12 P
SUPPLEMENT DATED MAY 1, 1995
TO THE PROSPECTUS FOR
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
dated August 1, 1994
INTRODUCTION. As of May 1, 1995, the Franklin California Tax-Free
Income Fund (the "Fund") offers two classes to its investors:
Franklin California Tax-Free Income Fund - Class I ("Class I")
and Franklin California Tax-Free Income Fund - 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.
This Supplement must be read in conjunction with the Prospectus
for this Fund. All investment objectives and policies described
in the Prospectus apply equally to both classes of shares in the
new multiclass structure. Further, all operational procedures
apply equally to both classes, unless otherwise specified in the
following discussion. See "Deciding Which Class To Purchase"
below.
THE NEW APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST BE
USED FOR ALL PURCHASES. DO NOT USE THE APPLICATION FORM INCLUDED
IN THE PROSPECTUS.
MULTICLASS FUND STRUCTURE. The Fund has two classes of shares
available for investment: Class I and Class II. 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. See the Prospectus for more
details about Class I shares. Class II shares are explained in
detail in the following discussion. Except as described below,
shares of both classes represent identical interests in the
Fund's investment portfolio.
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 based on the operating expenses of
the Fund for the fiscal year ended March 31, 1994, 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) 4.25% 1.00%^
Deferred Sales Charge NONE^^ 1.00%+
Exchange Fee (per transaction) $5.00++ $5.00++
ANNUAL FUND OPERATING EXPENSES**
(as a percentage of average net assets)
Management Fees 0.45% 0.45%
Rule 12b-1 Fees 0.10%* 0.65%*
Other Expenses 0.04% 0.04%
Total Fund Operating Expenses 0.59% 1.14%
^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 of each class, it is estimated that this will
take less than six years for shareholders who maintain total
shares valued at less than $100,000 in the Franklin Templeton
Funds. Shareholders with larger investments in the Franklin
Templeton Funds will reach the crossover point more quickly.
^^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."
+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."
++$5.00 fee imposed only on Timing Accounts as described under
"Exchange Privilege" in the Prospectus. All other exchanges are
processed without a fee.
*Consistent with 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 the Prospectus and this Supplement.
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 $48 $61 $74 $113
CLASS II $32 $46 $72 $147
THIS EXAMPLE IS BASED ON THE RESTATED ANNUAL OPERATING EXPENSES,
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. 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%.
FINANCIAL HIGHLIGHTS
The following unaudited financial highlights for the six months
ended September 30, 1994, pertaining to Class I, supplement the
information included under "Financial Highlights" in the
Prospectus. Similar information for Class II will be included
after its shares have been offered to the public for a reasonable
period of time.
SIX MONTHS
ENDED
SEPTEMBER
30, 1994
PER SHARE OPERATING PERFORMANCE
Net asset value at beginning of period $7.12
Net investment income 0.22
Net realized and unrealized loss on
securities (0.078)
Total from investment operations 0.142
Distributions from net investment income (0.222)
Net asset value at end of period $7.04
TOTAL RETURN* 1.88%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period(in 000's) $13,142,194
Ratio of expenses to average net assets 0.55%+
Ratio of net investment income to average
net assets 6.27%+
Portfolio turnover rate 6.83%
*Total return measures the change in value of an investment over
the period indicated. It does not include the maximum 4.25% front-
end sales charge, assumes reinvestment of dividends and capital
gains, if any, at net asset value and is not annualized.
+Annualized
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 $100,000
in the Franklin 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 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 initial 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 for 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 Rights of Accumulation or other means 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. See "How to Buy Shares of the Fund"
in the Prospectus.
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.
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.
A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively)
pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended ("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 of up to the maximum amount permitted under each Plan may
be used by the class to reimburse Franklin/Templeton
Distributors, Inc. ("Distributors") for routine ongoing promotion
and distribution expenses incurred with respect to such class.
See "Plan of Distribution" in the Prospectus for a description of
such expenses.
CLASS I. 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 .10% 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.
Plan of Distribution. Under the Class I Plan, the Fund will
reimburse Distributors or other securities dealers for expenses
incurred in the promotion, servicing, and distribution of Class I
Fund shares. (See "Plan of Distribution" in the Prospectus and
"Distribution Plan" in the Statement of Additional Information
["SAI"]).
