Registration No. 2-70889
As filed with the Securities and Exchange Commission on March 2,
1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. _____ / /
Post-Effective Amendment No. 24 / X /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 25
(Check appropriate box or boxes)
TEMPLETON SMALLER COMPANIES GROWTH FUND, INC.
(formerly Templeton Global Funds, Inc.)
(Exact Name of Registrant as Specified in Charter)
700 Central Avenue, P.O. Box 33030
St. Petersburg, Florida 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(813) 823-8712
Jeffrey L. Steele, Esq. Thomas M. Mistele, Esq.
Dechert Price & Rhoads Templeton Global Investors, Inc.
1500 K Street, N.W. 500 East Broward Blvd.
Washington, D.C. 20005 Fort Lauderdale, FL 33394
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
_____ immediately upon filing pursuant to paragraph (b) of Rule
485
__X__ on April 1, 1995 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Registrant has elected to register an indefinite number of
Shares of its Common Stock, $0.20 par value per Share, pursuant
to Rule 24f-2 under the Investment Company Act of 1940.
Registrant filed its most recent Notice pursuant to Rule 24f-2 on
October 28, 1994.
TEMPLETON SMALLER COMPANIES GROWTH FUND, INC.
CROSS-REFERENCE SHEET
Item No. Caption
PART A
1 Cover Page
2 Expense Table
3 Selected Financial Information
4 General Description
5 Management of the Fund
5A See Annual Report to Shareholders
6 General Information
7 How to Buy Shares of the Fund
8 How to Sell Shares of the Fund
9 Not Applicable
PART B
10 Cover Page
11 Table of Contents
12 General Information and History
13 Investment Objective and Policies
14 Management of the Fund
15 Principal Shareholders
16 Investment Management and Other
Services
17 Brokerage Allocation
18 General Information, Part A
19 Purchase, Redemption and Pricing of
Shares
20 Tax Status
21 Principal Underwriter
22 Performance Information
23 Financial Statements
<PAGE>
TEMPLETON SMALLER COMPANIES GROWTH FUND, INC. PROSPECTUS -- JANUARY 1, 1995
AS SUPPLEMENTED APRIL 1, 1995
- -------------------------------------------------------------------------------
INVESTMENT Templeton Smaller Companies Growth Fund, Inc. (the "Fund")
OBJECTIVES seeks long-term capital growth through a flexible policy of
AND POLICIES investing primarily in common stocks and all types of common
stock equivalents, including rights, warrants and preferred
stock, of emerging growth companies of various nations
throughout the world.
- -------------------------------------------------------------------------------
PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Account Services Department. The Fund offers two classes of
Shares to its investors. This structure allows investors to
consider, among other features, the impact of sales charges
and distribution fees ("Rule 12b-1 fees") on their investments
in the Fund. Shareholders should take the differences between
the two classes into account when determining which class of
Shares best meets their investment objective. The minimum
initial investment is $100 ($25 minimum for subsequent
investments).
- -------------------------------------------------------------------------------
PROSPECTUS This Prospectus sets forth concisely information about the
INFORMATION Fund that a prospective investor ought to know before
investing. Investors are advised to read and retain this
Prospectus for future reference. A Statement of Additional
Information ("SAI") dated January 1, 1995, as supplemented
April 1, 1995, has been filed with the Securities and Exchange
Commission and is incorporated in its entirety by reference in
and made a part of this Prospectus. This SAI is available
without charge upon request to Franklin Templeton
Distributors, Inc., 700 Central Avenue, St. Petersburg,
Florida 33701-3628 or by calling the Fund Information
Department.
- -------------------------------------------------------------------------------
FUND INFORMATION DEPARTMENT -- 1-800-292-9293
- -------------------------------------------------------------------------------
TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current
prices, shareholder account balances/values, last transaction and duplicate
account statements) -- 1-800-654-0123
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXPENSE TABLE......... 2
FINANCIAL HIGHLIGHTS.. 3
GENERAL DESCRIPTION... 3
Investment Objectives
and Policies......... 3
RISK FACTORS.......... 4
HOW TO BUY SHARES OF
THE FUND............. 6
Alternative Purchase
Arrangements......... 6
Deciding Which Class
to Purchase.......... 6
Offering Price........ 7
Class I............... 7
Cumulative Quantity
Discount............. 8
Letter of Intent...... 8
Group Purchases....... 9
Class II.............. 9
Net Asset Value
Purchases (Both
Classes)............. 9
Additional Dealer
Compensation (Both
Classes)............. 11
Purchasing Class I and
Class II Shares...... 11
Automatic Investment
Plan................. 12
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Institutional
Accounts............. 12
Account Statements.... 12
Templeton STAR
Service.............. 12
Retirement Plans...... 12
Net Asset Value....... 12
EXCHANGE PRIVILEGE.... 13
Exchanges of Class II
Shares............... 14
Transfers............. 14
Conversion Rights..... 14
Exchanges by Timing
Accounts............. 14
HOW TO SELL SHARES OF
THE FUND............. 15
Contingent Deferred
Sales Charge......... 15
Reinstatement
Privilege............ 17
Systematic Withdrawal
Plan................. 18
Redemptions by
Telephone............ 18
TELEPHONE
TRANSACTIONS......... 18
Verification
Procedures........... 19
Restricted Accounts... 19
General............... 19
MANAGEMENT OF THE
FUND................. 19
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Manager.... 19
Business Manager...... 20
Transfer Agent........ 20
Custodian............. 20
Plan of Distribution.. 20
Expenses.............. 21
Brokerage Commissions. 21
GENERAL INFORMATION... 21
Description of
Shares/Share
Certificates......... 21
Meetings of
Shareholders......... 21
Dividends and
Distributions........ 22
Federal Tax
Information.......... 22
Inquiries............. 22
Performance
Information.......... 23
Statements and
Reports.............. 23
WITHHOLDING
INFORMATION.......... 24
CORPORATE RESOLUTION.. 25
AUTHORIZATION
AGREEMENT............ 26
THE FRANKLIN TEMPLETON
GROUP................ 27
</TABLE>
- -------------------------------------------------------------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE TABLE
<TABLE>
<CAPTION>
CLASS I CLASS II
------- --------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of
Offering Price).............................................. 5.75% 1.00%/1/
Maximum Sales Charge Imposed on Reinvested Dividends.......... None None
Deferred Sales Charge......................................... None/2/ 1.00%/3/
Redemption Fees............................................... None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees............................................... 0.75% 0.75%
12b-1 Fees/4/................................................. 0.24% 1.00%
Other Expenses (audit, legal, business management, transfer
agent and custodian)......................................... 0.37% 0.37%
Total Fund Operating Expenses................................. 1.36% 2.12%
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming
(1) 5% annual return and (2) redemption at the
end of each time period:
Class I: $71 $98 $128 $212
Class II:/5/ $41 $76 $123 $253
</TABLE>
- -------
/1/ Although Class II has a lower initial sales charge than Class I, over time
the higher 12b-1 fee for Class II may cause Shareholders to pay more for
Class II Shares than for Class I Shares. Given the Fund's maximum initial
sales charge and the rate of the Fund's Rule 12b-1 fee, however, it is
estimated that this would take a substantial number of years.
/2/ A contingent deferred sales charge of 1% may be imposed, however, on certain
redemptions of Class I Shares initially purchased without a sales charge as
described in the Prospectus under "How to Sell Shares of the Fund."
/3/ Class II Shares redeemed within 18 months of purchase are subject to a 1%
contingent deferred sales charge. After the 18-month period, however, the
Shares may be redeemed free of the charge.
/4/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and 1.00% of the Fund's average net assets
attributable to Class II Shares. (See "Management of the Fund--Plans of
Distribution.") Consistent with the National Association of Securities
Dealers, Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term Shareholders to pay
more than the economic equivalent of the maximum front-end sales charges
permitted under those same rules.
/5/ As noted in the table above, Class II Shares are generally subject to a
contingent deferred sales charge for a period of 18 months.
The information in the table above is an estimate based on the Fund's
expenses as of the end of the most recent fiscal year and has been restated to
reflect current fees. The table is provided for purposes of assisting current
and prospective Shareholders in understanding the various costs and expenses
that an investor in the Fund will bear, directly or indirectly. The
information in the table does not reflect the charge of up to $15 per
transaction if a Shareholder requests that redemption proceeds be sent by
express mail or wired to a commercial bank account or an administrative
service fee of $5.00 per exchange for market timing or allocation service
accounts. THE 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF ACTUAL OR EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF
WHICH MAY VARY. For a more detailed discussion of the Fund's fees and
expenses, see "Management of the Fund."
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table of selected financial information has been audited by
McGladrey & Pullen, LLP, independent certified public accountants, for the years
indicated in their report which is incorporated by reference and which appears
in the Fund's 1994 Annual Report to Shareholders. The per share data and
outstanding shares have been adjusted to give effect to a five for one stock
split effective December 7, 1988. This statement should be read in conjunction
with the other financial statements and notes thereto included in the Fund's
1994 Annual Report to Shareholders, which contains further information about
the Fund's performance, and which is available to shareholders upon request
and without charge.
<TABLE>
<CAPTION>
PER SHARE OPERATING YEAR ENDED AUGUST 31,
PERFORMANCE --------------------------------------------------------------------------------------------------------
(For a share outstanding 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
throughout the period) ---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 7.44 $ 7.70 $ 8.10 $ 7.21 $ 8.94 $ 8.04 $ 10.06 $ 8.68 $ 7.48 $ 6.77
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income... 0.09 0.10 0.15 0.17 0.17 0.17 0.18 0.20 0.23 0.17
Net realized and
unrealized gain (loss). 0.81 1.23 0.25 1.47 (1.31) 1.85 (1.52) 1.84 1.70 1.07
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............. 0.90 1.33 0.40 1.64 (1.14) 2.02 (1.34) 2.04 1.93 1.24
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends from net
investment income...... (0.07) (0.15) (0.15) (0.17) (0.21) (0.22) (0.23) (0.22) (0.17) (0.16)
Distributions from net
realized gains......... (0.03) (1.41) (0.65) (0.58) (0.38) (0.90) (0.45) (0.44) (0.56) (0.37)
Distribution in excess
of net realized gains.. -- (0.03) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions..... (0.10) (1.59) (0.80) (0.75) (0.59) (1.12) (0.68) (0.66) (0.73) (0.53)
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Change in net asset
value for the period... 0.80 (0.26) (0.40) 0.89 (1.73) 0.90 (2.02) 1.38 1.20 0.71
---------- ---------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 8.24 $ 7.44 $ 7.70 $ 8.10 $ 7.21 $ 8.94 $ 8.04 $ 10.06 $ 8.68 $ 7.48
========== ========== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN+........... 12.22% 22.71% 5.64% 26.69% (13.50)% 28.44% (11.80)% 25.55% 28.80% 19.92%
RATIOS/SUPPLEMENT DATA
Net assets, end of year
(000).................. $1,409,494 $1,129,848 $950,409 $898,364 $756,478 $946,228 $268,885 $348,135 $308,367 $265,033
Ratio to average net
assets of:
Expenses............... 1.36% 1.29% 1.33% 0.97% 0.96% 0.95% 0.52% 0.47% 0.51% 0.83%
Net investment income.. 1.17% 1.70% 1.96% 2.33% 2.13% 2.25% 2.07% 2.13% 2.76% 2.37%
Portfolio turnover rate. 28.06% 28.73% 48.97% 34.01% 26.90% 23.79% 7.33% 12.73% 4.32% 5.95%
</TABLE>
- -------
+ Does not reflect sales charges.
* Not annualized.
GENERAL DESCRIPTION
Templeton Smaller Companies Growth Fund, Inc. (the "Fund") was incorporated
under the laws of Maryland on February 4, 1981, and is registered under the
Investment Company Act of 1940 as an open-end diversified investment company.
On January 1, 1991, the name of the Fund was changed from Templeton Global
Funds, Inc. to Templeton Smaller Companies Growth Fund, Inc. pursuant to a
vote of the Fund's Shareholders at their annual meeting on November 29, 1990.
Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "How to Buy Shares of the Fund--Net Asset Value")
plus a sales charge based upon a variable percentage (ranging from 5.75% to
less than 1.00% of the offering price) depending on factors such as the class
of Shares purchased and the amount invested. (See "How to Buy Shares of the
Fund.")
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is
long-term capital growth, primarily through investment in common stocks and
all types of common stock equivalents, including rights, warrants and
preferred stock, of companies of various nations throughout the world. For
temporary defensive purposes, the Fund also may invest in bonds and other debt
obligations of such issuers and fixed income obligations of various
governments.
3
<PAGE>
The Fund's investment policy is based on the belief that in today's world,
investment opportunities change rapidly, not only from company to company and
from industry to industry, but also from one national economy to another.
Accordingly, the Fund seeks investment opportunities in all types of
securities issued by companies or governments of any nation, both developed
and underdeveloped.
Consistent with its investment objective, the Fund expects to invest 75% of
its portfolio in issuers whose individual market capitalizations would place
them (at the time of purchase) in the same size range as companies in
approximately the lowest 20% by total market capitalization of companies that
have equity securities listed on a U.S. national securities exchange or traded
in the NASDAQ system. Based on recent U.S. share prices, these companies
typically have individual market capitalizations of between approximately $50
million and $1 billion. Because the Fund is permitted to apply the U.S. size
standard on a global basis, it may invest in issuers that might rank above the
lowest 20% by total market capitalization in local markets and, in fact, might
in some countries rank among the largest companies in terms of capitalization.
The Board of Directors has adopted an operating policy under which the Fund
will not purchase securities of companies with individual market
capitalizations of greater than $1 billion.
Whenever, in the judgment of the Investment Manager, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest in
debt obligations of the United States Government or its political subdivisions
or debt obligations of other governments, short-term time deposits with banks
(maturities of 60 days or less), certain repurchase agreements (United States
Government obligations with a simultaneous agreement with the seller to
repurchase them within no more than seven days at the original purchase price
plus accrued interest) or commercial paper.
The Fund may purchase sponsored or unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") (collectively, "Depositary Receipts").The Fund may invest no more
than 5% of its total assets in securities issued by any one company or
government, exclusive of U.S. Government securities. Although the Fund may
invest up to 25% of its assets in a single industry, there is no present
intention of doing so. The Fund may borrow money as a temporary measure up to
an amount not exceeding 5% of the value of its total assets, invest up to 5%
of its total assets in warrants and invest up to 10% of its total assets in
restricted securities, securities with a limited trading market and securities
which are not otherwise readily marketable.
The Fund invests for long-term growth of capital and does not emphasize
short-term trading profits. Accordingly, the Fund expects to have a portfolio
turnover rate of less than 50%.
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets, as
well. A decline in the stock market of any country in which the Fund is
invested may also be reflected in declines in the price of Shares of the Fund.
Changes in currency valuations will also affect the price of Shares of the
Fund. History reflects both decreases and increases in worldwide stock markets
and currency valuations, and these may reoccur unpredictably in the future.
Additionally, investment decisions made by the Investment Manager will not
always be profitable or prove to have been correct. The Fund is not intended
as a complete investment program.
The Fund expects to invest 75% of its assets in issuers whose individual
market capitalizations would place them (at the time of purchase) in the same
size range as companies in approximately the lowest 20% by total market
capitalization of companies that have equity securities listed on a U.S.
national securities exchange or traded in the NASDAQ system. While the
companies in which the Fund primarily invests may offer greater opportunities
for capital appreciation than larger, more established companies, investments
in smaller, emerging growth companies may involve greater risks and thus may
be considered speculative. For example, small companies may
4
<PAGE>
have limited product lines, markets or financial and management resources. In
addition, many small emerging growth company stocks trade less frequently and
in smaller volume, and may be subject to more abrupt or erratic price
movements, than stocks of large companies. The securities of small emerging
growth companies may also be more sensitive to market changes than the
securities of large companies.
The Fund has the right to purchase securities in any foreign country,
developed or underdeveloped. Investors should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes imposed with respect to investments in foreign nations,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability or diplomatic developments which
could affect investments in securities of issuers in foreign nations. Some
countries may withhold portions of interest and dividends at the source. In
addition, in many countries there is less publicly available information about
issuers than is available in reports about companies in the United States.
Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to United States companies. Further, the
Fund may encounter difficulties or be unable to pursue legal remedies and
obtain judgments in foreign courts. Commission rates in foreign countries,
which are sometimes fixed rather than subject to negotiation as in the United
States, are likely to be higher. Foreign securities markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the
Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or,
if the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. In many foreign countries there is less
government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States. The
foreign securities markets of many of the countries in which the Fund may
invest may also be smaller, less liquid, and subject to greater price
volatility than those in the United States. The Fund may invest in Eastern
European countries, which involves special risks that are described under
"Risk Factors" in the SAI.
Depositary Receipts may not necessarily be denominated in the same currency
as the underlying securities into which they may be converted. In addition,
the issuers of the securities underlying unsponsored Depositary Receipts are
not obligated to disclose material information in the United States and,
therefore, there may be less information available regarding such issuers and
there may not be a correlation between such information and the market value
of the Depositary Receipts. Depositary Receipts also involve the risks of
other investments in foreign securities, as discussed above.
The Fund is authorized to invest in medium quality or high risk, lower
quality debt securities. As an operating policy, which may be changed by the
Board of Directors without Shareholder approval, the Fund will not invest more
than 5% of its total assets in debt securities rated lower than BBB by
Standard & Poor's Corporation or Baa by Moody's Investors Service, Inc. or, if
unrated, are of equivalent investment quality as determined by the Investment
Manager. The Board may consider a change in this operating policy if, in its
judgment, economic conditions change such that a higher level of investment in
high risk, lower quality debt securities would be consistent with the
interests of the Fund and its Shareholders. High risk, lower quality debt
securities, commonly referred to as "junk bonds," are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation
and may be in default. Unrated debt securities are not necessarily of lower
quality than rated securities but they may not be attractive to as many
buyers. Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed by the
Investment Manager to insure, to the extent possible, that the planned
investment is sound. The Fund may, from time to time, purchase defaulted debt
securities if, in the opinion of the Investment Manager, the issuer may resume
interest payments in the near future. The Fund will not invest more than 10%
of its total assets in defaulted debt securities, which may be illiquid.
5
<PAGE>
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange (to cover service charges)
will be incurred when the Fund converts assets from one currency to another.
There are further risk considerations, including possible losses through the
holding of securities in domestic and foreign custodian banks and
depositories, described in the SAI.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter for the Shares of the Fund, or directly
from FTD upon receipt by FTD of a completed Shareholder Application and check.
The minimum initial purchase order is $100 (other than in monthly investment
plans, such as sponsored payroll deduction, automatic investment, split-
funding or comparable plans, which require a minimum of $25), with subsequent
investments of $25 or more.
ALTERNATIVE PURCHASE ARRANGEMENTS. The Fund offers two different classes of
Shares, each of which has its own initial, contingent, and Rule 12b-1 sales
charge structures. All Fund Shares outstanding before the implementation of
the multiclass structure have been designated as Class I Shares and continue
to possess their previous rights and privileges, except for legally required
modifications to Shareholder voting requirements. Shareholders may not convert
Shares of one class into Shares of the other at this time.
Class I. Class I Shares have higher initial sales charges than Class II
Shares and they have lower yearly asset-based Rule 12b-1 fees. Class I Shares
may be purchased at reduced initial sales charges, or without any initial
sales charge at all if certain conditions are met. In most circumstances,
contingent deferred sales charges will not be assessed against redemptions of
Class I Shares. See "Management of the Fund" and "How to Sell Shares of the
Fund" for more information.
Class II. By contrast, Class II Shares have lower initial sales charges than
Class I Shares and higher yearly Rule 12b-1 fees. Also, although there are
certain exceptions, Class II Shares redeemed within 18 months of purchase will
generally be assessed a contingent deferred sales charge of 1% on the lesser
of the then-current net asset value or the original purchase price of such
Shares. See "Contingent Deferred Sales Charge--Class II Shares" under "How to
Sell Shares of the Fund" for a complete description of the contingent deferred
sales charge.
Purchases of Class II Shares are limited to amounts below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since the Shareholder may purchase the Class I Shares at net asset
value and take advantage of the lower annual fees associated with Class I
Shares. Shareholders who intend to make large investments in the Fund should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares. With the exception of certain employee benefit
plans described below, however, a Shareholder may maintain an account balance
of an unlimited dollar amount in Class II Shares.
DECIDING WHICH CLASS TO PURCHASE. Each investor's individual objectives must
be carefully evaluated before determining which class of Shares will be more
beneficial to that investor. Generally speaking, an investor who expects to
invest less than $100,000 in the Franklin Group of Funds (R) and Templeton
Family of Funds (collectively, the "Franklin Templeton Group") and who expects
to make substantial redemptions within six years of investment should consider
Class II Shares. This is because it is more economical for a Shareholder to
invest, for example, $50,000 for two years in Class II Shares than in Class I
Shares. Over time, however, the higher annual Rule 12b-1 charges on the Class
II Shares will accumulate to outweigh the difference in initial sales charges.
For this reason, Class I Shares may be more attractive to long-term investors
even if no sales charge reductions are available to them.
