, serve as independent accountants for the Fund. Their audit services comprise examination of the Fund's financial statements and review of the Fund's filings with the Securities and Exchange Commission and the Internal Revenue Service. Reports to Shareholders. The Fund's fiscal year ends on December 31. Shareholders are provided at least semi-annually with reports showing the Fund's portfolio and other information, including an annual report with financial statements audited by independent accountants. BROKERAGE ALLOCATION The Investment Management Agreement provides that the Investment Manager is responsible for selecting members of securities exchanges, brokers and dealers (such members, brokers and dealers being hereinafter referred to as "brokers") for the execution of the Fund's portfolio transactions and, when applicable, the negotiation of commissions in connection therewith. All decisions and placements are made in accordance with the following principles: 1. Purchase and sale orders are usually placed with brokers who are selected by the Investment Manager as able to achieve "best execution" of such orders. "Best execution" means prompt and reliable execution at the most favorable securities price, taking into account the other provisions hereinafter set forth. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net economic result to the Fund (involving both price paid or received and any commissions and other costs paid), the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, availability of the broker to stand ready to execute possibly difficult transactions in the future, and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by the Investment Manager in determining the overall reasonableness of brokerage commissions. 2. In selecting brokers for portfolio transactions, the Investment Manager takes into account its past experience as to brokers qualified to achieve "best execution," including brokers who specialize in any foreign securities held by the Fund. 3. The Investment Manager is authorized to allocate brokerage business to brokers who have provided brokerage and research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"), for the Fund and/or other accounts, if any, for which the Investment Manager exercises investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and, as to transactions as to which fixed minimum commission rates are not applicable, to cause the Fund to pay a commission for effecting a securities transaction in excess of the amount another broker would have charged for effecting that transaction, if the Investment Manager in making the selection in question determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker, viewed in terms of either that particular transaction or the Investment Manager's overall responsibilities with respect to the Fund and the other accounts, if any, as to which it exercises investment discretion. In reaching such determination, the Investment Manager is not required to place or attempt to place a specific dollar value on the research or execution services of a broker or on the portion of any commission reflecting either of said services. In demonstrating that such determinations were made in good faith, the Investment Manager shall be prepared to show that all commissions were allocated and paid for purposes contemplated by the Fund's brokerage policy; that the research services provide lawful and appropriate assistance to the Investment Manager in the performance of its investment decision- making responsibilities; and that the commissions paid were within a reasonable range. The determination that commissions were within a reasonable range shall be based on any available information as to the level of commissions known to be charged by other brokers on comparable transactions, but there shall be taken into account the Fund's policies that (i) obtaining a low commission is deemed secondary to obtaining a favorable securities price, since it is recognized that usually it is more beneficial to the Fund to obtain a favorable price than to pay the lowest commission; and (ii) the quality, comprehensiveness and frequency of research studies which are provided for the Investment Manager are useful to the Investment Manager in performing its advisory services under its Agreement with the Fund. Research services provided by brokers to the Investment Manager are considered to be in addition to, and not in lieu of, services required to be performed by the Investment Manager under its Agreement with the Fund. Research furnished by brokers through whom the Fund effects securities transactions may be used by the Investment Manager for any of its accounts, and not all such research may be used by the Investment Manager for the Fund. When execution of portfolio transactions is allocated to brokers trading on exchanges with fixed brokerage commission rates, account may be taken of various services provided by the broker, including quotations outside the United States for daily pricing of foreign securities held in the Fund's portfolio. 4. Purchases and sales of portfolio securities within the United States other than on a securities exchange are executed with primary market makers acting as principal, except where, in the judgment of the Investment Manager, better prices and execution may be obtained on a commission basis or from other sources. 5. Sales of the Fund's Shares (which shall be deemed to include also shares of other companies registered under the 1940 Act which have either the same investment manager or an investment manager affiliated with the Investment Manager) made by a broker are one factor, among others, to be taken into account in deciding to allocate portfolio transactions (including agency transactions, principal transactions, purchases in underwritings or tenders in response to tender offers) for the account of the Fund to that broker; provided that the broker shall furnish "best execution," as defined in paragraph 1 above, and that such allocation shall be within the scope of the Fund's other policies as stated above; and provided further, that in every allocation made to a broker in which the sale of Shares is taken into account there shall be no increase in the amount of the commissions or other compensation paid to such broker beyond a reasonable commission or other compensation determined, as set forth in paragraph 3 above, on the basis of best execution alone or best execution plus research services, without taking account of or placing any value upon such sale of Shares. Insofar as known to management, no Trustee or officer of the Fund has any material direct or indirect interest in any broker employed by or on behalf of the Fund. Franklin Templeton Distributors, Inc., the Fund's Principal Underwriter, is a registered broker-dealer, but has never executed any purchase or sale transactions for the Fund's portfolio or participated in any commissions on any such transactions, and has no intention of doing so in the future. The total brokerage commissions on the portfolio transactions for the Fund during the fiscal years ended December 31, 1994, 1993 and 1992 amounted to ___________, $3,109,324, and $983,000, respectively. All portfolio transactions are allocated to broker-dealers only when their prices and execution, in the good faith judgment of the Investment Manager, are equal or superior to the best available within the scope of the Fund's policies. There is no fixed method used in determining which broker-dealers receive which order or how many orders. PURCHASE, REDEMPTION AND PRICING OF SHARES The Prospectus describes the manner in which the Fund's Shares may be purchased and redeemed. See "How to Buy Shares of the Fund" and "How to Sell Shares of the Fund." Net asset value per Share is determined as of the scheduled closing of the New York Stock Exchange (generally 4:00 p.m., New York time) every Monday through Friday (exclusive of national business holidays). The Fund's offices will be closed, and net asset value will not be calculated, on those days on which the New York Stock Exchange is closed, which currently are: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Trading in securities on European and Far Eastern exchanges and over-the-counter markets is normally completed well before the close of business in New York on each day on which the New York Stock Exchange is open. Trading of European or Far Eastern securities generally, or in a particular country or countries, may not take place on every New York business day. Furthermore, trading takes place in various foreign markets on days which are not business days in New York and on which the Fund's net asset value is not calculated. The Fund calculates net asset value per Share, and therefore effects sales, redemptions and repurchases of its Shares, as of the close of the New York Stock Exchange once on each day on which that Exchange is open. Such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and if events occur which materially affect the value of those foreign securities, they will be valued at fair market value as determined by the management and approved in good faith by the Board of Trustees. The Board of Trustees may establish procedures under which the Fund may suspend the determination of net asset value for the whole or any part of any period during which (1) the New York Stock Exchange is closed other than for customary weekend and holiday closings, (2) trading on the New York Stock Exchange is restricted, (3) an emergency exists as a result of which disposal of securities owned by the Fund is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or (4) for such other period as the Securities and Exchange Commission may by order permit for the protection of the holders of the Fund's Shares. The Fund will not effect redemptions of its Shares in assets other than cash, except in accordance with applicable provisions of the 1940 Act. Ownership and Authority Disputes. In the event of disputes involving multiple claims of ownership or authority to control a shareholder's account, the Fund has the right (but has no obligation) to: (a) freeze the account and require the written agreement of all persons deemed by the Fund to have a potential property interest in the account, prior to executing instructions regarding the account; or (b) interplead disputed funds or accounts with a court of competent jurisdiction. Moreover, the Fund may surrender ownership of all or a portion of an account to the Internal Revenue Service in response to a Notice of Levy. In addition to the special purchase plans described in the Prospectus, other special purchase plans also are available: Tax Deferred Retirement Plans. The Fund offers its Shareholders the opportunity to participate in the following types of retirement plans: - For individuals whether or not covered by other qualified plans; - For simplified employee pensions; - For employees of tax-exempt organizations; and - For corporations, self-employed individuals and partnerships. Capital gains and income received by the foregoing plans generally are exempt from taxation until distribution from the plans. Investors considering participation in any such plan should review specific tax laws relating thereto and should consult their attorneys or tax advisers with respect to the establishment and maintenance of any such plan. Additional information, including the fees and charges with respect to all of these plans, is available upon request to the Principal Underwriter. No distribution under a retirement plan will be made until Franklin Templeton Trust Company receives the participant's election on IRS Form W-4P (available on request from Franklin Templeton Trust Company) and such other documentation as it deems necessary as to whether or not U.S. income tax is to be withheld from such distribution. Individual Retirement Account (IRA). All U.S. individuals (whether or not covered by qualified private or governmental retirement plans) may purchase Shares of the Fund pursuant to an Individual Retirement Account. However, contributions to an IRA by an individual who is covered by a qualified private or governmental plan may not be tax-deductible depending on the individual's income. Custodial services for Individual Retirement Accounts are available through Franklin Templeton Trust Company. Disclosure statements summarizing certain aspects of Individual Retirement Accounts are