PROSPECTUS
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
INVESTMENT STRATEGY
TAX-FREE INCOME
CLASS A, B & C
AUGUST 1, 1998 AS AMENDED JANUARY 21, 1999
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Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how the fund invests
and the services available to shareholders.
To learn more about the fund and its policies, you may request a copy of the
fund's Statement of Additional Information ("SAI"), dated August 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.
For a free copy of the SAI or a larger print version of this prospectus,
contact your investment representative or call 1-800/DIAL BEN.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY 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 DISTRIBUTORS.
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary ........................................................ 2
Financial Highlights ................................................... 4
How Does the Fund Invest Its Assets? ................................... 6
What Are the Risks of Investing in the Fund? ........................... 10
Who Manages the Fund? .................................................. 12
How Taxation Affects the Fund and Its Shareholders ..................... 15
How Is the Fund Organized? ............................................. 18
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ................................................... 19
May I Exchange Shares for Shares of Another Fund? ...................... 27
How Do I Sell Shares? .................................................. 30
What Distributions Might I Receive From the Fund? ...................... 32
Transaction Procedures and Special Requirements ........................ 34
Services to Help You Manage Your Account ............................... 38
What If I Have Questions About My Account? ............................. 40
GLOSSARY
Useful Terms and Definitions ........................................... 41
FRANKLIN CALIFORNIA TAX-FREE INCOME FUND
AUGUST 1, 1998 AS AMENDED JANUARY 21, 1999
When reading this prospectus, you will see certain terms beginning with
capital letters. This means the term is explainedin our glossary section.
777 Mariners Island Blvd.
P.O. Box 7777
San MateoCA 94403-7777
1-800/DIAL BEN(R)
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
fund. It is based on the fund's historical expenses for the fiscal year ended
March 31, 1998. The fund's actual expenses may vary.
CLASS A 1 CLASS B 2 CLASS C 1
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A. SHAREHOLDER TRANSACTION EXPENSES 3
Maximum Sales Charge
(as a percentage of Offering Price) 4.25% 4.00% 1.99%
Paid at time of purchase4 4.25% None 1.00%
Paid at redemption5 None 4.00% 0.99%
Exchange Fee (per transaction)6 None None None
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.45% 0.45% 0.45%
Rule 12b-1 Fees7 0.07% 0.65% 0.65%
Other Expenses 0.04% 0.04% 0.04%
------------------------------
Total Fund Operating Expenses 0.56% 1.14% 1.14%
==============================
C. EXAMPLE
Assume the annual return for each class is 5%, operating expenses are
as described above, and you sell your shares after the number of years
shown. These are the projected expenses for each $10,000 that you
invest in the fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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CLASS A $480 8 $597 $724 $1,097
CLASS B
Assuming you sold your shares
at the end of the period $516 $662 $828 $1,224 9
Assuming you stayed in
the fund $116 $362 $628 $1,224 9
CLASS C $313 10 $459 $721 $1,472
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES
OR RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE
SHOWN. The fund pays its operating expenses. The effects of these
expenses are reflected in the Net Asset Value or dividends of each
class and are not directly charged to your account.
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended March 31, 1998. The Rule 12b-1 fees are based on the maximum fees
allowed under Class B's Rule 12b-1 plan.
3. If your transaction is processed through your Securities Dealer, you may
be charged a fee by your Securities Dealer for this service.
4. There is no front-end sales charge if you invest $1 million or more in
Class A shares. Although Class B and C have a lower front-end sales charge
than Class A, their Rule 12b-1 fees are higher. Over time you may pay more
for Class B and C shares. Please see "How Do I Buy Shares? - Choosing a Share
Class."
5. A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more if you sell the shares within one year and to any Class C
purchase if you sell the shares within 18 months. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase if you sell the shares
within six years. The charge is based on the value of the shares sold or the
Net Asset Value at the time of purchase, whichever is less. The number in the
table shows the charge as a percentage of Offering Price. While the
percentage for Class C is different depending on whether the charge is shown
based on the Net Asset Value or the Offering Price, the dollar amount you
would pay is the same. See "How Do I Sell Shares? - Contingent Deferred Sales
Charge" for details.
6. There is a $5 fee for exchanges by Market Timers.
7. These fees may not exceed 0.10% for Class A and 0.65% for Class B and C.
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 charge permitted under the rules of the National
Association of Securities Dealers, Inc.
8. Assumes a Contingent Deferred Sales Charge will not apply.
9. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
10. For the same Class C investment, you would pay projected expenses of $215
if you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.
FINANCIAL HIGHLIGHTS
This table summarizes the fund's financial history. The information has been
audited by PricewaterhouseCoopers LLP, the fund's independent auditor. The
audit report covering each of the most recent five years appears in the
fund's Annual Report to Shareholders for the fiscal year ended March 31,
1998. The Annual Report to Shareholders also in-cludes more information about
the fund's performance. For a free copy, please call Fund Information.
<TABLE>
<CAPTION>
Class A
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Six Months Ended Year Ended March 31
September 30, 1998
(unaudited) 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning
of year $7.35 $7.09 $7.18 $7.11 $7.12 $7.36 $7.07 $6.92 $6.89 $6.80 $6.73
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Income from investment operations:
Net investment income .20 .42 .43 .44 .45 .46 .48 .49 .50 .51 .51
Net realized and unrealized
gains (losses) .14 .27 (.04) .07 (.02) (.23) .29 .15 .04 .10 .08
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Total from investment
operations .34 .69 .39 .51 .43 .23 .77 .64 .54 .61 .59
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Less distributions from:
Net investment income (.20) (.42) (.43) (.44) (.44) (.45) (.48) (.49) (.51) (.52) (.52)
Net realized gains (.01) (.01) (.05) - - (.02) - - - - -
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Total distributions (.21) (.43) (.48) (.44) (.44) (.47) (.48) (.49) (.51) (.52) (.52)
-------------------------------------------------------------------------------------------------------------
Net asset value, end of
year $7.48 $7.35 $7.09 $7.18 $7.11 $7.12 $7.36 $7.07 $6.92 $6.89 $6.80
=============================================================================================================
Total return* 4.66% 10.10% 5.67% 7.40% 6.37% 2.88% 10.95% 9.32% 7.76% 8.83% 8.67%
Ratios/supplemental data
Net assets, end of year
(millions) $15,558 $14,767 $13,634 $13,313 $12,923 $13,345 $13,541 $12,304 $11,466 $10,525 $8,769
Ratio to average net assets:
Expenses .56%** .56% .56% .55% .55% .49% .49% .49% .48% .49% .49%
Net investment income 5.36%** 5.71% 6.07% 6.14% 6.36% 6.19% 6.61% 6.93% 7.22% 7.29% 7.53%
Portfolio turnover rate 13.93% 17.29% 11.96% 19.24% 14.07% 18.12% 15.63% 16.13% 15.83% 11.09% 32.95%
Class C
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Six Months Ended Year Ended March 31
September 30, 1998
(unaudited) 1998 1997 1996+
-------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $7.35 $7.09 $7.18 $7.09
-------------------------------------------------------
Income from investment operations:
Net investment income ............................. .18 .38 .39 .38
Net realized and unrealized gains (losses) ........ .14 .27 (.04) .08
-------------------------------------------------------
Total from investment operations ................... .32 .65 .35 .46
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Less distributions from:
Net investment income ............................. (.18) (.38) (.39) (.37)
Net realized gains ................................ (.01) (.01) (.05) -
-------------------------------------------------------
Total distributions ................................ (.19) (.39) (.44) (.37)
-------------------------------------------------------
Net asset value, end of year ....................... $7.48 $7.35 $7.09 $7.18
=======================================================
Total return* ...................................... 4.37% 9.49% 5.06% 6.62%
Ratios/supplemental data
Net assets, end of year (000's) .................... $386,548 $295,976 $138,509 $47,685
Ratio to average net assets:
Expenses .......................................... 1.14%** 1.14% 1.14% 1.14%**
Net investment income ............................. 4.78%** 5.13% 5.47% 5.55%**
Portfolio turnover rate ............................ 13.93% 17.29% 11.96% 19.24%
</TABLE>
*Total return does not reflect sales commissions or the Contingent Deferred
Sales Charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the Offering Price.