Quantity Discounts and Purchases At Net Asset Value. Class I
shares may be purchased at a reduced front-end sales charge or at
net asset value if certain conditions are met. See "How to Buy
Shares of the Fund."
Contingent Deferred Sales Charge. In most circumstances, a
contingent deferred sales charge will not be assessed against
redemptions of Class I shares. A contingent deferred sales charge
will be imposed on Class I shares only if shares valued at $1
million or more are purchased after February 1, 1995 without a
sales charge and are subsequently redeemed within 12 months of
the calendar month following their purchase. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund" in
this Supplement.
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%
of the amount invested. Class II shares are also subject to a
contingent deferred sales charge of 1% 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 0.65% 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.
Purchases of Class II shares are limited to amounts 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. See "How
to Buy Shares of the Fund" in the Prospectus for more
information.
Plan of Distribution. Class II's operating expenses will
generally be higher under the Class II Plan. During the first
year following a purchase of Class II shares, Distributors will
keep a portion of the Plan fees attributable to those shares to
partially recoup fees Distributors pays to securities dealers.
Distributors, 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.
Contingent Deferred Sales Charge. Unless a waiver applies, a
contingent deferred sales charge of 1% will be imposed on Class
II shares redeemed within 18 months of their purchase. See
"Contingent Deferred Sales Charges" under "How to Sell Shares of
the Fund" in this Supplement.
MANAGEMENT OF THE FUND
The subsidiaries of Resources are described as the "Franklin
Templeton Group."
The Board of Directors 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.
For more information regarding the responsibilities of the Board
and the management of the Fund, please see "Management of the
Fund" in the Prospectus.
CLASS II PLAN OF DISTRIBUTION
Under the Class II Plan, the maximum amount which the Fund is
permitted to pay to Distributors or others for distribution and
related expenses is 0.50% per annum of Class II shares' average
daily net assets, payable quarterly. All expenses of
distribution, marketing and related services over that amount
will be borne by Distributors 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 0.15% per
annum of the class' 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.
The Class II Plan also covers any payments to or by the Fund,
Advisers, Distributors, or other parties on behalf of the Fund,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of Class II shares issued by the Fund within
the context of Rule 12b-1. The payments under the Plan are
included in the maximum operating expenses which may be borne by
Class II of the Fund.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Plan fees assessed on
Class II shares to partially recoup fees Distributors pays to
securities dealers.
See the "Plan of Distribution" discussion in the "Management of
the Fund" section in the Prospectus and in the SAI for more
information about both Class I and Class II Plans.
DISTRIBUTIONS TO SHAREHOLDERS
According to the requirements of the Internal Revenue Code of
1986, as amended (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 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, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a front-end sales charge) on
the dividend reinvestment date. 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. See "Distributions to
Shareholders" in the Prospectus and the SAI for more information.
HOW TO BUY SHARES OF THE FUND
The following discussion supplements the one included in the
Prospectus under "How to Buy Shares of the Fund." THE APPLICATION
FORM INCLUDED WITH THIS SUPPLEMENT MUST ACCOMPANY ANY PURCHASE OF
SHARES. DO NOT USE THE APPLICATION INCLUDED IN THE PROSPECTUS.
PURCHASE PRICE OF FUND SHARES
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 (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund, or (2) 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. The offering price will be calculated to two decimal places
using standard rounding criteria. A description of the method of
calculating net asset value per share is included under the
caption "Valuation of Fund Shares" in the Prospectus.
Set forth below is a table of total front-end sales charges or
underwriting commissions and dealer concessions for Class I
shares:
TOTAL SALES CHARGE
SIZE OF AS A PERCENTAGE AS A PERCENTAGE DEALER
TRANSACTION AT OF OFFERING OF NET AMOUNT CONCESSION AS A
OFFERING PRICE PRICE INVESTED PERCENTAGE OF
OFFERING
PRICE*, ***
Less than
$100,000 4.25% 4.44% 4.00%
$100,000 but
less than
$250,000 3.50% 3.63% 3.25%
$250,000 but
less than
$500,000 2.75% 2.83% 2.50%
$500,000 but
less than
$1,000,000 2.15% 2.20% 2.00%
$1,000,000 or
more none none (see below)**
*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 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. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed 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, as amended.