furnished to all persons investing in such accounts, in accordance with Internal Revenue Service regulations. Simplified Employee Pensions (SEP-IRA). For employers who wish to establish a simplified form of employee retirement program investing in Shares of the Fund, there are available Simplified Employee Pensions invested in IRA Plans. Details and materials relating to these Plans will be furnished upon request to the Principal Underwriter. Retirement Plan for Employees of Tax-Exempt Organizations (403(b)). Employees of public school systems and certain types of charitable organizations may enter into a deferred compensation arrangement for the purchase of Shares of the Fund without being taxed currently on the investment. Contributions which are made by the employer through salary reduction are excludable from the gross income of the employee. Such deferred compensation plans, which are intended to qualify under Section 403(b) of the Internal Revenue Code, are available through the Principal Underwriter. Custodial services are provided by Franklin Templeton Trust Company. Qualified Plan for Corporations, Self-Employed Individuals and Partnerships. For employers who wish to purchase Shares of the Fund in conjunction with employee retirement plans, there is a prototype master plan which has been approved by the Internal Revenue Service. A "Section 401(k) plan" is also available. Franklin Templeton Trust Company furnishes custodial services for these Plans. For further details, including custodian fees and Plan administration services, see the master plan and related material which is available from the Principal Underwriter. Letter of Intent. Purchasers who intend to invest $50,000 or more in Class I Shares of the Fund or any other fund in the Franklin Templeton Group within 13 months (whether in one lump sum or in installments the first of which may not be less than 5% of the total intended amount and each subsequent installment not less than $25, including automatic investment and payroll deduction plans), and to beneficially hold the total amount of such Class I Shares fully paid for and outstanding simultaneously for at least one full business day before the expiration of that period, should execute a Letter of Intent ("LOI") on the form provided in the Prospectus or provided by the broker-dealer. Payment for not less than 5% of the total intended amount must accompany the executed LOI. Those Class I Shares purchased with the first 5% of the intended amount stated in the LOI will be held as "Escrowed Shares" for as long as the LOI remains unfulfilled. Although the Escrowed Shares are registered in the investor's name, his full ownership of them is conditional upon fulfillment of the LOI. No Escrowed Shares can be redeemed by the investor for any purpose until the LOI is fulfilled or terminated. If the LOI is terminated for any reason other than fulfillment, the Transfer Agent will redeem that portion of the Escrowed Shares required and apply the proceeds to pay any adjustment that may be appropriate to the sales commission on all Class I Shares (including the Escrowed Shares) already purchased under the LOI and apply any unused balance to the investor's account. The LOI is not a binding obligation to purchase any amount of Shares, but its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A purchase not originally made pursuant to an LOI may be included under a subsequent LOI executed within 90 days of such purchase. In this case, an adjustment will be made at the end of 13 months from the effective date of the LOI at the net asset value per share then in effect, unless the investor makes an earlier written request to the Principal Underwriter upon fulfilling the purchase of Shares under the LOI. In addition, the aggregate value of any Shares, including Class II Shares, purchased prior to the 90-day period referred to above may be applied to purchases under a current LOI in fulfilling the total intended purchases under the LOI. However, no adjustment of sales charges previously paid on purchases prior to the 90-day period will be made. If an LOI is executed on behalf of a benefit plan (such plans are described under "How to Buy Shares of the Fund - Net Asset Value Purchases" in the Prospectus), the level and any reduction in sales charge for these employee benefit plans will be based on actual plan participation and the projected investments in the Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and Franklin Government Securities Trust) under the LOI. Benefit Plans are not subject to the requirement to reserve 5% of the total intended purchase, or to any penalty as a result of the early termination of a plan, nor are Benefit Plans entitled to receive retroactive adjustments in price for investments made before executing LOIs. Special Net Asset Value Purchases. As discussed in the Prospectus under "How to Buy Shares of the Fund - Description of Special Net Asset Value Purchases," certain categories of investors may purchase Class I Shares of a Fund net asset value (without a front-end or contingent deferred sales charge). FTD or one of its affiliates may make payments, out of its own resources, to securities dealers who initiate and are responsible for such purchases, as indicated below. FTD may make these payments in the form of contingent advance payments, which may require reimbursement from the securities dealers with respect to certain redemptions made within 12 months of the calendar month following purchase, as well as other conditions, all of which may be imposed by an agreement between FTD, or its affiliates, and the securities dealer. The following amounts will be paid by FTD or one of its affiliates, out of its own resources, to securities dealers who initiate and are responsible for (i) purchases of most equity and fixed-income Franklin Templeton Funds made at net asset value by certain designated retirement plans (excluding IRA and IRA rollovers): 1.00% on sales of $1 million but less than $2 millon, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales of $100 million or more; and (ii) purchases of most fixed-income Franklin Templeton Funds made at net asset value by non-designated retirement plans: 0.75% on sales of $1 million but less than $2 million, plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales of $100 million or more. These payment breakpoints are reset every 12 months for purposes of additional purchases. With respect to purchases made at net asset value by certain trust companies and trust departments of banks and certain retirement plans of organizations with collective retirement plan assets of $10 million or more, FTD, or one of its affiliates, out of its own resources, may pay up to 1% of the amount invested. TAX STATUS The Fund intends to qualify annually and to elect to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a regulated investment company, the Fund generally must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including gains from options, futures contracts and forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of certain assets (namely, (i) stock or securities, (ii) options, futures, and forward contracts (other than those on foreign currencies), and (iii) foreign currencies (including options, futures, and forward contracts on such currencies) not directly related to the Fund's principal business of investing in stocks or securities (or options and futures with respect to stocks and securities)) held less than three months (the "30% Limitation"); (c) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund's total assets and not greater than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies) or of any two or more issuers that the Fund controls and that are determined to be engaged in the same business or some similar or related business; and (d) distribute at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses, but does not include net long-term capital gains in excess of net short-term capital losses) each taxable year. As a regulated investment company, the Fund generally will not be subject to U.S. Federal income tax on its investment company taxable income and net capital gains (net long-term capital gains in excess of net short-term capital losses), if any, that it distributes to Shareholders. The Fund intends to distribute to its Shareholders, at least annually, substantially all of its investment company taxable income and net capital gains. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To prevent imposition of the tax, the Fund must distribute during each calendar year an amount equal to the sum of (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the twelve-month period ending on October 31 of the calendar year, and (3) any ordinary income and capital gains for previous years that was not distributed during those years. A distribution will be treated as having been received on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be taxable to Shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. To prevent application of the excise tax, the Fund intends to make its distributions in accordance with the calendar year distribution requirement. The Fund may recognize income currently for Federal income tax purposes in the amount of the unpaid, accrued interest with respect to bonds structured as zero coupon bonds or pay-in-kind securities, even though it receives no cash interest until the security's maturity or payment date. As discussed above, in order to qualify for beneficial tax treatment, the Fund must distribute substantially all of its income to Shareholders. Thus, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash or leverage itself by borrowing cash, so that it may satisfy the distribution requirement. Some of the debt securities that may be acquired by a Fund may be treated as debt securities that are originally issued at a discount. Original issue discount can generally be defined as the difference between the price at which a security was issued and its stated redemption price at maturity. Although no cash income is actually received by the Fund in a given year, original issue discount on a taxable debt security earned in that given year generally is treated for Federal income tax purposes as interest and, therefore, such income would be subject to the distribution requirements of the Code. Some of the debt securities may be purchased by the Fund at a discount which exceeds the original issue discount on such debt securities, if any. This additional discount represents market discount for Federal income tax purposes. The gain realized on the disposition of any taxable debt security having market discount will be treated as ordinary income to the extent it does not exceed the accrued market discount on such debt security. Generally, market discount accrues on a daily basis for each day the debt security is held by the Fund at a constant rate over the time remaining to the debt security's maturity or, at the election of the Fund, at a constant yield to maturity which takes into account the semi-annual compounding of interest. Exchange control regulations that may restrict repatriation of investment income, capital, or the proceeds of securities sales by foreign investors may limit the Fund's ability to make sufficient distributions to satisfy the 90% and calendar year distribution requirements. See "Risk Factors" section of the SAI. The Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income. If the Fund receives a so- called "excess distribution" with respect to PFIC stock, the Fund itself may be subject to tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to Shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which the Fund held the PFIC shares. The Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. The Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Under an election that currently is available in some circumstances, the Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. If this election were made, the special rules, discussed above, relating to the taxation of excess distributions, would not apply. In addition, another election may be available that would involve marking to market the Fund's PFIC shares at the end of each taxable year (and on certain other dates prescribed in the Code), with the result that unrealized gains are treated as though they were realized. If this election were made, tax at the Fund level under the PFIC