**Annualized.
+For the period May 1, 1995 (effective date) to March 31, 1996.
HOW DOES THE FUND INVEST ITS ASSETS?
A QUICK LOOK AT THE FUND
GOAL: High current tax-free income for California residents.
STRATEGY: Invests in investment grade municipal securities whose interest is
free from federal and California personal income taxes.
WHAT IS THE MANAGER'S APPROACH?
The manager tries to select securities that it believes will provide the best
balance between risk and return within the fund's range of allowable
investments. The manager considers a number of factors, including general
market and economic conditions and the credit quality of the issuer, when
selecting securities for the fund.
To provide tax-free income to shareholders, the manager typically uses a buy
and hold strategy. This means it holds securities in the fund's portfolio for
income purposes, rather than trading securities for capital gains. The
manager may sell a security at any time, however, when the manager believes
doing so could help the fund meet its goals.
While income is the most important part of return over time, the total return
from a municipal security includes both income and price gains or losses. The
fund's focus on income does not mean it invests only in the highest-yielding
securities available, or that it can avoid losses of principal.
WHO MAY WANT TO INVEST?
The fund may be appropriate for investors in higher tax brackets who seek
high current income that is free from federal and California personal income
taxes.
The value of the fund's investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions, and
other federal and state political and economic news. When you sell your
shares, they may be worth more or less than what you paid for them. Please
consider your investment goals and tolerance for price fluctuations and risk
when making your investment decision.
THE FUND IN MORE DETAIL
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is to provide investors with as high a level
of income exempt from federal income taxes as is consistent with prudent
investing, while seeking preservation of shareholders' capital. This goal is
fundamental, which means that it may not be changed without shareholder
approval.
The fund also tries to provide a maximum level of income that is free from
California personal income taxes for California residents, although this
policy is not a fundamental investment goal of the fund.
WHAT KINDS OF SECURITIES DOES THE FUND BUY?
The fund tries to invest all of its assets in tax-free municipal securities,
including bonds, notes and commercial paper.
MUNICIPAL SECURITIES are issued by state and local governments, their
agencies and authorities, as well as by the District of Columbia and U.S.
territories and possessions, to borrow money for various public or private
projects. The issuer pays a fixed or variable rate of interest, and must
repay the amount borrowed (the "principal") at maturity.
Municipal securities help the fund meet its investment goal because they
generally pay interest free from federal income tax. Municipal securities
issued by California or its counties, municipalities, authorities, agencies,
or other subdivisions ("California municipal securities"), as well as
municipal securities issued by U.S. territories such as Guam, Puerto Rico, or
the Mariana Islands, also generally pay interest free from California
personal income taxes for California residents.
The fund normally invests:
o at least 80% of its total assets in securities that pay interest free
from regular federal income taxes (this policy is fundamental);
o at least 80% of its total assets in securities that pay interest free
from the federal alternative minimum tax;
o at least 65% of its total assets in securities that pay interest free
from California personal income taxes, although the fund tries to invest
all of its assets in these securities; and
at least 65% of its total assets in California municipal securities.
While the fund tries to invest 100% of its assets in tax-free municipal
securities, it is possible, although not anticipated, that the fund may have
up to 20% of its assets in securities that pay taxable interest. If you are
subject to the federal alternative minimum tax, please keep in mind that the
fund may also have a portion of its assets in municipal securities that pay
interest subject to the federal alternative minimum tax.
QUALITY. All things being equal, the lower a security's credit quality, the
higher the risk and the higher the yield the security generally must pay as
compensation to investors for the higher risk.
A security's credit quality depends on the issuer's ability to pay interest
on the security and, ultimately, to repay the principal. Independent rating
agencies, such as Fitch, Moody's and S&P, often rate municipal securities
based on their opinion of the issuer's credit quality. Most rating agencies
use a descending alphabet scale to rate long-term securities, and a
descending numerical scale to rate short-term securities. For example, Fitch
and S&P use AAA, AA, A and BBB for their top four long-term ratings, while
Moody's uses Aaa, Aa, A and Baa. Securities in the top four ratings are
"investment grade," although securities in the fourth highest rating may have
some speculative features. These ratings are described in more detail in the
SAI.
An insurance company, bank or other foreign or domestic entity may provide
credit support for a municipal security and enhance its credit quality. For
example, some municipal securities are insured, which means they are covered
by an insurance policy that insures the timely payment of principal and
interest. Other municipal securities may be backed by letters of credit,
guarantees, or escrow or trust accounts that contain securities backed by the
full faith and credit of the U.S. government to secure the payment of
principal and interest.
o The fund only buys investment grade securities or unrated securities that
the manager believes are comparable.
MATURITY. Municipal securities are issued with a specific maturity date - the
date when the issuer must repay the amount borrowed. Maturities typically
range from less than one year (short term) to 30 years (long term). In
general, securities with longer maturities are more sensitive to price
changes, although they may provide higher yields.
o The fund has no restrictions on the maturity of the securities it may buy
or on its average portfolio maturity.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that change either
at specific intervals or whenever a benchmark rate changes. While this
feature helps to protect against a decline in the security's market price, it
also lowers the fund's income when interest rates fall. Of course, the fund's
income from its variable rate investments may also increase if interest rates
rise.
o The fund may invest in investment grade variable and floating rate
securities.
MUNICIPAL LEASE OBLIGATIONS finance the purchase of public property. The
property is leased to the state or a local government, and the lease payments
are used to pay the interest on the obligations. Municipal lease obligations
differ from other municipal securities because the lessee's governing body
must set aside the money to make the lease payments each year. If the money
is not set aside, the issuer or the lessee can end the lease without penalty.