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 the contingency period. See "How to Sell
Shares of the Fund - Contingent Deferred Sales Charge" in this
Supplement.
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(Registered Trademark) and the Templeton Group 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 Distributors 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 Group
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
Distributors that the investment qualifies for a discount.
Other Payments to Securities Dealers. Distributors, or one of its
affiliates, may make payments, out of its own resources, of up to
1.00% of the amount purchased to securities dealers who initiate
and are responsible for purchases made at net asset value by
certain trust companies and trust departments of banks. See
definitions under "Description of Special Net Asset Value
Purchases" and as set forth in the SAI.
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. See table below:
TOTAL SALES CHARGE
AS A DEALER
SIZE OF TRANSACTION AS A PERCENTAGE PERCENTAGE CONCESSION AS
AT OFFERING PRICE OF OFFERING OF NET A PERCENTAGE
PRICE AMOUNT OF OFFERING
INVESTED PRICE*
any amount (less
than $1 million) 1.00% 1.01% 1.00%
* Distributors, or one of its affiliates, may make additional
payments to securities dealers, from its own resources, of up to
1% of the amount invested. During the first year following a
purchase of Class II shares, Distributors will keep a portion of
the Rule 12b-1 fees assessed to those shares to partially recoup
fees Distributors pays to securities dealers.
Class II shares redeemed within eighteen months of their purchase
will be assessed a contingent deferred sales charge of 1% 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."
The following section, which supersedes that included in the
Prospectus, describes the categories of investors who may
purchase Class I shares of the Fund at net asset value and when
Class I and Class II shares may be purchased at net asset value.
The sections in the Prospectus titled "Quantity Discounts in
Sales Charges" and "Group Purchases" only apply to Class I
shares. Although sales charges on Class II shares may not be
reduced through a Letter of Intent or Rights of Accumulation as
described under "Quantity Discounts in Sales Charges," the value
of Class II shares owned by an investor may be included in
determining the appropriate sales charges for Class I shares.
PURCHASES AT NET ASSET VALUE
Class I shares may be purchased without the imposition of either
a front-end sales charge ("net asset value") or a contingent
deferred sales charge by (1) officers, trustees, directors and
full-time employees of the Fund, any of the Franklin Templeton
Funds, or of the Franklin Templeton Group, and by their spouses
and family members, including any subsequent payments by such
parties after cessation of employment; (2) companies exchanging
shares with or selling assets pursuant to a merger, acquisition
or exchange offer; (3) accounts managed by the Franklin Templeton
Group; (4) registered securities dealers and their affiliates,
for their investment account only, and (5) registered personnel
and employees of securities dealers and by 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 Shareholder
Services 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
in the tax section of the Prospectus and 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 Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders" in the Prospectus.
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
Distributors, or by registered investment advisors affiliated
with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as
a wrap fee program).
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 ADVISORS 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 Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to
such securities dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales
Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
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
Distributors. Currently, those criteria require that the amount
invested or to be invested during the subsequent 13-month period
in this Fund or any of the Franklin Templeton Investments must
total at least $1,000,000. 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.
For a complete understanding of how to buy shares of the Fund,
this Supplement must be read in conjunction with the Prospectus.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
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 "Purchases at Net Asset Value" and "Description of
Special Net Asset Value Purchases" above for a discussion of when
shares may be purchased at net asset value.
OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
With the exception of Systematic Withdrawal Plans, all programs
and privileges detailed under the discussion of "Other Programs
and Privileges Available to the Fund Shareholders" will remain in
effect as described in the Prospectus for the new multiclass
structure. For a complete discussion of these programs, see
"Other Programs and Privileges Available to Fund Shareholders" in
the Prospectus.
SYSTEMATIC WITHDRAWAL PLANS
Subject to the requirements outlined in the Prospectus, a
shareholder may establish a Systematic Withdrawal Plan for his or
her account. 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.