rules would generally be eliminated, but the Fund could, in limited circumstances, incur nondeductible interest charges. The Fund's intention to qualify annually as a regulated investment company may limit its elections with respect to PFIC shares. Because the application of the PFIC rules may affect, among other things, the character of gains, the amount of gain or loss and the timing of the recognition of income with respect to PFIC shares, as well as subject the Fund itself to tax on certain income from PFIC shares, the amount that must be distributed to Shareholders, and which will be taxed to Shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC shares. Distributions. Dividends paid out of the Fund's investment company taxable income will be taxable to a Shareholder as ordinary income. Because a portion of the Fund's income may consist of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. However, the alternative minimum tax applicable to corporations may reduce the benefit of the dividends received deduction. Distributions of net capital gains, if any, designated by the Fund as capital gain dividends, are taxable as long-term capital gains, regardless of how long the Shareholder has held the Fund's Shares, and are not eligible for the dividends-received deduction. All dividends and distributions are taxable to Shareholders, whether or not reinvested in Shares of the Fund. Shareholders receiving distributions in the form of newly-issued Shares generally will have a cost basis in each Share received equal to the net asset value of a Share of the Fund on the distribution date. Shareholders will be notified annually as to the U.S. Federal tax status of distributions, and Shareholders receiving distributions in the form of newly-issued Shares will receive a report as to the net asset value of the Shares received. Distributions by the Fund reduce the net asset value of the Fund Shares. Should a distribution reduce the net asset value below a Shareholder's cost basis, the distribution nevertheless would be taxable to the Shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of capital. In particular, investors should be careful to consider the tax implication of buying Shares just prior to a distribution by the Fund. The price of Shares purchased at that time includes the amount of the forthcoming distribution, but the distribution will generally be taxable to them. If the Fund retains net capital gains for reinvestment, the Fund may elect to treat such amounts as having been distributed to Shareholders. As a result, the Shareholders would be subject to tax on undistributed net capital gains, would be able to claim their proportionate share of the Federal income taxes paid by the Fund on such gains as a credit against their own Federal income tax liabilities, and would be entitled to an increase in their basis in their Fund Shares. Options and Hedging Transactions. Certain options, futures contracts and forward contracts in which the Fund may invest are "section 1256 contracts." Gains or losses on section 1256 contracts generally are considered 60% long-term and 40% short- term capital gains or losses ("60/40"); however, foreign currency gains or losses (as discussed below) arising from certain section 1256 contracts may be treated as ordinary income or loss. Also, section 1256 contracts held by the Fund at the end of each taxable year (and, in some cases, for purposes of the 4% excise tax, on October 31 of each year) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. Generally, the hedging transactions undertaken by the Fund may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences to the Fund of hedging transactions are not entirely clear. The hedging transactions may increase the amount of short-term capital gain realized by the Fund which is taxed as ordinary income when distributed to Shareholders. The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to Shareholders and which will be taxed to Shareholders as ordinary income or long-term capital gain may be increased or decreased as compared to a fund that did not engage in such hedging transactions. Requirements relating to the Fund's tax status as a regulated investment company may limit the extent to which the Fund will be able to engage in transactions in options, futures contracts and forward contracts. Currency Fluctuations -- "Section 988" Gains or Losses. Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains or losses, referred to under the Code as "section 988" gains or loses, may increase, decrease or eliminate the amount of the Fund's investment company taxable income to be distributed to its Shareholders as ordinary income. Sale of Shares. Upon the sale, exchange or other taxable disposition of Shares of the Fund, a Shareholder may realize a capital gain or loss which will be long-term or short-term, generally depending upon the Shareholder's holding period for the Shares. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced (including replacement through the reinvestment of dividends and capital gain distributions in the Fund) within a period of 61 days beginning 30 days before and ending 30 days after disposition of the Shares. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a Shareholder on a disposition of Fund Shares held by the Shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of capital gain dividends received by the Shareholder with respect to such Shares. Under certain circumstances, the sales charge incurred in acquiring Shares of the Fund may not be taken into account in determining the gain or loss on the disposition of those Shares. For example, this rule applies if (1) the Shareholder incurs a sales charge in acquiring stock of a regulated investment company, (2) Shares of the Fund are exchanged for Shares of another Templeton or Franklin Fund within 90 days after the date they were purchased, and (3) the new Shares are acquired without a sales charge or at a reduced sales charge under a "reinvestment right" received upon the initial purchase of Shares of stock. In that case, the gain or loss recognized on the exchange will be determined by excluding from the tax basis of the sales charge incurred in acquiring such Shares exchanged all or a portion of the amount of sales charge incurred in acquiring the Shares. This exclusion applies to the extent that the otherwise applicable sales charge with respect to the newly acquired Shares is reduced as a result of having incurred the sales charge initially. Instead, the portion of the sales charge affected by this rule will be treated as an amount paid for the new Shares. Foreign Taxes. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. If more than 50% of the value of the Fund's total assets at the close of its taxable year consists of securities of foreign corporations, the Fund will be eligible and intends to elect to "pass-through" to the Fund's Shareholders the amount of foreign taxes paid by the Fund. Pursuant to this election, a Shareholder will be required to include in gross income (in addition to taxable dividends actually received) his pro rata share of the foreign taxes paid by the Fund, and will be entitled either to deduct (as an itemized deduction) his pro rata share of foreign taxes in computing his taxable income or to use it as a foreign tax credit against his U.S. Federal income tax liability, subject to limitations. No deduction for foreign taxes may be claimed by a Shareholder who does not itemize deductions, but such a Shareholder may be eligible to claim the foreign tax credit (see below). Each Shareholder will be notified within 60 days after the close of the Fund's taxable year whether the foreign taxes paid by the Fund will "pass-through" for that year. Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the Shareholder's U.S. tax attributable to his or her foreign source taxable income. For this purpose, if the pass-through election is made, the source of the Fund's income flows through to its Shareholders. With respect to the Fund, gains from the sale of securities will be treated as derived from U.S. sources and certain currency fluctuation gains, including fluctuation gains from foreign currency denominated debt securities, receivables and payables, will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income (as defined for purposes of the foreign tax credit), including the foreign source passive income passed through by the Fund. Because of changes made by the Tax Reform Act of 1986, Shareholders may be unable to claim a credit for the full amount of their proportionate share of the foreign taxes paid by the Fund. Foreign taxes may not be deducted in computing alternative minimum taxable income and the foreign tax credit can be used to offset only 90% of the alternative minimum tax (as computed under the Code for purposes of this limitation) imposed on corporations and individuals. If the Fund is not eligible to make the election to "pass through" to its Shareholders its foreign taxes, the foreign taxes it pays will reduce investment company taxable income and the distributions by the Fund will be treated as United States source income. Backup Withholding. The Fund may be required to withhold U.S. Federal income tax at the rate of 31% ("backup withholding") of all taxable distributions and gross redemption proceeds payable to Shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, where the Fund or Shareholder has been notified by the Internal Revenue Service that they are subject to backup withholding. Corporate Shareholders and certain other Shareholders specified in the Code generally are exempt from such backup withholding, or when required to do so, the Shareholder fails to certify that he is not subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the Shareholder's U.S. Federal income tax liability. Foreign Shareholders. The tax consequences to a foreign Shareholder of an investment in the Fund may differ from those described herein. Foreign Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. Other Taxation. The foregoing discussion relates only to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). Distributions by the Fund also may be subject to state, local and foreign taxes, and their treatment under state and local income tax laws may differ from U.S. Federal income tax treatment. Shareholders should consult their tax advisers with respect to particular questions of U.S. Federal, state and local taxation. Shareholders who are not U.S. persons should consult their tax advisers regarding U.S. and foreign tax consequences of ownership of Shares of the Fund, including the likelihood that distributions to them would be subject to withholding of U.S. Federal income tax at a rate of 30% (or at a lower rate under a tax treaty). PRINCIPAL UNDERWRITER Franklin Templeton Distributors, Inc. ("FTD" or the "Principal Underwriter"), P.O. Box 33030, St. Petersburg, Florida 33733-8030, toll free telephone (800) 237-0738, is the Principal Underwriter of the Fund's Shares. FTD is a wholly owned subsidiary of Franklin. The Fund pursuant to Rule 12b-1 under the 1940 Act has adopted a Distribution Plan with respect to each class of shares (the "Plans"). Under the Plan adopted with respect to Class I Shares, the Fund may reimburse FTD or others quarterly (subject to a limit of 0.35% per annum of the Fund's average daily net assets attributable to Class I Shares) for costs and expenses incurred by FTD or others in connection with any activity which is primarily intended to result in the sale of Fund Shares. Under the Plans adopted with respect to Class II Shares, the Fund may reimburse FTD or others quarterly (subject to a limit of 1.00% per annum of the Fund's average daily assets attributable to Class II Shares of which up to 0.25% of such net assets may be paid to dealers for personal service and/or maintenance of Shareholder accounts) for costs and expenses incurred by FTD or others in connection with any activity which is primarily intended to result in the sale of the Fund's Shares. The Plans are reimbursement type plans which do not provide for the payment of interest or carrying charges as distribution expenses. Payments to FTD or others could be for various types of activities, including (1) payments to broker-dealers who provide certain services of value to the Fund's Shareholders (sometimes referred to as a "trail fee"); (2) expenses relating to selling and servicing