If the lease is cancelled, investors who own the municipal lease obligations
may not be paid.
o The fund may invest in municipal lease obligations without limit, if the
obligations meet the fund's quality and maturity standards.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
TEMPORARY INVESTMENTS. When the manager believes unusual or adverse economic,
market or other conditions exist, it may invest the fund's portfolio in a
temporary defensive manner. Under these circumstances, the fund may invest
all of its assets in securities that pay taxable interest, including (i)
municipal securities issued by a state or local government other than
California, or by a U.S. territory such as Guam, Puerto Rico or the Mariana
Islands; (ii) high quality commercial paper and obligations of U.S. banks
(including commercial banks and savings and loan associations) with assets of
$1 billion or more; or (iii) securities issued by or guaranteed by the full
faith and credit of the U.S. government, including indirect U.S. government
securities such as mortgage-backed securities issued or guaranteed by the
Government National Mortgage Association or the Federal National Mortgage
Association, and repurchase agreements collateralized by U.S. government
securities. To the extent the fund's defensive investments are limited, an
investment in the fund may be more risky than an investment in a similar fund
that has more flexibility during defensive situations.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS are those where payment and
delivery for the security take place at a future date. Since the market price
of the security may fluctuate during the time before payment and delivery,
the fund assumes the risk that the value of the security at delivery may be
more or less than the purchase price.
DIVERSIFICATION. Diversification involves limiting the amount of money
invested in any one issuer or, on a broader scale, in any one state or type
of project to help spread and reduce the risks of investment. A fund can be
either diversified or non-diversified. A non-diversified fund may invest a
greater portion of its assets in the securities of one issuer than a
diversified fund. Economic, business, political or other changes can affect
all securities of a similar type. A non-diversified fund may be more
sensitive to these changes.
o The fund is a diversified fund. The fund may, however, invest more than
25% of its assets in municipal securities that finance similar types of
projects, such as hospitals, housing, industrial development,
transportation or pollution control.
OTHER POLICIES AND RESTRICTIONS. The fund has a number of additional
investment policies and restrictions that govern its activities. Those that
are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board alone. For a list of these
restrictions and more information about the fund's investment policies,
including those described above, please see "How Does the Fund Invest Its
Assets?" and "Investment Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in
the SAI apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security
no longer meets one or more of the fund's policies or restrictions.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
Like all investments, an investment in the fund involves risks. The risks of
the fund are basically the same as those of other investments in municipal
securities of similar quality, although an investment in the fund may involve
more risk than an investment in a fund that does not focus on securities of a
single state. Because the fund holds many securities, it is likely to be less
risky than any one, or few, directly held municipal investments.
GENERAL RISK. There is no assurance that the fund will meet its investment
goal. The fund's share price, and the value of your investment, may change.
Generally, when the value of the fund's investments go down, so does the
fund's share price. Similarly, when the value of the fund's investments go
up, so does the fund's share price. Since the value of the fund's shares can
go up or down, it is possible to lose money by investing in the fund.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. When interest rates rise, municipal security prices
fall. The opposite is also true: municipal security prices go up when
interest rates fall. To explain why this is so, assume you hold a municipal
security offering a 5% yield. A year later, interest rates are on the rise
and comparable securities are offered with a 6% yield. With higher-yielding
securities available, you would have trouble selling your 5% security for the
price you paid - causing you to lower your asking price. On the other hand,
if interest rates were falling and 4% municipal securities were being
offered, you would be able to sell your 5% security for more than you paid.
INCOME RISK is the risk that the fund's income will decrease due to falling
interest rates. Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.
CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in
a security's credit rating may affect its value. Even securities supported by
credit enhancements have the credit risk of the entity providing the credit
support. Credit support provided by a foreign entity may be less certain
because of the possibility of adverse foreign economic, political or legal
developments that may affect the ability of that foreign entity to meet its
obligations. Changes in the credit quality of the credit provider could
affect the value of the security and the fund's share price.
MARKET RISK is the risk that a security's value will be reduced by market
activity or the results of supply and demand. This is a basic risk associated
with all securities. When there are more sellers than buyers, prices tend to
fall. Likewise, when there are more buyers than sellers, prices tend to
increase.
CALL RISK is the likelihood that a security will be prepaid (or "called")
before maturity. An issuer is more likely to call its bonds when interest
rates are falling, because the issuer can issue new bonds with lower interest
payments. If a bond is called, the fund may have to replace it with a
lower-yielding security. At any time, the fund may have a large amount of its
assets invested in municipal securities subject to call risk, including
escrow-secured or defeased bonds. A call of some or all of these securities
may lower the fund's income and its distributions to shareholders.
CALIFORNIA RISKS. Since the fund invests heavily in California municipal
securities, events in California are likely to affect the fund's investments
and its performance. These events may include:
o economic or political policy changes;
o tax base erosion;
o state constitutional limits on tax increases;
o budget deficits and other financial difficulties; and
o changes in the ratings assigned to California's municipal issuers.
A negative change in any one of these or other areas could affect the ability
of California's municipal issuers to meet their obligations. In recent years,
certain issuers in California have experienced financial difficulties, such
as the 1994 bankruptcy of Orange County. It is important to remember that
economic, budget and other conditions within California are unpredictable and
can change at any time.
U.S. TERRITORIES RISKS. The fund may invest up to 35% of its assets in
municipal securities issued by U.S. territories such as Guam, Puerto Rico or
the Mariana Islands. As with California municipal securities, events in any
of these territories where the fund invests may affect the fund's investments
and its performance.
FOR MORE INFORMATION ABOUT THE FUND'S RISKS. The fund's SAI also has
information about the fund's investment policies and their risks, including
specific information on California's economy and financial strength. Please
see "How Does the Fund Invest Its Assets?" and "What Are the Risks of
Investing in the Fund?" in the SAI.
YEAR 2000. When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by
issuers about their Year 2000 readiness. The manager, of course, cannot audit
each issuer and its major suppliers to verify their Year 2000 readiness.
If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see "Year 2000 Problem" under "Who Manages the Fund?" for more information.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the fund and elects its
officers. The officers are responsible for the fund's day-to-day operations.
The Board also monitors the fund to ensure no material conflicts exist among
the fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Franklin Advisers, Inc. manages the fund's assets and
makes its investment decisions. The manager also performs similar services
for other funds. It is wholly owned by Resources, a publicly owned company
engaged in the financial services industry through its subsidiaries. Charles
B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together, the manager and its affiliates manage over $222 billion
in assets, including more than $50 billion in the municipal securities
market. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the fund's Code of Ethics.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
fund's portfolio is: Mr. Kenny since 1987, Mr. Schroer since 1987, and Mr.
Wiley since 1991.
Thomas Kenny
Executive Vice President of Franklin Advisers, Inc.