EXCHANGE PRIVILEGE
Shareholders are entitled to exchange their shares for shares of
the same class 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,
however, the exchanged shares were subject to a contingent
deferred sales charge in the original fund purchased and shares
are subsequently redeemed within twelve months (Class I shares)
or eighteen months (Class II shares) of the calendar month of the
original purchase date, a contingent deferred sales charge will
be imposed. Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to exchange
into for all specific requirements or limitations on exercising
the exchange privilege, for example, minimum holding periods or
applicable sales charges.
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, a
shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into a new fund, $500 from each of
these shares will be deemed 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
other 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.
TRANSFERS
Transfers between identically registered 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 shares in the original
account.
CONVERSION RIGHTS
It is not presently anticipated that Class II shares will be
converted to Class I shares. A shareholder may, however, sell his
Class II shares and use the proceeds to purchase Class I shares,
subject to all applicable sales charges.
See "Exchange Privilege" in the Prospectus for more information.
HOW TO SELL SHARES OF THE FUND
For a discussion regarding the sale of either class of Fund
shares, refer to the section in the Prospectus titled "How to
Sell Shares of the Fund." In addition, the charges described in
this Supplement will also apply to the sale of all Fund shares.
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 of the
calendar month following 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
total cost of such shares at the time of purchase, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below and "Purchases at Net
Asset Value" under "How to Buy Shares of the Fund."
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 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 Distributors. 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;
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 or
the beneficial owner.
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 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.
VALUATION OF FUND SHARES
The following sentence replaces the first sentence of the first
paragraph in this section; the subsequent paragraph is added to
the end of this section.
The net asset value per share of each class of the Fund is
determined as of the scheduled close of the New York Stock
Exchange ("Exchange") (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading.
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.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
Replace the second and third paragraphs in this section with the
following language:
From a touch-tone phone, Franklin and Templeton shareholders may
access an automated system (day or night) which offers the
following features.
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.
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, request duplicate confirmation or year-end
statements and money fund checks, if applicable.
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 TeleFACTS system is accessible by calling 1-800/247-1753. The
Star Service is accessible by calling 1-800/654-0123. Franklin
Class I and Class II share codes for the Fund, which will be
needed to access system information are 112 and 212,
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.
PERFORMANCE (CLASS II)
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
as described in the "Performance" section of the Prospectus will
be available.
GENERAL INFORMATION
With the exceptions noted below, all rights and privileges
detailed under the discussion of "General Information" will
remain in effect as described in the Prospectus for the new
multiclass structure. For a complete discussion of these rights
and privileges, see "General Information" in the Prospectus.
ORGANIZATION
Replace the first sentence in this section with the following
language:
The Fund's authorized capital stock consists of 10,000,000,000
shares of common stock of $.01 par value divided into two sub-
classes. Five billion (5,000,000,000) shares of capital stock
have been allocated to Class I and five billion (5,000,000,000)
shares of stock have been allocated to Class II.
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 the
state corporation 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. For more information regarding voting rights, see the
"Voting Rights" discussion in the Prospectus under the heading
"General Information."
12 S
SUPPLEMENT DATED MAY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
dated August 1, 1994
As described in the Prospectus, this Fund now offers two
classes to its investors. This new structure allows investors to
consider, among other features, the impact of sales charges and
distribution fees ("Rule 12b-1 fees") on their investments in
this Fund.
ADD THE FOLLOWING AS THE LAST SENTENCE OF THE PARAGRAPH
DESCRIBING FEES PAID TO THE MANAGER UNDER "INVESTMENT ADVISORY
AND OTHER SERVICES":
Each class will pay its share of the fee as determined by the
proportion of the Fund that it represents.
EACH NEW CLASS OF SHARES HAS A SEPARATE DISTRIBUTION PLAN. FOR
THIS REASON, THE FIRST PARAGRAPH OF THE SECTION "THE FUND'S
UNDERWRITER - DISTRIBUTION PLAN" HAS BEEN REPLACED WITH THE
FOLLOWING PARAGRAPH:
PLANS OF DISTRIBUTION
Each class of the Fund has adopted a Distribution Plan ("Class I
Plan" and "Class II Plan," respectively, or "Plans") pursuant to
Rule 12b-1 under the 1940 Act.