efforts; (3) expenses of organizing and conducting sales seminars; (4) payments to employees or agents of FTD who engage in or support distribution of Shares; (5) the costs of preparing, printing and distributing prospectuses and reports to prospective investors; (6) printing and advertising expenses; (7) dealer commissions and wholesaler compensation in connection with sales of Fund Shares exceeding $1 million; and (8) such other similar services as the Fund's Board of Trustees determines to be reasonably calculated to result in the sale of Shares. Under the Plans, the costs and expenses not reimbursed in any one given quarter (including costs and expenses not reimbursed because they exceeded the percentage limit applicable to either class of Shares) may be reimbursed in subsequent quarters or years. During the fiscal year ended December 31, 1994, FTD incurred costs and expenses of $____________ in connection with distribution of the Fund's Shares. During the same period, the Fund made reimbursements pursuant to the Plan in the amount of $___________. As indicated above, unreimbursed expenses, which amounted to $__________ as of December 31, 1994, may be reimbursed by the Fund during the fiscal year ending December 31, 1995 or in subsequent years. In the event that the Plan is terminated, the Fund will not be liable to the Principal Underwriter for any unreimbursed expenses that had been carried forward from previous months or years. During the fiscal year ended December 31, 1994, FTD spent, pursuant to the Plan, the following amounts on: compensation to dealers, $___________; sales promotion, $_________; printing, $____________; advertising, $__________; and wholesaler costs and expenses, $_____________. The Distribution Agreement provides that the Principal Underwriter will use its best efforts to maintain a broad and continuous distribution of the Fund's Shares among bona fide investors and may sign selling agreements with responsible dealers, as well as sell to individual investors. The Shares are sold only at the Offering Price in effect at the time of sale, and the Fund receives not less than the full net asset value of the Shares sold. The discount between the Offering Price and the net asset value may be retained by the Principal Underwriter or it may reallow all or any part of such discount to dealers. During the fiscal years ended December 31, 1994, 1993 and 1992 FTD (and, prior to June 1, 1993, Templeton Funds Distributor, Inc.) retained of such discount _______________ $414,599, and $1,300,220 or approximately ____, 15%, and 20.0%, respectively, of the gross sales commissions. The Principal Underwriter in all cases buys Shares from the Fund acting as principal for its own account. Dealers generally act as principal for their own account in buying Shares from the Principal Underwriter. No agency relationship exists between any dealer and the Fund or the Principal Underwriter. The Distribution Agreement provides that the Fund shall pay the costs and expenses incident to registering and qualifying its Shares for sale under the Securities Act of 1933 and under the applicable blue sky laws of the jurisdictions in which the Principal Underwriter desires to distribute such Shares, and for preparing, printing and distributing prospectuses and reports to Shareholders. The Principal Underwriter pays the cost of printing additional copies of prospectuses and reports to Shareholders used for selling purposes, although the Principal Underwriter may recoup these costs from payments it receives under the Distribution Plan. (The Fund pays costs of preparation, set-up and initial supply of its prospectus for existing Shareholders.) The Distribution Agreement is subject to renewal from year to year in accordance with the provisions of the 1940 Act and terminates automatically in the event of its assignment. The Agreement may be terminated without penalty by either party upon 60 days' written notice to the other, provided termination by the Fund shall be approved by the Board of Trustees or a majority (as defined in the 1940 Act) of the Shareholders. The Principal Underwriter is relieved of liability for any act or omission in the course of its performance of the Agreement, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations. FTD is the principal underwriter for the other Templeton Funds. DESCRIPTION OF SHARES The Shares have non-cumulative voting rights, so that the holders of a plurality of the Shares voting for the election of Trustees at a meeting at which 50% of the outstanding Shares are present can elect all the Trustees and, in such event, the holders of the remaining shares voting for the election of Trustees will not be able to elect any person or persons to the Board of Trustees. The Declaration of Trust provides that the holders of not less than two-thirds of the outstanding Shares of the Fund may remove a person serving as Trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding Shares of the Fund. In addition, the Fund is required to assist Shareholder communication in connection with the calling of Shareholder meetings to consider removal of a Trustee. Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Declaration of Trust disclaims liability of the Shareholders, Trustees or officers of the Fund for acts or obligations of the Fund, which are binding only on the assets and property of the Fund. The Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any Shareholder held personally liable for the obligations of the Fund. The risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations and, thus, should be considered remote. PERFORMANCE INFORMATION The Fund may, from time to time, include its total return in advertisements or reports to Shareholders or prospective investors. Quotations of average annual total return for the Fund will be expressed in terms of the average annual compounded rate of return for periods in excess of one year or total return for periods of less than one year of a hypothetical investment in the Fund over a period of one year (or, if less, up to the life of the Fund, calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return for periods of one year or more or the total return for periods of less than one year, n = the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period). All total return figures reflect the deduction of a proportional share of Fund expenses on an annual basis, and assume that all dividends and distributions are reinvested when paid. The Fund's average annualized total return for the one-year period ended December 31, 1994 and for the period from October 16, 1991 (commencement of operations) to December 31, 1994 were _______% and ________%, respectively. Performance information for the Fund may be compared, in reports and promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, or other unmanaged indices so that investors may compare the Fund's results with those of a group of unmanaged securities widely regarded by investors as representative of the securities market in general; (ii) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely used independent research firm which ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications, or persons who rank mutual funds on overall performance or other criteria; and (iii) the Consumer Price Index (measure of 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 deduction for administrative and management costs and expenses. Performance information for the Fund reflects only the performance of a hypothetical investment in the Fund during the particular time period on which the calculations are based. Performance information should be considered in light of the Fund's investment objective and policies, characteristics and quality of the portfolio and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. From time to time, the Fund and the Investment Manager may also refer to the following information: (1) The Investment Manager's and its affiliates' market share of international equities managed in mutual funds prepared or published by Strategic Insight or a similar statistical organization. (2) The performance of U.S. equity and debt markets relative to foreign markets prepared or published by Morgan Stanley Capital International or a similar financial organization. (3) The capitalization of U.S. and foreign stock markets as prepared or published by the International Finance Corp., Morgan Stanley Capital International or a similar financial organization. (4) The geographic distribution of the Fund's portfolio. (5) The gross national product and populations, including age characteristics, of various countries as published by various statistical organizations. (6) To assist investors in understanding the different returns and risk characteristics of various investments, the Fund may show historical returns of various investments and published indices (e.g., Ibbotson Associates, Inc. Charts and Morgan Stanley EAFE - Index). (7) The major industries located in various jurisdictions as published by the Morgan Stanley Index. (8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder services. (9) Allegorical stories illustrating the importance of persistent long-term investing. (10) The Fund's portfolio turnover rate and its ranking relative to industry standards as published by Lipper Analytical Services, Inc. or Morningstar, Inc. (11) A description of the Templeton organization's investment management philosophy and approach, including its worldwide search for undervalued or "bargain" securities and its diversification by industry, nation and type of stocks or other securities. (12) Quotations from the Templeton organization's founder, Sir John Templeton,* advocating the virtues of diversification and long-term investing, including the following: _______________ * Sir John Templeton is not involved in investment decisions, which are made by the Fund's Investment Manager. - "Never follow the crowd. Superior performance is possible only if you invest differently from the crowd." - "Diversify by company, by industry and by country." - "Always maintain a long-term perspective." - "Invest for maximum total real return." - "Invest - don't trade or speculate." - "Remain flexible and open-minded about types of investment." - "Buy low." - "When buying stocks, search for bargains among quality stocks." - "Buy value, not market trends or the economic outlook." - "Diversify. In stocks and bonds, as in much else, there is safety in numbers." - "Do your homework or hire wise experts to help you." - "Aggressively monitor your investments." - "Don't panic." - "Learn from your mistakes." - "Outperforming the market is a difficult task." - "An investor who has all the answers doesn't even understand all the questions." - "There's no free lunch." - "And now the last principle: Do not be fearful or negative too often." In addition, the Fund and the Investment Manager may also refer to the number of Shareholders in the Fund or the aggregate number of shareholders in the Franklin Templeton Group or the dollar amount of fund and private account assets under management in advertising materials. FINANCIAL STATEMENTS The financial statements contained in the Fund's December 31, 1993 Annual Report to Shareholders are incorporated herein by reference. PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements: Incorporated by reference from Registrant's 1994 Annual Report: Independent Auditor's Report Investment Portfolio as of December 31, 1994 Statement of Assets and Liabilities as of December 31, 1994 Statement of Operations for the year ended December 31, 1994 Statement of Changes in Net Assets for the years ended December 31, 1994 and 1993 (b) Exhibits (1) (a) Declaration of Trust1 (b) Amended and Restated Declaration of Trust2 (c) Establishment and Designation of Classes of Shares of Beneficial Interest (2) By-Laws1 (3) Not Applicable (4) Specimen Security3 (5) Amended and Restated Investment Management Agreement (6) Distribution Agreement2 (7) Not Applicable (8) Custody Agreement3 (9) (a) Transfer Agent Agreement4 (b) Business Management Agreement2 (c) Shareholder Sub-Accounting Services Agreement4 (d) Sub-Transfer Agent Services Agreement4 (10) Opinion and consent of Counsel filed with Rule 24f-2 Notice) (11) Consent of independent public accountants (12) Not Applicable (13) (A) Letter concerning initial capital5 (13)(B) Investment Letter (14) Not Applicable (15) (a) Distribution Plan -- Class I Shares (b) Distribution Plan -- Class II Shares (16) Schedule showing computation of performance quotations provided in response to Item 22 (unaudited) (18) Form of Multiclass Plan (27) Financial Data Schedule Item 25. Persons Controlled by or Under Common Control with Registrant Not applicable. _______________ 1 Previously filed with Registration Statement No. 33-42163 on August 9, 1991. 