Mr. Kenny is the Director of Franklin's Municipal Bond Department. He holds a
Master of Science degree in Finance from Golden Gate University and a
Bachelor of Arts degree in Business and Economics from the University of
California at Santa Barbara. Mr. Kenny joined the Franklin Templeton Group in
1986. He is a member of several securities industry-related committees and
associations.
Bernard Schroer
Vice President of Franklin Advisers, Inc.
Mr. Schroer holds a Bachelor of Arts degree in Finance from Santa Clara
University. He has been with the Franklin Templeton Group since 1987. He is a
member of several securities industry-related committees and associations.
John Wiley
Portfolio Manager of Franklin Advisers, Inc.
Mr. Wiley holds a Masters of Business Administration degree in Finance from
Saint Mary's College and a Bachelor of Science degree from the University of
California at Berkeley. He joined the Franklin Templeton Group in 1989. He is
a member of several securities industry-related committees and associations.
MANAGEMENT FEES. During the fiscal year ended March 31, 1998, management fees
totaling 0.45% of the average net assets of the fund were paid to the
manager. Total expenses, including fees paid to the manager, were 0.56% for
Class A and 1.14% for Class C.
PORTFOLIO TRANSACTIONS. The manager tries to obtain the best execution on all
transactions. If the manager believes more than one broker or dealer can
provide the best execution, it may consider research and related services and
the sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, when selecting a broker or dealer. Please see "How
Does the Fund Buy Securities for Its Portfolio?" in the SAI for more
information.
ADMINISTRATIVE SERVICES. Under an agreement with the manager, FT Services
provides certain administrative services and facilities for the fund. During
the fiscal year ended March 31, 1998, administration fees totaling 0.08% of
the average daily net assets of the fund were paid to FT Services. These fees
are paid by the manager. They are not a separate expense of the fund. Please
see "Investment Management and Other Services" in the SAI for more
information.
YEAR 2000 PROBLEM. The fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a
non-standard leap year may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others.
The fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.
THE RULE 12B-1 PLANS
Each class has a separate distribution or "Rule 12b-1" plan under which the
fund shall pay or may reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.
Payments by the fund under the Class A plan may not exceed 0.10% per year of
Class A's average daily net assets. All distribution expenses over this
amount will be borne by those who have incurred them. During the first year
after certain Class A purchases made without a sales charge, Securities
Dealers may not be eligible to receive the Rule 12b-1 fees associated with
the purchase.
Under the Class B plan, the fund pays Distributors up to 0.50% per year of
Class B's average daily net assets to pay Distributors for providing
distribution and related services and bearing certain Class B expenses. All
distribution expenses over this amount will be borne by those who have
incurred them. Securities Dealers are not eligible to receive this portion of
the Rule 12b-1 fees associated with the purchase.
The fund may also pay a servicing fee of up to 0.15% per year of Class B's
average daily net assets under the Class B plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish
and maintain customer accounts and records, helping with requests to buy and
sell shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and
account maintenance activities. Securities Dealers may be eligible to receive
this portion of the Rule 12b-1 fees from the date of purchase. After 8 years,
Class B shares convert to Class A shares and Securities Dealers may then
receive the Rule 12b-1 fees applicable to Class A.
The expenses relating to the Class B plan are also used to pay Distributors
for advancing the commission costs to Securities Dealers with respect to the
initial sale of Class B shares. Further, the expenses relating to the Class B
plan may be used by Distributors to pay third party financing entities that
have provided financing to Distributors in connection with advancing
commission costs to Securities Dealers.
Under the Class C plan, the fund may pay Distributors up to 0.50% per year of
Class C's average daily net assets to pay Distributors or others for
providing distribution and related services and bearing certain Class C
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. During the first year after a purchase of Class C
shares, Securities Dealers may not be eligible to receive this portion of the
Rule 12b-1 fees associated with the purchase.
The fund may also pay a servicing fee of up to 0.15% per year of Class C's
average daily net assets under the Class C plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish
and maintain customer accounts and records, helping with requests to buy and
sell shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and
account maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Fund's Underwriter" in the SAI.
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HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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ON AUGUST 5, 1997, PRESIDENT CLINTON HOW DOES THE FUND
SIGNED INTO LAW THE TAXPAYER RELIEF ACT OF EARN INCOME AND GAINS?
1997 (THE "1997 ACT"). THIS NEW LAW MAKES
SWEEPING CHANGES TO THE CODE. BECAUSE MANY The fund earns interest and other income
OF THESE CHANGES ARE COMPLEX, THEY ARE (the fund's "income") on its investments.
DISCUSSED IN THE SAI. When the fund sells a security for a
price that is higher than it paid, it has
TAXATION OF THE FUND'S INVESTMENTS. The a gain. When the fund sells a security
fund invests your money in the municipal for a price that is lower than it paid,
and other securities described in the it has a loss. If the fund has held the
section "How Does the Fund Invest Its security for more than one year, the gain
Assets?" Special tax rules may apply when or loss will be a long-term capital gain
determining the income and gains that the or loss. If the fund has held the
fund earns on its investments. These rules security for one year or less, the gain
may, in turn, affect the amount of or loss will be a short-term capital gain
distributions that the fund pays to you. or loss. The fund's gains and losses are
These special tax rules are discussed in netted together, and, if the fund has a
the SAI. net gain (the fund's "gains"), that gain
will generally be distributed to you.
TAXATION OF THE FUND. As a regulated
investment company, the fund generally
pays no federal income tax on the income
and gains that it distributes to you.
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TAXATION OF SHAREHOLDERS
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DISTRIBUTIONS. Distributions made to you WHAT IS A DISTRIBUTION?
from interest income on municipal
securities will be exempt from the regular As a shareholder, you will receive your
federal income tax. Distributions made to share of the fund's income and gains on
you from other income on temporary its investments. The fund's interest
investments, short-term capital gains, or income on municipal securities is paid to
ordinary income from the sale of market you as exempt-interest dividends. The
discount bonds will be taxable to you as fund's ordinary income and short-term
ordinary dividends, whether you receive capital gains are paid to you as ordinary
them in cash or in additional shares. dividends. The fund's long-term capital
Distributions made to you from interest on gains are paid to you as capital gain
certain private activity bonds, while distributions. If the fund pays you an
still exempt from the regular federal amount in excess of its income and gains,
income tax, are a preference item when this excess will generally be treated as
determining your alternative minimum tax. a non-taxable distribution. These
The fund will send you a statement in amounts, taken together, are what we call
January of the current year that reflects the fund's distributions to you.
the amount of exempt-interest dividends,
ordinary dividends, capital gain
distributions, interest income that is a
tax preference item under the alternative
minimum tax and non-taxable distributions
you received from the fund in the prior
year. This statement will include
distributions declared in December and
paid to you in January of the current
year, but which are taxable as if paid on
December 31 of the prior year. The IRS
requires you to report these amounts on
your income tax return for the prior year.