THE FOLLOWING SENTENCE SHOULD BE ADDED AS THE FIRST SENTENCE IN
THE NEXT PARAGRAPH:
Pursuant to the Class I Plan, the Fund may pay up to a maximum
of 0.10% per annum of its average daily net assets for expenses
incurred in the promotion and distribution of its shares.
THE PARAGRAPH DESCRIBED ABOVE ONLY CONCERNS THE CLASS I PLAN. THE
FOLLOWING PARAGRAPHS HAVE BEEN ADDED TO THIS SECTION AFTER THE
DISCUSSION OF THE CLASS I PLAN TO DESCRIBE THE PLAN FOR CLASS II:
THE CLASS II PLAN
Under the Class II Plan, the Fund is permitted to pay to
Distributors or others annual distribution fees, payable
quarterly, of .50% of Class II's average daily net assets, in
order to compensate Distributors or others for providing
distribution and related services and bearing certain expenses of
the Class. All expenses of distribution and marketing over that
amount will be borne by Distributors, or others who have incurred
them, without reimbursement by the Fund. In addition to this
amount, under the Class II Plan, the Fund shall pay .15% per
annum, payable quarterly, of the Class' average daily net assets
as a servicing fee. This fee will be used to pay 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, and similar activities related to
furnishing personal services and maintaining shareholder
accounts. Distributors may pay the securities dealer, from its
own resources, a commission of up to 1% of the amount invested at
the time of investment.
THE SUBSEQUENT PARAGRAPHS IN THE SECTION "DISTRIBUTION PLAN"
APPLY EQUALLY TO BOTH CLASS I AND CLASS II PLANS, WITH THE
EXCEPTIONS THAT (1) THE SENTENCE REGARDING UNREIMBURSED EXPENSES
REFERS TO THE CLASS I PLAN ONLY, AND (2) THE CLASS II PLAN WAS
APPROVED BY THE BOARD OF DIRECTORS AND THE SOLE INITIAL
SHAREHOLDER PRIOR TO MAY 1, 1995, AND IS EFFECTIVE FROM MAY 1,
1995.
THE OFFICERS AND DIRECTORS SECTION IS REVISED TO READ AS FOLLOWS:
OFFICERS AND DIRECTORS
The Board of Directors has the responsibility for the overall
management of the Fund, including general supervision and review
of its investment activities. The directors, in turn, elect the
officers of the Fund who are responsible for administering the
day-to-day operations of the Fund. The affiliations of the
officers and directors and their principal occupations for the
past five years are listed below. Directors who are deemed to be
"interested persons" of the Fund, as defined in the 1940 Act, are
indicated by an asterisk (*).
Harris J. Ashton (62)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Director
President, Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers); Director,
RBC Holdings, Inc. (a bank holding company) and Bar-S Foods; and
director, trustee or managing general partner, as the case may
be, of 54 of the investment companies in the Franklin Templeton
Group of Funds.
S. Joseph Fortunato (62)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director
of General Host Corporation; director, trustee or managing
general partner, as the case may be, of 56 of the investment
companies in the Franklin Templeton Group of Funds.
*Charles B. Johnson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Director
President and Director, Franklin Resources, Inc.; Chairman of the
Board and Director, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton
Investor Services, Inc. and General Host Corporation; and officer
and/or director, trustee or managing general partner, as the case
may be, of most other subsidiaries of Franklin Resources, Inc.
and of 55 of the investment companies in the Franklin Templeton
Group of Funds.
*Rupert H. Johnson, Jr. (54)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Director
Executive Vice President and Director, Franklin Resources, Inc.
and Franklin Templeton Distributors, Inc.; President and
Director, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 42 of the
investment companies in the Franklin Templeton Group of Funds.
Gordon S. Macklin (66)
8212 Burning Tree Road
Bethesda, MD 20817
Director
Chairman, White River Corporation (information services);
Director, Fund American Enterprises Holdings, Inc., Martin
Marietta Corporation, MCI Communications Corporation, MedImmune,
Inc. (biotechnology), Infovest Corporation (information
services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner,
as the case may be, of 51 of the investment companies in the
Franklin Templeton Group of Funds; formerly, Chairman, Hambrecht
and Quist Group; Director, H & Q Healthcare Investors; and
President, National Association of Securities Dealers, Inc.
Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services,
Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee of 41 of the investment companies in the
Franklin Templeton Group of Funds.
Kenneth V. Domingues (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and Officer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.
Martin L. Flanagan (34)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer,
Franklin Resources, Inc.; Executive Vice President, Templeton
Worldwide, Inc.; Senior Vice President and Treasurer, Franklin
Advisers, Inc. and Franklin Templeton Distributors, Inc.; Senior
Vice President, Franklin/Templeton Investor Services, Inc.;
officer of most other subsidiaries of Franklin Resources, Inc.;
and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek (46)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 36 of the investment companies in
the Franklin Group of Funds.
Thomas J. Kenny (32)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Franklin Advisers, Inc. and officer of
eight of the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36 of the
investment companies in the Franklin Group of Funds.
Brian E. Lorenz (56)
One North Lexington Avenue
White Plains, New York 10001-1700
Secretary
Attorney, member of the law firm of Bleakley Platt & Schmidt;
officer of three of the investment companies in the Franklin
Group of Funds.
Directors not affiliated with the investment manager
(nonaffiliated directors) are currently paid fees of $1,200 per
month plus $1,200 per meeting attended. During the fiscal year
ended March 30, 1994, fees totaling $86,400 were paid to
nonaffiliated directors. As indicated above, certain of the
directors and officers hold positions with other companies in the
Franklin Group of Funds(Registered Trademark) and the Templeton
Funds ("Franklin Templeton Funds"). The following table shows the
fees paid by the Fund to its nonaffiliated directors and the
total fees paid to such directors by the Fund and other Franklin
Templeton Funds for which they serve as directors, trustees or
managing general partners.
TOTAL
COMPENSATION
FROM
FRANKLIN
NUMBER OF TEMPLETON
FRANKLIN FUNDS,
AGGREGATE TEMPLETON FUND INCLUDING
COMPENSATION BOARDS ON WHICH THE FUND, **
NAME FROM FUND, * EACH SERVES
Harris J. Ashton $28,800 54 319,925
S. Joseph Fortunato $28,800 56 336,065
Gordon S. Macklin $28,800 51 303,685
*For the fiscal year ended March 30, 1994.
**For the calendar year ended December 31, 1994
Nonaffiliated directors are also reimbursed for expenses incurred
in connection with attending Board meetings, paid pro rata by
each Franklin Templeton fund in which they serve.
As of March 31, 1995, the directors and officers, as a group,
owned of record and beneficially approximately 357,374 shares or
less than 1% of the total outstanding shares of the Fund. In
addition, many of the Fund's directors own shares in various of
the other funds in the Franklin Group of Funds and the Templeton
Funds. Certain officers or directors who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the
fees paid to its subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers.
Legal fees and expense reimbursements of $51,226 were paid during
the fiscal year ended March 31, 1994, to the law firm of which
Mr. Lorenz, an officer of the Fund, is a partner, and which acts
as counsel to the Fund. No officer or trustee received any other
compensation directly from the Fund.
From time to time, the number of Fund shares held in the "street
name" accounts of various securities dealers for the benefit of
their clients or in centralized securities depositories may
exceed 5% of the total shares outstanding. To the best of the
Fund's knowledge, no other person holds beneficially or of record
more than 5% of the Fund's outstanding shares.
THE FOLLOWING SUBSTITUTES SUBSECTION "PURCHASES AT NET ASSET
VALUE" UNDER "ADDITIONAL INFORMATION REGARDING FUND SHARES":
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 the Fund at net asset value (without a
front-end or contingent deferred sales charge). Distributors 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. Distributors 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 Distributors,
or its affiliates, and the securities dealer.
With respect to purchases made at net asset value by certain
trust companies and trust departments of banks, Distributors, or
one of its affiliates, out of its own resources, may pay up to 1%
of the amount invested.