2 Previous filed with Post-Effective Amendment No. 3 to the Registration Statement on March 2, 1994. 3 Previously filed with Pre-Effective Amendment No. 1 to the Registration Statement on September 19, 1991. 4 Previously filed with Post-Effective Amendment No. 2 to the Registration Statement on March 2, 1993. 5 Previously filed with Pre-Effective Amendment No. 2 to the Registration Statement on October 16, 1991. Item 26. Number of Record Holders Shares of Beneficial Interest, par value $0.01 per share: 193,520 Shareholders as of January 31, 1995. Item 27. Indemnification. Reference is made to Article IV of the Registrant's Declaration of Trust, which is filed herewith. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by trustees, officers or controlling persons of the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such trustees, officers or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. Item 28. Business and Other Connections of Investment Adviser and its Officers and Directors The business and other connections of Registrant's Investment Managers are described in Part B of this Registration Statement. For information relating to the directors and officers of the Investment Manager, reference is made to the Form ADV filed with the Commission under the Investment Advisers Act of 1940 by Templeton Investment Management (Hong Kong) Limited, which is incorporated herein by reference. Item 29. Principal Underwriters (a) Franklin Templeton Distributors, Inc. also acts as principal underwriter of shares of Templeton Growth Fund, Inc., Templeton Funds, Inc., Templeton Smaller Companies Growth Fund, Inc., Templeton Income Trust, Templeton Real Estate Securities Fund, Templeton Capital Accumulator Fund, Inc., Templeton American Trust, Inc., Templeton Institutional Funds, Inc., Templeton Global Opportunities Trust, Templeton Variable Products Series Fund, Templeton Global Investment Trust, Templeton Variable Annuity Fund, AGE High Income Fund, Inc., Franklin Balance Sheet Investment Fund, Franklin California Tax Free Income Fund, Inc., Franklin California Tax Free Trust, Franklin Custodian Funds, Inc., Franklin Equity Fund, Franklin Federal Money Fund, Franklin Federal Tax-Free Income Fund, Franklin Gold Fund, Franklin International Trust, Franklin Investors Securities Trust, Franklin Managed Trust, Franklin Money Fund, Franklin Municipal Securities Trust, Franklin New York Tax-Free Income Fund, Franklin New York Tax-Free Trust, Franklin Premier Return Fund, Franklin Real Estate Securities Fund, Franklin Strategic Series, Franklin Tax-Advantaged High Yield Securities Fund, Franklin Tax- Advantaged International Bond Fund, Franklin Tax- Advantaged U.S. Government Securities Fund, Franklin Tax Exempt Money Fund, Franklin Tax-Free Trust, Franklin Templeton Japan Fund, and Institutional Fiduciary Trust. (b) The directors and officers of FTD, located at 700 Central Avenue, P.O. Box 33030, St. Petersburg, Florida 33733, are as follows: Position with Position with Name Underwriter the Registrant Charles B. Johnson Chairman of the Vice President Board and Director Gregory E. Johnson President None Rupert H. Johnson, Jr. Executive Vice None President and Director Harmon E. Burns Executive Vice None President and Director Edward V. McVey Senior Vice None President Kenneth V. Domingues Senior Vice None President Martin L. Flanagan Senior Vice Vice President President and Treasurer William J. Lippman Senior Vice None President Richard C. Stoker Senior Vice None President Charles E. Johnson Senior Vice Trustee President Deborah R. Gatzek Senior Vice None President and Assistant Secretary Peter Black Vice President None James K. Blinn Vice President None Bernie Buckley Vice President None Joel Burns Vice President None Debra Carter Vice President None Richard O. Conboy Vice President None Joe Cronin Vice President None James F. Duryea Vice President None James A. Escobedo Vice President None Loretta Fry Vice President None Robert N. Geppner Vice President None Sheppard G. Griswold Vice President None Mike Hackett Vice President None Brad N. Hanson Vice President None Carolyn L. Hennion Vice President None Andrew Jennings Vice President None Peter Jones Vice President None Philip J. Kearns Vice President None John Leach Vice President None Ken Leder Vice President None Jack Lemein Vice President None John R. McGee Vice President None Thomas M. Mistele Vice President Secretary Harry G. Mumford Vice President None Mike Nardone Vice President None Thomas H. O'Connor Vice President None Vivian J. Palmieri Vice President None Roger Pearson Vice President None Richard S. Petrell Vice President None John Phillips Vice President None Darrell Plocher Vice President None Dennis Shanon Vice President None Robert E. Silvani Vice President None Kent P. Strazza Vice President None Susan K. Tallarico Vice President None Leslie M. Kratter Secretary None (c) Not Applicable (Information on unaffiliated underwriters). Item 30. Location of Accounts and Records The accounts, books, and other documents required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and rules promulgated thereunder are in the possession of Templeton Global Investors, Inc., 500 East Broward Blvd., Fort Lauderdale, Florida 33394. Item 31. Management Services Not Applicable. Item 32. Undertakings. (a) Not Applicable. (b) Not Applicable. (c) Registrant undertakes to call a meeting of Shareholders for the purpose of voting upon the question of removal of a Trustee or Trustees when requested to do so by the holders of at least 10% of the Registrant's outstanding shares of beneficial interest and in connection with such meeting to comply with the shareholder communications provisions of Section 16(c) of the Investment Company Act of 1940. (d) Registrant undertakes to furnish to each person to whom its Prospectus is provided a copy of its latest Annual Report, upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the requirements for effectiveness of the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington in the District of Columbia on the 26th day of April, 1995. By: ____________________ J. Mark Mobius, President* /s/ Jeffrey L. Steele ___________________________ *By: Jeffrey L. Steele as attorney-in-fact** Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated: Signature Title Date ____________________ President (Chief April 26, 1995 J. Mark Mobius* Executive Officer) ____________________ Treasurer (Chief April 26, 1995 James R. Baio* Financial and Accounting Officer) ____________________ Trustee April 26, 1995 Charles E. Johnson* ____________________ Trustee April 26, 1995 Nicholas F. Brady* ____________________ Trustee April 26, 1995 Fred R. Millsaps* ____________________ Trustee April 26, 1995 Betty P. Krahmer ____________________ Trustee April 26, 1995 Constantine Dean Tseretopoulos* ____________________ Trustee April 26, 1995 Frank J. Crothers* ____________________ Trustee April 26, 1995 Harris J. Ashton* ____________________ Trustee April 26, 1995 S. Joseph Fortunato* ____________________ Trustee April 26, 1995 Andrew H. Hines, Jr.* ____________________ Trustee April 26, 1995 John G. Bennett, Jr.* ____________________ Trustee April 26, 1995 Gordon S. Macklin* *By:/s/ Jeffrey L. Steele _____________________ Jeffrey L. Steele** as attorney-in-fact ____________________ ** Powers of Attorney were previously filed with Registration Statement No. 33-42163 and are incorporated by reference or are contained herewith. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly elected Trustee of Templeton Developing Markets Trust (the "Trust"), constitutes and appoints Allan S. Mostoff, Jeffrey L. Steele, William J. Kotapish and Thomas M. Mistele, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 25, 1994 /s/ Nicholas F. Brady Nicholas F. Brady POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the duly elected Treasurer and Chief Financial Officer of Templeton Developing Markets Trust (the "Trust"), constitutes and appoints Allan S. Mostoff, Jeffrey L. Steele, William J. Kotapish and Thomas M. Mistele, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 25, 1994 /s/ James R. Baio James R. Baio EXHIBIT LIST Exhibit Number Name of Exhibit (1)(c) Establishment and Designation of Classes of Shares of Beneficial Interest (5) Amended and Restated Investment Management Agreement (11) Consent of Independent Certified Public Accountants (13)(B) Investment Letter (15)(a) Distribution Plan -- Class I Shares (15)(b) Distribution Plan -- Class II Shares (16) Schedule Showing Computation of Performance Quotations Provided in Response to Item 22 (Unaudited) (18) Form of Multiclass Plan (27) Financial Data Schedule EX-99 2 AUDITORS CONSENT McGLADREY & PULLEN, LLP Certified Public Accountants and Consultants CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use of our report dated February 3, 1995, on the financial statements of Templeton Developing Markets Trust referred to therein, which appears in the 1994 Annual Report to Shareholders and which is incorporated herein by reference, in Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A, File No. 33-42163 as filed with the Securities and Exchange Commission. We also consent to the reference to our firm in the Statement of Additional Information under the caption "Independent Accountants" and in the Prospectus under the caption "Financial Highlights." McGladrey & Pullen, LLP New York, New York April 26, 1995 EX-99 3 INVESTMENT MANAGEMENT INVESTMENT MANAGEMENT AGREEMENT AGREEMENT dated as of the 30th day of October, 1992, and amended and restated as of February 25, 1994, between TEMPLETON DEVELOPING MARKETS TRUST (hereinafter referred to as the "Trust"), and TEMPLETON INVESTMENT MANAGEMENT (HONG KONG) LIMITED (hereinafter referred to as the "Investment Manager"). In consideration of the mutual agreements herein made, the Trust and the Investment Manager understand and agree as follows: (1) The Investment Manager agrees, during the life of this Agreement, to manage the investment and reinvestment of the Trust's assets consistent with the provisions of the Declaration of Trust of the Trust and the investment policies adopted and declared by the Trust's Board of Trustees. In pursuance of the foregoing, the Investment Manager shall make all determinations with respect to the investment of the Trust's assets and the purchase and sale of its investment securities, and shall take all such steps as may be necessary to implement those determinations. It is understood that all acts of the Investment Manager in performing this Agreement are performed by it outside the United States. (2) The Investment Manager is not required to furnish any personnel, overhead items or facilities for the Trust, including trading desk facilities or daily pricing of the Trust's portfolio. (3) The Investment Manager shall be responsible for selecting members of securities exchanges, brokers and dealers (such members, brokers and dealers being hereinafter referred to as "brokers") for the execution of the Trust's portfolio trans- actions consistent with the Trust's brokerage policies and, when applicable, the negotiation of commissions in connection therewith. All decisions and placements shall be made in accordance with the following principles: A. Purchase and sale orders will usually be placed with brokers which are selected by the Investment Manager as able to achieve "best execution" of such orders. "Best execution" shall mean prompt and reliable execution at the most favorable security price, taking into account the other provisions hereinafter set forth. The determination of what may constitute best execution and price in the execution of a securities transaction by a broker involves a number of considerations, including, without limitation, the overall direct net economic result to the Trust (involving both price paid or received and any commissions and other costs paid), the efficiency with which the transaction is effected, the ability to effect the transaction at all where a large block is