The fund's statement for the prior year
will tell you how much of your capital
gain distribution represents 28% rate
gain. The remainder of the capital gain
distribution represents 20% rate gain.
-------------------------------------------
DIVIDENDS-RECEIVED DEDUCTION. It is WHAT IS A REDEMPTION?
anticipated that no portion of the fund's
distributions will qualify for the A redemption is a sale by you to the fund
corporate dividends-received deduction. of some or all of your shares in the
fund. The price per share you receive
REDEMPTIONS AND EXCHANGES. If you redeem when you redeem fund shares may be more
your shares or if you exchange your shares or less than the price at which you
in the fund for shares in another Franklin purchased those shares. An exchange of
Templeton Fund, you will generally have a shares in the fund for shares of another
gain or loss that the IRS requires you to Franklin Templeton Fund is treated as a
report on your income tax return. If you redemption of fund shares and then a
exchange fund shares held for 90 days or purchase of shares of the other fund.
less and pay no sales charge, or a reduced When you redeem or exchange your shares,
sales charge, for the new shares, all or a you will generally have a gain or loss,
portion of the sales charge you paid on depending upon whether the amount you
the purchase of the shares you exchanged receive for your shares is more or less
is not included in their cost for purposes than your cost or other basis in the
of computing gain or loss on the exchange. shares.
If you hold your shares for six months or
less, any loss you have will be disallowed
to the extent of any exempt-interest
dividends paid on your shares. Any such
loss not disallowed will be treated as a
long-term capital loss to the extent of
any long-term capital gain distributions
paid on your shares. All or a portion of
any loss on the redemption or exchange of
your shares will be disallowed by the IRS
if you buy other shares in the fund within
30 days before or after your redemption or
exchange.
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CALIFORNIA STATE TAXES. Ordinary dividends and capital gain distributions
that you receive from the fund, and gains arising from redemptions or
exchanges of your fund shares, will generally be subject to state and local
income tax. Distributions paid from the interest earned on California
municipal securities will generally be exempt from California state personal
income taxes. Dividends paid from interest earned on qualifying U.S.
territorial obligations (including qualifying obligations of Puerto Rico, the
U.S. Virgin Islands and Guam) will also be exempt from California state
personal income taxes. Investments in municipal securities of other states
generally do not qualify for tax-free treatment. Dividends paid by the fund
from interest earned on obligations exempt from tax in California will
generally be fully taxable to corporate shareholders who are subject to the
California franchise tax. The fund will provide you with information at the
end of each calendar year on the amounts of such dividends that may qualify
for exemption from reporting on your individual income tax returns. You may
wish to contact your tax advisor to determine the state and local tax
consequences of your investment in the fund.
SOCIAL SECURITY AND RAILROAD RETIREMENT BENEFITS. Exempt-interest dividends
paid to you, although exempt from the regular federal income tax, are
includible in the tax base for determining the taxable portion of your social
security or railroad retirement benefits. The IRS requires you to disclose
these exempt-interest dividends on your federal income tax return.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S.
income tax withholding. Your home country may also tax ordinary dividends,
exempt-interest dividends, capital gain distributions and gains arising from
redemptions or exchanges of your fund shares. Fund shares held by the estate
of a non-U.S. investor may be subject to U.S. estate tax. You may wish to
contact your tax advisor to determine the U.S. and non-U.S. tax consequences
of your investment in the fund.
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BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP
account, IRS regulations require that you WITHHOLDING?
provide your taxpayer identification
number ("TIN"), certify that it is Backup withholding occurs when the fund
correct, and certify that you are not is required to withhold and pay over to
subject to backup withholding under IRS the IRS 31% of your distributions and
rules. If you fail to provide a correct redemption proceeds. You can avoid backup
TIN or the proper tax certifications, the withholding by providing the fund with
IRS requires the fund to withhold 31% of your TIN, and by completing the tax
all the distributions (including ordinary certifications on your shareholder
dividends and capital gain distributions), application that you were asked to sign
and redemption proceeds paid to you. The when you opened your account. However, if
fund is also required to begin backup the IRS instructs the fund to begin
withholding on your account if the IRS backup withholding, it is required to do
instructs the fund to do so. The fund so even if you provided the fund with
reserves the right not to open your your TIN and these tax certifications,
account, or, alternatively, to redeem your and backup withholding will remain in
shares at the current Net Asset Value, place until the fund is instructed by the
less any taxes withheld, if you fail to IRS that it is no longer required.
provide a correct TIN, fail to provide the
proper tax certifications, or the IRS
instructs the fund to begin backup
withholding on your account.
-------------------------------------------
</TABLE>
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. FOR A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS, PLEASE SEE "ADDITIONAL
INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI.
HOW IS THE FUND ORGANIZED?
The fund is an open-end management investment company, commonly called a
mutual fund. It was organized as a Maryland corporation on November 28, 1977,
and is registered with the SEC. The fund offers three classes of shares:
Franklin California Tax-Free Income Fund - Class A, Franklin California
Tax-Free Income Fund - Class B and Franklin California Tax-Free Income Fund -
Class C. Additional classes of shares may be offered in the future.
Shares of each class represent proportionate interests in the assets of the
fund and have the same voting and other rights and preferences as any other
class of the fund for matters that affect the fund as a whole. For matters
that only affect one class, however, only shareholders of that class may
vote. Each class will vote separately on matters affecting only that class,
or expressly required to be voted on separately by state or federal law.
The fund has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to
elect anyone to the Board.
The fund does not intend to hold annual shareholder meetings. The fund may
hold special meetings, however, for matters requiring shareholder approval. A
meeting may also be called by the Board in its discretion or when requested
in writing by shareholders holding at least 25% of the outstanding shares. In
certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, please follow the steps below. This will help avoid any
delays in processing your request.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The fund's minimum
investments are:
o To open a regular account .................................. $1,000
o To open a custodial account for a minor (an UGMA/UTMA account)
$ 100
o To open an account with an automatic investment plan ....... $ 50
o To add to an account ....................................... $ 50
We reserve the right to change the amount of these minimums from time to
time or to waive or lower these minimums for certain purchases. We also
reserve the right to refuse any order to buy shares.
3. Carefully complete and sign the enclosed account application, including
the optional shareholder privileges section. By applying for privileges
now, you can avoid the delay and inconvenience of having to send an
additional application to add privileges later. PLEASE ALSO INDICATE
WHICH CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT SPECIFY A CLASS, WE
WILL INVEST YOUR PURCHASE IN CLASS A SHARES. It is important that we
receive a signed application since we will not be able to process any
redemptions from your account until we receive your signed application.
4. Make your investment using the table below.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund with your check
made payable to the fund.
For additional investments:
Send a check made payable to the fund. Please
include your account number on the check.
- ------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not have
a currently effective wire control number, we
will return the money to the bank, and we will
not credit the purchase to your account.
2. For an initial investment you must also return
your signed account application to the fund.