Investors who qualify to purchase Class I Shares at reduced sales charges or
at net asset value should consider purchasing Class I Shares, especially if
they intend to hold their Shares for long periods of time. Similarly,
investors who intend to make large investments
6
<PAGE>
in the Fund should consider purchasing Class I Shares through a Letter of
Intent or under Cumulative Quantity Discount rather than purchasing Class II
Shares. Investors investing over $1 million (in a single payment or through a
Letter of Intent or Cumulative Quantity Discount) will be prohibited from
purchasing Class II Shares because Class I Shares would always be more
beneficial to such investors.
In determining which Shares are more appropriate for a Shareholder's
investment objectives and income needs, a Shareholder should also consider
that the higher Rule 12b-1 fees for Class II will generally result in lower
dividends and consequently lower yields for Class II Shares as compared to
Class I Shares.
Each class also has a separate schedule for awarding compensation to
securities dealers for selling Fund Shares. A Shareholder should take all of
the circumstances surrounding each investment into account before deciding
which class of shares to purchase.
IMPORTANT NOTICE! THE APPLICATION FORM ATTACHED TO THIS PROSPECTUS MUST BE
USED FOR ALL FUTURE PURCHASES. OLD APPLICATION FORMS SHOULD BE DISCARDED.
OFFERING PRICE. Shares of the Fund are offered at the public Offering Price,
which is the net asset value per share plus a sales charge, next computed (i)
after the Shareholder's securities dealer receives the order which is promptly
transmitted to the Fund or (ii) after receipt of an order by mail from the
Shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check).
CLASS I. The sales charge for Class I Shares is a variable percentage of the
Offering Price depending upon the amount of the sale. A description of the
method of calculating net asset value per share is included under the caption
"Net Asset Value."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions for all Class I Shares of the Fund,
including all designated Retirement Plans.
The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual, his or her spouse and their children under the
age of 21, or by a single trust or fiduciary account other than an employee
benefit plan holding Shares of the Fund on or before February 1, 1995, is the
net asset value per Share plus a sales charge not exceeding 5.75% of the
Offering Price (equivalent to 6.10% of the net asset value), which is reduced
on larger sales as shown below.
<TABLE>
<CAPTION>
CLASS I SHARES--TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
Less than $50,000....... 5.75% 6.10% 5.00%
$50,000 but less than
$100,000............... 4.50% 4.71% 3.75%
$100,000 but less than
$250,000............... 3.50% 3.63% 2.80%
$250,000 but less than
$500,000............... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000............. 2.00% 2.04% 1.60%
$1,000,000 or more...... none none (see below)**
</TABLE>
- -------
* Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
** The following commissions will be paid by FTD, from its own resources, to
securities dealers who initiate and are responsible for purchases of $1
million or more; 1% on sales of $1 million but less than $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million
but less than $100 million, plus 0.15% on sales of $100 million or more.
Dealer concession breakpoints are reset every 12 months for purposes of
additional purchases.
7
<PAGE>
FTD, or one of its affiliates, may make payments, from its own resources, of
up to 1% of the amount purchased, to securities dealers who initiate and are
responsible for purchases made at net asset value by certain designated
retirement plans (as defined below) (excluding IRA and IRA rollovers), certain
non-designated plans (as defined below), certain trust companies and trust
departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more. Please refer to the
SAI for further information.
No initial sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of
investments of $1 million or more within 12 months of the calendar month
following such investments ("contingency period"). See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."
A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan which is a Shareholder in the Fund on or before February
1, 1995. Of the 4% sales charge applicable to such purchases, 3.20% of the
Offering Price will be retained by dealers.
At the discretion of FTD, the entire sales commission may at times be
reallowed to dealers. During periods when 90% or more of the sales commission
is reallowed, such dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
CUMULATIVE QUANTITY DISCOUNT. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (1) the
value (calculated at the applicable Offering Price), or (2) the purchase
price, of the following: (a) Class I Shares of the Fund; (b) Class I shares of
other funds in the Franklin Templeton Group (except Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable
Products Series Fund, Franklin Valuemark Funds and Franklin Government
Securities Trust); and (c) other investment products underwritten by FTD or
its affiliates (although certain investments may not have the same schedule of
sales charges and/or may not be subject to reduction in sales charges).
Clauses (a), (b) and (c) above are collectively referred to as "Franklin
Templeton Investments." The cumulative quantity discount applies to Franklin
Templeton Investments owned at the time of purchase by the purchaser, his or
her spouse, and their children under age 21. In addition, the aggregate
investments of a trustee or other fiduciary account (for an account under
exclusive investment authority) may be considered in determining whether a
reduced sales charge is available, even though there may be a number of
beneficiaries of the account. For example, if the investor held Class I Shares
valued at $40,000 (or, if valued at less than $40,000, had been purchased for
$40,000) and purchased an additional $20,000 of the Fund's Class I Shares, the
sales charge for the $20,000 purchase would be at the rate of 4.50%. It is
FTD's policy to give investors the best sales charge rate possible; however,
there can be no assurance that an investor will receive the appropriate
discount unless, at the time of placing the purchase order, the investor or
the dealer makes a request for the discount and gives FTD sufficient
information to determine whether the purchase will qualify for the discount.
On telephone orders from dealers for the purchase of Class I Shares to be
registered in "street name," FTD will accept the dealer's instructions with
respect to the applicable sales charge rate to be applied. The cumulative
quantity discount may be amended or terminated at any time.
LETTER OF INTENT. Investors may also reduce sales charges on all investments
in Class I Shares by means of a Letter of Intent ("LOI") which expresses the
investor's intention to invest a certain amount within a 13-month period in
Class I Shares of the Fund or any other fund in the Franklin Templeton Group
(except Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, Templeton Variable Products Series Fund, Franklin Valuemark Funds and
Franklin Government Securities Trust). See the Shareholder Application. Except
for certain employee benefit plans, the minimum initial investment under an
LOI is 5% of the total LOI amount. Except for Shares purchased by certain
employee benefit plan, shares purchased with the first 5% of such amount will
be held in escrow to secure payment of the higher sales charge applicable to
the Shares actually purchased if the full amount indicated is not purchased,
and such escrowed Shares will be involuntarily redeemed to pay the additional
sales charge, if necessary. A purchase not originally made pursuant to an LOI
may be included under a subsequent LOI executed within 90 days of the
purchase. Any redemptions made by
8
<PAGE>
Shareholders, other than by certain employee benefit plans, during the 13-
month period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the LOI have been completed. For a further
description of the LOI, see "Purchase, Redemption and Pricing of Shares --
Letter of Intent" in the SAI.
GROUP PURCHASES. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $80,000 of Class I Shares and now were
investing $25,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per Share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.
CLASS II. Unlike Class I Shares, the sales charges and dealer concessions
for Class II Shares do not vary depending on the amount of sale. The total
sales charges or underwriting commissions and dealer concessions for Class II
Shares are set forth below.
<TABLE>
<CAPTION>
CLASS II SHARES--TOTAL SALES CHARGE
--------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE OF THE NET ASSET VALUE OF THE OFFERING PRICE
AT OFFERING PRICE SHARES PURCHASED SHARES PURCHASED RETAINED BY DEALERS*
- ----------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
any amount.............. 1.00% 1.01% 1.00%
</TABLE>
- -------
* FTD may pay the dealer, from its own resources, a commission of 1% of the
amount invested. FTD may retain a portion of the Rule 12b-1 fees assessed on
Class II Shares to partially recoup commissions FTD pays to a securities
dealer during the first year for Shares purchased on or after April 1, 1995,
and during the first two years for Shares purchased before that date.
NET ASSET VALUE PURCHASES (BOTH CLASSES). Shares of the Fund may be
purchased without the imposition of either an initial sales charge ("net asset
value") or a contingent deferred sales charge by (i) officers, trustees,
directors, and full-time employees of the Fund, of the Investment Manager or
its affiliates, or of any fund in the Franklin Templeton Group, and their
spouses and family members; (ii) companies exchanging Shares with or selling
assets pursuant to a merger, acquisition or exchange offer; (iii) insurance
company separate accounts for pension plan contracts; (iv) accounts managed by
the Investment Manager or its affiliates; (v) Shareholders of Templeton
Institutional Funds, Inc. reinvesting redemption proceeds from that fund under
an employee plan qualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code"), in Shares of the Fund; (vi) certain unit
investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (vii) registered securities dealers
and their affiliates, for
9
<PAGE>
their investment account only; and (viii) registered personnel and employees
of securities dealers, and their spouses and family members, in accordance
with the internal policies and procedures of the employing securities dealer.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by registered investment
advisers and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with FTD, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee
program).
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans, including, profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by FTD. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested
or to be invested during the subsequent 13-month period in the Fund or in any
of the Franklin Templeton Investment totals at least $1 million. Employee
benefit plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases," which enable FTD to realize
economies of scale in its sales efforts and sales-related expenses.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in any other
fund(s) in the Franklin Templeton Group (including former participants of the
Franklin Templeton Profit Sharing 401(k) plan). In order to exercise this
privilege, a written order for the purchase of Shares of the Fund must be
received by Franklin Templeton Trust Company, the Fund, or Franklin Templeton
Investor Services, Inc. (the "Transfer Agent") within 120 days after the plan
distribution. To obtain a free Prospectus for any fund in the Franklin
Templeton Group, please call toll free at 1-800-DIAL BEN (1-800-342-5236).
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any of the
Franklin Templeton Investments must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by an investor who has,
within the past 60 days, redeemed an investment in an unaffiliated mutual fund
which charged the investor a contingent deferred sales charge upon redemption,
and which has investment objectives similar to those of the Fund.
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any,
of various payments made by the Fund or its investment manager on arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a securities dealer has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment,
10
<PAGE>
out of its own resources, to such securities dealer in an amount not to exceed
0.25% of the amount invested. Contact Franklin Templeton Institutional
Services for additional information.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
without regard to where such assets are currently invested.
ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD or its affiliates, at
their expense, may also provide additional compensation to dealers in
connection with sales of Shares of the Fund and other funds in the Franklin
Group of Funds (R) and the Templeton Family of Funds (collectively, the
"Franklin Templeton Group"). Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more funds in the Franklin
Templeton Group and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell significant amounts of
such Shares. Compensation may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside
of the U.S. for meetings or seminars of a business nature. Dealers may not use
sales of the Fund's Shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. In addition, FTD or
its affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.
Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares, and 1.00% of the
average daily net asset value of Class II Shares, registered in the name of
that broker-dealer as nominee or held in a Shareholder account that designates
that broker-dealer as dealer of record. These payments are made in order to
promote selling efforts and to compensate dealers for providing certain
services, including processing purchase and redemption transactions,
establishing Shareholder accounts and providing certain information and
assistance with respect to the Fund. For purchases on or after February 1,
1995 of Class I Shares that are subject to a contingent deferred sales charge,
the dealer will receive ongoing payments beginning in the thirteenth month
after the date of purchase. For all purchases of Class II Shares that are
subject to a contingent deferred sales charge, the dealer will receive
payments representing a service fee (0.25% of average daily net asset value of
the Shares) beginning in the first month after the date of the purchase, and
will receive payments representing compensation for distribution (0.75% of
average daily net asset value of the Shares) beginning in the thirteenth month
after the date of the purchase.
PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders for
Class I and Class II Shares of the Fund, investors should clearly state
whether Class I or Class II Shares are intended to be purchased. All Share
purchase orders that fail to specify a class will automatically be invested in
Class I Shares. Initial purchases of more than $1 million must be for Class I
Shares. At the present time, there are no conversion features attached to
either class of Shares.
Shareholders who qualify to invest in Class I Shares at net asset value are
prohibited from purchasing Class II Shares. See "Net Asset Value Purchases."
As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange and
transmit it to FTD by 5:00 p.m., New York time, for the investor to receive
that days' Offering Price. Payment for such orders must be by check in U.S.
currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the U.S. and, if over
11
<PAGE>
$100,000, may not be deemed to have been received until the proceeds have been
collected unless the check is certified or issued by such bank. Any
subscription may be rejected by FTD or by the Fund.
The Fund may impose a $10 charge against a Shareholder account in the event
that a check or draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.
Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) in order to insure that it has been accurately
recorded in the investor's account.
AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary and may be discontinued by written notice
to FTD, which must be received at least 10 days prior to the collection date,
or by FTD upon written notice to the investor at least 30 days prior to the
collection date.
INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may also be additional
methods of opening accounts, purchasing, redeeming or exchanging Shares of the
Fund available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.
ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.
TEMPLETON STAR SERVICE. Shareholders may check the current prices of Shares,
account balances/values, a description of the last transaction and duplicate
account statements, 24 hours a day, 365 days a year, with Templeton STAR
Service by calling 1-800-654-0123 from a touch-tone telephone. A fund code
(the Fund's code is 103) and the Shareholder's account number are necessary
for accessing information (other than Share prices) from Templeton STAR
Service.
RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which Franklin Templeton
Trust Company or its affiliate acts as trustee or custodian: IRAs, Simplified
Employee Pensions, 403(b) plans, qualified plans for corporations, self-
employed individuals and partnerships, and 401(k) plans. For further
information about any of the plans, agreements, applications and annual fees,
contact Franklin Templeton Distributors, Inc. To determine which retirement
plan is appropriate, an investor should contact his or her tax adviser.
NET ASSET VALUE. The net asset value of the Shares of the Fund is computed
as of the close of trading on each day the New York Stock Exchange is open for
trading, by dividing the value of the Fund's securities plus any other assets
(including accrued interest and dividends receivable) less all liabilities
(including accrued expenses) by the number of Shares outstanding, adjusted to
the nearest whole cent. A security listed or traded on a recognized stock
exchange or NASDAQ is valued at its last sale price on the principal exchange
on which the security is traded. The value of a foreign security is determined
in its national currency as of the close of trading on the foreign exchange on
which it is traded or as of the close of trading on the New York Stock
Exchange, if that is earlier, and that value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no sale
is reported at that time, the mean between the current bid and asked price is
used. Occasionally, events which affect the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange, and will therefore not be reflected
in the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at fair value as determined by the management and
approved in good faith by the Board of Directors. All other securities for
which over-the-counter
12
<PAGE>
market quotations are readily available are valued at the mean between the
current bid and asked price. Securities for which market quotations are not
readily available and other assets are valued at fair value as determined by
the management and approved in good faith by the Board of Directors.
EXCHANGE PRIVILEGE
A Shareholder may exchange Shares for the same class of shares of other
funds in the Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable Products
Series Fund, Franklin Valuemark Funds and Franklin Government Securities
Trust). A contingent deferred sales charge will not be imposed on exchanges.
If the exchanged Shares were subject to a contingent deferred sales charge in
the original fund purchased, and Shares are subsequently redeemed within 12
months (Class I Shares) or 18 months (Class II Shares) of the calendar month
of the original purchase date, a contingent deferred sales charge will be
imposed. The period will be tolled (or stopped) for the period Class I Shares
are exchanged into and held in a Franklin or Templeton money market fund. See
also "How to Sell Shares of the Fund -- Contingent Deferred Sales Charge."
Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. However, exchanges of
shares from the Franklin Templeton Money Funds are subject to applicable sales
charges on the funds being purchased, unless the Franklin Templeton Money Fund
shares were acquired by an exchange from a fund having a sales charge, or by
reinvestment of dividends or capital gains distributions. Exchange of Class I
Shares of the Fund which were purchased with a lower sales charge to a fund
which has a higher sales charge will be charged the difference, unless the
shares were held in the original fund for at least six months prior to
executing the exchange. All exchanges are permitted only after at least 15
days have elapsed from the date of the purchase of the Shares to be exchanged.
A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or --
if the Shareholder Application indicates that the Shareholder has not
declined the option -- by telephoning 1-800-354-9191. Telephone exchange
instructions must be received by FTD by 4:00 p.m., New York time. Telephonic
exchanges can involve only Shares in non-certificated form. Shares held in
certificate form are not eligible, but may be returned and qualify for these
services. All accounts involved in a telephonic exchange must have the same
registration and dividend option as the account from which the Shares are
being exchanged. The Fund and the Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please refer to "Telephone Transactions -- Verification Procedures." Forms for
declining the telephone exchange privilege and prospectuses of the other funds
in the Franklin Templeton Group may be obtained from FTD. Exchange redemptions
and purchases are processed simultaneously at the share prices next determined
after the exchange order is received. (See "How to Buy Shares of the Fund --
Offering Price.") A gain or loss for tax purposes generally will be realized
upon the exchange, depending on the tax basis of the Shares redeemed.
This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold and may be modified, limited or terminated
at any time by the Fund upon sixty (60) days' written notice. A Shareholder
who wishes to make an exchange should first obtain and review a current
prospectus of the fund into which he or she wishes to exchange. Broker-dealers
who process exchange orders on behalf of their customers may charge a fee for
their services. Such fee may be avoided by making requests for exchange
directly to the Transfer Agent.
The equivalent of an exchange involving retirement accounts (including IRAs)
between the Templeton Family of Funds and the Franklin Group of Funds (R)
requires the completion of additional documentation before it can be effected.
Call 1-800-354-9191 for further information and forms.
13
<PAGE>
EXCHANGES OF CLASS II SHARES. When an account has some Shares subject to the
contingent deferred sales charge, and some that are not, the Shares will be
transferred proportionately from each type of Share into the new fund. Shares
received from reinvestment of dividends and capital gain distributions are
referred to as "free Shares," Shares which were originally subject to a
contingent deferred sales charge but to which the contingent deferred sales
charge no longer applies are called "matured Shares," and Shares still subject
to the contingent deferred sales charge are referred to as "CDSC liable
Shares," and each represents a different type of Share for purposes of
exchanging into a new fund. CDSC liable Shares held for different periods of
time are considered different types of CDSC liable Shares. For instance, if a
Shareholder has $1,000 in free Shares, $2,000 in matured Shares, and $3,000 in
CDSC liable Shares, and the Shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free Shares, $1,000 from matured Shares, and $1,500
from CDSC liable Shares. Similarly, if CDSC liable Shares have been purchased
at different periods, a proportionate amount will be taken from Shares held
for each period. If, for example, the Shareholder holds $1,000 in Shares
bought three months ago, $1,000 bought six months ago, and $1,000 bought nine
months ago, $500 in each of these Shares will be exchanged into the new fund.
Class II Shares may be exchanged for shares of Franklin Templeton Money Fund
II ("Money Fund II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may Shareholders
purchase shares in Money Fund II directly. Shares continue to age and a
contingent deferred sales charge will be assessed if CDSC liable Shares are
redeemed. No other money market funds are available for Class II Shareholders
for exchange purposes. On the other hand, Class I Shares may be exchanged for
shares of any money market funds in the Franklin Group of Funds (R) or the
Templeton Family of Funds except Money Fund II. Draft writing privileges and
direct purchases are allowed on these money market funds as described in their
respective prospectuses.
TRANSFERS. Transfers between accounts in the same fund and class are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Like exchanges, Shares
will be moved proportionately from each type of Share in the original account.
CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares at this time. A Shareholder may, however, sell
Class II Shares and use the proceeds to purchase Class I Shares. In that
event, the sales charge for the purchased Class I Shares will be decreased by
the value of any initial sales charge and contingent deferred sales charge
paid in connection with the purchase and redemption of the Class II Shares.
EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase Shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Timing
Account or any person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem
to purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
In addition, the Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in the
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund may
be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Fund and therefore may be refused.
14
<PAGE>
Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.
HOW TO SELL SHARES OF THE FUND
CONTINGENT DEFERRED SALES CHARGE. Class I. In order to recover commissions
paid to securities dealers on qualified investments of $1 million or more, or
for purchases made by certain retirement plans of corporations with collective
retirement plan assets of $10 million or more, a contingent deferred sales
charge of 1% applies to redemptions of those investments within 12 months of
the calendar month of their purchase. The charge is 1% of the lesser of the
then-current net asset value of the Shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the original purchase price of
such Shares, and is retained by FTD.
Class II. Class II Shares redeemed within 18 months of their purchase will
be assessed a contingent deferred sales charge of 1% on the lesser of the
then-current net asset value of the Shares redeemed or the original purchase
price of such Shares unless one of the exceptions described below applies. A
contingent deferred sales charge will not be assessed on increases in net
asset value above the initial purchase price, on Class II Shares held more
than 18 months, or on Shares originally derived from reinvestment of dividends
or capital gain distributions. For tax purposes, a contingent deferred sales
charge is treated as a reduction in redemption proceeds, rather than an
adjustment to the cost basis.
Class I and Class II. In determining if a charge applies, Shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation of those Shares held less than the contingency period; (ii)
Shares purchased with reinvested dividends and capital gain distributions; and
(iii) other Shares held longer than the contingency period, followed by any
Shares held less than the contingency period, on a "first in, first out"
basis.
The contingent deferred sales charge is waived for: exchanges; distributions
to participants in Franklin Templeton Trust Company or Templeton Funds Trust
Company retirement plan accounts due to death, disability or attainment of age
59 1/2; tax-free returns of excess contributions to employee benefit plans;
distributions from employee benefit plans, including those due to plan
termination or plan transfer; redemptions through a Systematic Withdrawal Plan
established prior to February 1, 1995 and, for Systematic Withdrawal Plans
established thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); and redemptions
initiated by the Fund due to a Shareholder's account falling below the minimum
specified account size.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month, and each subsequent month.