involved, availability of the broker to stand ready to execute possibly difficult transactions in the future, and the financial strength and stability of the broker. Such considerations are judgmental and are weighed by the Investment Manager in determining the overall reasonableness of broker- age commissions. B. In selecting brokers for portfolio transactions, the Investment Manager shall take into account its past experience as to brokers qualified to achieve "best execution," including brokers who specialize in any foreign securities held by the Trust. C. The Investment Manager is authorized to allocate brokerage business to brokers who have provided brokerage and research services, as such services are defined in Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"), for the Trust and/or other accounts, if any, for which the Investment Manager exercises investment discretion (as defined in Section 3(a)(35) of the 1934 Act) and, as to transactions for which fixed minimum commission rates are not applicable, to cause the Trust to pay a commission for effecting a securities transaction in excess of the amount another broker would have charged for effecting that transaction, if the Investment Manager determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker, viewed in terms of either that particular transaction or the Investment Manager's overall responsibilities with respect to the Trust and the other accounts, if any, as to which it exercises investment discretion. In reaching such determination, the Investment Manager will not be required to place or attempt to place a specific dollar value on the research or execution services of a broker or on the portion of any commission reflecting either of said services. In demonstrating that such determinations were made in good faith, the Investment Manager shall be prepared to show that all commissions were allocated and paid for purposes contemplated by the Trust's brokerage policy; that the research services provide lawful and appropriate assistance to the Investment Manager in the performance of its investment decision-making responsibilities; and that the commissions paid were within a reasonable range. Whether commissions were within a reasonable range shall be based on any available information as to the level of commission known to be charged by other brokers on comparable transactions, but there shall be taken into account the Trust's policies that (i) obtaining a low commission is deemed secondary to obtaining a favorable securities price, since it is recognized that usually it is more beneficial to the Trust to obtain a favorable price than to pay the lowest commission; and (ii) the quality, comprehensiveness and frequency of research studies that are provided for the Investment Manager are useful to the Investment Manager in performing its advisory services under this Agreement. Research services provided by brokers to the Investment Manager are considered to be in addition to, and not in lieu of, services required to be performed by the Investment Manager under this Agreement. Research furnished by brokers through which the Trust effects securities transactions may be used by the Investment Manager for any of its accounts, and not all research may be used by the Investment Manager for the Trust. When execution of portfolio transactions is allocated to brokers trading on exchanges with fixed brokerage commission rates, account may be taken of various services provided by the broker. D. Purchases and sales of portfolio securities within the United States other than on a securities exchange shall be executed with primary market makers acting as principal, except where, in the judgment of the Investment Manager, better prices and execution may be obtained on a commission basis or from other sources. E. Sales of the Trust's shares (which shall be deemed to include also shares of other registered investment companies which have either the same adviser or an investment adviser affiliated with the Investment Manager) by a broker are one factor among others to be taken into account in deciding to allocate portfolio transactions (including agency transactions, principal transactions, purchases in underwritings or tenders in response to tender offers) for the account of the Trust to that broker; provided that the broker shall furnish "best execution," as defined in subparagraph A above, and that such allocation shall be within the scope of the Trust's policies as stated above; provided further, that in every allocation made to a broker in which the sale of Trust shares is taken into account, there shall be no increase in the amount of the commissions or other compensation paid to such broker beyond a reasonable commission or other compensation determined, as set forth in subparagraph C above, on the basis of best execution alone or best execution plus research services, without taking account of or placing any value upon such sale of the Trust's shares. (4) The Trust agrees to pay to the Investment Manager a monthly fee in dollars at an annual rate of 1.25% of the Trust's average daily net assets, payable at the end of each calendar month. Notwithstanding the foregoing, if the total expenses of the Trust (including the fee to the Investment Manager) in any fiscal year of the Trust exceed any expense limitation imposed by applicable State law, the Investment Manager shall reimburse the Trust for such excess in the manner and to the extent required by applicable State law. The term "total expenses," as used in this paragraph, does not include interest, taxes, litigation expenses, distribution expenses, brokerage commissions or other costs of acquiring or disposing of any of the Trust's portfolio securities or any costs or expenses incurred or arising other than in the ordinary and necessary course of the Trust's business. When the accrued amount of such expenses exceeds this limit, the monthly payment of the Investment Manager's fee will be reduced by the amount of such excess, subject to adjustment month by month during the balance of the Trust's fiscal year if accrued expenses thereafter fall below the limit. (5) This Agreement shall become effective on October 30, 1992 and shall continue in effect until April 30, 1994. If not sooner terminated, this Agreement shall continue in effect for successive periods of 12 months each thereafter, provided that each such continuance shall be specifically approved annually by the vote of a majority of the Trust's Board of Trustees who are not parties to this Agreement or "interested persons" (as defined in Investment Company Act of 1940 (the "1940 Act")) of any such party, cast in person at a meeting called for the purpose of voting on such approval and either the vote of (a) a majority of the outstanding voting securities of the Trust, as defined in the 1940 Act, or (b) a majority of the Trust's Board of Trustees as a whole. (6) Notwithstanding the foregoing, this Agreement may be terminated by either party at any time, without the payment of any penalty, on sixty (60) days' written notice to the other party, provided that termination by the Trust is approved by vote of a majority of the Trust's Board of Trustees in office at the time or by vote of a majority of the outstanding voting securities of the Trust (as defined by the 1940 Act). (7) This Agreement will terminate automatically and immediately in the event of its assignment (as defined in the 1940 Act). (8) In the event this Agreement is terminated and the Investment Manager no longer acts as Investment Manager to the Trust, the Investment Manager reserves the right to withdraw from the Trust the use of the name "Templeton" or any name misleadingly implying a continuing relationship between the Trust and the Investment Manager or any of its affiliates. (9) Except as may otherwise be provided by the 1940 Act, neither the Investment Manager nor its officers, directors, employees or agents shall be subject to any liability for any error of judgment, mistake of law, or any loss arising out of any investment or other act or omission in the performance by the Investment Manager of its duties under the Agreement or for any loss or damage resulting from the imposition by any government of exchange control restrictions which might affect the liquidity of the Trust's assets, or from acts or omissions of custodians, or securities depositories, or from any war or political act of any foreign government to which such assets might be exposed, or for failure, on the part of the custodian or otherwise, timely to collect payments, except for any liability, loss or damage resulting from willful misfeasance, bad faith or gross negligence on the Investment Manager's part or by reason of reckless disregard of the Investment Manager's duties under this Agreement. It is hereby understood and acknowledged by the Trust that the value of the investments made for the Trust may increase as well as decrease and are not guaranteed by the Investment Manager. It is further understood and acknowledged by the Trust that investment decisions made on behalf of the Trust by the Investment Manager are subject to a variety of factors which may affect the values and income generated by the Trust's portfolio securities, including general economic conditions, market factors and currency exchange rates, and that investment decisions made by the Investment Manager will not always be profitable or prove to have been correct. (10) It is understood that the services of the Investment Manager are not deemed to be exclusive, and nothing in this Agreement shall prevent the Investment Manager, or any affiliate thereof, from providing similar services to other investment companies and other clients, including clients which may invest in the same types of securities as the Trust, or, in providing such services, from using information furnished by others. When the Investment Manager determines to buy or sell the same security for the Trust that the Investment Manager or one or more of its affiliates has selected for clients of the Investment Manager or its affiliates, the orders for all such security transactions shall be placed for execution by methods determined by the Investment Manager, with approval by the Trust's Board of Trustees, to be impartial and fair. (11) This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts, provided that nothing herein shall be construed as being inconsistent with applicable Federal and state securities laws and any rules, regulations and orders thereunder. (12) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (13) Nothing herein shall be construed as constituting the Investment Manager an agent of the Trust. (14) It is understood and expressly stipulated that neither the holders of shares of the Trust nor any Trustee, officer, agent or employee of the Trust shall be personally liable hereunder, nor shall any resort be had to other private property for the satisfaction of any claim or obligation hereunder, but the Trust only shall be liable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers and their respective corporate seals to be hereunto duly affixed and attested. TEMPLETON DEVELOPING MARKETS TRUST By:_______________________________ John R. Kay Vice President TEMPLETON INVESTMENT MANAGEMENT (HONG KONG) LIMITED By:_________________________________ EX-99 4 EXHIBIT 16 EXHIBIT 16 COMPUTATION OF PERFORMANCE QUOTATIONS PROVIDED IN RESPONSE TO ITEM 22 (UNAUDITED) Templeton Developing Markets Trust Total Return for One Year Ending 12/31/94 P (1 + T)N = ERV $1000 (1 + T)1 = $861.70 1 + T = .8617 T = (.1383) T = (13.83%) Average Annual Total Return Since Inception on October 16, 1991 - 3.21 Years P (1 + T)N = ERV $1000 (1 + T)3.21 = $1,361.88 (1 + T)3.21 = 1.36188 1 + T = 1.1010 T = .1010 T = 10.10% EX-99 5 ESTABLISHMENT OF CLASSES Establishment and Designation Of Classes of Shares of Beneficial Interest Par Value $0.01 Per Share The undersigned, being a majority of the Trustees of Templeton Developing Markets Trust, a Massachusetts business trust (the "Trust"), acting pursuant to Section 5.12 of the Declaration of Trust dated August 9, 1991, as previously amended (the "Declaration of Trust") of the Trust, hereby divide the shares of beneficial interest of the Trust into two separate classes, each class to have the following special and relative rights: 1. The classes shall be designated "Templeton Developing Markets Trust Class I" and "Templeton Developing Markets Trust Class II." 2. The Trust shall be authorized to invest in cash, securities, instruments and other property as from time to time described in the Trust's then currently effective registration statement under the Securities Act of 1933. Each share of beneficial interest of the Trust ("Share") shall be redeemable, shall be entitled to one vote (or fraction thereof in respect of a fractional Share) on matters on which Shares of the Trust shall be entitled to vote (subject to paragraph 3 below), shall represent a pro rata beneficial interest in the assets of the Trust (subject to paragraph 4 below) and shall be entitled to receive its pro rata share of net assets of the Trust upon liquidation of the Trust, all as provided in the Declaration of Trust. 