IMPORTANT DEADLINES: If we receive your call before
1:00 p.m. Pacific time and the bank receives the
wired funds and reports the receipt of wired funds to
the fund by 3:00 p.m. Pacific time, we will credit
the purchase to your account that day. If we receive
your call after 1:00 p.m. or the bank receives the
wire after 3:00 p.m., we will credit the purchase to
your account the following business day.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your financial
representative can help you decide.
CLASS A* CLASS B* CLASS C*
- --------------------------------------------------------------------------------
o Front-end sales o No front-end sales o Front-end sales
charge of 4.25% or less charge charge of 1%
o Contingent Deferred o Contingent Deferred o Contingent Deferred
Sales Charge of 1% on Sales Charge of 4% or Sales Charge of 1% on
purchases of $1 less on shares you shares you sell
million or more sold sell within six years within 18 months
within one year
o Lower annual expenses o Higher annual o Higher annual
than Class B or C due expenses than Class A expenses than Class A
to lower Rule 12b-1 (same as Class C) due (same as Class B) due
fees to higher Rule 12b-1 to higher Rule 12b-1
fees. Automatic fees. No conversion
conversion to Class A to Class A shares, so
shares after eight annual expenses do
years, reducing future not decrease.
annual expenses.
o No maximum purchase o Maximum purchase o Maximum purchase
amount amount of $249,999.We amount of $999,999.
invest any investment We invest any
of $250,000 or more in investment of $1
Class A shares, since million or more in
a reduced front-end Class A shares, since
sales charge is there is no front-end
available and Class sales charge and
A's annual expenses Class A's annual
are lower. expenses are lower.
*Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II. The fund began offering Class B shares on
January 1, 1999.
PURCHASE PRICE OF FUND SHARES
For Class A shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class C shares is
1% and, unlike Class A, does not vary based on the size of your purchase.
There is no front-end sales charge for Class B shares.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- ------------------------------------------------------------------------------
CLASS A
Under $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 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 2.00% 2.04% 1.85%
$1,000,000 or more* .......... None None None
CLASS B* ..................... None None None
CLASS C
Under $1,000,000* ............ 1.00% 1.01% 1.00%
*A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more and any Class C purchase. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase. Please see "How Do I
Sell Shares? - Contingent Deferred Sales Charge." Please also see "Other
Payments to Securities Dealers" below for a discussion of payments
Distributors may make out of its own resources to Securities Dealers for
certain purchases.
SALES CHARGE REDUCTIONS AND WAIVERS
- - IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you do not
include this statement, we cannot guarantee that you will receive the
sales charge reduction or waiver.
CUMULATIVE QUANTITY DISCOUNTS - CLASS A ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class A purchase is added to
the cost or current value, whichever is higher, of your existing shares in
the Franklin Templeton Funds, as well as those of your spouse, children under
the age of 21 and grandchildren under the age of 21. If you are the sole
owner of a company, you may also add any company accounts, including
retirement plan accounts.
LETTER OF INTENT - CLASS A ONLY. You may buy Class A shares at a reduced
sales charge by completing the Letter of Intent section of the account
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class A shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE ACCOUNT APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase
in Class A shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on
the reserved shares as you direct.
If you would like more information about the Letter of Intent privilege,
please see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in
the SAI or call Shareholder Services.
GROUP PURCHASES - CLASS A ONLY. If you are a member of a qualified group, you
may buy Class A shares at a reduced sales charge that applies to the group as
a whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of fund shares, you may buy shares of the fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the
sales charge waivers listed below apply to purchases of Class A shares only,
except for items 1 and 2 which also apply to Class B and C purchases.
Certain distributions, payments or redemption proceeds that you receive may
be used to buy shares of the fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same class of
shares. Certain exceptions apply, however, to Class C shareholders who
chose to reinvest their distributions in Class A shares of the fund
before November 17, 1997, and to Advisor Class or Class Z shareholders
of a Franklin Templeton Fund who may reinvest their distributions in
Class A shares of the fund.
2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund. The proceeds must be reinvested in the same class of shares,
except proceeds from the sale of Class B shares will be reinvested in
Class A shares.
If you paid a Contingent Deferred Sales Charge when you sold your Class
A or C shares, we will credit your account with the amount of the
Contingent Deferred Sales Charge paid but a new Contingent Deferred
Sales Charge will apply. For Class B shares reinvested in Class A, a
new Contingent Deferred Sales Charge will not apply, although your
account will not be credited with the amount of any Contingent Deferred
Sales Charge paid when you sold your Class B shares. If you own both
Class A and B shares and you later sell your shares, we will sell your
Class A shares first, unless otherwise instructed.
Proceeds immediately placed in a Franklin Bank CD also may be
reinvested without a front-end sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.
This waiver does not apply to shares you buy and sell under our
exchange program. Shares purchased with the proceeds from a money fund
may be subject to a sales charge.
3. Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.
5. Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank
CD or a Franklin Templeton money fund, you may reinvest them as
described above. The proceeds must be reinvested within 365 days from
the date the CD matures, including any rollover, or the date you redeem
your money fund shares.
6. Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you sold your Class
A shares from a Templeton Global Strategy Fund, we will credit your
account with the amount of the contingent deferred sales charge paid
but a new Contingent Deferred Sales Charge will apply.
If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are
redeemed from the money fund.
Various individuals and institutions also may buy Class A shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:
1. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets
held in a fiduciary, agency, advisory, custodial or similar capacity
and over which the trust companies and bank trust departments or other
plan fiduciaries or participants, in the case of certain retirement
plans, have full or shared investment discretion. We will accept orders
for these accounts by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of
business on the next business day following the order.
2. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the fund is
permissible and suitable for you and the effect, if any, of payments by
the fund on arbitrage rebate calculations.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs. The minimum
initial investment is $250.
4. Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
5. Registered Securities Dealers and their affiliates, for their investment
accounts only
6. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
7. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies. The minimum initial investment
is $100.
8. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
9. Accounts managed by the Franklin Templeton Group
10. Certain unit investment trusts and their holders reinvesting distributions
from the trusts
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate
and are responsible for Class B and C purchases and certain Class A purchases
made without a sales charge. The payments are subject to the sole discretion
of Distributors, and are paid by Distributors or one of its affiliates and
not by the fund or its shareholders.
1. Class A purchases of $1 million or more - up to 0.75% of the amount
invested.
2. Class B purchases - up to 3% of the amount invested.
3. Class C purchases - up to 1% of the purchase price.
4. Class A purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of
clients participating in comprehensive fee programs - up to 0.25% of the
amount invested.
A Securities Dealer may receive only one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1 or 3 above will be eligible to
receive the Rule 12b-1 fee associated with the purchase starting in the
thirteenth calendar month after the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES,
PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the
fund should determine, or have a broker-dealer determine, the applicable laws
and regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction.
If you own Class A shares, you may exchange into any of our money funds
except Franklin Templeton Money Fund. Franklin Templeton Money Fund is the
only money fund exchange option available to Class B and C shareholders.