Requests for redemptions for a specified dollar amount will result in
additional Shares being redeemed to cover any applicable contingent deferred
sales charge while requests for redemption of a specific number of Shares will
result in the applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL OF THE FOLLOWING REQUIREMENTS:
1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed and sent to Franklin Templeton Investor Services,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;
2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit
15
<PAGE>
unions; (2) national securities exchanges, registered securities associations
and clearing agencies; (3) securities broker-dealers which are members of a
national securities exchange or a clearing agency or which have minimum net
capital of $100,000; or (4) institutions that participate in the Securities
Transfer Agent Medallion Program ("STAMP") or other recognized signature
medallion program. A notarized signature will not be sufficient for the
request to be in Proper Order. If the Shares are registered in more than one
name, the signature of each of the redeeming Shareholders must be guaranteed.
A signature guarantee is not required for redemptions of $50,000 or less,
requested by and payable to all Shareholders of record, to be sent to the
address of record for that account. However, the Fund reserves the right to
require signature guarantees on all redemptions. A signature guarantee is
required in connection with any written request for transfer of Shares. Also,
a signature guarantee is required if the Fund or the Transfer Agent believes
that a signature guarantee would protect against potential claims based on the
transfer instructions, including, for example, when (a) the current address of
one or more joint owners of an account cannot be confirmed, (b) multiple
owners have a dispute or give inconsistent instructions to the Fund, (c) the
Fund has been notified of an adverse claim, (d) the instructions received by
the Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity has
not been established to the satisfaction of the Fund;
3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;
4. Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form;
. Corporation -- (i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory to the Transfer Agent;
. Partnership -- (i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;
. Trust -- (i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust
document listing the trustee(s) or a certificate of incumbency if the
trustee(s) are not listed on the account registration;
. Custodial (other than a retirement account) -- Signature guaranteed
letter of instruction from the custodian;
. Accounts under court jurisdiction -- Check court documents and the
applicable state law since these accounts have varying requirements,
depending upon the state of residence; and
5. Redemption of Shares held in a retirement plan for which Franklin
Templeton Trust Company or its affiliate acts as trustee or custodian must
conform to the distribution requirements of the plan and the Fund's redemption
requirements above. Distributions from such plans are subject to additional
requirements under the Code, and certain documents (available from the
Transfer Agent) must be completed before the distribution may be made. For
example, distributions from retirement plans are subject to withholding
requirements under the Code, and the IRS Form W-4P (available from the
Transfer Agent) may be required to be submitted to the Transfer Agent with the
distribution request, or the distribution will be delayed. Franklin Templeton
Investor Services, Inc. and its affiliates assume no responsibility to
determine whether a distribution satisfies the conditions of applicable tax
laws and will not be responsible for any penalties assessed.
To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Account Services Department by
calling 1-800-354-9191 or 813-823-8712.
The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. Payment of the redemption price ordinarily will be made by check (or by
wire at the sole discretion of
16
<PAGE>
the Transfer Agent if wire transfer is requested including name and address of
the bank and the Shareholder's account number to which payment of the
redemption price is to be wired) within seven days after receipt of the
redemption request in Proper Order. However, if Shares have been purchased by
check, the Fund will make redemption proceeds available when a Shareholder's
check received for the Shares purchased has been cleared for payment by the
Shareholder's bank, which, depending upon the location of the Shareholder's
bank, could take up to fifteen days or more. The check will be mailed by
first-class mail to the Shareholder's registered address (or as otherwise
directed). Remittance by wire (to a commercial bank account in the same
name(s) as the Shares are registered) or express mail, if requested, are
subject to a handling charge of up to $15, which will be deducted from the
redemption proceeds.
The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the Shareholder's request for repurchase, if the dealer received such request
before closing time of the New York Stock Exchange on that day. Dealers have
the responsibility of submitting such repurchase requests by calling not later
than 5:00 p.m., New York time, on such day in order to obtain that day's
applicable redemption price. Repurchase of Shares is for the convenience of
Shareholders and does not involve a charge by the Fund; however, securities
dealers may impose a charge on the Shareholder for transmitting the notice of
repurchase to the Fund. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect Shareholders
seeking redemption through the repurchase procedure. Ordinarily payment will
be made to the securities dealer within seven days after receipt of a
repurchase order and Share certificate (if any) in "Proper Order" as set forth
above. The Fund also will accept, from member firms of the New York Stock
Exchange, orders to repurchase Shares for which no certificates have been
issued by wire or telephone without a redemption request signed by the
Shareholder, provided the member firm indemnifies the Fund and FTD from any
liability resulting from the absence of the Shareholder's signature. Forms for
such indemnity agreement can be obtained from FTD.
The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, provided that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date, and Shares will be
redeemed at net asset value at the close of business on that date, unless
sufficient additional Shares are purchased to bring the aggregate account
value up to $100 or more, or unless a certified taxpayer identification number
(or such other information as the Fund has requested) has been provided, as
the case may be. A check for the redemption proceeds will be mailed to the
investor at the address of record.
REINSTATEMENT PRIVILEGE. Shares of the Fund may be purchased at net asset
value with the proceeds from (i) a redemption of Shares of any fund in the
Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds and Franklin Government Securities Trust) which were
purchased with an initial sales charge or assessed a contingent deferred sales
charge on redemption, or (ii) a dividend or distribution paid by any fund in
the Franklin Templeton Group, within 120 days after the date of the redemption
or dividend or distribution. However, if a Shareholder's original investment
was in Class I shares of a fund with a lower sales charge, or no sales charge,
the Shareholder must pay the difference. While credit will be given for any
contingent deferred sales charge paid on the Shares redeemed, a new
contingency period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this privilege, a written
order for the purchase of Shares of the Fund must be received by the Fund or
the Fund's Transfer Agent within 120 days after the redemption. The 120 days,
however, do not begin to run on redemption proceeds placed immediately after
redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. The amount of gain or loss resulting from a
redemption may be affected by exercise of the reinstatement privilege if the
Shares redeemed were held for 90 days or less, or if a Shareholder reinvests
in the same fund within 30 days. Reinvestment will be at the next calculated
net asset value after receipt.
17
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive periodic payments from the account
provided that the net asset value of the Shares held by the Shareholder is at
least $5,000. There are no service charges for establishing or maintaining a
Plan. The minimum amount which the Shareholder may withdraw is $50 per
withdrawal transaction although this is merely the minimum amount allowed
under the Plan and should not be mistaken for a recommended amount. The Plan
may be established on a monthly, quarterly, semi-annual or annual basis. If
the Shareholder establishes a Plan, any capital gain distributions and income
dividends paid by the Fund to the Shareholder's account must be reinvested for
the Shareholder's account in additional Shares at net asset value. Payments
are then made from the liquidation of Shares at net asset value on the day of
the liquidation (which is generally on or about the 25th of the month) to meet
the specified withdrawals. Payments are generally received three to five days
after the date of liquidation. By completing the "Special Payment Instructions
for Distributions" section of the Shareholder Application included with this
Prospectus, a Shareholder may direct the selected withdrawals to another fund
in the Franklin Templeton Group, to another person, or directly to a checking
account. Liquidation of Shares may reduce or possibly exhaust the Shares in
the Shareholder's account, to the extent withdrawals exceed Shares earned
through dividends and distributions, particularly in the event of a market
decline. If the withdrawal amount exceeds the total Plan balance, the account
will be closed and the remaining balance will be sent to the Shareholder. As
with other redemptions, a liquidation to make a withdrawal payment is a sale
for Federal income tax purposes. Because the amount withdrawn under the Plan
may be more than the Shareholder's actual yield or income, part of such a Plan
payment may be a return of the Shareholder's investment.
Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. The Shareholder should ordinarily not make additional investments
of less than $5,000 or three times the annual withdrawals under the Plan
during the time such a Plan is in effect. A Plan may be terminated on written
notice by the Shareholder or the Fund, and it will terminate automatically if
all Shares are liquidated or withdrawn from the account, or upon the Fund's
receipt of notification of the death or incapacity of the Shareholder.
Shareholders may change the amount (but not below $50) and schedule of
withdrawal payments or suspend one such payment by giving written notice to
the Transfer Agent at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Plan is in effect.
REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions -- Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable
procedures to confirm that instructions given by telephone are genuine.
Shareholders, however, bear the risk of loss in certain cases as described
under "Telephone Transactions -- Verification Procedures."
For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before 4:00 p.m., New York
time, on any business day will be processed that same day. The redemption
check will be sent within seven days, made payable to all the registered
owners on the account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, a Shareholder should follow the
other redemption procedures set forth in this Prospectus. Institutional
accounts which wish to execute redemptions in excess of $50,000 must complete
an Institutional Telephone Privileges Agreement which is available from
Franklin Templeton Institutional Services by telephoning 1-800-321-8563.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their dealer of record, if any, may be able to
execute various transactions by calling the Transfer Agent at 1-800-354-9191.
All Shareholders will be able to: (i) effect a change in address, (ii) change
a dividend option (see "Restricted Accounts" below), (iii) transfer Fund
Shares in one account to another identically registered account in the Fund,
and (iv) exchange
18
<PAGE>
Fund Shares by telephone as described in this Prospectus. In addition,
Shareholders who complete and file an Agreement as described under "How to
Sell Shares of the Fund -- Redemptions by Telephone" will be able to redeem
Shares of the Fund.
VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. Shareholders are, of
course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or the Transfer Agent is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund, the Transfer
Agent, nor their affiliates will be liable for any losses which may occur
because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton Trust Company ("FTTC") or Templeton
Funds Trust Company ("TFTC") retirement accounts. To assure compliance with
all applicable regulations, special forms are required for any distribution,
redemption or dividend payment. Although the telephone exchange privilege is
extended to these retirement accounts, a Franklin Templeton Transfer
Authorization Form must be on file in order to transfer retirement plan assets
between the Franklin Group of Funds (R) and the Templeton Family of Funds in
the same plan type. Changes to dividend options for these accounts must also
be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, FTTC retirement account shareholders may call 1-
800-527-2020 (toll free), and TFTC retirement account shareholders may call 1-
800-354-9191 (press "2") (also toll free).
GENERAL. During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be difficult to
execute because of heavy telephone volume. In such situations, Shareholders
may wish to contact their dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor the Transfer Agent will be liable for any losses
resulting from the inability of a Shareholder to execute a telephone
transaction.
The telephone transaction privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to Shareholders.
MANAGEMENT OF THE FUND
The Fund is managed by its Board of Directors and all powers are exercised
by or under authority of the Board. Information relating to the Directors and
Executive Officers is set forth under the heading "Management of the Fund" in
the SAI.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton
Investment Counsel, Inc., Broward Financial Centre, Fort Lauderdale, Florida
33394-3091. The Investment Manager manages the investment and reinvestment of
the Fund's assets. The
19
<PAGE>
Investment Manager is an indirect wholly owned subsidiary of Franklin
Resources, Inc. ("Franklin"). Through its subsidiaries, Franklin is engaged in
various aspects of the financial services industry. The Investment Manager and
its affiliates serve as advisers for a wide variety of public investment
mutual funds and private clients in many nations. The Templeton organization
has been investing globally over the past 52 years and, with its affiliates,
provides investment management and advisory services to a worldwide client
base, including over 4.3 million mutual fund shareholders, foundations,
endowments, employee benefit plans and individuals. The Investment Manager and
its affiliates have approximately 4,100 employees in the United States,
Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada and Russia.
The Investment Manager uses a disciplined, long-term approach to value-
oriented global and international investing. It has an extensive global
network of investment research sources. Securities are selected for the Fund's
portfolio on the basis of fundamental company-by-company analysis. Many
different selection methods are used for different funds and clients and these
methods are changed and improved by the Investment Manager's research on
superior selection methods.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee which, during the most recent fiscal year,
represented 0.75% of its average daily net assets.
Currently, the lead portfolio manager for the Fund is Daniel L. Jacobs. Mr.
Jacobs joined the Templeton organization in 1984 as portfolio manager and
security analyst and is Senior Vice President of the Investment Manager. Prior
to joining the Templeton organization, Mr. Jacobs was with the First National
Bank of Atlanta for eight years, where he was vice president and portfolio
manager in the Institutional Investment Group. His responsibilities included
the management of institutional accounts and international equity portfolios.
Lauretta A. Reeves, Vice President of the Investment Manager, and Peter Nori,
Research Analyst for the Investment Manager, also exercise significant
portfolio management responsibilities with respect to the Fund. Prior to
joining the Templeton organization, Ms. Reeves was manager of equity trading
for the First Equity Corporation of Florida, a regional brokerage firm.
Previously, she worked in similar trading positions with two other brokerage
houses. Prior to joining the Templeton organization, Mr. Nori was co-portfolio
manager of Franklin Convertible Securities Fund. Further information
concerning the Investment Manager is included under the heading "Investment
Management and Other Services" in the SAI.
BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns and financial reports, monitoring compliance with
regulatory requirements and monitoring tax deferred retirement plans. For its
services, the Business Manager receives a fee equivalent on an annual basis to
0.15% of the average daily net assets of the Fund, reduced to 0.135% of such
assets in excess of $200 million, to 0.10% of such assets in excess of $700
million and to 0.075% of such assets in excess of $1,200 million.
TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.
CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.
PLANS OF DISTRIBUTION. Each class of Shares of the Fund has approved and
adopted a separate Plan of Distribution ("Class I Plan" and "Class II Plan,"
respectively, or "Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule
12b-1 fees charged to each class will be based solely on the distribution
and/or servicing fees attributable to that particular class. Any portion of
fees remaining from any Plan after distribution to securities dealers up to
the maximum amount permitted under each Plan may be used by the class to
reimburse FTD for routine ongoing promotion and distribution expenses. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of FTD's overhead expenses
attributable to the
20
<PAGE>
distribution of Fund Shares, as well as any distribution or service fees paid
to securities dealers or their firms or others who have executed a servicing
agreement with the Fund, FTD or its affiliates.
The maximum amount which the Fund may pay to FTD under the Class I Plan for
such distribution expenses is 0.25% per annum of Class I's average daily net
assets, payable on a quarterly basis. Under the Class II Plan, the maximum
amount which the Fund may pay to FTD for such distribution expenses
is 0.75% of Class II's average daily net assets per annum, payable on a
quarterly basis. All expenses of distribution and marketing over that amount
will be borne by FTD, or others who have incurred them without reimbursement
by the Fund. In addition to this amount, under the Class II Plan, the Fund
shall pay 0.25% per annum of the Class' average daily net assets as a ser-
vicing fee. This fee will be used to pay dealers or others for, among other
things, assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the Fund on
behalf of the customers; and similar activities related to furnishing
personal services and maintaining Shareholder accounts.
Under both Plans, costs and expenses not reimbursed in any one given month
(including costs and expenses not reimbursed because they exceed the
applicable limit under the Plan) may be reimbursed in subsequent months or
years, subject to applicable law. FTD has informed the Fund that the costs and
expenses of Class I Shares that may be reimbursable in future months or years
were $196,099 (0.01% of its net assets) at August 31, 1994.
Each Plan also covers any payments to or by the Fund, the Investment
Manager, FTD, or other parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne by each class of the Fund.
For more information, please see the SAI.
EXPENSES. For the fiscal year ended August 31, 1994, expenses amounted to
1.36% of the Fund's average daily net assets.
BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.
GENERAL INFORMATION
DESCRIPTION OF SHARES/SHARE CERTIFICATES. The Fund's authorized capital
consists of 750,000,000 Shares, par value $0.20 per Share. The Board of
Directors is authorized, in its discretion, to classify and allocate the
unissued Shares of the Fund, each such class to represent a different
portfolio of securities. Each Share entitles the holder to one vote.
The Fund will not ordinarily issue certificates for Shares purchased. Share
certificates representing whole (not fractional) Shares are issued only upon
the specific request of the Shareholder made in writing to the Transfer Agent.
No charge will be made for the issuance of one certificate for all or some of
the Shares purchased in a single order.
MEETINGS OF SHAREHOLDERS. The Fund is not required to hold annual meetings
of Shareholders and may elect not to do so. The Fund will call a special
meeting of Shareholders when requested to do so by Shareholders holding at
least 10% of the Fund's outstanding Shares. In addition, the Fund is required
to assist Shareholder communications in connection with the calling of
Shareholder meetings to consider removal of a Director or Directors.
21
<PAGE>
DIVIDENDS AND DISTRIBUTIONS. Dividends and capital gains distributions (if
any) are usually paid in October and (if necessary) in December representing
all or substantially all of the Fund's net investment income and any net
realized capital gains. Dividends will be calculated and distributed in the
same manner for both classes of Shares, and their value will differ only to
the extent that they are affected by the distribution plan fees and sales
charges. Because ongoing Rule 12b-1 expenses will be lower for Class I than
Class II, dividends distributed to Class I Shares will generally be higher
than those distributed to Class II Shares. Income dividends and capital gain
distributions paid by the Fund, other than on those Shares whose owners keep
them registered in the name of a broker-dealer, are automatically reinvested
in whole or fractional Shares at net asset value as of the ex-dividend date,
unless a Shareholder makes a written or telephonic request for payments in
cash. Dividend and capital gain distributions are eligible for investment in
the same class of Shares of the Fund or the same class of another fund in the
Franklin Group of Funds(R) or Templeton Family of Funds at net asset value.
The processing date for the reinvestment of dividends may vary from month to
month, and does not affect the amount or value of the Shares acquired. Income
dividends and capital gain distributions will be paid in cash on Shares during
the time their owners keep them registered in the name of a broker-dealer,
unless the broker-dealer has made arrangements with the Transfer Agent for
reinvestment.
Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to the record date will have the
effect of reducing the per Share net asset value of the Shares by the amount
of the dividend or distribution. All or a portion of such dividend or
distribution, although in effect a return of capital, generally will be
subject to tax.
Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested for the Shareholder's account in whole
or fractional Shares at the net asset value next computed after the check has
been received by the Transfer Agent. Subsequent distributions will be
reinvested automatically at net asset value as of the ex-dividend date in
additional whole or fractional Shares.
FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. See the SAI for a summary of the requirements that must be satisfied to
so qualify. A regulated investment company generally is not subject to Federal
income tax on income and gains distributed in a timely manner to its
shareholders. The Fund intends to distribute to Shareholders substantially all
of its net investment income and realized capital gains, which generally will
be taxable income or capital gains in their hands. Distributions declared in
October, November or December to Shareholders of record on a date in such
month and paid during the following January will be treated as having been
received by Shareholders on December 31 in the year such distributions were
declared. The Fund will inform Shareholders each year of the amount and nature
of such income or gains. A more detailed description of tax consequences to
Shareholders is contained in the SAI under the heading "Tax Status."
The Fund may be required to withhold Federal income tax at the rate of 31%
of all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholder's Federal income tax liability.
INQUIRIES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., 700 Central Avenue,
P.O. Box 33030, St. Petersburg, Florida 33733-8030 -- telephone 1-800-354-9191
or 813-823-8712 Transcripts of Shareholder accounts less than three years old
are provided on request without charge; requests for transcripts going back
more than three years from the date the request is received by the Transfer
Agent are subject to a fee of up to $15 per account.
22
<PAGE>
PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return of a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect
the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see the SAI.
STATEMENTS AND REPORTS. The Fund's fiscal year ends on August 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semi-annual
reports (containing unaudited financial statements) are sent to Shareholders
each year. Additional copies may be obtained, without charge, upon request to
the Account Services Department. The Fund also sends to each Shareholder a
confirmation statement after every transaction that affects the Shareholder's
account and a year-end historical confirmation statement.
23
<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number, you must obtain Form SS-5 or Form SS-4 from your local
Social Security or IRS office and apply for one. If you have checked the
"Awaiting TIN" box and signed the certification, withholding will apply to
payments relating to your account unless you provide a certified TIN within 60
days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- -----------------------------------------------------------------------------------
. Joint Actual owner of . Corporation, Corporation,
Individual account, or if Partnership, or other Partnership, or other
combined funds, the organization organization
first-named
individual
- -----------------------------------------------------------------------------------
. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
- -----------------------------------------------------------------------------------
. Sole Owner of business
Proprietor
- -----------------------------------------------------------------------------------
. Legal Ward, Minor, or
Guardian Incompetent
- -----------------------------------------------------------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:
A corporation A real estate investment trust
A financial institution A common trust fund operated by a bank
under section 584(a)
An organization exempt from tax An entity registered at all times
under section 501(a), or an under the Investment Company Act of
individual retirement plan 1940
A registered dealer in securities
or commodities registered in the
U.S. or a U.S. possession
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your Federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the tax payer identification number you have given is correct, and (2) the
Internal Revenue Service has not notified you that you are subject to backup
withholding because you failed to report certain interest or dividend income.
You may use Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer
active, you do not have to notify a Fund/Payer or broker of your change in
status unless you also have another account with the same Fund/Payer that is
still active. If you receive interest from more than one Fund/Payer or have
dealings with more than one broker or barter exchange, file a certificate with
each. If you have more than one account with the same Fund/Payer, the
Fund/Payer may require you to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
1/94
24
<PAGE>
FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION
It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that the Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to the Fund.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
________________________ of ________________________ a ________________________
TITLE CORPORATE NAME TYPE OF ORGANIZATION
organized under the laws of the State of ________________________ and that the
STATE
following is a true and correct copy of a resolution adopted by the Board of
Directors at a meeting duly called and held on ________________________
DATE
RESOLVED, that the _________________________________________________ of this
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds(R) or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and
FURTHER RESOLVED, that any of the following ________________________ officers
NUMBER
are authorized to sign any share assignment on behalf of this Corporation or
Association and to take any other actions as may be necessary to sell or
redeem its shares in the Funds or to sign checks or drafts withdrawing funds
from the account; and
FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary)
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE
- -------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE
Certified from minutes ________________________________________________________
NAME AND TITLE
CORPORATE SEAL (if appropriate)
25
<PAGE>
THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT
You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.