3. Shareholders of the Trust shall vote together as a single class on any matter, except to the extent required by the Investment Company Act of 1940, as amended (the "1940 Act"), or when the Trustees have determined that the matter affects only the interests of Shareholders of a particular class of Shares, in which case only the Shareholders of such class shall be entitled to vote thereon. Any matter shall be deemed to have been effectively acted upon with respect to any class as provided in Rule 18f-2 under the 1940 Act, or any successor rule, and in the Declaration of Trust. 4. Liabilities, expenses, costs, charges and reserves related to the distribution of, and other identified expenses that should properly be allocated to, the Shares of a particular class may be charged to and borne solely by such class and the bearing of expenses solely by a class of Shares may be appropriately reflected (in a manner determined by the Trustees), and cause differences in, the net asset value attributable to, and the dividend, redemption and liquidation rights of, the Shares of different classes. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the Shareholders of all classes for all purposes. 5. Shares of each class of the Trust may vary between themselves as to rights of redemption and conversion rights, as may be approved by the Trustees and set forth in the Trust's then-current prospectus. 6. The Trustees shall have the right at any time and from time to time to reallocate assets and expenses or to change the designation of any series or any class thereof hitherto or hereafter created, or to otherwise change the special and relative rights of any series or any class thereof, provided that such change shall not adversely affect to rights of the Shareholders of such series or class. IN WITNESS WHEREOF, the undersigned have executed this instrument this 24th day of February, 1995. ______________________________ /s/ S. Joseph Fortunato John M. Templeton S. Joseph Fortunato /s/ F. Bruce Clarke /s/ Fred R. Millsaps F. Bruce Clarke Fred R. Millsaps /s/ Hasso-G von Diergardt-Naglo _____________________________ Hasso-G von Diergardt-Naglo Andrew H. Hines, Jr. /s/ Betty P. Krahmer _____________________________ Betty P. Krahmer Charles E. Johnson /s/ John G. Bennett, Jr. _____________________________ John G. Bennett, Jr. Gordon S. Macklin /s/ Harris J. Ashton /s/ Nicholas F. Brady Harris J. Ashton Nicholas F. Brady CERTIFICATE Pursuant to Section 10.1 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this instrument is made in accordance with the provisions of the Declaration, and shall be effective upon its filing with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this instrument this 24th day of February, 1995. /s/ Betty P. Krahmer Betty P. Krahmer EX-99 6 DISTRIBUTION PLAN I DISTRIBUTION PLAN WHEREAS, Templeton Developing Markets Trust (the "Trust") is registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Trust and Franklin Templeton Distributors, Inc. (the "Selling Company"), a wholly owned subsidiary of Franklin Resources, Inc. and a broker-dealer registered under the Securities Exchange Act of 1934, have entered into a Distribution Agreement pursuant to which the Selling Company will act as principal underwriter of the Class I Shares of the Trust for sale to the public; and WHEREAS, shares of beneficial interest of the Trust are divided into classes of shares, one of which is designated Class I; and WHEREAS, the Board of Trustees of the Trust has determined to adopt this Distribution Plan (the "Plan"), in accordance with the requirements of the 1940 Act and has determined that there is a reasonable likelihood that the Plan will benefit the Trust and the holders of Class I Shares. NOW THEREFORE, the Trust hereby adopts, with respect to its Class I Shares, the Plan on the following terms and conditions: 1. The Trust will reimburse the Selling Company for costs and expenses incurred in connection with the distribution and marketing of the Class I Shares of the Trust. Such distribution costs and expenses may include: (a) payments to broker-dealers who provide certain services of value to the Trust's Class I Shareholders (sometimes referred to as a "trail fee"); (b) reimbursement of expenses relating to selling and servicing efforts or of organizing and conducting sales seminars; (c) payments to employees or agents of the Selling Company who engage in or support distribution of the Class I Shares; (d) payment of the costs of preparing, printing and distributing prospectuses and reports to prospective investors and of printing and advertising expenses; (e) payment of dealer commissions and wholesaler compensation in connection with sales of the Trust's Class I Shares exceeding $1 million (for which the Trust imposes no sales charge) and interest or carrying charges in connection therewith; and (f) such other similar services as the Trust's Board of Trustees determines to be reasonably calculated to result in the sale of Class I Shares. The Selling Company will be reimbursed for such costs, expenses or payments on a quarterly basis, subject to a limit of 0.35% per annum of the average daily net assets of the Trust's Class I Shares. Payments made out of or charged against the assets of the Class I Shares of the Trust must be in reimbursement for costs and expenses in connection with any activity which is primarily intended to result in the sale of the Trust's Class I Shares. The costs and expenses not reimbursed in any one given quarter (including costs and expenses not reimbursed because they exceeded the limit of 0.35% per annum of the average daily net assets of the Trust's Class I Shares) may be reimbursed in subsequent quarters or years. 2. The Plan shall not take effect with respect to the Trust's Class I Shares until it has been approved by a vote of at least a majority (as defined in the 1940 Act) of the outstanding voting securities of the Class I Shares of the Trust. With respect to the submission of the Plan for such a vote, it shall have been effectively approved with respect to the Trust's Class I Shares if a majority of the outstanding voting securities of the Class I Shares of the Trust votes for approval of the Plan. 3. The Plan shall not take effect until it has been approved, together with any related agreements and supplements, by votes of a majority of both (a) the Board of Trustees of the Trust, and (b) those Trustees of the Trust who are not "interested persons" (as defined in the 1940 Act) and have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "Plan Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related agreements. 4. The Plan shall continue in effect so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in paragraph 3. 5. Any person authorized to direct the disposition of monies paid or payable by the Class I Shares of the Trust pursuant to the Plan or any related agreement shall provide to the Trust's Board of Trustees, and the Board shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. 6. Any agreement related to the Plan shall be in writing and shall provide: (a) that such agreement may be terminated at any time as to the Trust's Class I Shares, without payment of any penalty, by vote of a majority of the Plan Trustees or by vote of a majority of the outstanding voting securities of the Class I Shares of the Trust, on not more than sixty days' written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. 7. The Plan may be terminated at any time, without payment of any penalty, by vote of a majority of the Plan Trustees, or by vote of a majority of the outstanding Class I Shares of the Trust. 8. The Plan may be amended at any time by the Trust's Board of Trustees, provided that (a) any amendment to increase materially the costs which the Class I Shares of the Trust may bear for distribution pursuant to the Plan shall be effective only upon approval by a vote of a majority of the Class I Shares of the Trust, and (b) any material amendments of the terms of the Plan shall become effective only upon approval as provided in paragraph 3 hereof. 9. While the Plan is in effect, the selection and nomination of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of the Trustees who are not interested persons. 10. The Trust shall preserve copies of the Plan, any related agreement and any report made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the Plan, such agreement or report, as the case may be, the first two years of which shall be in an easily accessible place. 11. It is understood and expressly stipulated that neither the holders of Class I Shares of the Trust nor any Trustee, officer, agent or employee of the Trust shall be personally liable hereunder, nor shall any resort be had to other private property for the satisfaction of any claim or obligation hereunder, but the Trust only shall be liable. IN WITNESS WHEREOF, the Trust has executed this Distribution Plan on this 1st day of May 1995. TEMPLETON DEVELOPING MARKETS TRUST By: _______________________________ John R. Kay Vice President EX-99 7 DISTRIBUTION PLAN II DISTRIBUTION PLAN WHEREAS, Templeton Developing Markets Trust (the "Trust") is registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"); and WHEREAS, the Trust and Franklin Templeton Distributors, Inc. (the "Selling Company"), a wholly owned subsidiary of Franklin Resources, Inc. and a broker-dealer registered under the Securities Exchange Act of 1934, have entered into a Distribution Agreement pursuant to which the Selling Company will act as principal underwriter of the Class II Shares of the Trust for sale to the public; and WHEREAS, shares of beneficial interest of the Trust are divided into classes of shares, one of which is designated Class II; and WHEREAS, the Board of Trustees of the Trust has determined to adopt this Distribution Plan (the "Plan"), in accordance with the requirements of the 1940 Act and has determined that there is a reasonable likelihood that the Plan will benefit the Trust and the holders of Class II Shares. NOW THEREFORE, the Trust hereby adopts, with respect to its Class II Shares, the Plan on the following terms and conditions: 1. The Trust will reimburse the Selling Company for costs and expenses incurred in connection with the distribution and marketing of the Class II Shares of the Trust. Such distribution costs and expenses may include: (a) payments to broker-dealers who provide certain services of value to the Trust's Class II Shareholders (sometimes referred to as a "trail fee"); (b) reimbursement of expenses relating to selling and servicing efforts or of organizing and conducting sales seminars; (c) payments to employees or agents of the Selling Company who engage in or support distribution of the Class II Shares; (d) payment of the costs of preparing, printing and distributing prospectuses and reports to prospective investors and of printing and advertising expenses; (e) payment of dealer commissions and wholesaler compensation in connection with sales of the Trust's Class II Shares and interest or carrying charges in connection therewith; and (f) such other similar services as the Trust's Board of Trustees determines to be reasonably calculated to result in the sale of Class II Shares. The Selling Company will be reimbursed for such costs, expenses or payments on a quarterly basis, subject to a limit of 1.00% per annum of the average daily net assets of the Trust's Class II Shares (of which up to 0.25% of such net assets may be paid to dealers for personal service and/or the maintenance of Class II Shareholder accounts (the "Service Fee")) and subject to any applicable restriction imposed by rules of the National Association of Securities Dealers, Inc. Payments made out of or charged against the assets of the Class II Shares of the Trust must be in reimbursement for costs and expenses in connection with any activity which is primarily intended to result in the sale of the Trust's Class II Shares or account maintenance and personal service to Shareholders. 