THE FOLLOWING PARAGRAPHS ARE ADDED TO "ADDITIONAL INFORMATION
REGARDING FUND SHARES":
The Fund may impose a $10 charge for each returned item , against
any shareholder account which, in connection with the purchase of
Fund shares, submits a check or a draft which is returned unpaid
to the Fund.
LETTER OF INTENT
An investor may qualify for a reduced sales charge on the
purchase of Class I shares, as described in the Prospectus. At
any time within 90 days after the first investment which the
investor wants to qualify for the reduced sales charge, a signed
Shareholder Application, with the Letter of Intent ("Letter")
section completed, may be filed with the Fund. After the Letter
is filed, each additional investment made will be entitled to the
sales charge applicable to the level of investment indicated on
the Letter. Sales charge reductions based upon purchases in more
than one fund in the Franklin Templeton Funds will be effective
only after notification to Distributors that the investment
qualifies for a discount. The shareholder's holdings in the
Franklin Templeton Funds, including Class II shares, acquired
more than 90 days before the Letter of Intent is filed will be
counted towards completion of the Letter of Intent but will not
be entitled to a retroactive downward adjustment of sales charge.
Any redemptions made by the shareholder, during the 13-month
period will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter have been
completed. If the Letter is not completed within the 13-month
period, there will be an upward adjustment of the sales charge,
depending upon the amount actually purchased (less redemptions)
during the period. An investor who executes a Letter prior to a
change in the sales charge structure for the Fund will be
entitled to complete the Letter at the lower of (i) the new sales
charge structure; or (ii) the sales charge structure in effect at
the time the Letter was filed with the Fund.
AS MENTIONED IN THE PROSPECTUS, FIVE PERCENT (5%) OF THE AMOUNT
OF THE TOTAL INTENDED PURCHASE WILL BE RESERVED IN SHARES OF THE
FUND REGISTERED IN THE INVESTOR'S NAME. If the total purchases,
less redemptions, equal the amount specified under the Letter,
the reserved shares will be deposited to an account in the name
of the investor or delivered to the investor or the investor's
order. If the total purchases, less redemptions, exceed the
amount specified under the Letter and is an amount which would
qualify for a further quantity discount, a retroactive price
adjustment will be made by Distributors and the dealer through
whom purchases were made pursuant to the Letter (to reflect such
further quantity discount) on purchases made within 90 days
before and on those made after filing the Letter. The resulting
difference in offering price will be applied to the purchase of
additional shares at the offering price applicable to a single
purchase or the dollar amount of the total purchases. If the
total purchases, less redemptions, are less than the amount
specified under the Letter, the investor will remit to
Distributors an amount equal to the difference in the dollar
amount of sales charge actually paid and the amount of sales
charge which would have applied to the aggregate purchases if the
total of such purchases had been made at a single time. The
shareholder will receive a written notification from Distributors
requesting the remittance. Upon such remittance the reserved
shares held for the investor's account will be deposited to an
account in the name of the investor or delivered to the investor
or to the investor's order. If within 20 days after written
request such difference in sales charge is not paid, the
redemption of an appropriate number of reserved shares to realize
such difference will be made. In the event of a total redemption
of the account prior to fulfillment of the Letter of Intent, the
additional sales charge due will be deducted from the proceeds of
the redemption, and the balance will be forwarded to the
investor.
THE "PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS" AND
"CALCULATION OF NET ASSET VALUE" SUBSECTIONS ARE MODIFIED TO
REFLECT THAT THE FUND'S NET ASSET VALUE IS CALCULATED FOR EACH
CLASS SEPARATELY AS OF THE SCHEDULED CLOSE OF THE NEW YORK STOCK
EXCHANGE (GENERALLY 1:00 P.M. PACIFIC TIME).
THE FOLLOWING SUBSTITUTES THE SUBSECTION "REINVESTMENT DATE":
REINVESTMENT DATE
Shares acquired through the reinvestment of dividends will be
purchased at the net asset value determined on the business day
following the dividend record date (sometimes known as "ex-
dividend date"). 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.
FINANCIAL STATEMENTS
The unaudited financial statements of the Fund for the six months
ended September 30, 1994 contained in the Semi Annual Report to
Shareholders dated September 30, 1994 are incorporated herein by
reference.