The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.
SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group (a "Franklin Templeton Fund" or a
"Fund"), now opened or opened at a later date, holding shares registered as
follows:
- ------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT REGISTRATION ("SHAREHOLDER")
- ------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)
I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:
- ------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE
- ------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY, IF APPLICABLE)
VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions; (2)
the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.
JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.
APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.
CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.
RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Trust Company or Templeton Funds Trust Company retirement accounts.
PLEASE RETURN THIS FORM TO:
Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.
26
<PAGE>
THE FRANKLIN TEMPLETON GROUP
To receive a free brochure and prospectus, which contain more complete
information, including charges and expenses on each of the funds listed below,
call Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236)
or Templeton Fund Information at 1-800-292-9293. Please read the prospectus
carefully before you invest or send money.
TEMPLETON FUNDS SEEKING Franklin FUNDS SEEKING
FAMILY OF GROWTH AND Louisiana Tax- HIGH CURRENT
FUNDS INCOME Free Income INCOME AND
Fund STABILITY OF
Franklin Franklin PRINCIPAL
Templeton Balance Sheet Franklin
Japan Fund Investment Maryland Tax- Franklin
Fund Free Income Adjustable
Templeton Fund Rate
American Trust Franklin Securities
Convertible Franklin Fund
Templeton Securities Missouri Tax-
Americas Fund Free Income Franklin
Government Fund Adjustable
Securities Franklin U.S.
Fund Income Fund Franklin New Government
Jersey Tax- Securities
Templeton Franklin Free Income Fund
Developing Equity Income Fund
Markets Trust Fund Franklin
Franklin New Short-
Templeton Franklin York Tax-Free Intermediate
Foreign Fund Utilities Fund Income Fund U.S.
Government
Templeton Franklin North Securities
Global FUNDS SEEKING Carolina Tax- Fund
Infrastructure HIGH CURRENT Free Income
Fund INCOME Fund
FUND SEEKING
Templeton Franklin's AGE Franklin HIGH AFTER-TAX
Global High Income Fund Oregon Tax- INCOME FOR
Opportunities Free Income CORPORATIONS
Trust Franklin Fund
Investment Franklin
Templeton Grade Income Franklin Corporate
Global Rising Fund Pennsylvania Qualified
Dividends Fund Tax-Free Dividend Fund
Franklin Income Fund
Templeton Premier Return
Growth Fund Fund Franklin MONEY MARKET
Puerto Rico FUNDS SEEKING
Templeton Franklin U.S. Tax-Free SAFETY OF
Income Fund Government Income Fund PRINCIPAL AND
Securities INCOME
Templeton Fund Franklin Texas
Money Fund Tax-Free Franklin Money
Income Fund Fund
Templeton Real FUNDS SEEKING Franklin
Estate TAX-FREE Virginia Tax- Franklin
Securities INCOME Free Income Federal Money
Fund Fund Fund
Franklin
Templeton Federal Tax- Franklin Franklin Tax-
Smaller Free Income Washington Exempt Money
Companies Fund Municipal Bond Fund
Growth Fund Fund
Franklin High Franklin
Templeton Yield Tax-Free California
World Fund Income Fund FUNDS SEEKING Tax-Exempt
TAX-FREE Money Fund
Franklin INCOME THROUGH
FRANKLIN GROUP California INSURED Franklin New
OF FUNDS(R) High Yield PORTFOLIOS York Tax-
Municipal Fund Exempt Money
FRANKLIN Franklin Fund
GLOBAL/ Franklin Insured Tax-
INTERNATIONAL Alabama Tax- Free Income IFT Franklin
FUNDS Free Income Fund U.S. Treasury
Fund Money Market
Franklin Franklin Portfolio
Global Health Franklin Arizona
Care Fund Arizona Tax- Insured Tax-
Free Income Free Income FUNDS FOR NON-
Franklin Fund Fund U.S. INVESTORS
Global FRANKLIN
Government Franklin Franklin PARTNERS
Income Fund California California FUNDS(R)
Tax-Free Insured Tax-
Franklin Income Fund Free Income Franklin Tax-
Global Fund Advantaged
Utilities Fund Franklin High Yield
Colorado Tax- Franklin Securities
Franklin Free Income Florida Fund
International Fund Insured Tax-
Equity Fund Free Income Franklin Tax-
Franklin Fund Advantaged
Franklin Connecticut International
Pacific Growth Tax-Free Franklin Bond Fund
Fund Income Fund Massachusetts
Insured Tax- Franklin Tax-
Franklin Free Income Advantaged
FUNDS SEEKING Florida Tax- Fund U.S.
CAPITAL GROWTH Free Income Government
Fund Franklin Securities
Franklin Michigan Fund
California Franklin Insured Tax-
Growth Fund Georgia Tax- Free Income
Free Income Fund
Franklin Fund
DynaTech Fund Franklin
Franklin Minnesota
Franklin Hawaii Insured Tax-
Equity Fund Municipal Bond Free Income
Fund Fund
Franklin Gold
Fund Franklin Franklin New
Indiana Tax- York Insured
Franklin Free Income Tax-Free
Growth Fund Fund Income Fund
Franklin Franklin Kentucky Franklin Ohio
Rising Tax-Free Insured Tax-
Dividends Fund Income Fund Free Income
Franklin Small Fund
Cap Growth
Fund
27
<PAGE>
NOTES
-----
28
<PAGE>
- --------------------------
TEMPLETON SMALLER
COMPANIES GROWTH
FUND, INC.
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Fund Information
1-800-292-9293
Institutional Services
1-800-321-8563
This Prospectus is not
an offering of the
securities herein
described in any state
in which the offering
is not authorized. No
sales representative,
dealer, or other person
is authorized to give
any information or make
any representations
other than those
contained in this
Prospectus. Further
information may be
obtained from the
Principal Underwriter.
- --------------------------
TEMPLETON
SMALLER
COMPANIES GROWTH
FUND, INC.
Prospectus
January 1, 1995
as supplemented
April 1, 1995
[RECYCIING LOGO APPEARS HERE] TL03 P 1/95 [LOGO OF FRANKLIN TEMPLETON
APPEARS HERE]
TEMPLETON SMALLER COMPANIES GROWTH FUND, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 1, 1995, AS SUPPLEMENTED
APRIL 1, 1995, IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
OF TEMPLETON SMALLER COMPANIES GROWTH FUND, INC. DATED
JANUARY 1, 1995, AS SUPPLEMENTED
APRIL 1, 1995, WHICH CAN BE OBTAINED WITHOUT CHARGE
UPON REQUEST TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: (800) 237-0738
TABLE OF CONTENTS
General Information and History -Business Manager
Investment Objective and -Custodian and Transfer Agent
Policies -Legal Counse
-Investment Policies -Independent Accountants
-Debt Securities -Reports to Shareholders
-Investment Restrictions Brokerage Allocation
-Risk Factors Purchase, Redemption and
-Trading Policies Pricing of Shares
-Personal Securities -Ownership and Authority
Transactions Disputes
Management of the Fund -Tax Deferred Retirement Plans
Principal Shareholders -Letter of Intent
Investment Management and Other -Purchases at Net Asset Value
Services Tax Status
-Investment Management Principal Underwriter
Agreement Description of Shares
-Management Fees Performance Information
-The Investment Manager Financial Statements
GENERAL INFORMATION AND HISTORY
Templeton Smaller Companies Growth Fund, Inc. (the "Fund")
was incorporated under the laws of Maryland on February 4, 1981,
and is registered under the Investment Company Act of 1940 (the
"1940 Act") as an open-end diversified investment company. On
January 1, 1991, the Fund changed its name from Templeton Global
Funds, Inc. to Templeton Smaller Companies Growth Fund, Inc.
The Fund's investment objective is long-term capital growth,
primarily through investment in common stocks and all types of
common stock equivalents, including rights, warrants and
preferred stock, of companies of various nations throughout the
world. For defensive purposes, the Fund also may invest in bonds
and other debt obligations of such issuers and fixed-income
obligations of various governments.
INVESTMENT OBJECTIVE AND POLICIES
Investment Policies. The investment objective and policies
of the Fund are described in the Prospectus under the heading
"General Description--Investment Objective and Policies."
Debt Securities. The Fund may invest in medium quality or
high risk, lower quality debt securities. As an operating
policy, the Fund will invest no more than 5% of its assets in
debt securities rated lower than Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's Corporation
("S&P"). The market value of debt securities generally varies in
response to changes in interest rates and the financial condition
of each issuer. During periods of declining interest rates, the
value of debt securities generally increases. Conversely, during
periods of rising interest rates, the value of such securities
generally declines. These changes in market value will be
reflected in the Fund's net asset value.
Although they may offer higher yields than do higher rated
securities, low rated and unrated debt securities generally
involve greater volatility of price and risk of principal and
income, including the possibility of default by, or bankruptcy
of, the issuers of the securities. In addition, the markets in
which low rated and unrated debt securities are traded are more
limited than those in which higher rated securities are traded.
The existence of limited markets for particular securities may
diminish the Fund's ability to sell the securities at fair value
either to meet redemption requests or to respond to a specific
economic event such as a deterioration in the creditworthiness of
the issuer. Reduced secondary market liquidity for certain low
rated or unrated debt securities may also make it more difficult
for the Fund to obtain accurate market quotations for the
purposes of valuing the Fund's portfolio. Market quotations are
generally available on many low rated or unrated securities only
from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and
liquidity of low rated debt securities, especially in a thinly
traded market. Analysis of the creditworthiness of issuers of
low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of the Fund to achieve
its investment objective may, to the extent of investment in low
rated debt securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were
investing in higher rated securities.
Low rated debt securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions
than investment grade securities. The prices of low rated debt
securities have been found to be less sensitive to interest rate
changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments.
A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in low rated
debt securities prices because the advent of a recession could
lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the
issuer of low rated debt securities defaults, the Fund may incur
additional expenses to seek recovery.
The Fund may accrue and report interest on high yield bonds
structured as zero coupon bonds or pay-in-kind securities as
income even though it receives no cash interest until the
security's maturity or payment date. In order to qualify for
beneficial tax treatment afforded regulated investment companies,
the Fund must distribute substantially all of its net income to
Shareholders (see "Tax Status"). Thus, the Fund may have to
dispose of its portfolio securities under disadvantageous
circumstances to generate cash in order to satisfy the
distribution requirement.
Recent legislation, which requires federally insured savings
and loan associations to divest their investments in low rated
debt securities, may have a material adverse effect on the Fund's
net asset value and investment practices.
Investment Restrictions. The Fund has imposed upon itself
certain investment restrictions which, together with its
investment objective and policies, are fundamental policies
except as otherwise indicated. No changes in the Fund's
investment objective, policies or investment restrictions (except
those which are not fundamental policies) can be made without the
approval of the Shareholders. For this purpose, the provisions
of the 1940 Act require the affirmative vote of the lesser of
either (A) 67% or more of the Fund's Shares present at a
Shareholders' meeting at which more than 50% of the outstanding
Shares are present or represented by proxy or (B) more than 50%
of the outstanding Shares of the Fund.
In accordance with these Restrictions, the Fund does not:
1. Invest more than 5% of its total assets in the
securities of any one issuer (exclusive of U.S.
Government securities).
2. Invest in real estate or mortgages on real estate
(although the Fund may invest in marketable securities
secured by real estate or interests therein); invest in
other open-end investment companies (except in
connection with a merger, consolidation, acquisition or
reorganization); invest in interests (other than
publicly issued debentures or equity stock interests)
in oil, gas or other mineral exploration or development
programs; purchase or sell commodity contracts, or, as
an operating policy approved by the Board of Directors,
invest in closed-end investment companies.
3. Purchase or retain securities of any company in which
Directors or Officers of the Fund or of Templeton
Investment Counsel, Inc. (the "Investment Manager"),
individually owning more than 1/2 of 1% of the
securities of such company, in the aggregate own more
than 5% of the securities of such company.
4. Purchase more than 10% of any class of securities of
any one company, including more than 10% of its
outstanding voting securities, or invest in any company
for the purpose of exercising control or management.
5. Act as an underwriter; issue senior securities;
purchase on margin or sell short; write, buy or sell
puts, calls, straddles or spreads.
6. Loan money, apart from the purchase of a portion of an
issue of publicly distributed bonds, debentures, notes
and other evidences of indebtedness, although the Fund
may buy U.S. Government obligations with a simultaneous
agreement with the seller to repurchase them within no
more than seven days at the original repurchase price
plus accrued interest.
7. Borrow money for any purpose other than redeeming its
Shares for cancellation, and then only as a temporary
measure up to an amount not exceeding 5% of the value
of its total assets; or pledge, mortgage, or
hypothecate its assets for any purpose other than to
secure such borrowings, and then only to such extent
not exceeding 10% of the value of its total assets as
the Board of Directors may by resolution approve. The
Fund will not pledge, mortgage or hypothecate its
assets to the extent that at any time the percentage of
pledged assets plus the sales commission will exceed
10% of the Offering Price of its Shares.
8. Invest more than 5% of the value of its total assets in
securities of issuers which have been in continuous
operation less than three years.
9. Invest more than 5% of its total assets in warrants
whether or not listed on the New York or American Stock
Exchange, and more than 2% of its total assets in
warrants that are not listed on those exchanges.
Warrants acquired by the Fund in units or attached to
securities are not included in this restriction.
10. Invest more than 10% of its total assets in restricted
securities, securities with a limited trading market
(which the Fund may not be able to dispose of at the
current market price) or those which are not otherwise
readily marketable with readily available current
market quotations.
11. Invest more than 25% of its total assets in a single
industry.
12. Invest in "letter stocks" or securities on which there
are any sales restrictions under a purchase agreement.
13. Participate on a joint or a joint and several basis in
any trading account in securities. (See "Investment
Objective and Policies--Trading Policies" as to
transactions in the same securities for the Fund and
other Templeton Funds.)
The Fund has undertaken with a state securities commission
that it will limit investments in illiquid securities to no more
than 5% of its total assets.
Whenever any investment policy or investment restriction
states a maximum percentage of the Fund's assets which may be
invested in any security or other property, it is intended that
such maximum percentage limitation be determined immediately
after and as a result of the Fund's acquisition of such security
or property. With the exception of Investment Restrictions
Numbers 10 and 11, above, nothing herein shall be deemed to
prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of subscription rights distributed to
the Fund by the issuer, except that no such purchase may be made
if, as a result, the Fund would no longer be a diversified
investment company as defined in the 1940 Act. Foreign
corporations frequently issue additional capital stock by means
of subscription rights offerings to existing shareholders at a
price below the market price of the shares. The failure to
exercise such rights would result in dilution of the Fund's
interest in the issuing company. Therefore, the exception
applies in cases where the limits set forth in any investment
policy or restriction would otherwise be exceeded by exercising
rights, or have already been exceeded as a result of fluctuations
in the market value of the Fund's portfolio securities.
Risk Factors. The Fund has an unlimited right to purchase
securities in any foreign country, developed or underdeveloped,
if they are listed on a stock exchange, as well as a limited
right to purchase such securities if they are unlisted.
Investors should consider carefully the substantial risks
involved in securities of companies and governments of foreign
nations, which are in addition to the usual risks inherent in
domestic investments.
There may be less publicly available information about
foreign companies comparable to the reports and ratings published
about companies in the United States. Foreign companies are not
generally subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may
not be comparable to those applicable to United States companies.
Foreign markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less
liquid and more volatile than securities of comparable United
States companies. Although the Fund may not invest more than 10%
of its total assets in securities with a limited trading market,
in the opinion of management such securities with a limited
trading market do not present a significant liquidity problem.
Commission rates in foreign countries, which are generally fixed
rather than subject to negotiation as in the United States, are
likely to be higher. In many foreign countries there is less
government supervision and regulation of stock exchanges, brokers
and listed companies than in the United States.
Investments in companies domiciled in developing countries
may be subject to potentially higher risks than investments in
developed countries. These risks include (i) less social,
political and economic stability; (ii) the small current size of
the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of
liquidity and in greater price volatility; (iii) certain national
policies which may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation;
(v) the absence of developed legal structures governing private
or foreign investment or allowing for judicial redress for injury
to private property; (vi) the absence, until recently in certain
Eastern European countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed
or reversed by unanticipated political or social events in such
countries.
Investments in Eastern European countries may involve risks
of nationalization, expropriation and confiscatory taxation. The
Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in
many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future.
In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the
affected countries. Further, no accounting standards exist in
Eastern European countries. Finally, even though certain Eastern
European currencies may be convertible into United States
dollars, the conversion rates may be artificial to the actual
market values and may be adverse to Fund Shareholders.
The Fund endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency
exchange (to cover service charges) will be incurred,
particularly when the Fund changes investments from one country
to another or when proceeds of the sale of Shares in U.S. dollars
are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies which would prevent the
Fund from transferring cash out of the country or withhold
portions of interest and dividends at the source. There is the
possibility of expropriation, nationalization or confiscatory
taxation, withholding and other foreign taxes on income or other
amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country),
default in foreign government securities, political or social
instability or diplomatic developments which could affect
investments in securities of issuers in foreign nations.
The Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the
currencies of different nations, by exchange control regulations,
and by indigenous economic and political developments. Through
the Fund's flexible policy, the Investment Manager endeavors to
avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where from time to time it
places the Fund's investments.
The exercise of this flexible policy may include decisions
to purchase securities with substantial risk characteristics and
other decisions such as changing the emphasis on investments from
one nation to another and from one type of security to another.
Some of these decisions may later prove profitable and others may
not. No assurance can be given that profits, if any, will exceed
losses.
The Directors consider at least annually the likelihood of
the imposition by any foreign government of exchange control
restrictions which would affect the liquidity of the Fund's
assets maintained with custodians in foreign countries, as well
as the degree of risk from political acts of foreign governments
to which such assets may be exposed. They also consider the
degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories (see
"Investment Management and Other Services--Custodian and Transfer
Agent"). However, in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager,
any losses resulting from the holding of the Fund's portfolio
securities in foreign countries and/or with securities
depositories will be at the risk of the Shareholders. No
assurance can be given that the Directors' appraisal of the risks
will always be correct or that such exchange control restrictions
or political acts of foreign governments might not occur.
Trading Policies. The Investment Manager and its affiliated
companies serve as investment manager to other investment
companies and private clients. Accordingly, the respective
portfolios of these funds and clients may contain many or some of
the same securities. When any two or more of these funds or
clients are engaged simultaneously in the purchase or sale of the
same security, the transactions are placed for execution in a
manner designed to be equitable to each party. The larger size
of the transaction may affect the price of the security and/or
the quantity which may be bought or sold for each party. If the
transaction is large enough, brokerage commissions in certain
countries may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other
remuneration in connection therewith, may be effected between any
of these funds, or between funds and private clients, under
procedures adopted pursuant to Rule 17a-7 under the 1940 Act.
Personal Securities Transactions. Access persons of the
Franklin Templeton Group, as defined in SEC Rule 17(j) under the
1940 Act, who are employees of Franklin Resources, Inc. or their
subsidiaries, are permitted to engage in personal securities
transactions subject to the following general restrictions and
procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be
sent to the Compliance Officer and within 10 days after the end
of each calendar quarter, a report of all securities transactions
must be provided to the Compliance Officer; (3) In addition to
items (1) and (2), access persons involved in preparing and
making investment decisions must file annual reports of their
securities holdings each January and also inform the Compliance
Officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction
or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other
client.
MANAGEMENT OF THE FUND
The name, address, principal occupation during the past five
years and other information with respect to each of the Directors
and Principal Executive Officers of the Fund are as follows:
Name, Address and Principal Occupation
Offices with Fund During Past Five Years
JOHN M. TEMPLETON* Chairman of the Board of other
Lyford Cay Templeton Funds; president of
Nassau, Bahamas First Trust Bank, Ltd., Nassau,
Chairman of the Board Bahamas; and previously
chairman of the board and
employee of Templeton,
Galbraith & Hansberger Ltd.
(prior to October 30, 1992).
F. BRUCE CLARKE Retired; former credit advisor,
19 Vista View Blvd. National Bank of Canada,
Thornhill, Ontario Toronto; a director or trustee
Director of other Templeton Funds.
JOHN G. BENNETT, JR. A director or trustee of other
3 Radnor Corporate Center Templeton Funds; founder,
Suite 150 chairman of the board, and
100 Matsonford Road president of the Foundation for
Radnor, Pennsylvania New Era Philanthropy; president
Director and chairman of the boards of
the Evelyn M. Bennett Memorial
Foundation and NEP
International Trust; chairman
of the board and chief
executive officer of The
Bennett Group International,
LTD; chairman of the boards of
Human Service Systems, Inc. and
Multi-Media Communicators,
Inc.; a director or trustee of
many national and international
organizations, universities,
and grant-making foundations
serving in various executive
board capacities; member of the
Public Policy Committee of the
Advertising Council.
FRED R. MILLSAPS A director or trustee of other
2665 NE 37th Drive Templeton Funds; manager of
Fort Lauderdale, Florida personal investments (1978-
Director present); chairman and chief
executive officer of Landmark
Banking corporation (1969-
1978); financial vice president
of Florida Power and Light
(1965-1969); vice president of
Federal Reserve Bank of Atlanta
(1958-1965); director of
various business and nonprofit
organizations.