2. The Plan shall not take effect with respect to the Trust's Class II Shares until it has been approved by a vote of at least a majority (as defined in the 1940 Act) of the outstanding voting securities of the Class II Shares of the Trust. With respect to the submission of the Plan for such a vote, it shall have been effectively approved with respect to the Trust's Class II Shares if a majority of the outstanding voting securities of the Class II Shares of the Trust votes for approval of the Plan. 3. The Plan shall not take effect until it has been approved, together with any related agreements and supplements, by votes of a majority of both (a) the Board of Trustees of the Trust, and (b) those Trustees of the Trust who are not "interested persons" (as defined in the 1940 Act) and have no direct or indirect financial interest in the operation of the Plan or any agreements related to it (the "Plan Trustees"), cast in person at a meeting (or meetings) called for the purpose of voting on the Plan and such related agreements. 4. The Plan shall continue in effect so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in paragraph 3. 5. Any person authorized to direct the disposition of monies paid or payable by the Class II Shares of the Trust pursuant to the Plan or any related agreement shall provide to the Trust's Board of Trustees, and the Board shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. 6. Any agreement related to the Plan shall be in writing and shall provide: (a) that such agreement may be terminated at any time as to the Trust's Class II Shares, without payment of any penalty, by vote of a majority of the Plan Directors or by vote of a majority of the outstanding voting securities of the Class II Shares of the Trust, on not more than sixty days' written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. 7. The Plan may be terminated at any time, without payment of any penalty, by vote of a majority of the Plan Trustees, or by vote of a majority of the outstanding Class II Shares of the Trust. 8. The Plan may be amended at any time by the Trust's Board of Trustees, provided that (a) any amendment to increase materially the costs which the Class II Shares of the Trust may bear for distribution pursuant to the Plan shall be effective only upon approval by a vote of a majority of the Class II Shares of the Trust, and (b) any material amendments of the terms of the Plan shall become effective only upon approval as provided in paragraph 3 hereof. 9. While the Plan is in effect, the selection and nomination of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of the Trustees who are not interested persons. 10. The Trust shall preserve copies of the Plan, any related agreement and any report made pursuant to paragraph 5 hereof, for a period of not less than six years from the date of the Plan, such agreement or report, as the case may be, the first two years of which shall be in an easily accessible place. 11. It is understood and expressly stipulated that neither the holders of Class II Shares of the Trust nor any Trustee, officer, agent or employee of the Trust shall be personally liable hereunder, nor shall any resort be had to other private property for the satisfaction of any claim or obligation hereunder, but the Trust only shall be liable. IN WITNESS WHEREOF, the Trust has executed this Distribution Plan on this 1st day of May, 1995. TEMPLETON DEVELOPING MARKETS TRUST By: _______________________________ John R. Kay Vice President EX-99 8 MULTICLASS PLAN Templeton Developing Markets Trust Multiple Class Plan This Multiple Class Plan (the "Plan") has been adopted by a majority of the Board of Trustees of Templeton Developing Markets Trust (the "Fund"). The Board has determined that the Plan is in the best interests of each class and the Fund as a whole. The Plan sets forth the provisions relating to the establishment of multiple classes of shares for the Fund. 1. The Fund shall offer two classes of shares, to be known as Templeton Developing Markets Trust - Class I and Templeton Developing Markets Trust - Class II. 2. Class I shares shall carry a front-end sales charge ranging from 0% - 5.75%, and Class II shares shall carry a front- end sales charge of 1.00%. 3. Class I shares shall not be subject to a contingent deferred sales charge ("CDSC") except in the following limited circumstances. On investments of $1 million or more, a contingent deferred sales charge of 1.00% of the lesser of the then-current net asset value or the original net asset value at the time of purchase applies to redemptions of those investments within the contingency period of 12 months from the calendar month following their purchase. The CDSC is waived in certain circumstances, as described in the Fund's prospectus. 4. Class II shares redeemed within 18 months of their purchase shall be assessed a CDSC of 1.00% on the lesser of the then-current net asset value or the original net asset value at the time of purchase. The CDSC is waived in certain circumstances as described in the Fund's prospectus. 5. The Rule 12b-1 Plan associated with Class I shares may be used to reimburse Franklin Templeton Distributors, Inc. (the "Distributor") or others for expenses incurred in the promotion and distribution of the shares of Class I. Such expenses include, but are not limited to, the printing of the prospectuses and reports used for sales purposes, expenses of preparing and distributing sales literature and related expenses, advertisements, and other distribution-related expenses, including a prorated portion of the Distributor's overhead expenses attributable to the distribution of Class I shares, as well as any distribution or service fees paid to securities dealers or their firms or others who have executed a servicing agreement with the Fund for the Class, the Distributor or its affiliates. The Rule 12b-1 Plan associated with Class II shares has two components. The first component is a shareholder servicing fee, to be paid to broker-dealers, banks, trust companies and others who will provide personal assistance to shareholders in servicing their accounts. The second component is an asset-based sales charge to be retained by the Distributor during the first year after sale of shares, and, in subsequent years, to be paid to dealers or retained by the Distributor to be used in the promotion and distribution of Class II shares, in a manner similar to that described above for Class I shares. The Plans shall operate in accordance with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., Article III, section 26(d). 6. The only difference in expenses as between Class I and Class II shares shall relate to differences in the Rule 12b-1 plan expenses of each class, as described in each class' Rule 12b-1 Plan. 7. There shall be no conversion features associated with the Class I and Class II shares. 8. Shares of Class I of the Fund may only be exchanged for shares of Class I of any other fund in the Franklin Templeton Group and may not be exchanged into the Franklin Templeton Money Fund II of the Franklin Templeton Money Fund Trust. Shares of Class II of the Fund may only be exchanged for shares of Class II of any other fund in the Franklin Templeton Group and may also be exchanged into the Franklin Templeton Money Fund II of the Franklin Templeton Money Fund Trust. 9. Each Class will vote separately with respect to the Rule 12b-1 Plan related to that Class. 10. On an ongoing basis, the trustees, pursuant to their fiduciary responsibilities under the 1940 Act and otherwise, will monitor the Fund for the existence of any material conflicts between the interests of the two classes of shares. The trustees, including a majority of the independent trustees, shall take such action as is reasonably necessary to eliminate any such conflict that may develop. Templeton Investment Management (Hong Kong) Limited and Franklin Templeton Distributors, Inc. shall be responsible for alerting the Board of any material conflicts that arise. 11. All material amendments to this Plan must be approved by a majority of the trustees of the Fund, including a majority of the trustees who are not interested persons of the Fund. EX-99 9 INVESTMENT LETTER April 28, 1995 To: All Templeton Funds Listed on Schedule A 700 Central Avenue St. Petersburg, FL 33701 Gentlemen: We propose to invest $100.00 in the Class II shares (the "Shares") of each of the Funds listed on the attached Schedule A (the "Funds"), on the business day immediately preceding the effective date for each Fund's Class II shares, at a purchase price per share equivalent to the net asset value per share of each Fund's Class I shares on the date of purchase. We will purchase the Shares in a private offering prior to the effectiveness of the post-effective amendment to the Form N-1A registration statement under which each Fund's Class II shares are initially offered, as filed by the Fund under the Securities Act of 1933. The Shares are being purchased to serve as the seed money for each Fund's Class II shares prior to the commencement of the public offering of Class II shares. In connection with such purchase, we understand that we, the purchaser, intend to acquire the Shares for our own account as the sole beneficial owner thereof and have no present intention of redeeming or reselling the Shares so acquired. We consent to the filing of this Investment Letter as an exhibit to the Form N-1A registration statement of each Fund. Sincerely, TEMPLETON GLOBAL INVESTORS, INC. By: /s/ Thomas M. Mistele ------------------------------------ Thomas M. Mistele Senior Vice Presidemt Date: April 28, 1995 ACTION OF SOLE SHAREHOLDER BY WRITTEN CONSENT The undersigned, being the sole shareholder of the Class II shares of each of the Templeton Funds listed on the attached Schedule A (the "Funds"), each of which is a series of the Investment Companies as indicated on Schedule A (the "Companies"), does hereby take the following actions and does hereby consent to the following resolution: RESOLVED: That the Distribution Plans pursuant to Rule 12b-1 (under the Investment Company Act of 1940), as agreed to and accepted by Franklin Templeton Distributors, Inc. and each of the Companies prior to the date below, be and it hereby is, approved for each Fund. By execution hereof, the undersigned shareholder waives prior notice of the foregoing action by written consent. TEMPLETON GLOBAL INVESTORS, INC. Dated: April 28, 1995 By: /s/ Thomas M. Mistele Title: Senior Vice President SCHEDULE A INVESTMENT COMPANY FUND Templeton Funds, Inc. Templeton World Fund - Class II Templeton Foreign Fund - Class II Templeton Smaller Companies Growth Templeton Smaller Companies Growth Fund, Inc. Fund, Inc. - Class II Templeton Growth Fund, Inc. Templeton Growth Fund, Inc. - Class II Templeton Real Estate Securities Fund Templeton Real Estate Securities Fund - Class II Templeton Global Opportunities Trust Templeton Global Opportunities Trust - Class II Templeton Developing Markets Trust Templeton Developing Markets Trust - Class II Templeton Income Trust Templeton Income Fund - Class II Templeton American Trust, Inc. Templeton American Trust, Inc. - Class I Templeton Global Investment Trust Templeton Global Rising Dividends Fund - Class II Templeton Global Infrastructure Fund - Class II Templeton Latin America Fund - Class II Templeton Greater European Fund - Class II EX-27 10 FINANCIAL DATA SCHEDULE
6 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TEMPLETON DEVELOPING MARKETS TRUST, DECEMBER 31, 1994 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000878087 DEVLOPING MARKETS TRUST YEAR DEC-31-1994 DEC-31-1994 1950942822 2001488559 26355700 0 1479479 2029323738 5797395 0 14372155 20169550 0 1949605192 149707251 91462192 2848467 0 6154792 0 50545737 2009154188 30035368 29512490 0 39347928 20199930 56154084 (253449533) 177095519 0 (17351463) (59144627) 0 84733238 (31092171) 4603992 612762376 0 9145335 0 0 23325167 0 39347928 1865818314 15.27 .14 (1.44) (.12) (.43) 0 13.42 2.11 0 0
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