Unlike our other money funds, shares of Franklin Templeton Money Fund may not
be purchased directly and no drafts (checks) may be written on Franklin
Templeton Money Fund accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have
different investment minimums. Some Franklin Templeton Funds do not offer
Class B or C shares.
METHOD STEPS TO FOLLOW
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BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates for the
shares you want to exchange
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BY PHONE Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You can exchange shares between most Franklin Templeton Funds, generally
without paying any additional sales charges. If you exchange shares held for
less than six months, however, you may be charged the difference between the
front-end sales charge of the two funds if the difference is more than 0.25%.
If you exchange shares from a money fund, a sales charge may apply no matter
how long you have held the shares.
CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred
Sales Charge when you exchange shares. Any shares subject to a Contingent
Deferred Sales Charge at the time of exchange, however, will remain so in the
new fund. The purchase price for determining a Contingent Deferred Sales
Charge on exchanged shares will be the price you paid for the original shares.
For accounts with shares subject to a Contingent Deferred Sales Charge, we
will first exchange any shares in your account that are not subject to the
charge. If there are not enough of these to meet your exchange request, we
will exchange shares subject to the charge in the order they were purchased.
If you exchange Class A shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. If you exchange your Class B or C shares for the same
class of shares of Franklin Templeton Money Fund, however, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.
For more information about the Contingent Deferred Sales Charge, please see
"How Do I Sell Shares?"
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you are
exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the same class, except as noted below.
If you exchange your Class B shares for the same class of shares of
another Franklin Templeton Fund, the time your shares are held in that
fund will count towards the eight year period for automatic conversion to
Class A shares.
o Generally exchanges may only be made between identically registered
accounts, unless you send written instructions with a signature guarantee.
You may, however, exchange shares from a fund account requiring two or
more signatures into an identically registered money fund account
requiring only one signature for all transactions. Please notify us in
writing if you do not want this option to be available on your account.
Additional procedures may apply. Please see "Transaction Procedures and
Special Requirements."
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged shares equal to at least $5 million, or more
than 1% of the fund's net assets. Shares under common ownership or control
are combined for these limits. If you have exchanged shares as described
in this paragraph, you will be considered a Market Timer. Each exchange by
a Market Timer, if accepted, will be charged $5. Some of our funds do not
allow investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the fund, such as "Advisor Class" or "Class Z" shares. Because the
fund does not currently offer an Advisor Class, you may exchange Advisor
Class shares of any Franklin Templeton Fund for Class A shares of the fund at
Net Asset Value. If you do so and you later decide you would like to exchange
into a fund that offers an Advisor Class, you may exchange your Class A
shares for Advisor Class shares of that fund. Certain shareholders of Class Z
shares of Franklin Mutual Series Fund Inc. also may exchange their Class Z
shares for Class A shares of the fund at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you would
like your redemption proceeds wired to a bank
account, your instructions should include:
o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and
the account number
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under
court jurisdiction may have other requirements.
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $100,000 or less. Institutional
accounts may exceed $100,000 by completing a
separate agreement. Call Institutional Services to
receive a copy.
o If there are no share certificates issued for the
shares you want to sell or you have already
returned them to the fund
o Unless the address on your account was changed by
phone within the last 15 days
- If you do not want the ability to redeem by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the fund is not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the fund nor its agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may
take seven business days or more. A certified or cashier's check may clear in
less time.
Under unusual circumstances, we may suspend redemptions or postpone payment
for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
CONTINGENT DEFERRED SALES CHARGE
For Class A purchases, if you did not pay a front-end sales charge because
you invested $1 million or more or agreed to invest $1 million or more under
a Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell
all or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class A investments you make
without a sales charge may also be subject to a Contingent Deferred Sales
Charge if they are sold within the Contingency Period. For any Class C
purchase, a Contingent Deferred Sales Charge may apply if you sell the shares
within the Contingency Period. The charge is 1% of the value of the shares
sold or the Net Asset Value at the time of purchase, whichever is less.
For Class B shares, there is a Contingent Deferred Sales Charge if you sell
your shares within six years, as described in the table below. The charge is
based on the value of the shares sold or the Net Asset Value at the time of
purchase, whichever is less.
THIS % IS DEDUCTED
IF YOU SELL YOUR CLASS B FROM YOUR PROCEEDS AS A
SHARES WITHIN THIS MANY CONTINGENT DEFERRED
YEARS AFTER BUYING THEM SALES CHARGE
1 Year ................. 4
2 Years ................ 4
3 Years ................ 3
4 Years ................ 3
5 Years ................ 2
6 Years ................ 1
7 Years................. 0
For each class, we will first redeem any shares in your account that are not
subject to a Contingent Deferred Sales Charge. If there are not enough of
these to meet your request, we will redeem shares subject to the charge in
the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT,
we will redeem additional shares to cover any Contingent Deferred Sales
Charge. For requests to sell a stated NUMBER OF SHARES, we will deduct the
amount of the Contingent Deferred Sales Charge, if any, from the sale
proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Account fees
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's Net Asset Value depending on the frequency of
your plan
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The fund receives income generally in the form of interest and other income
derived from its investments. This income, less the expenses incurred in the
fund's operations, is its net investment income from which income dividends
may be distributed. Thus, the amount of dividends paid per share may vary
with each distribution.
The fund intends to pay a dividend at least monthly, on or about the 15th of
the month representing its net investment income. Capital gains, if any, may
be distributed twice a year. The amount of these distributions will vary and
there is no guarantee the fund will pay dividends. The fund does not pay
"interest" or guarantee any fixed rate of return on an investment in its
shares.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the fund's distributions will vary. Please keep in mind that
if you invest in the fund shortly before the record date of a distribution,
any distribution will lower the value of the fund's shares by the amount of
the distribution. If you invest in the fund shortly before the fund deducts a
capital gain distribution from its Net Asset Value, you will receive some of
your investment back in the form of a taxable distribution. If you would like
information on upcoming record dates for the fund's distributions, please
call 1-800/DIAL BEN.
Dividends and capital gains are calculated and distributed the same way for
each class. The amount of any income dividends per share will differ,
however, generally due to the difference in the Rule 12b-1 fees of each class.
DISTRIBUTION OPTIONS
You may receive your distributions from the fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may reinvest distributions you
receive from the fund in additional shares of the fund (without a sales
charge or imposition of a Contingent Deferred Sales Charge). This is a
convenient way to accumulate additional shares and maintain or increase your
earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy shares of another Franklin Templeton Fund (without a
sales charge or imposition of a Contingent Deferred Sales Charge). Many
shareholders find this a convenient way to diversify their investments.
Please note that distributions may only be directed to an existing account.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive your distributions from
the fund 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."
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class C shareholders who chose to reinvest their distributions
in Class A shares of the fund or another Franklin Templeton Fund before
November 17, 1997, may continue to do so; and (ii) Class B and C shareholders
may reinvest their distributions in shares of any Franklin Templeton money
fund.