BETTY P. KRAHMER A director or trustee of other
2201 Kentmere Parkway Templeton Funds; director or
Wilmington, Delaware trustee of various civic
Director associations; former economic
analyst, U.S. Government.
HASSO-G VON DIERGARDT-NAGLO Farmer; president of Clairhaven
R.R. 3 Investments, Ltd. and other
Stouffville, Ontario private investment companies; a
Director director or trustee of other
Templeton Funds.
ANDREW H. HINES, JR. Consultant, Triangle Consulting
150 2nd Avenue N. Group; chairman of the board
St. Petersburg, Florida and chief executive officer of
Director Florida Progress Corporation
(1982-February 1990) and
director of various of its
subsidiaries; chairman and
director of Precise Power
Corporation; Executive-in-
Residence of Eckerd College
(1991-present); director of
Checkers Drive-In Restaurants,
Inc.; a director or trustee of
other Templeton Funds.
HARMON E. BURNS* Executive vice president,
777 Mariners Island Blvd. secretary and director of
San Mateo, California Franklin Resources, Inc.;
Director executive vice president and
director, Franklin Templeton
Distributors, Inc.; executive
vice president, Franklin
Advisers, Inc.; director,
Franklin Administrative
Services, Inc.; a director or
trustee of other Templeton
Funds; and officer and/or
director, as the case may be,
of other subsidiaries of
Franklin Resources, Inc., and
officer and/or of various
investment companies in the
Franklin Group of Funds.
HARRIS J. ASHTON Chairman of the board,
Metro Center, 1 Station Place president and chief executive
Stamford, Connecticut officer of General Host
Director Corporation (nursery and craft
centers); director of RBC
Holdings Inc. (a bank holding
company) and Bar-S Foods;
director or trustee of other
Templeton Funds; and director,
trustee or managing general
partner, as the case may be,
for most of the investment
companies in the Franklin Group
of Funds.
S. JOSEPH FORTUNATO Member of the law firm of
200 Campus Drive Pitney, Hardin, Kipp & Szuch;
Florham Park, New Jersey director of General Host
Director Corporation; director or
trustee of other Templeton
Funds; and director, trustee or
managing general partner, as
the case may be, for most of
the investment companies in the
Franklin Group of Funds.
GORDON S. MACKLIN Chairman of White River
8212 Burning Tree Road Corporation (information
Bethesda, Maryland services); director of Infovest
Director Corporation, Fund America
Enterprise Holdings, Inc.,
Martin Marietta Corporation,
MCI Communications Corporation
and Medimmune, Inc.; director
or trustee of other Templeton
Funds; director, trustee, or
managing general partner, as
the case may be, of most of the
investment companies in the
Franklin Group of Funds;
formerly: chairman, Hambrecht
and Quist Group; director, H&Q
Healthcare Investors; and
president, National Association
of Securities Dealers, Inc.
NICHOLAS F. BRADY* A director or trustee of other
The Bullitt House Templeton Funds; chairman of
102 East Dover Street Templeton Emerging Markets
Easton, Maryland Investment Trust PLC; chairman
Director and president of Darby
Advisors, Inc. (an investment
firm) since January, 1993;
director of the H. J. Heinz
Company, Capital Cities/ABC,
Inc. and the Christiana
Companies; Secretary of the
United States Department of the
Treasury from 1988 to January,
1993; chairman of the board of
Dillon, Read & Co. Inc.
(investment banking) prior
thereto.
DANIEL L. JACOBS Senior vice president and
500 East Broward Blvd. director of Templeton
Fort Lauderdale, Florida Investment Counsel, Inc.;
President director of Templeton Global
Investors, Inc.; president or
vice president of certain of
the Templeton Funds.
CHARLES B. JOHNSON President, chief executive
777 Mariners Island Blvd. officer, and director, Franklin
San Mateo, California Resources, Inc.; chairman of
Vice President the board, Franklin Templeton
Distributors, Inc.; chairman of
the board and director,
Franklin Advisers, Inc.;
director, Franklin Admini-
strative Services, Inc. and
General Host Corporation;
director of Templeton Global
Investors, Inc.; director or
trustee of other Templeton
Funds; and officer and
director, trustee or managing
general partner, as the case
may be, of most other subsi-
diaries of Franklin and of most
of the investment companies in
the Franklin Group of Funds.
MARTIN L. FLANAGAN Senior vice president,
777 Mariners Island Blvd. treasurer, and chief financial
San Mateo, California officer of Franklin Resources,
Vice President Inc.; director and executive
vice president of Templeton
Investment Counsel, Inc. and
Templeton Global Investors,
Inc.; president or vice
president of the Templeton
Funds; accountant, Arthur
Andersen & Company (1982-1983);
member of the International
Society of Financial Analysts
and the American Institute of
Certified Public Accountants.
MARK G. HOLOWESKO President and director of
Lyford Cay Templeton, Galbraith &
Nassau, Bahamas Hansberger Ltd.; director of
Vice President global equity research for
Templeton Worldwide, Inc.;
president or vice president of
the Templeton Funds; investment
administrator with Roy West
Trust Corporation (Bahamas)
Limited (1984-1985).
JOHN R. KAY Vice president of the Templeton
500 East Broward Blvd. Funds; vice president and
Fort Lauderdale, Florida treasurer of Templeton Global
Vice President Investors, Inc. and Templeton
Worldwide, Inc.; assistant vice
president of Franklin Templeton
Distributors, Inc.; formerly,
vice president and controller
of the Keystone Group, Inc.
THOMAS M. MISTELE Senior vice president of
700 Central Avenue Templeton Global Investors,
St. Petersburg, Florida Inc.; vice president of
Secretary Franklin Templeton
Distributors, Inc.; secretary
of the Templeton Funds;
attorney, Dechert Price &
Rhoads (1985-1988) and
Freehill, Hollingdale & Page
(1988); judicial clerk, U.S.
District Court (Eastern
District of Virginia) (1984-
1985).
JAMES R. BAIO Certified public accountant;
500 East Broward Blvd. treasurer of the Templeton
Fort Lauderdale, Florida Funds; senior vice president of
Treasurer Templeton Worldwide, Inc.,
Templeton Global Investors,
Inc., and Templeton Funds Trust
Company; formerly, senior tax
manager of Ernst & Young
(certified public accountants)
(1977-1989).
JACK L. COLLINS Assistant treasurer of the
700 Central Avenue Templeton Funds; assistant vice
St. Petersburg, Florida president of Franklin Templeton
Assistant Treasurer Investor Services, Inc.; former
partner of Grant Thornton,
independent public accountants.
JEFFREY L. STEELE Partner, Dechert Price &
1500 K Street, N.W. Rhoads.
Washington, D.C.
Assistant Secretary
___________________
* Messrs. Templeton, Burns and Brady are Directors who are
"interested persons" of the Fund as that term is defined in
the 1940 Act. Mr. Brady and Franklin Resources, Inc. are
limited partners of Darby Overseas Partners, L.P. ("Darby
Overseas"). Mr. Brady established Darby Overseas in
February, 1994, and is Chairman and a shareholder of the
corporate general partner of Darby Overseas. In addition,
Darby Overseas and Templeton, Galbraith & Hansberger, Ltd.
are limited partners of Darby Emerging Markets Fund, L.P.
Messrs. Clarke, von Diergardt-Naglo, Millsaps, Ashton,
Fortunato, Hines, Macklin and Bennett and Mrs. Krahmer are
Directors who are not "interested persons" of the Fund.
There are no family relationships between any of the
Directors.
As indicated above, certain of the Directors and Officers
hold positions with other funds in the Franklin Group of Funds
and the Templeton Family of Funds. Each fund in the Templeton
Family of Funds pays its independent directors/trustees and Mr.
Brady an annual retainer and/or fees for attendance at board and
committee meetings, the amount of which is based on the level of
assets in the fund. Accordingly, the Fund pays each independent
Director and Mr. Brady an annual retainer of $______. Directors
are reimbursed for any expenses incurred in attending meetings.
During the fiscal year ended August 31, 1994, pursuant to the
compensation arrangement then in effect, fees totalling
__________ were paid by the Fund to Messrs. Ashton ($__________),
Bennett ($__________), Brady ($__________), Clarke ($__________),
Fortunato ($__________), Hines ($__________), Macklin
($__________), Millsaps ($__________), and von Diergardt-Naglo
($__________) and Mrs. Krahmer ($__________). For the fiscal
year ended August 31, 1994, pursuant to the compensation
arrangement then in effect, Messrs. Ashton, Bennett, Brady,
Burns, Clarke, Fortunato, Hines, Macklin, Millsaps, Templeton and
von Diergardt-Naglo and Mrs. Krahmer received total fees of
$__________, $__________, $__________, $__________, $__________,
$__________, $__________, $__________, $__________, $__________,
$__________, and $__________, respectively, from the various
Franklin and Templeton funds for which they serve as directors,
trustees, or managing general partners. No Officer or Director
received any other compensation directly from the Fund.
PRINCIPAL SHAREHOLDERS
As of __________, 1995, there were ________ Shares of the
Fund outstanding, of which ________ Shares (_____%) were owned
beneficially, directly or indirectly, by all the Directors and
Officers of the Fund as a group. As of ______________, 1995, to
the knowledge of management, no person owned beneficially 5% or
more of the outstanding Shares, except Merrill Lynch Pierce
Fenner & Smith, Inc., P.O. Box 45286, Jacksonville, FL 32232-
5286 owned ________ shares (____% of the Outstanding Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Management Agreement. The Investment Manager of
the Fund is Templeton Investment Counsel, Inc., a Florida
corporation with offices in Ft. Lauderdale, Florida. On
October 30, 1992, the Investment Manager assumed the investment
management duties of Templeton, Galbraith & Hansberger Ltd.
("TGH"), a Cayman Islands corporation, with respect to the Fund
in connection with the merger of the business of TGH with that of
Franklin Resources, Inc. ("Franklin"). The Investment Management
Agreement, dated November 1, 1993, was approved by the Board of
Directors, including approval by a majority of the Directors who
were not parties to the Agreement or interested persons of any
such party, at a meeting on May 27, 1993, was approved by the
Shareholders of the Fund on October 13, 1993, and continues from
year to year, subject to approval annually by the Board of
Directors of the Fund or by vote of a majority of the outstanding
Shares of the Fund (as defined in the 1940 Act) and also, in
either event, with the approval of a majority of those Directors
who are not parties to the Investment Management Agreement or
interested persons of any such party in person at a meeting
called for the purpose of voting on such approval.
The Investment Management Agreement requires the Investment
Manager to manage the investment and reinvestment of the Fund's
assets. The Investment Manager is not required to furnish any
personnel, overhead items or facilities for the Fund, including
daily pricing or trading desk facilities, although such expenses
are paid by investment advisers of some other investment
companies. These expenses have been and may continue to be borne
by the Fund.
The Investment Management Agreement provides that the
Investment Manager will select brokers and dealers for execution
of the Fund's portfolio transactions consistent with the Fund's
brokerage policies (see "Brokerage Allocation"). Although the
services provided by broker-dealers in accordance with the
brokerage policies incidentally may help reduce the expenses of
or otherwise benefit the Investment Manager and other investment
advisory clients of the Investment Manager and of its affiliates,
as well as the Fund, the value of such services is indeterminable
and the Investment Manager's fee is not reduced by any offset
arrangement by reason thereof.
When the Investment Manager determines to buy or sell the
same security for the Fund that the Investment Manager or one or
more of its affiliates has selected for one or more of its other
clients or for clients of its affiliates, the orders for all such
security transactions are placed for execution by methods
determined by the Investment Manager, with approval by the Board
of Directors, to be impartial and fair, in order to seek good
results for all parties. See "Investment Objective and Policies-
Trading Policies." Records of securities transactions of persons
who know when orders are placed by the Fund are available for
inspection at least four times annually by the compliance officer
of the Fund so that the non-interested Directors (as defined in
the 1940 Act) can be satisfied that the procedures are generally
fair and equitable for all parties.
The Investment Management Agreement provides that the
Investment Manager shall have no liability to the Fund or any
Shareholder of the Fund for any error of judgment, mistake of
law, or any loss arising out of any investment or other act or
omission in the performance by the Investment Manager of its
duties under the Investment Management Agreement, or for any loss
or damage resulting from the imposition by any government of
exchange control restrictions which might affect the liquidity of
the Fund's assets, or from acts or omissions of custodians or
securities depositories, or from any wars or political acts of
any foreign governments to which such assets might be exposed,
except for any liability, loss or damage resulting from willful
misfeasance, bad faith or gross negligence on the Investment
Manager's part or reckless disregard of its duties under the
Investment Management Agreement. The Investment Management
Agreement will terminate automatically in the event of its
assignment, and may be terminated by the Fund at any time without
payment of any penalty on 60 days' written notice with the
approval of a majority of the Directors in office at the time or
by vote of a majority of the outstanding voting securities of the
Fund (as defined by the 1940 Act).
Management Fees. For its services, the Fund pays the
Investment Manager a fee, calculated and paid monthly, equal on
an annual basis to 0.75% of the Fund's average daily net assets,
payable in U.S. dollars at the end of each calendar month. Each
class of Shares pays a portion of the fee, determined by the
proportion of the Fund that it represents. The Investment
Manager will comply with any applicable state regulations which
may require the Investment Manager to make reimbursements to the
Fund in the event that the Fund's aggregate operating expenses,
including the management fee but generally excluding interest,
taxes, brokerage fees and commissions and extraordinary expenses,
such as litigation, are in excess of specific applicable
limitations. The strictest rule applicable to the Fund is 2.5%
of the first $30,000,000 of net assets, 2% of the next
$70,000,000 of net assets and 1.5% of the remainder.
During the fiscal years ended August 31, 1994, 1993, and
1992, the Investment Manager (and, prior to October 30, 1992,
TGH, the Fund's previous investment manager) received fees from
the Fund of $10,050,360, $7,657,346, and $8,661,332,
respectively, pursuant to the Agreement and agreements in effect
prior to October 30, 1992.
The Investment Manager. The Investment Manager is an
indirect wholly owned subsidiary of Franklin, a publicly traded
company whose shares are listed on the New York Stock Exchange.
Charles B. Johnson (an officer of the Fund) and Rupert H.
Johnson, Jr. are principal shareholders of Franklin and own,
respectively, approximately 20% and 16% of its outstanding
shares. Messrs. Charles B. Johnson and Rupert H. Johnson, Jr.
are brothers.
Business Manager. Templeton Global Investors, Inc. performs
certain administrative functions as Business Manager for the Fund
including:
providing office space, telephone, office equipment and
supplies for the Fund;
paying all compensation of the Fund's officers for
services rendered as such;
authorizing expenditures and approving bills for
payment on behalf of the Fund;
supervising preparation of annual and semiannual
reports to Shareholders, notices of dividends, capital
gain distributions and tax credits, and attending to
correspondence and other communications with individual
Shareholders;
daily pricing of the Fund's investment portfolio and
preparing and supervising publication of daily
quotations of the bid and asked prices of the Fund's
Shares, earnings reports and other financial data;
monitoring relationships with organizations serving the
Fund, including the Custodian and printers;
providing trading desk facilities for the Fund;
supervising compliance by the Fund with recordkeeping
requirements under the 1940 Act and regulations
thereunder, and with state regulatory requirements;
maintaining books and records for the Fund (other than
those maintained by the Custodian and Transfer Agent);
and preparing and filing tax reports other than the
Fund's income tax returns;
monitoring the qualifications of the Templeton Tax
Deferred Retirement Plans offered by the Fund; and
providing executive, clerical and secretarial help
needed to carry out these responsibilities.
For its services, the Business Manager receives a monthly
fee equal on an annual basis to 0.15% of the first $200,000,000
of the Fund's average daily net assets, reduced to 0.135%
annually of such assets in excess of $200,000,000, further
reduced to 0.1% annually of such net assets in excess of
$700,000,000, and further reduced to 0.075% annually of such net
assets in excess of $1,200,000,000. Each class of Shares pays a
portion of the fee, determined by the proportion of the Fund that
it represents. Since the Business Manager's fee covers services
often provided by investment advisers to other funds, the Fund's
combined expenses for advisory and administrative services may be
higher than those of other investment companies. During the
fiscal years ended August 31, 1994, 1993, and 1992, the Business
Manager (and, prior to April 1, 1993, Templeton Funds Management,
Inc., the previous business manager) received business management
fees of $1,567,336, $1,270,208, and $1,217,003, respectively.
The Business Manager is relieved of liability to the Fund
for any act or omission in the course of its performance under
the Business Management Agreement, in the absence of willful
misfeasance, bad faith or gross negligence. The Business
Management Agreement may be terminated by the Fund at any time on
60 days' written notice without payment of penalty, provided that
such termination by the Fund shall be directed or approved by
vote of a majority of the Directors of the Fund in office at the
time or by vote of a majority of the outstanding voting
securities of the Fund and shall terminate automatically and
immediately in the event of its assignment.
Templeton Global Investors, Inc. is an indirect wholly owned
subsidiary of Franklin.
Custodian and Transfer Agent. The Chase Manhattan Bank,
N.A., serves as Custodian of the Fund's assets, which are
maintained at the Custodian's principal office, MetroTech Center,
Brooklyn, New York 11245, and at the offices of its branches and
agencies throughout the world. The Custodian has entered into
agreements with foreign sub-custodians approved by the Directors
pursuant to Rule 17f-5 under the 1940 Act. The Custodian, its
branches and sub-custodians generally do not hold certificates
for the securities in their custody, but instead have book
records with domestic and foreign securities depositories, which
in turn have book records with transfer agents of the issuers of
the securities. Compensation for the services of the Custodian
is based on a schedule of charges agreed on from time to time.
Franklin Templeton Investor Services, Inc. serves as the
Fund's Transfer Agent. Services performed by the Transfer Agent
include processing purchase, transfer and redemption orders,
making dividend payments, capital gain distributions and
reinvestments, and handling routine communications with
Shareholders. The Transfer Agent receives from the Fund an
annual fee of $13.74 per Shareholder account plus out-of-pocket
expenses, such fee to be adjusted each year to reflect changes in
the Department of Labor Consumer Price Index.
Legal Counsel. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, is legal counsel for the Fund.
Independent Accountants. The firm of McGladrey & Pullen,
555 Fifth Avenue, New York, New York 10017, serves as independent
accountants for the Fund. Its audit services comprise
examination of the Fund's financial statements and review of the
Fund's filings with the Securities and Exchange Commission and
the Internal Revenue Service.
Reports to Shareholders. The Fund's fiscal year ends on
August 31. Shareholders will be provided at least semiannually
with reports showing the Fund's portfolio and other information,
including an annual report with financial statements audited by
independent accountants.
BROKERAGE ALLOCATION
The Investment Management Agreement provides that the
Investment Manager is responsible for selecting members of
securities exchanges, brokers and dealers (such members, brokers
and dealers being hereinafter referred to as "brokers") for the
execution of the Fund's portfolio transactions consistent with
the Fund's brokerage policy and, when applicable, the negotiation
of commissions in connection therewith. All decisions and
placements are made in accordance with the following principles:
1. Purchase and sale orders are usually placed with
brokers who are selected by the Investment Manager as
able to achieve "best execution" of such orders. "Best
execution" shall mean prompt and reliable execution at
the most favorable securities price, taking into
account the other provisions hereinafter set forth.
The determination of what may constitute best execution
and price in the execution of a securities transaction
by a broker involves a number of considerations,
including, without limitation, the overall direct net
economic result to the Fund (involving both price paid
or received and any commissions and other costs paid),
the efficiency with which the transaction is effected,
the ability to effect the transaction at all where a
large block is involved, availability of the broker to
stand ready to execute possibly difficult transactions
in the future, and the financial strength and stability
of the broker. Such considerations are judgmental and
are weighed by the Investment Manager in determining
the overall reasonableness of brokerage commissions.
2. In selecting brokers for portfolio transactions, the
Investment Manager shall take into account its past
experience as to brokers qualified to achieve "best
execution," including brokers who specialize in any
foreign securities held by the Fund.
3. The Investment Manager is authorized to allocate
brokerage business to brokers who have provided
brokerage and research services, as such services are
defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "1934 Act"), for the Fund and/or other
accounts, if any, for which the Investment Manager
exercises investment discretion (as defined in Section
3(a)(35) of the 1934 Act), and, as to transactions as
to which fixed minimum commission rates are not
applicable, to cause the Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if the Investment Manager determines
in good faith that such amount of commission is
reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed
in terms of either that particular transaction or the
Investment Manager's overall responsibilities with
respect to the Fund and the other accounts, if any, as
to which it exercises investment discretion. In
reaching such determination, the Investment Manager is
not required to place or attempt to place a specific
dollar value on the research or execution services of a
broker or on the portion of any commission reflecting
either of said services. In demonstrating that such
determinations were made in good faith, the Investment
Manager shall be prepared to show that all commissions
were allocated and paid for purposes contemplated by
the Fund's brokerage policy; that research services
provide lawful and appropriate assistance to the
Investment Manager in the performance of its investment
decision-making responsibilities, and that the
commissions paid were within a reasonable range. The
determination that commissions were within a reasonable
range shall be based on any available information as to
the level of commissions known to be charged by other
brokers on comparable transactions, but there shall be
taken into account the Fund's policies that (i)
obtaining a low commission is deemed secondary to
obtaining a favorable securities price, since it is
recognized that usually it is more beneficial to the
Fund to obtain a favorable price than to pay the lowest
commission; and (ii) the quality, comprehensiveness and
frequency of research studies which are provided for
the Fund and the Investment Manager are useful to the
Investment Manager in performing its advisory services
under its Investment Management Agreement with the
Fund. Research services provided by brokers are
considered to be in addition to, and not in lieu of,
services required to be performed by the Investment
Manager under its Investment Management Agreement.
