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SUPPLEMENT DATED OCTOBER 1, 1998
TO THE PROSPECTUS OF
FRANKLIN TEMPLETON FUND ALLOCATOR SERIES
DATED DECEMBER 1, 1997, AS AMENDED AUGUST 3, 1998
The prospectus is amended as follows:
I. Franklin Bond Fund ("Bond Fund") is added to the list of Underlying Funds
in which the funds may invest. The funds will invest in Advisor Class shares of
Bond Fund.
The investment goal of Bond Fund is to provide a high level of current income
consistent with the preservation of capital, with capital appreciation over the
long term as a secondary goal. The fund tries to achieve its investment goal by
investing at least 65% of its total assets in investment grade fixed-income
securities, including debt securities and mortgage-backed and asset-backed
securities. Up to 35% of the fund's total assets may be invested in
non-investment grade fixed-income securities. The fund may buy securities of
issuers in any foreign country, developed or developing.
The fund will allocate assets among securities in various market sectors based
on its investment manager's assessment of changing economic, market, industry
and issuer conditions. The fund's investment manager will use a "top-down"
analysis of macroeconomic trends, combined with a "bottom-up" fundamental
analysis of market sectors, industries and issuers to attempt to take advantage
of varying sector reactions to economic events. The investment manager will
evaluate business cycles, changes in yield curves and apparent imbalances in
values between and within markets, as well as the risks of investing in
particular foreign markets.
The fund may buy fixed-income securities which are rated B or better by Moody's
or S&P or unrated debt which it determines to be of comparable quality.
The fund may invest in mortgage-backed securities that are issued by U.S.
government agencies, foreign government agencies, and private institutions. The
payment of interest and principal on securities issued by U.S. government
agencies generally is guaranteed either by the full faith and credit of the U.S.
government or by the credit of the agency. The guarantee applies only to the
timely repayment of principal and interest and not to the market prices and
yields of the securities or to the Net Asset Value or performance of the fund,
which will vary with changes in interest rates and other market conditions.
Mortgage-backed securities issued by foreign government agencies and private
institutions are not guaranteed by the U.S. government or its agencies. The fund
may also invest in collateralized mortgage obligations.
The fund may invest in Treasury bills, notes and bonds, which are direct
obligations of the U.S. government, backed by the full faith and credit of the
U.S. Treasury, and in securities issued or guaranteed by federal agencies. The
fund may also invest in securities issued or guaranteed by foreign governments
and their agencies.
Under ordinary circumstances, the fund does not expect that it will invest more
than 10% of its total assets in futures and related options contracts; however,
during the fund's initial period of operations, it is anticipated that the
fund's investment in these contracts will not exceed 25% of total assets. To
help protect its portfolio against adverse changes in foreign currency exchange
rates, the fund may (1) buy and sell foreign currency at the prevailing rate in
the foreign currency exchange market; and (2) enter into forward foreign
currency contracts which are agreements to buy or sell a specific currency at a
set price on a future date (generally within one year).
II. The first paragraph of the section "How Do the Underlying Funds Invest their
Assets? - Equity Funds - U.S. Equity Funds - Franklin Small Cap Growth Fund of
Franklin Strategic Series ("Small Cap")" is replaced with the following:
FRANKLIN SMALL CAP GROWTH FUND OF FRANKLIN STRATEGIC SERIES ("SMALL CAP").
Small Cap's investment objective is long-term capital growth. Small Cap seeks
to achieve its objective by investing primarily in equity securities of small
capitalization growth companies. In general, companies in which Small Cap will
invest have a market capitalization of less than $1.5 billion at the time of
Small Cap's investment. Market capitalization is defined as the total market
value of a company's outstanding stock. Under normal market conditions, Small
Cap will invest at least 65% of its total assets in equity securities of small
capitalization growth companies. Selection of small company equity securities
for Small Cap will be based on characteristics such as the financial strength
of the company, the expertise of management, the growth potential of the
company within its industry, and the growth potential of the industry itself.
The fund may not invest more than 10% of its net assets in securities of
issuers with less than three years of continuous operations.
III. Distribution option 3 in the section "What Distributions Might I Receive
from the Fund? - Distribution Options" is replaced with the following:
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking or savings account, you may need a signature guarantee.
If you send the money to a checking or savings account, please see "Electronic
Fund Transfers" under "Services to Help You Manage Your Account."
IV. The second sentence in the section "Services to Help You Manage Your Account
- - Automatic Investment Plan" is replaced with the following:
Under the plan, you can have money transferred automatically from your checking
or savings account to the fund each month to buy additional shares.
V. The second paragraph under "Services to Help You Manage Your Account -
Systematic Withdrawal Plan" is replaced with the following:
If you would like to establish a systematic withdrawal plan, please complete
the systematic withdrawal plan section of the shareholder application included
with this prospectus and indicate how you would like to receive your payments.
You may choose to direct your payments to buy the same class of shares of
another Franklin Templeton Fund or have the money sent directly to you, to
another person, or to a checking or savings account. If you choose to have the
money sent to a checking or savings account, please see "Electronic Fund
Transfers" below. Once your plan is established, any distributions paid by the
fund will be automatically reinvested in your account.
VI. The following new section is added after the section "Services to Help You
Manage Your Account - Systematic Withdrawal Plan":
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions or payments
under a systematic withdrawal plan sent directly to a checking or savings
account. If the account is with a bank that is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If you choose this option, please allow at least fifteen days for
initial processing. We will send any payments made during that time to the
address of record on your account.
VII. The following definition is revised in the "Useful Terms and Definitions"
section:
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the
contingency period is 18 months. The holding period begins on the day you buy
your shares. For example, if you buy shares on the 18th of the month, they will
age one month on the 18th day of the next month and each following month.
VIII. The following paragraphs are added to the end of the section "What are the
Underlying Funds' Potential Risks?":
EURO. On January 1, 1999, the European Monetary Union (EMU) plans to introduce
a new single currency, the Euro, which will replace the national currency for
participating member countries. If an Underlying Fund holds investments in
countries with currencies replaced by the Euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.
The process to establish the Euro may result in market volatility. It is not
possible to predict the impact of the Euro on the business or financial
condition of European issuers or on the Underlying Fund. The transition and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets. To the
extent an Underlying Fund holds non-U.S. dollar (Euro or other) denominated
securities, it will still be exposed to currency risk due to fluctuations in
those currencies versus the U.S. dollar.
Resources has created an interdepartmental team to handle all Euro-related
changes to enable the Franklin Templeton Funds to process transactions
accurately and completely with minimal disruption to business activities. While
there can be no assurance that the Underlying Fund will not be adversely
affected, the investment manager and its affiliated service providers are
taking steps that they believe are reasonably designed to address the Euro
issue.
Please keep this supplement for future reference.