PLEASE INDICATE ON YOUR APPLICATION THE DISTRIBUTION OPTION YOU HAVE CHOSEN,
OTHERWISE WE WILL REINVEST YOUR DISTRIBUTIONS IN THE SAME SHARE CLASS OF THE
FUND. You may change your distribution option at any time by notifying us by
mail or phone. Please allow at least seven days before the record date for us
to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value
per share of the class you wish to purchase, plus any applicable sales
charges. When you sell shares, you receive the Net Asset Value per share
minus any applicable Contingent Deferred Sales Charges.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you
buy or sell shares through your Securities Dealer, however, we will use the
Net Asset Value next calculated after your Securities Dealer receives your
request, which is promptly transmitted to the fund. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the close of the NYSE, normally
1:00 p.m. Pacific time. You can find the prior day's closing Net Asset Value
and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on
a pro rata basis. It is based on each class' proportionate participation in
the fund, determined by the value of the shares of each class. Each class,
however, bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To
calculate Net Asset Value per share of each class, the assets of each class
are valued and totaled, liabilities are subtracted, and the balance, called
net assets, is divided by the number of shares of the class outstanding. The
fund's assets are valued as described under "How Are Fund Shares Valued?" in
the SAI.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any
delay in processing your transaction, they should include:
o Your name,
o The fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, the fund
accepts written instructions signed by only one owner for transactions and
account changes that could otherwise be made by phone. For all other
transactions and changes, all registered owners must sign the instructions.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $100,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost, stolen or destroyed, you may have to pay an insurance premium of up
to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone.
Please refer to the sections of this prospectus that discuss the transaction
you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to
ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we
are not reasonably satisfied that the instructions are genuine. If this
occurs, we will not be liable for any loss. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights
and ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of
survivorship" is shown as "Jt Ten" on your account statement. For any account
with two or more owners, we cannot accept instructions to change owners on
the account unless all owners agree in writing, even if the law in your state
says otherwise. If you would like another person or owner to sign for you,
please send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this
form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please
send us the following documents when you open your account. This will help
avoid delays in processing your transactions while we verify who may sign on
the account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- ------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify
the trustees, or
2. A certification for trust
- ------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the
shares to the street or nominee name account of another Securities Dealer.
Both dealers must have an agreement with Distributors or we cannot process
the transfer. Contact your Securities Dealer to initiate the transfer. We
will process the transfer after we receive authorization in proper form from
your delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the fund.
Telephone instructions directly from your representative will be accepted
unless you have told us that you do not want telephone privileges to apply to
your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250, or less than $50
for employee accounts and custodial accounts for minors. We will only do this
if the value of your account fell below this amount because you voluntarily
sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of
your account to $1,000, or $100 for employee accounts and custodial accounts
for minors. These minimums do not apply to accounts managed by the Franklin
Templeton Group.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the fund.
Under the plan, you can have money transferred automatically from your
checking or savings account to the fund each month to buy additional shares.
If you are interested in this program, please refer to the account
application included with this prospectus or contact your investment
representative. The market value of the fund's shares may fluctuate and a
systematic investment plan such as this will not assure a profit or protect
against a loss. You may discontinue the program at any time by calling
Shareholder Services.
AUTOMATIC PAYROLL DEDUCTION - CLASS A ONLY
You may have money transferred from your paycheck to the fund to buy
additional Class A shares. Your investments will continue automatically until
you instruct the fund and your employer to discontinue the plan. To process
your investment, we must receive both the check and payroll deduction
information in required form. Due to different procedures used by employers
to handle payroll deductions, there may be a delay between the time of the
payroll deduction and the time we receive the money.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or
annual basis. The value of your account must be at least $5,000 and the
minimum payment amount for each withdrawal must be at least $50.
If you would like to establish a systematic withdrawal plan, please complete
the systematic withdrawal plan section of the account 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.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan may
also be subject to a Contingent Deferred Sales Charge. Please see "Contingent
Deferred Sales Charge" under "How Do I Sell Shares?"
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. Please see "How Do I Buy, Sell and Exchange
Shares? - Systematic Withdrawal Plan" in the SAI for more information.
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.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares (within the same class) between identically registered
Franklin Templeton Class A, B or C accounts; and
o request duplicate statements and deposit slips for Franklin Templeton
accounts.
You will need the code number for each class to use TeleFACTS. The code
number is 112 for Class A, 312 for Class B and 212 for Class C.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the fund will be sent every six months. To reduce fund
expenses, we attempt to identify related shareholders within a household
and send only one copy of a report. Call Fund Information if you would
like an additional free copy of the fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more
information, call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your
shares are held by a financial institution, in a street name account, or
networked through the NSCC, the fund may not be able to offer these services
directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The fund, Distributors and the manager are also located at this
address. You may also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with
high quality service. You will hear a regular beeping tone if your call is
being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Directors of the fund
CD - Certificate of deposit
CLASS A, CLASS B AND CLASS C - The fund offers three classes of shares,
designated "Class A," "Class B" and "Class C." The three classes have
proportionate interests in the fund's portfolio. They differ, however,
primarily in their sales charge structures and Rule 12b-1 plans.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class A shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. The contingency period is six
years for Class B shares and 18 months for Class C shares. 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.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply
if you sell your Class A or C shares within the Contingency Period. For Class
B, the maximum CDSC is 4% and declines to 0% after six years.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
the fund is a legally permissible investment and that can only buy shares of
the fund without paying sales charges.
FITCH - Fitch Investors Service, Inc.
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange
shares based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 4.25% for Class A and 1% for Class C. There is no
front-end sales charge for Class B. We calculate the offering price to two
decimal places using standard rounding criteria.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
WE/OUR/US - Unless the context indicates a different meaning, these terms
refer to the fund and/or Investor Services, Distributors, or other wholly
owned subsidiaries of Resources.
FRANKLIN TEMPLETON GROUP OF FUNDS
Literature Request ~ Call 1-800/DIAL BEN(R) (1-800/342-5236) 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.
Global Growth
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Global Infrastructure Fund
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
Global Growth and Income
Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
Global Income
Franklin Global Government Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Templeton Americas Government Securities Fund
Growth
Franklin Biotechnology Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
Growth and Income
Franklin Asset Allocation Fund
Franklin Balance Sheet Investment Fund*
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Fund Allocator Series
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Income
Franklin Adjustable Rate Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade Income Fund
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin U.S. Government Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
Franklin Funds SeekingTax-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
Tax-Exempt Money 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***TexasVirginia Washington***
Variable Annuities++
Franklin Valuemark(R)
Franklin Templeton Valuemark Income Plus (an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
***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.
++Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued
by Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. The Franklin Valuemark Funds are managed by
Franklin Advisers, Inc. and its Templeton and Franklin affiliates.
FGF09/98 112 P 01/99