Research furnished by brokers through whom the Fund
effects securities transactions may be used by the
Investment Manager for any of its accounts, and not all
such research may be used by the Investment Manager for
the Fund. When execution of portfolio transactions is
allocated to brokers trading on exchanges with fixed
brokerage commission rates, account may be taken of
various services provided by the broker.
4. Purchases and sales of portfolio securities within the
United States other than on a securities exchange are
executed with primary market makers acting as
principal, except where, in the judgment of the
Investment Manager, better prices and execution may be
obtained on a commission basis or from other sources.
5. Sales of the Fund's Shares (which shall be deemed to
also include shares of other companies registered under
the 1940 Act which have either the same investment
adviser or an investment adviser affiliated with the
Investment Manager) made by a broker are one factor
among others to be taken into account in recommending
and in deciding to allocate portfolio transactions
(including agency transactions, principal transactions,
purchases in underwritings or tenders in response to
tender offers) for the account of the Fund to that
broker; provided that the broker shall furnish "best
execution," as defined in paragraph 1 above, and that
such allocation shall be within the scope of the Fund's
other policies as stated above; and provided further,
that in every allocation made to a broker in which the
sale of Shares is taken into account there shall be no
increase in the amount of the commissions or other
compensation paid to such broker beyond a reasonable
commission or other compensation determined, as set
forth in paragraph 3 above, on the basis of best
execution alone or best execution plus research
services, without taking account of or placing any
value upon such sale of Shares.
Insofar as known to management, no Director or Officer of
the Fund, nor the Investment Manager or Principal Underwriter or
any person affiliated with any of them, has any material direct
or indirect interest in any broker which may be employed by or on
behalf of the Fund. Franklin Templeton Distributors, Inc., the
Fund's Principal Underwriter, is a registered broker-dealer, but
it has never executed any purchase or sale transactions for the
Fund or participated in any commissions on any such transactions,
and has no intention of doing so in the future. The total
brokerage commissions on the Fund's portfolio transactions during
the fiscal years ended August 31, 1994, 1993, and 1992 (not
including any spreads or concessions on principal transactions)
were $3,802,000, $2,064,000, and $2,094,869, respectively. All
portfolio transactions are allocated to broker-dealers only when
their prices and execution, in the judgment of the Investment
Manager, are equal to the best available within the scope of the
Fund's policies. There is no fixed method used in determining
which broker-dealers receive which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which the Fund's
Shares may be purchased and redeemed. See "How to Buy Shares of
the Fund" and "How to Sell Shares of the Fund."
Net asset value per Share is determined as of the close of
business on the New York Stock Exchange, every Monday through
Friday (exclusive of national business holidays). The Fund's
offices will be closed, and net asset value will not be
calculated, on those days on which the New York Stock Exchange is
closed, which currently are: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well
before the close of business in New York on each day on which the
New York Stock Exchange is open. Trading of European or Far
Eastern securities generally, or in a particular country or
countries, may not take place on every New York business day.
Furthermore, trading takes place in various foreign markets on
days which are not business days in New York and on which the
Fund's net asset value is not calculated. The Fund calculates
net asset value per Share, and therefore effects sales,
redemptions and repurchases of its Shares, as of the close of the
New York Stock Exchange once on each day on which that Exchange
is open. Such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio
securities used in such calculation and if events occur which
materially affect the value of those foreign securities, they
will be valued at fair market value as determined by the
management and approved in good faith by the Board of Directors.
The Board of Directors may establish procedures under which
the Fund may suspend the determination of net asset value for the
whole or any part of any period during which (1) the New York
Stock Exchange is closed other than for customary weekend and
holiday closings, (2) trading on the New York Stock Exchange is
restricted, (3) an emergency exists as a result of which disposal
of securities owned by the Fund is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (4) for such other period as the
Securities and Exchange Commission may by order permit for the
protection of the holders of Shares.
Ownership and Authority Disputes. In the event of disputes
involving multiple claims of ownership or authority to control a
shareholder's account, the Fund has the right (but has no
obligation) to: (a) freeze the account and require the written
agreement of all persons deemed by the Fund to have a potential
property interest in the account, prior to executing instructions
regarding the account; or (b) interplead disputed funds or
accounts with a court of competent jurisdiction. Moreover, the
Fund may surrender ownership of all or a portion of an account to
the Internal Revenue Service in response to a Notice of Levy.
In addition to the special purchase plans described in the
Prospectus, other special purchase plans also are available:
Tax Deferred Retirement Plans. The Fund offers its
Shareholders the opportunity to participate in the following
types of retirement plans:
o For individuals whether or not covered by other
qualified plans;
o For simplified employee pensions;
o For employees of tax-exempt organizations; and
o For corporations, self-employed individuals and
partnerships.
Capital gains and income received by the foregoing plans
generally are exempt from taxation until distribution from the
plans. Investors considering participation in any such plan
should review specific tax laws relating thereto and should
consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan. Additional
information, including the fees and charges with respect to all
of these plans, is available upon request to the Principal
Underwriter. No distribution under a retirement plan will be
made until Templeton Funds Trust Company receives the
participant's election on IRS Form W-4P (available on request
from the Templeton Funds Trust Company) and such other
documentation as it deems necessary, as to whether or not U.S.
income tax is to be withheld from such distribution.
Individual Retirement Account (IRA). All individuals
(whether or not covered by qualified private or governmental
retirement plans) may purchase Shares of the Fund pursuant to an
Individual Retirement Account. However, contributions to an IRA
by an individual who is covered by a qualified private or
governmental plan may not be tax-deductible depending on the
individual's income. Custodial services for Individual
Retirement Accounts are available through Templeton Funds Trust
Company. Disclosure statements summarizing certain aspects of
Individual Retirement Accounts are furnished to all persons
investing in such accounts, in accordance with Internal Revenue
Service regulations.
Simplified Employee Pensions (SEP-IRA). For employers who
wish to establish a simplified form of employee retirement
program investing in Shares of the Fund, there are available
Simplified Employee Pensions invested in IRA Plans. Details and
materials relating to these Plans will be furnished upon request
to the Principal Underwriter.
Retirement Plan for Employees of Tax-Exempt Organizations
(403(b)). Employees of public school systems and certain types
of charitable organizations may enter into a deferred
compensation arrangement for the purchase of Shares of the Fund
without being taxed currently on the investment. Contributions
which are made by the employer through salary reduction are
excludable from the gross income of the employee. Such deferred
compensation plans, which are intended to qualify under Section
403(b) of the Internal Revenue Code, are available through the
Principal Underwriter. Custodial services are provided by
Templeton Funds Trust Company.
Qualified Plan for Corporations, Self-Employed Individuals
and Partnerships. For employers who wish to purchase Shares of
the Fund in conjunction with employee retirement plans, there is
a prototype master plan which has been approved by the Internal
Revenue Service. A "Section 401(k) plan" is also available.
Templeton Funds Trust Company furnishes custodial services for
these plans. For further details, including custodian fees and
plan administration services, see the master plan and related
material which is available from the Principal Underwriter.
Letter of Intent. Purchasers who intend to invest $50,000
or more in Class I Shares of the Fund or any other fund in the
Franklin Templeton Group (except Templeton Capital Accumulator
Fund, Inc., Templeton Variable Annuity Fund, Templeton Variable
Products Series Fund, Franklin Valuemark Funds and Franklin
Government Securities Trust) within 13 months (whether in one
lump sum or in installments, the first of which may not be less
than 5% of the total intended amount and each subsequent
installment not less than $25 unless the investor is a qualifying
employee benefit plan (the "Benefit Plan"), including automatic
investment and payroll deduction plans), and to beneficially hold
the total amount of such Class I Shares fully paid for and
outstanding simultaneously for at least one full business day
before the expiration of that period, should execute a Letter of
Intent ("LOI") on the form provided in the Shareholder
Application in the Prospectus. Payment for not less than 5% of
the total intended amount must accompany the executed LOI unless
the investor is a Benefit Plan. Except for purchases of Shares
by a Benefit Plan, those Class I Shares purchased with the first
5% of the intended amount stated in the LOI will be held as
"Escrowed Shares" for as long as the LOI remains unfulfilled.
Although the Escrowed Shares are registered in the investor's
name, his full ownership of them is conditional upon fulfillment
of the LOI. No Escrowed Shares can be redeemed by the investor
for any purpose until the LOI is fulfilled or terminated. If the
LOI is terminated for any reason other than fulfillment, the
Transfer Agent will redeem that portion of the Escrowed Shares
required and apply the proceeds to pay any adjustment that may be
appropriate to the sales commission on all Class I Shares
(including the Escrowed Shares) already purchased under the LOI
and apply any unused balance to the investor's account. The LOI
is not a binding obligation to purchase any amount of Shares, but
its execution will result in the purchaser paying a lower sales
charge at the appropriate quantity purchase level. A purchase
not originally made pursuant to an LOI may be included under a
subsequent LOI executed within 90 days of such purchase. In this
case, an adjustment will be made at the end of 13 months from the
effective date of the LOI at the net asset value per Share then
in effect, unless the investor makes an earlier written request
to the Principal Underwriter upon fulfilling the purchase of
Shares under the LOI. In addition, the aggregate value of any
Shares purchased prior to the 90-day period referred to above may
be applied to purchases under a current LOI in fulfilling the
total intended purchases under the LOI. However, no adjustment
of sales charges previously paid on purchases prior to the 90-day
period will be made.
If an LOI is executed on behalf of a benefit plan (such
plans are described under "How to Buy Shares of the Fund--Net
Asset Value Purchases" in the Prospectus), the level and any
reduction in sales charge for these employee benefit plans will
be based on actual plan participation and the projected
investments in the Franklin Templeton Group (except Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund,
Templeton Variable Products Series Fund, Franklin Valuemark Funds
and Franklin Government Securities Trust) under the LOI. Benefit
Plans are not subject to the requirement to reserve 5% of the
total intended purchase, or to any penalty as a result of the
early termination of a plan, nor are Benefit Plans entitled to
receive retroactive adjustments in price for investments made
before executing LOIs.
Purchases at Net Asset Value. The following amounts will be
paid by FTD, from its own resources, to securities dealers who
initiate and are responsible for purchases of $1 million or more
and for purchases made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers), certain trust
companies and trust departments of banks and certain retirement
plans of organizations with collective retirement plan assets of
$10 million or more: 1.00% on sales of $1 million but less $2
million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50
million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of
additional purchases.
As described in the Prospectus, FTD or its affiliates may
make payments, from its own resources, to securities dealers
responsible for certain purchases at net asset value. As a
condition of such payments, FTD or its affiliates may require
reimbursement from such securities dealers with respect to
certain redemptions made within 12 months of the calendar month
following purchase as well as other conditions, all of which may
be imposed by an agreement between FTD, or its affiliates, and
the securities dealer.
TAX STATUS
The Fund intends normally to pay a dividend at least once
annually representing substantially all of its net investment
income (which includes, among other items, dividends and
interest) and to distribute at least annually any realized
capital gains. By so doing and meeting certain diversification
of assets and other requirements of the Internal Revenue Code of
1986, as amended (the "Code"), the Fund intends to qualify
annually as a regulated investment company under the Code. The
status of the Fund as a regulated investment company does not
involve government supervision of management or of its investment
practices or policies. As a regulated investment company, the
Fund generally will be relieved of liability for United States
Federal income tax on that portion of its net investment income
and net realized capital gains which it distributes to its
Shareholders. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement also are
subject to a nondeductible 4% excise tax. To prevent application
of the excise tax, the Fund intends to make distributions in
accordance with the calendar year distribution requirement.
Dividends of net investment income and net short-term
capital gains are taxable to Shareholders as ordinary income.
Distributions of net investment income may be eligible for the
corporate dividends-received deduction to the extent attributable
to the Fund's qualifying dividend income. However, the
alternative minimum tax applicable to corporations may reduce the
benefit of the dividends-received deduction. Distributions of
net capital gains (the excess of net long-term capital gains over
net short-term capital losses) designated by the Fund as capital
gain dividends are taxable to Shareholders as long-term capital
gains, regardless of the length of time the Fund's Shares have
been held by a Shareholder, and are not eligible for the
dividends-received deduction. All dividends and distributions
are taxable to Shareholders, whether or not reinvested in Shares
of the Fund. Shareholders will be notified annually as to the
Federal tax status of dividends and distributions they receive
and any tax withheld thereon.
Distributions by the Fund reduce the net asset value of the
Fund Shares. Should a distribution reduce the net asset value
below a Shareholder's cost basis, the distribution nevertheless
would be taxable to the Shareholder as ordinary income or capital
gain as described above, even though, from an investment
standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax
implication of buying Shares just prior to a distribution by the
Fund. The price of Shares purchased at that time includes the
amount of the forthcoming distribution, but the distribution will
generally be taxable to them.
The Fund may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies
("PFICs"). In general, a foreign company is classified as a PFIC
if at least one-half of its assets constitute investment-type
assets or 75% or more of its gross income is investment-type
income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized
ratably over the period during which the Fund held the PFIC
stock. The Fund itself will be subject to tax on the portion, if
any, of the excess distribution that is allocated to the Fund's
holding period in prior taxable years (and an interest factor
will be added to the tax, as if the tax had actually been payable
in such prior taxable years) even though the Fund distributes the
corresponding income to Shareholders. Excess distributions
include any gain from the sale of PFIC stock as well as certain
distributions from a PFIC. All excess distributions are taxable
as ordinary income.
The Fund may be able to elect alternative tax treatment with
respect to PFIC stock. Under an election that currently may be
available, the Fund generally would be required to include in its
gross income its share of the earnings of a PFIC on a current
basis, regardless of whether any distributions are received from
the PFIC. If this election were made, the special rules,
discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election
may be available that would involve marking to market the Fund's
PFIC shares at the end of each taxable year (and on certain other
dates prescribed in the Code), with the result that unrealized
gains are treated as though they were realized. If this election
were made, tax at the fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited
circumstances, incur nondeductible interest charges. The Fund's
intention to qualify annually as a regulated investment company
may limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among
other things, the character of gains, the amount of gain or loss
and the timing of the recognition of income with respect to PFIC
stock, as well as subject the Fund itself to tax on certain
income from PFIC stock, the amount that must be distributed to
Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC
stock.
Income received by the Fund from sources within foreign
countries may be subject to withholding and other income or
similar taxes imposed by such countries. If more than 50% of the
value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be
eligible and intends to elect to "pass through" to the Fund's
Shareholders the amount of foreign taxes paid by the Fund.
Pursuant to this election, a Shareholder will be required to
include in gross income (in addition to taxable dividends
actually received) his pro rata share of the foreign taxes paid
by the Fund, and will be entitled either to deduct (as an
itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a
foreign tax credit against his U.S. Federal income tax liability,
subject to limitations. No deduction for foreign taxes may be
claimed by a Shareholder who does not itemize deductions, but
such a Shareholder may be eligible to claim the foreign tax
credit (see below). Each Shareholder will be notified within 60
days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the
limitation that it may not exceed the Shareholder's U.S. tax
attributable to his foreign source taxable income. For this
purpose, if the pass-through election is made, the source of the
Fund's income flows through to its Shareholders. With respect to
the Fund, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency denominated
debt securities, receivables and payables, will be treated as
ordinary income derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of the foreign tax
credit), including the foreign source passive income passed
through by the Fund. Shareholders may be unable to claim a
credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. Foreign taxes may not be
deducted in computing alternative minimum taxable income and the
foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes
of this limitation) imposed on corporations and individuals. If
the Fund is not eligible to make the election to "pass through"
to its Shareholders its foreign taxes, the foreign income taxes
it pays generally will reduce investment company taxable income
and the distributions by the Fund will be treated as United
States source income.
Under the Code, gains or losses attributable to fluctuations
in foreign currency exchange rates, which occur between the time
the Fund accrues income or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such
liabilities, generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated
in a foreign currency, gains or losses attributable to
fluctuations in the value of foreign currency between the date of
acquisition of the security and the date of disposition also are
treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains and losses, may
increase or decrease the amount of the Fund's net investment
income to be distributed to its Shareholders as ordinary income.
For example, fluctuations in exchange rates may increase the
amount of income that the Fund must distribute in order to
qualify for treatment as a regulated investment company and to
prevent application of an excise tax on undistributed income.
Alternatively, fluctuations in exchange rates may decrease or
eliminate income available for distribution. If section 988
losses exceed other net investment income during a taxable year,
the Fund would not be able to make ordinary dividend
distributions, or distributions made before the losses were
realized would be recharacterized as a return of capital to
Shareholders for Federal income tax purposes, rather than as an
ordinary dividend, reducing each Shareholder's basis in his Fund
Shares.
Upon the sale or exchange of his Shares, a Shareholder will
realize a taxable gain or loss depending upon his basis in the
Shares. Such gain or loss will be treated as capital gain or
loss if the Shares are capital assets in the Shareholder's hands,
and generally will be long-term if the Shareholder's holding
period for the Shares is more than one year and generally
otherwise will be short-term. Any loss realized on a sale or
exchange will be disallowed to the extent that the Shares
disposed of are replaced (including replacement through the
reinvesting of dividends and capital gain distributions in the
Fund) within a period of 61 days beginning 30 days before and
ending 30 days after the disposition of the Shares. In such a
case, the basis of the Shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a Shareholder
on the sale of Fund Shares held by the Shareholder for six months
or less will be treated for Federal income tax purposes as a
long-term capital loss to the extent of any distributions of
long-term capital gains received by the Shareholder with respect
to such Shares.
In some cases, Shareholders will not be permitted to take
sales charges into account for purposes of determining the amount
of gain or loss realized on the disposition of their Shares.
This prohibition generally applies where (1) the Shareholder
incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st
day after the date on which it was acquired, and (3) the
Shareholder subsequently acquires Shares of the same or another
regulated investment company and the otherwise applicable sales
charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that
case, the gain or loss recognized will be determined by excluding
from the tax basis of the Shares exchanged all or a portion of
the sales charge incurred in acquiring those Shares. This
exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired Shares is reduced
as a result of having incurred a sales charge initially. Sales
charges affected by this rule are treated as if they were
incurred with respect to the stock acquired under the
reinvestment right. This provision may be applied to successive
acquisitions of shares of stock.
The Fund generally will be required to withhold Federal
income tax at a rate of 31% ("backup withholding") from dividends
paid, capital gain distributions, and redemption proceeds to
Shareholders if (1) the Shareholder fails to furnish the Fund
with the Shareholder's correct taxpayer identification number or
social security number and to make such certifications as the
Fund may require, (2) the Internal Revenue Service notifies the
Shareholder or the Fund that the Shareholder has failed to report
properly certain interest and dividend income to the Internal
Revenue Service and to respond to notices to that effect, or
(3) when required to do so, the Shareholder fails to certify that
he is not subject to backup withholding. Any amounts withheld
may be credited against the Shareholder's Federal income tax
liability.
Ordinary dividends and taxable capital gain distributions
declared in October, November, or December with a record date in
such a month and paid during the following January will be
treated as having been paid by the Fund and received by
Shareholders on December 31 of the calendar year in which
declared, rather than the calendar year in which the dividends
are actually received.
Distributions also may be subject to state, local and
foreign taxes. U.S. tax rules applicable to foreign investors
may differ significantly from those outlined above. Shareholders
are advised to consult their own tax advisers for details with
respect to the particular tax consequences to them of an
investment in the Fund.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the
"Principal Underwriter"), 700 Central Avenue, P.O. Box 33030, St.
Petersburg, Florida 33733-8030, toll free telephone (800) 237-
0738, is the Principal Underwriter of the Fund's Shares. FTD is
a wholly owned subsidiary of Franklin.
The Fund, pursuant to Rule 12b-1 under the 1940 Act, has
adopted Distribution Plans (the "Plans"). Under the Plans
adopted with respect to Class I Shares, the Fund may reimburse
the Principal Underwriter monthly (subject to a limit of 0.25%
per annum of the Fund's average daily net assets) for FTD's costs
and expenses in connection with any activity which is primarily
intended to result in the sale of Fund Shares. Under the Plans
adopted with respect to Class II Shares, the Fund may reimburse
FTD monthly (subject to a limit of 1.00% per annum of the Fund's
average daily assets attributable to Class II Shares of which up
to 0.25% of such net assets may be paid to dealers for personal
service and/or maintenance of Shareholder accounts) for FTD's
costs and expenses in connection with any activity which is
primarily intended to result in the sale of the Fund's Shares.
Payments to FTD could be for various types of activities,
including (1) payments to broker-dealers who provide certain
services of value to the Fund's Shareholders (sometimes referred
to as a "trail fee"); (2) reimbursement of expenses relating to
selling and servicing efforts or of organizing and conducting
sales seminars; (3) payments to employees or agents of the
Principal Underwriter who engage in or support distribution of
Shares; (4) payment of the costs of preparing, printing and
distributing Prospectuses and reports to prospective investors
and of printing and advertising expenses; (5) payment of dealer
commissions and wholesaler compensation in connection with sales
of Fund Shares exceeding $1 million (on which the Fund imposes no
initial sales charge) and interest or carrying charges in
connection therewith; and (6) such other similar services as the
Fund's Board of Directors determines to be reasonably calculated
to result in the sale of Shares. Under the Plans, the costs and
expenses not reimbursed in any one given month (including costs
and expenses not reimbursed because they exceed the percentage
limit applicable to either class of Shares) may be reimbursed in
subsequent months or years.
During the fiscal year ended August 31, 1994, FTD incurred
costs and expenses of $3,482,933 in connection with distribution
of Class I Shares of the Fund. During the same period, the Fund
made reimbursements pursuant to the Plan in the amount of
$3,286,834. As indicated above, unreimbursed expenses, which
amount to $196,099 for Class I Shares of the Fund, may be
reimbursed by the Fund during the fiscal year ending August 31,
1995 or in subsequent years. In the event that the Plan is
terminated, the Fund will not be liable to FTD for any
unreimbursed expenses that had been carried forward from previous
months or years. During the fiscal year ended August 31, 1994,
FTD spent, pursuant to the Plan, the following amounts on:
compensation to dealers, $2,144,449; sales promotion, $136,499;
printing, $140,061; advertising, $1,039,808; and wholesale costs
and expenses, $22,116.
The Underwriting Agreement provides that the Principal
Underwriter will use its best efforts to maintain a broad and
continuous distribution of the Fund's Shares among bona fide
investors and may sign selling agreements with responsible
dealers, as well as sell to individual investors. The Shares are
sold only at the Offering Price in effect at the time of sale,
and the Fund receives not less than the full net asset value of
the Shares sold. The discount between the Offering Price and the
net asset value may be retained by the Principal Underwriter or
it may reallow all or any part of such discount to dealers. In
the fiscal years ended August 31, 1994, 1993, and 1992, FTD (and,
prior to June 1, 1993, Templeton Funds Distributor, Inc.)
retained of such discount $752,231, $625,039, and $746,505, or
approximately 16.88%, 20.10%, and 15.09%, of the gross sales
commissions for those years, respectively. The Principal
Underwriter in all cases buys Shares from the Fund acting as
principal for its own account. Dealers generally act as
principal for their own account in buying Shares from the
Principal Underwriter. No agency relationship exists between any
dealer and the Fund or the Principal Underwriter.
The Underwriting Agreement provides that the Fund shall pay
the costs and expenses incident to registering and qualifying its
Shares for sale under the Securities Act of 1933 and under the
applicable Blue Sky laws of the jurisdictions in which the
Principal Underwriter desires to distribute such Shares, and for
preparing, printing and distributing reports to Shareholders.
The Principal Underwriter pays for the cost of printing
additional copies of Prospectuses and reports to Shareholders
used for selling purposes. (The Fund pays costs of preparation,
set-up and initial supply of the Fund's Prospectus for existing
Shareholders.)
The Underwriting Agreement is subject to renewal from year
to year in accordance with the provisions of the 1940 Act and
terminates automatically in the event of its assignment. The
Underwriting Agreement may be terminated without penalty by
either party on 60 days' written notice to the other, provided
termination by the Fund shall be approved by the Board of
Directors or a majority (as defined in the 1940 Act) of the
Shareholders. The Principal Underwriter is relieved of liability
for any act or omission in the course of its performance of the
Underwriting Agreement, in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations.
The Underwriting Agreement provides that FTD shall be
Principal Underwriter of the Shares of the Fund throughout the
world. The Fund has entered into a non-exclusive underwriting
agreement with Noramco (Europa) A.G. ("Noramco"), whose office
address is P.O. Box 470, Aeulestrasse 5, FL-9490 Vaduz,
Liechtenstein, as principal underwriter for sale of the Shares in
Germany, Luxembourg, The Netherlands, Liechtenstein, Switzerland,
and Austria. The Fund has also entered into a non-exclusive
underwriting agreement with Templeton Global Strategic Services
S.A. ("Templeton Strategic Services"), whose office address is
Centre Neuberg, 30 Grand Rue, L-1660 Luxembourg, as principal
underwriter for sale of the Shares in all countries in Europe
including those countries for which Noramco serves as
underwriter. The terms of the underwriting agreements with
Templeton Strategic Services and Noramco are substantially
similar to those of the Underwriting Agreement with FTD.
Templeton Strategic Services is an indirect wholly owned
subsidiary of Franklin. During the fiscal year ended August 31,
1994, Templeton Strategic Services retained $19,981 in sales
commissions in connection with sales in its territories and
Noramco retained $58,139 in sales commissions in connection with
sales in its territories.
FTD is the principal underwriter for the other Templeton
Funds.
DESCRIPTION OF SHARES
The Shares have non-cumulative voting rights so that the
holders of a plurality of the Shares voting for the election of
Directors at a meeting at which 50% of the outstanding Shares are
present can elect all the Directors and, in such event, the
holders of the remaining Shares voting for the election of
Directors will not be able to elect any person or persons to the
Board of Directors.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total return in
advertisements or reports to Shareholders or prospective
investors. Quotations of average annual total return for the
Fund will be expressed in terms of the average annual compounded
rate of return for periods in excess of one year or the total
return for periods less than one year of a hypothetical
investment in the Fund over periods of one, five and ten years
(up to the life of the Fund) calculated pursuant to the following
formula: P(1 + T)n = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return for
periods of one year or more or the total return for periods of
less than one year, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All total return figures reflect the
deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when
paid. The Fund's average annual total return for the one-, five-
and ten-year periods ended August 31, 1994 was 5.81%, 8.47%, and
12.68%, respectively.
Performance information for the Fund may be compared, in
reports and promotional literature, to: (i) the S&P's 500 Stock
Index, Dow Jones Industrial Average, or other unmanaged indices
so that investors may compare the Fund's results with those of a
group of unmanaged securities widely regarded by investors as
representative of the securities market in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds by
overall performance, investment objectives and assets, or tracked
by other services, companies, publications, or persons who rank
mutual funds on overall performance or other criteria; and (iii)
the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund. Unmanaged
indices may assume the reinvestment of dividends but generally do
not reflect deductions for administrative and management costs
and expenses.
Performance information for the Fund reflects only the
performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based.
Performance information should be considered in light of the
Fund's investment objective and policies, characteristics and
quality of the portfolio and the market conditions during the
given time period, and should not be considered as a
representation of what may be achieved in the future.
From time to time, the Fund and the Investment Manager may
also refer to the following information:
(1) The Investment Manager's and its affiliates' market share of
international equities managed in mutual funds prepared or
published by Strategic Insight or a similar statistical
organization.
(2) The performance of U.S. equity and debt markets relative to
foreign markets prepared or published by Morgan Stanley
Capital International or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance Corp.,
Morgan Stanley Capital International or a similar financial
organization.
(4) The geographic distribution of the Fund's portfolio.
(5) The gross national product and populations, including age
characteristics, of various countries as published by
various statistical organizations.
(6) To assist investors in understanding the different returns
and risk characteristics of various investments, the Fund
may show historical returns of various investments and
published indices (e.g., Ibbotson Associates, Inc. Charts
and Morgan Stanley EAFE - Index).
(7) The major industries located in various jurisdictions as
published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
(9) Allegorical stories illustrating the importance of
persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking relative
to industry standards as published by Lipper Analytical
Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by industry, nation and type of stocks or
other securities.
(12) Quotations from the Templeton organization's founder, Sir
John Templeton,* advocating the virtues of diversification
and long-term investing, including the following:
o "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
o "Diversify by company, by industry and by
country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among
quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help
you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
_______________
* Sir John Templeton, who currently serves as Chairman of the
Fund's Board, is not involved in investment decisions, which
are made by the Fund's Investment Manager.
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
In addition, the Fund and the Investment Manager may also
refer to the number of shareholders in the Fund or the aggregate
number of shareholders in the Franklin Templeton Group of Funds
or the dollar amount of fund and private account assets under
management in advertising materials.
FINANCIAL STATEMENTS
The financial statements contained in the Fund's 1994 Annual
Report to Shareholders are incorporated herein by reference.
<PAGE> PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: Incorporated by
Reference from Registrant's 1994
Annual Report
Independent Auditor's Report
Investment Portfolio as of August 31,
1994
Statements of Assets and Liabilities as of
August 31, 1994
Statements of Operations for the year ended
August 31, 1994
Statements of Changes in Net Assets for the years
ended August 31, 1994 and 1993
Notes to Financial Statements
(b) Exhibits:
(1)(A) Articles of Incorporation*
(B) Articles of Amendment dated December 7,
1990*
(C) Articles Supplementary dated December
27, 1990*
(D) Articles of Amendment dated December 19,
1990*
(E) Form of Articles Supplementary
(2) By-Laws*
(3) Not applicable
_______________
* Previously filed with Registration Statement No. 2-70889 and
incorporated by reference herein.
(4) Specimen Security*
<PAGE>
(5) Form of Amended and Restated Investment
Management Agreement
(6)(A) Distribution Agreement*
(B) Non-Exclusive Underwriting Agreement*
(7) through (8) are incorporated herein by
reference to Registration Statement No. 2-
70889
(9)(A) Business Management Agreement*
(B) Form of Transfer Agent Agreement*
(C) Form of Sub-Transfer Agent Services
Agreement*
(D) Form of Sub-Accounting Services
Agreement*
(10) Opinion and consent of counsel (filed with
Rule 24f-2 Notice and incorporated by
reference herein)
(11) Consent of independent public accountants
(12) through (14) are incorporated herein by
reference to Registration Statement No. 2-
70889
(15)(A) Distribution Plan -- Class I Shares
(B) Distribution Plan -- Class II Shares
(16) Schedule showing computation of performance
quotations provided in response to Item 22*
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
Number of
Date Title of Class Recordholders
January 31, 1995 Common Stock - 100,098
Templeton Smaller
Companies Growth
Fund, Inc.
Item 27. Indemnification
Reference is made to Section 2-418 of the Maryland
General Corporation Law and to Article 5.2 of
Registrant's By-laws, which are filed as an Exhibit
hereto.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Bylaws or
otherwise, the Registrant is aware that in the opinion
of the Securities and Exchange Commission, such
indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant
of expenses incurred or paid by directors, officers or
controlling persons of the Registrant in connection
with the successful defense of any act, suit or
proceeding) is asserted by such directors, officers or
controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such
issues.
Item 28. Business and Other Connections of Investment Adviser
and its Officers and Directors
The business and other connections of Registrant's
Investment Manager, Templeton Investment Counsel, Inc.,
are described in Parts A and B.
For information relating to the Investment Manager's
officers and directors, reference is made to Form ADV
filed under the Investment Advisers Act of 1940 by
Templeton Investment Counsel, Inc.
Item 29. Principal Underwriters
(a) Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of Templeton
Growth Fund, Inc., Templeton Funds, Inc.,
Templeton Smaller Companies Growth Fund, Inc.,
Templeton Income Trust, Templeton Real Estate
Securities Fund, Templeton Capital Accumulator
Fund, Inc., Templeton Developing Markets Trust,
Templeton American Trust, Inc., Templeton
Institutional Funds, Inc., Templeton Global
Opportunities Trust, Templeton Variable Products
Series Fund, Templeton Global Investment Trust,
Templeton Variable Annuity Fund, AGE High Income
Fund, Inc., Franklin Balance Sheet Investment
Fund, Franklin California Tax Free Income Fund,
Inc., Franklin California Tax Free Trust, Franklin
Custodian Funds, Inc., Franklin Equity Fund,
Franklin Federal Money Fund, Franklin Federal Tax-
Free Income Fund, Franklin Gold Fund, Franklin
International Trust, Franklin Investors Securities
Trust, Franklin Managed Trust, Franklin Money
Fund, Franklin Municipal Securities Trust,
Franklin New York Tax-Free Income Fund, Franklin
New York Tax-Free Trust, Franklin Premier Return
Fund, Franklin Real Estate Securities Fund,
Franklin Strategic Series, Franklin Tax-Advantaged
High Yield Securities Fund, Franklin Tax-
Advantaged International Bond Fund, Franklin Tax-
Advantaged U.S. Government Securities Fund,
Franklin Tax Exempt Money Fund, Franklin Tax-Free
Trust, Franklin/Templeton Japan Fund, and
Institutional Fiduciary Trust.
(b) The directors and officers of FTD, located at 700
Central Avenue, St. Petersburg, Florida
33733-9926, are as follows:
Positions and Positions and
Offices with Offices with
Name with Underwriter with Registrant
Charles B. Johnson Chairman of the Board Vice President
and Director
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President None
and Director
Harmon E. Burns Executive Vice President None
and Director
Edward V. McVey Senior Vice President None
Kenneth V. Domingues Senior Vice President None
Martin L. Flanagan Senior Vice President Vice President
and Treasurer
William J. Lippman Senior Vice President None
Richard C. Stoker Senior Vice President None
Charles E. Johnson Senior Vice President None
Deborah R. Gatzek Senior Vice President and None
Assistant Secretary
Peter Black Vice President None
James K. Blinn Vice President None
Bernie Buckley Vice President None
Joel Burns Vice President None
Debra Carter Vice President None
Richard O. Conboy Vice President None
Joe Cronin Vice President None
James F. Duryea Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
John Gould Vice President None
Sheppard G. Griswold Vice President None
Mike Hackett Vice President None
Brad N. Hanson Vice President None
Carolyn L. Hennion Vice President None
Andrew Jennings Vice President None
Peter Jones Vice President None
Philip J. Kearns Vice President None
John Leach Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Thomas M. Mistele Vice President Secretary
Harry G. Mumford Vice President None
Mike Nardone Vice President None
Thomas H. O'Connor Vice President None
Vivian J. Palmieri Vice President None
Roger Pearson Vice President None
Richard S. Petrell Vice President None
John Phillips Vice President None
Darrell Plocher Vice President None
Dennis Shannon Vice President None
Robert E. Silvani Vice President None
Kent P. Strazza Vice President None
Susan K. Tallarico Vice President None
Leslie M. Kratter Secretary None
The directors and officers of Templeton Global Strategic
Services S.A. are as follows:
Positions and Positions and
Offices with Offices with
Name Underwriter Registrant
Martin L. Flanagan Chairman of the Board Vice President
Gregory E. McGowan Managing Director None
Dickson B. Anderson Managing Director None
Douglas B. Adams Managing Director None
Bruce MacGowan Managing Director None
Charles E. Johnson Managing Director None
(c) Not applicable (Information on unaffiliated under-
writers).
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of
the Investment Company Act of 1940 and rules promul-
gated thereunder are in the possession of Templeton
Global Investors, Inc., 500 East Broward Blvd., Fort
Lauderdale, Florida 33394.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
(c) Registrant undertakes to furnish to each person to
whom a Prospectus is provided a copy of its latest
Annual Report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it has met the requirements for effectiveness of
the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in
Washington, D.C. on the 1st day of March, 1995.
Templeton Smaller Companies Growth
Fund, Inc.
(Registrant)
By: ______________________________
Daniel L. Jacobs*
President
*By: /s/ Jeffrey L. Steele
Jeffrey L. Steele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of
1933, this Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on
the date indicated.
Signature Title Date
____________________ President (Chief March 1, 1995
Daniel L. Jacobs* Executive Officer)
______________________ Director March 1, 1995
John M. Templeton
______________________ Director March 1, 1995
Betty P. Krahmer*
______________________ Director March 1, 1995
Fred R. Millsaps*
_____________________ Director March 1, 1995
Hasso-G von Diergardt-Naglo*
______________________ Director March 1, 1995
F. Bruce Clarke*
______________________ Director March 1, 1995
John G. Bennett, Jr.*
______________________ Director March 1, 1995
Harmon E. Burns*
______________________ Director March 1, 1995
Harris J. Ashton*
______________________ Director March 1, 1995
S. Joseph Fortunato*
______________________ Director March 1, 1995
Andrew H. Hines, Jr.*
______________________ Director March 1, 1995
Gordon S. Macklin*
______________________ Director March 1, 1995
Nicholas F. Brady*
______________________ Treasurer March 1, 1995
James R. Baio* (Principal
Financial and
Accounting Officer)
*By: /s/ Jeffrey L. Steele
Jeffrey L. Steele
as attorney-in-fact**
______________________
** Powers of Attorney are contained in Post-Effective Amendment
No. 18 to this Registration Statement filed on August 19,
1992, Post-Effective Amendment No. 21 to this Registration
Statement filed on November 2, 1993, Post-Effective
Amendment No. 23 to this Registration Statement filed on
December 23, 1993, and Post-Effective Amendment No. 23 to
this Registration Statement filed on December 30, 1994.
EXHIBIT LIST
Exhibit Number Name of Exhibit
(1)(E) Form of Articles
Supplementary
(5) Form of Amended and
Restated Investment
Management Agreement
(11) Consent of Independent
Public Accountants
(15)(A) Distribution Plan --
Class I Shares
(15)(B) Distribution Plan --
Class II Shares
TEMPLETON SMALLER COMPANIES GROWTH FUND, INC.
ARTICLES SUPPLEMENTARY
TEMPLETON SMALLER COMPANIES GROWTH FUND, INC., a Maryland
corporation registered as an open-end investment company under
the Investment Company Act of 1940 and having its principal
office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at a
meeting duly convened and held on October 22, 1994, adopted a
resolution to establish a multiple class distribution system for
the Corporation, to increase the Corporation's authorized capital
to fifteen hundred million (1,500,000,000) shares of common
stock, par value $0.20 per share, to classify the seven hundred
fifty million (750,000,000) shares previously designated as
Common Stock of the Corporation as "Class I" shares of Common
Stock and to classify seven hundred fifty million (750,000,000)
shares as "Class II" shares of Common Stock.
SECOND: Immediately prior to the effectiveness of the
Articles Supplementary of the Corporation as hereinabove set
forth, the Corporation had the authority to issue seven hundred
fifty million (750,000,000) Common Shares of the par value of
$0.20 per Share and having an aggregate par value of one hundred
fifty million dollars ($150,000,000). As amended hereby, the
Corporation's Articles of Incorporation authorize the issuance of
fifteen hundred million (1,500,000,000) Common Shares of the par
value of $0.20 per Share and having an aggregate par value of
three hundred million dollars ($300,000,000), of which the Board
of Directors has classified seven hundred fifty million
(750,000,000) Shares as "Class I" shares of Common Stock, par
value $0.20 per share ("Class I Shares") and classified seven
hundred fifty million (750,000,000) Shares as "Class II" shares
of Common Stock, par value $0.20 per share ("Class II Shares").
THIRD: The shares of the Corporation authorized and
classified pursuant to Article First of these Articles
Supplementary have been so authorized and classified by the Board
of Directors under the authority contained in the Charter of the
Corporation. The number of Shares of capital stock of the
various classes that the Corporation has authority to issue has
been established by the Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law.
FOURTH: The preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the two
classes of shares shall be as set forth in the Corporation's
Articles of Incorporation and shall be subject to all provisions
of the Articles of Incorporation relating to shares of the
Corporation generally, and those set forth as follows:
(a) The assets of each Class shall be invested in the same
investment portfolio of the Corporation.
(b) The dividends and distributions of investment income
and capital gains with respect to each class of shares
shall be in such amounts as may be declared from time
to time by the Board of Directors, and the dividends
and distributions of each class of shares may vary from
the dividends and distributions of the other classes of
shares to reflect differing allocations of the expenses
of the Corporation among the holders of each class and
any resultant differences between the net asset value
per share of each class, to such extent and for such
purposes as the Board of Directors may deem
appropriate. The allocation of investment income or
capital gains and expenses and liabilities of the
Corporation among the classes shall be determined by
the Board of Directors in a manner it deems
appropriate.
(c) Class I shares (including fractional shares) may be
subject to an initial sales charge and service and/or
distribution fee pursuant to the terms of the issuance
of such shares, and the proceeds of the redemption of
Class I shares (including fractional shares) may be
reduced by the amount of any contingent deferred sales
charge payable on such redemption pursuant to the terms
of the issuance of such shares, as set forth in the
Corporation's then-current registration statement on
Form N-1A pursuant to the Securities Act of 1933 and
the Investment Company Act of 1940 (the "Registration
Statement").
(d) Class II shares (including fractional shares) may be
subject to an initial sales charge and service and
distribution fee pursuant to the terms of the issuance
of such shares, and the proceeds of the redemption of
Class II shares (including fractional shares) may be
reduced by the amount of any contingent deferred sales
charge payable on such redemption pursuant to the terms
of the issuance of such shares, as set forth in the
Registration Statement.
(e) The holders of Class I and Class II shares shall have
(i) exclusive voting rights with respect to provisions
of any service plan or service and distribution plan
adopted by the Corporation pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (a "Plan")
applicable to the respective class and (ii) no voting
rights with respect to the provisions of any Plan
applicable to another class of shares or with regard to
any other matter submitted to a vote of shareholders
which does not affect holders of that respective class
of shares.
(f) Class II shares (including fractional shares) may be
subject to conversion into Class I shares pursuant to
the terms of the issuance of such shares as described
in the Registration Statement.
IN WITNESS WHEREOF, Templeton Smaller Companies Growth Fund,
Inc. has caused these Articles Supplementary to be signed in its
name on its behalf by its authorized officers who acknowledge
that these Articles Supplementary are the act of the Corporation,
that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization
and approval of these Articles Supplementary are true in all
material respects and that this statement is made under the
penalties of perjury.
Date: March , 1995 TEMPLETON SMALLER COMPANIES
GROWTH FUND, INC.
[CORPORATE SEAL] By:
ATTEST:
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 1st day of November, 1993, and
amended and restated as of ______________, between TEMPLETON
SMALLER COMPANIES GROWTH FUND, INC., a corporation organized
under the laws of the State of Maryland (hereinafter referred to
as the "Fund"), and TEMPLETON INVESTMENT COUNSEL, INC.
(hereinafter referred to as the "Investment Manager").
In consideration of the mutual agreements herein made,
the Fund and the Investment Manager understand and agree as
follows:
(1) The Investment Manager agrees, during the life of
this Agreement, to manage the investment and reinvestment of the
Fund's assets consistent with the provisions of the Fund's
Articles of Incorporation and the investment policies adopted and
declared by the Fund's Board of Directors. In pursuance of the
foregoing, the Investment Manager shall make all determinations
with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, and shall take
all such steps as may be necessary to implement those
determinations.
(2) The Investment Manager is not required to furnish
any personnel, overhead items or facilities for the Fund,
including trading desk facilities or daily pricing of the Fund's
portfolio.
(3) The Investment Manager shall be responsible for
selecting members of securities exchanges, brokers and dealers
(such members, brokers and dealers being hereinafter referred to
as "brokers") for the execution of the Fund's portfolio
transactions consistent with the Fund's brokerage policy and,
when applicable, the negotiation of commissions in connection
therewith.
All decisions and placements shall be made in
accordance with the following principles:
(A) Purchase and sale orders will usually be
placed with brokers which are selected by the
Investment Manager as able to achieve "best execution"
of such orders. "Best execution" shall mean prompt and
reliable execution at the most favorable securities
price, taking into account the other provisions
hereinafter set forth. The determination of what may
constitute best execution and price in the execution of
a securities transaction by a broker involves a number
of considerations, including, without limitation, the
overall direct net economic result to the Fund
(involving both price paid or received and any
commissions and other costs paid), the efficiency with
which the transaction is executed, the ability to
effect the transaction at all where a large block is
involved, availability of the broker to stand ready to
execute possibly difficult transactions in the future,
and the financial strength and stability of the broker.
Such considerations are judgmental and are weighed by
the Investment Manager in determining the overall
reasonableness of brokerage commissions.
(B) In selecting brokers for portfolio
transactions, the Investment Manager shall take into
account its past experience as to brokers qualified to
achieve "best execution," including brokers who
specialize in any foreign securities held by the Fund.
(C) The Investment Manager is authorized to
allocate brokerage business to brokers who have
provided brokerage and research services, as such
services are defined in Section 28(e) of the Securities
Exchange Act of 1934 (the "1934 Act") for the Fund
and/or other accounts, if any, for which the Investment
Manager exercises investment discretion (as defined in
Section 3(a)(35) of the 1934 Act) and, as to
transactions for which fixed minimum commission rates
are not applicable, to cause the Fund to pay a
commission for effecting a securities transaction in
excess of the amount another broker would have charged
for effecting that transaction, if the Investment
Manager determines in good faith that such amount of
commission is reasonable in relation to the value of
the brokerage and research services provided by such
broker, viewed in terms of either that particular
transaction or the Investment Manager's overall
responsibilities with respect to the Fund and the other
accounts, if any, as to which it exercises investment
discretion. In reaching such determination, the
Investment Manager will not be required to place or
attempt to place a specific dollar value on the
research or execution services of a broker or on the
portion of any commission reflecting either of said
services. In demonstrating that such determinations
were made in good faith, the Investment Manager shall
be prepared to show that all commissions were allocated
and paid for purposes contemplated by the Fund's
brokerage policy; that the research services provide
lawful and appropriate assistance to the Investment
Manager in the performance of its investment decision-
making responsibilities, and that the commissions were
within a reasonable range. Whether commissions were
within a reasonable range shall be based on any
available information as to the level of commission
known to be charged by other brokers on comparable
transactions, but there shall be taken into account the
Fund's policies that (i) obtaining a low commission is
deemed secondary to obtaining a favorable securities
price, since it is recognized that usually it is more
beneficial to the Fund to obtain a favorable price than
to pay the lowest commission; and (ii) the quality,
comprehensiveness, and frequency of research studies
which are provided for the Investment Manager are
useful to the Investment Manager in performing its
advisory services under its Agreement. Research
services provided by brokers to the Investment Manager
are considered to be in addition to, and not in lieu
of, services required to be performed by the Investment
Manager under this Agreement. Research furnished by
brokers through which the Fund effects securities
transactions may be used by the Investment Manager for
any of its accounts, and not all such research may be
used by the Investment Manager for the Fund. When
execution of portfolio transactions is allocated to
brokers trading on exchanges with fixed brokerage
commission rates, account may be taken of various
services provided by the broker.
(D) Purchases and sales of portfolio securities
within the United States other than on a securities
exchange shall be executed with primary market makers
acting as principal, except where, in the judgment of
the Investment Manager, better prices and execution may
be obtained on a commission basis or from other
sources.
(E) Sales of Fund Shares (which shall be deemed
to include also Shares of other registered investment
companies which have either the same adviser or an
investment adviser affiliated with the Fund's
Investment Manager) by a broker are one factor among
others to be taken into account in deciding to allocate
portfolio transactions (including agency transactions,
principal transactions, purchases in underwritings or
tenders in response to tender offers) for the account
of the Fund to that broker; provided that the broker
shall furnish "best execution," as defined in
subparagraph A above, and that such allocation shall be
within the scope of the Fund's policies as stated
above; provided further, that in every allocation made
to a broker in which the sale of Fund Shares is taken
into account, there shall be no increase in the amount
of the commissions or other compensation paid to such
broker beyond a reasonable commission or other
compensation determined, as set forth in subparagraph C
above, on the basis of best execution alone or best
execution plus research services, without taking
account of or placing any value upon such sale of
Fund's Shares.
(4) The Fund agrees to pay to the Investment Manager a
monthly fee in dollars at an annual rate of 0.75% of the Fund's
average daily net assets, payable at the end of each calendar
month.
Notwithstanding the foregoing, if the total expenses of
the Fund (including the fee to the Investment Manager) in any
fiscal year of the Fund exceed any expense limitation imposed by
applicable State law, the Investment Manager shall reimburse the
Fund for such excess in the manner and to the extent required by
applicable State law. The term "total expenses," as used in this
paragraph, does not include interest, taxes, litigation expenses,
distribution expenses, brokerage commissions or other costs of
acquiring or disposing of any of the Fund's portfolio securities
or any costs or expenses incurred or arising other than in the
ordinary and necessary course of the Fund's business. When the
accrued amount of such expenses exceeds this limit, the monthly
payment of the Investment Manager's fee will be reduced by the
amount of such excess, subject to adjustment month by month
during the balance of the Fund's fiscal year if accrued expenses
thereafter fall below the limit.
(5) This Agreement shall become effective on
November 1, 1993 and shall continue in effect until December 31,
1994. If not sooner terminated, this Agreement shall continue in
effect for successive periods of 12 months each thereafter,
provided that each such continuance shall be specifically
approved annually by the vote of a majority of the Fund's Board
of Directors who are not parties to this Agreement or "interested
persons" (as defined in Investment Company Act of 1940 (the "1940
Act")) of any such party, cast in person at a meeting called for
the purpose of voting on such approval and either the vote of (a)
a majority of the outstanding voting securities of the Fund, as
defined in the 1940 Act, or (b) a majority of the Fund's Board of
Directors as a whole.
(6) Notwithstanding the foregoing, this Agreement may
be terminated by either party at any time, without the payment of
any penalty, on sixty (60) days' written notice to the other
party, provided that termination by the Fund is approved by vote
of a majority of the Fund's Board of Directors in office at the
time or by vote of a majority of the outstanding voting
securities of the Fund (as defined by the 1940 Act).
(7) This Agreement will terminate automatically and
immediately in the event of its assignment (as defined in the
1940 Act).
(8) In the event this Agreement is terminated and the
Investment Manager no longer acts as Investment Manager to the
Fund, the Investment Manager reserves the right to withdraw from
the Fund the use of the name "Templeton" or any name misleadingly
implying a continuing relationship between the Fund and the
Investment Manager or any of its affiliates.
(9) Except as may otherwise be provided by the 1940
Act, neither the Investment Manager nor its officers, directors,
employees or agents shall be subject to any liability for any
error of judgment, mistake of law, or any loss arising out of any
investment or other act or omission in the performance by the
Investment Manager of its duties under the Agreement or for any
loss or damage resulting from the imposition by any government of
exchange control restrictions which might affect the liquidity of
the Fund's assets, or from acts or omissions of custodians, or
securities depositories, or from any war or political act of any
foreign government to which such assets might be exposed, or for
failure, on the part of the custodian or otherwise, timely to
collect payments, except for any liability, loss or damage
resulting from willful misfeasance, bad faith or gross negligence
on the Investment Manager's part or by reason of reckless
disregard of the Investment Manager's duties under this
Agreement. It is hereby understood and acknowledged by the Fund
that the value of the investments made for the Fund may increase
as well as decrease and are not guaranteed by the Investment
Manager. It is further understood and acknowledged by the Fund
that investment decisions made on behalf of the Fund by the
Investment Manager are subject to a variety of factors which may
affect the values and income generated by the Fund's portfolio
securities, including general economic conditions, market factors
and currency exchange rates, and that investment decisions made
by the Investment Manager will not always be profitable or prove
to have been correct.
(10) It is understood that the services of the
Investment Manager are not deemed to be exclusive, and nothing in
this Agreement shall prevent the Investment Manager, or any
affiliate thereof, from providing similar services to other
investment companies and other clients, including clients which
may invest in the same types of securities as the Fund, or, in
providing such services, from using information furnished by
others. When the Investment Manager determines to buy or sell
the same security for the Fund that the Investment Manager or one
or more of its affiliates has selected for clients of the
Investment Manager or its affiliates, the orders for all such
security transactions shall be placed for execution by methods
determined by the Investment Manager, with approval by the Fund's
Board of Directors, to be impartial and fair.
(11) This Agreement shall be construed in accordance
with the laws of the State of Maryland, provided that nothing
herein shall be construed as being inconsistent with applicable
Federal and state securities laws and any rules, regulations and
orders thereunder.
(12) If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby
and, to this extent, the provisions of this Agreement shall be
deemed to be severable.
(13) Nothing herein shall be construed as constituting
the Investment Manager an agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers and
their respective corporate seals to be hereunto duly affixed and
attested.
TEMPLETON SMALLER COMPANIES GROWTH
FUND, INC.
By: ____________________________
John R. Kay
Vice President
TEMPLETON INVESTMENT COUNSEL, INC.
By: ____________________________
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September
27, 1994, on the financial statements of Templeton Smaller
Companies Growth Fund, Inc. referred to therein, which appears in
the 1994 Annual Report to Shareholders and which is incorporated
herein by reference, in Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A, File No. 2-70889 as filed
with the Securities and Exchange Commission.
We also consent to the reference to our firm in the
Statement of Additional Information under the caption
"Independent Accountants" and in the Prospectus under the caption
"Financial Highlights."
McGladrey & Pullen, LLP
New York, New York
February 27, 1995
DISTRIBUTION PLAN
WHEREAS, Templeton Smaller Companies Growth Fund, Inc.
(the "Fund") is registered as an open-end diversified management
investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, the Fund and Franklin Templeton Distributors,
Inc. (the "Selling Company"), a wholly owned subsidiary of
Franklin Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class I Shares of the Fund for sale
to the public; and
WHEREAS, shares of common stock of the Fund are divided
into classes of shares, one of which is designated Class I; and
WHEREAS, the Board of Directors of the Fund has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Fund and the holders of Class I Shares.
NOW THEREFORE, the Fund hereby adopts, with respect to
its Class I Shares, the Plan on the following terms and
conditions:
1. The Fund will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class I Shares of the Fund. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Fund's Class I Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class I Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Fund's
Class I Shares exceeding $1 million (for which the Fund imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Fund's
Board of Directors determines to be reasonably calculated to
result in the sale of Class I Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to a limit of
0.25% per annum of the average daily net assets of the Fund's
Class I Shares. Payments made out of or charged against the
assets of the Class I Shares of the Fund must be in reimbursement
for costs and expenses in connection with any activity which is
primarily intended to result in the sale of the Fund's Class I
Shares. The costs and expenses not reimbursed in any one given
month (including costs and expenses not reimbursed because they
exceeded the limit of 0.25% per annum of the average daily net
assets of the Fund's Class I Shares) may be reimbursed in
subsequent months or years.
2. The Plan shall not take effect with respect to the
Fund's Class I Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class I Shares of the Fund. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Fund's Class I
Shares if a majority of the outstanding voting securities of the
Class I Shares of the Fund votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Directors of the
Fund, and (b) those Directors of the Fund who are not "interested
persons" (as defined in the 1940 Act) and have no direct or
indirect financial interest in the operation of the Plan or any
agreements related to it (the "Plan Directors"), cast in person
at a meeting (or meetings) called for the purpose of voting on
the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class I Shares of the Fund pursuant
to the Plan or any related agreement shall provide to the Fund's
Board of Directors, and the Board shall review, at least
quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Fund's Class I Shares, without
payment of any penalty, by vote of a majority of the Plan
Directors or by vote of a majority of the outstanding voting
securities of the Class I Shares of the Fund, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Directors, or by vote of a majority of the outstanding Class I
Shares of the Fund.
8. The Plan may be amended at any time by the Fund's
Board of Directors, provided that (a) any amendment to increase
materially the costs which the Class I Shares of the Fund may
bear for distribution pursuant to the Plan shall be effective
only upon approval by a vote of a majority of the Class I Shares
of the Fund, and (b) any material amendments of the terms of the
Plan shall become effective only upon approval as provided in
paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
10. The Fund shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
IN WITNESS WHEREOF, the Fund has executed this
Distribution Plan on this ___ day of ______, 1995.
TEMPLETON SMALLER COMPANIES GROWTH FUND, INC.
By: _______________________________
John R. Kay
Vice President
DISTRIBUTION PLAN
WHEREAS, Templeton Smaller Companies Growth Fund, Inc.
(the "Fund") is registered as an open-end diversified management
investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, the Fund and Franklin Templeton Distributors,
Inc. (the "Selling Company"), a wholly owned subsidiary of
Franklin Resources, Inc. and a broker-dealer registered under the
Securities Exchange Act of 1934, have entered into a Distribution
Agreement pursuant to which the Selling Company will act as
principal underwriter of the Class II Shares of the Fund for sale
to the public; and
WHEREAS, shares of common stock of the Fund are divided
into classes of shares, one of which is designated Class II; and
WHEREAS, the Board of Directors of the Fund has
determined to adopt this Distribution Plan (the "Plan"), in
accordance with the requirements of the 1940 Act and has
determined that there is a reasonable likelihood that the Plan
will benefit the Fund and the holders of Class II Shares.
NOW THEREFORE, the Fund hereby adopts, with respect to
its Class II Shares, the Plan on the following terms and
conditions:
1. The Fund will reimburse the Selling Company for
costs and expenses incurred in connection with the distribution
and marketing of the Class II Shares of the Fund. Such
distribution costs and expenses may include: (a) payments to
broker-dealers who provide certain services of value to the
Fund's Class II Shareholders (sometimes referred to as a "trail
fee"); (b) reimbursement of expenses relating to selling and
servicing efforts or of organizing and conducting sales seminars;
(c) payments to employees or agents of the Selling Company who
engage in or support distribution of the Class II Shares; (d)
payment of the costs of preparing, printing and distributing
prospectuses and reports to prospective investors and of printing
and advertising expenses; (e) payment of dealer commissions and
wholesaler compensation in connection with sales of the Fund's
Class II Shares exceeding $1 million (for which the Fund imposes
no sales charge) and interest or carrying charges in connection
therewith; and (f) such other similar services as the Fund's
Board of Directors determines to be reasonably calculated to
result in the sale of Class II Shares.
The Selling Company will be reimbursed for such costs,
expenses or payments on a monthly basis, subject to an annual
limit of 1.00% per annum of the average daily net assets of the
Fund's Class II Shares (of which up to 0.25% of such net assets
may be paid to dealers for personal service and/or the
maintenance of Class II Shareholder accounts (the "Service Fee"))
and subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc. Payments made
out of or charged against the assets of the Class II Shares of
the Fund must be in reimbursement for costs and expenses in
connection with any activity which is primarily intended to
result in the sale of the Fund's Class II Shares or account
maintenance and personal service to Shareholders. The costs and
expenses not reimbursed in any one given month (including costs
and expenses not reimbursed because they exceeded the limit of
1.00% per annum of the average daily net assets of the Fund's
Class II Shares) may be reimbursed in subsequent months or years.
2. The Plan shall not take effect with respect to the
Fund's Class II Shares until it has been approved by a vote of at
least a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Class II Shares of the Fund. With
respect to the submission of the Plan for such a vote, it shall
have been effectively approved with respect to the Fund's Class
II Shares if a majority of the outstanding voting securities of
the Class II Shares of the Fund votes for approval of the Plan.
3. The Plan shall not take effect until it has been
approved, together with any related agreements and supplements,
by votes of a majority of both (a) the Board of Directors of the
Fund, and (b) those Directors of the Fund who are not "interested
persons" (as defined in the 1940 Act) and have no direct or
indirect financial interest in the operation of the Plan or any
agreements related to it (the "Plan Directors"), cast in person
at a meeting (or meetings) called for the purpose of voting on
the Plan and such related agreements.
4. The Plan shall continue in effect so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in paragraph 3.
5. Any person authorized to direct the disposition of
monies paid or payable by the Class II Shares of the Fund
pursuant to the Plan or any related agreement shall provide to
the Fund's Board of Directors, and the Board shall review, at
least quarterly, a written report of the amounts so expended and
the purposes for which such expenditures were made.
6. Any agreement related to the Plan shall be in
writing and shall provide: (a) that such agreement may be
terminated at any time as to the Fund's Class II Shares, without
payment of any penalty, by vote of a majority of the Plan
Directors or by vote of a majority of the outstanding voting
securities of the Class II Shares of the Fund, on not more than
sixty days' written notice to any other party to the agreement;
and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Plan
Directors, or by vote of a majority of the outstanding Class II
Shares of the Fund.
8. The Plan may be amended at any time by the Fund's
Board of Directors, provided that (a) any amendment to increase
materially the costs which the Class II Shares of the Fund may
bear for distribution pursuant to the Plan shall be effective
only upon approval by a vote of a majority of the Class II Shares
of the Fund, and (b) any material amendments of the terms of the
Plan shall become effective only upon approval as provided in
paragraph 3 hereof.
9. While the Plan is in effect, the selection and
nomination of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
10. The Fund shall preserve copies of the Plan, any
related agreement and any report made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
the Plan, such agreement or report, as the case may be, the first
two years of which shall be in an easily accessible place.
IN WITNESS WHEREOF, the Fund has executed this
Distribution Plan on this ___ day of ______, 1995.
TEMPLETON SMALLER COMPANIES GROWTH FUND, INC.
By: _______________________________
John R. Kay
Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TEMPLETON
SMALLER COMPANIES GROWTH FUND, INC. AUGUST 31, 1994 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 1087133911
<INVESTMENTS-AT-VALUE> 1426099544
<RECEIVABLES> 7132265
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1433231809
<PAYABLE-FOR-SECURITIES> 20217347
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3520245
<TOTAL-LIABILITIES> 23737592
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1055696969<F1>
<SHARES-COMMON-STOCK> 170974993
<SHARES-COMMON-PRIOR> 151864484
<ACCUMULATED-NII-CURRENT> 12630414<F3>
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2201201<F4>
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 338965633
<NET-ASSETS> 1409494217
<DIVIDEND-INCOME> 25748739
<INTEREST-INCOME> 7807616
<OTHER-INCOME> 0
<EXPENSES-NET> 18047372
<NET-INVESTMENT-INCOME> 15508983
<REALIZED-GAINS-CURRENT> 12421846
<APPREC-INCREASE-CURRENT> 120937052
<NET-CHANGE-FROM-OPS> 148867881
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10778807)
<DISTRIBUTIONS-OF-GAINS> (4548680)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47834558<F2>
<NUMBER-OF-SHARES-REDEEMED> (30485649)
<SHARES-REINVESTED> 1761600
<NET-CHANGE-IN-ASSETS> 279645973
<ACCUMULATED-NII-PRIOR> 8212780
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5984507)
<GROSS-ADVISORY-FEES> 10050360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18047372
<AVERAGE-NET-ASSETS> 1323115043
<PER-SHARE-NAV-BEGIN> 7.44
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 0.81
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.24
<EXPENSE-RATIO> 1<F5>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>On October 22, 1993, the Templeton Smaller Cos. Growth Fund acquired the net
assets of Templeton Value Fund. The merger was accomplished by a tax-free
exchange of 14,274,720 shares of the TSCG Fund (valued at $108,202,380) for
the net assets of the Value Fund which aggregated $108,202,380,
including $19,241,116 of unrealized appreciation.
<F2>See F1.
<F3>As a result of differing book and tax treatments for foreign currency
transactions, the Fund reclassified $312,542 from undistributed net investment
income to accumulated realized gains as of August 31, 1994.
<F4>See Note 3.
<F5>The expense ratio per the Templeton Smaller Companies Growth Fund
Annual Report August 31, 1994 is 1.36%.
</FN>
</TABLE>
