As filed with the Securities and Exchange Commission on October 30, 1998.
File Nos. 33-9981 and 811-4892
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. 17 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 19 [X]
TEMPLETON GROWTH FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
500 EAST BROWARD BLVD., FT. LAUDREDALE, FLORIDA 33394
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(Address of Principal Executive Offices) (Zip Code)
(954) 527-7500
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(Registrant's Telephone Number, Including Area Code)
BARBARA J. GREEN, 500 E. BROWARD BLVD., FT. LAUDERDALE, FL 33394
-----------------------------------------------------------------
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public offering:
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on January 1, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
PAGE
PART A
TEMPLETON GROWTH FUND, INC.
CLASS A, B AND C PROSPECTUS
PAGE
Prospectus
TEMPLETON
GROWTH FUND, INC.
Class A, B & C
INVESTMENT STRATEGY GLOBAL GROWTH
JANUARY 1, 1999
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PAGE
Contents
The Fund
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Information about 2 Goal and Strategies
the fund you
should know 3 Main Risks
before investing
5 Performance
6 Fees and Expenses
7 Management
9 Distributions and Taxes
10 Financial Highlights
Your Account
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Information about 11 Choosing a Share Class
sales charges,
account 16 Buying Shares
transactions and
services 18 Investor Services
20 Selling Shares
22 Account Policies
25 Questions
For More Information
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Where to learn
more about the Back Cover
fund
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THE FUND
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GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the common stocks of companies located anywhere in the world,
including emerging markets. The fund also invests in American, European and
Global Depositary Receipts, which are certificates typically issued by a bank or
trust company that give their holders the right to receive securities issued by
a foreign or domestic company.
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When choosing investments, the fund's manager will focus on the market price of
a company's securities relative to the manager's evaluation of the company's
long-term earnings, asset value and cash flow potential. A company's historical
value measures, including price/earnings ratio, profit margins and liquidation
value, will also be considered.
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Depending upon current market conditions, the fund generally invests up to 25%
of its total assets in debt securities of companies and governments located
anywhere in the world.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
the securities trading markets or the economy are experiencing excessive
volatility or a prolonged general decline, or other adverse conditions exist.
Under these circumstances, the fund may be unable to pursue its investment goal.
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MAIN RISKS
STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole.
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Because the stocks the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
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FOREIGN SECURITIES Securities of companies located outside the U.S. may offer
significant opportunities for gain, but they also involve additional risks that
can increase the potential for losses in the fund. Investments in American,
European and Global Depositary Receipts also involve some or all of the
following risks.
COUNTRY RISK. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund owns
which trade in that country. These movements will affect the fund's share price.
The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, expropriation, restrictions on removal of currency or other
assets, nationalization of assets and punitive taxes.
The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of legal, business and social frameworks to support securities
markets. While short-term volatility in these markets can be disconcerting,
declines of 40% to 50% are not unusual.
COMPANY RISK. Foreign companies are not subject to the same accounting, auditing
and financial reporting standards and practices as U.S. companies and their
stocks may not be as liquid as stocks of similar U.S. companies. Foreign stock
exchanges, brokers and companies generally have less government supervision and
regulation than in the U.S. The fund may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies and obtaining judgments
with respect to foreign investments in foreign courts than with respect to U.S.
companies in U.S. courts.
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Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency of the
U.S. government. Mutual fund shares involve investment risks, including the
possible loss of principal.
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CURRENCY Many of the fund's investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what the
fund owns and the fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars.
EURO. On January 1, 1999, the European Monetary Union (EMU) plans to introduce a
new single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries with
currencies replaced by the euro, the investment process, including trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted.
Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on the value of fund shares. To the extent the fund holds non-U.S.
dollar (euro or other) denominated securities, it will still be exposed to
currency risk due to fluctuations in those currencies versus the U.S. dollar.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is only one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit each company and its major suppliers to verify their Year
2000 readiness.
If a company the fund is invested in is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see page 8 for more information.
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PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS (1)
--------------------
Best quarter:
Q1 '91 14.81%
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Worst quarter:
Q3 '90 -15.52%
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AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997
1 YEAR 5 YEARS 10 YEARS
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Templeton Growth Fund - Class A (2) 9.51% 16.17% 14.84%
MSCI World Index (3) 16.23% 15.88% 11.14%
SINCE INCEPTION
1 YEAR (5/1/95)
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Templeton Growth Fund - Class C (2) 13.11% 16.72%
MSCI World Index (3) 16.23% 15.89%
(1) Figures do not reflect sales charges. If they did, returns would be lower.
As of September 30, 1998, the fund's year-to-date return was -11.34% for Class
A.
(2) Figures reflect sales charges. All fund performance assumes reinvestment of
dividends and capital gains. January 1, 1993, the fund implemented a Rule 12b-1
plan, which affects subsequent performance.
(3) Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index tracks
the performance of approximately 1500 securities in 23 countries and is designed
to measure world stock market performance. It includes reinvested dividends. One
cannot invest directly in an index, nor is an index representative of the fund's
portfolio.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. It is based on the fund's expenses for the fiscal year ended
August 31, 1998.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
As a percentage of offering price
CLASS A(1) CLASS B(2) CLASS C(1)
Maximum sales charge (load) 5.75% 4.00% 1.99%
Paid at time of purchase 5.75% None 1.00%
Paid at redemption None (3) 4.00% 0.99% (4)
Exchange fee (5) None None None
Please see "Choosing a Share Class" on page 11 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A(1) CLASS B(2) CLASS C(1)
Management fees 0.61% 0.61% 0.61%
Distribution and service
(12b-1) fees (6) 0.25% 1.00% 1.00%
Other expenses 0.22% 0.22% 0.22%
---------------------------------------------
Total annual fund
operating expenses 1.08% 1.83% 1.83%
=============================================
(1) Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
(2) The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended August 31, 1998. The distribution and service (12b-1) fees are based
on the maximum fees allowed under Class B's Rule 12b-1 plan.
(3) Except for investments of $1 million or more (see page 11) and purchases by
certain retirement plans without an initial sales charge.
(4) This is equivalent to a charge of 1% based on net asset value.
(5) There is a $5 fee for each exchange by a market timer (see page 23).
(6) Because of the 12b-1 fees, over the long term you may indirectly pay more
than the equivalent of the maximum permitted initial sales charge.
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EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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CLASS A $679 (1) $899 $1,136 $1,816
CLASS B
Assuming you sold your
shares at the end of the
period $586 $876 $1,190 $1,951(2)
Assuming you stayed
in the fund $186 $576 $ 990 $1,951(2)
CLASS C $382(3) $670 $1,080 $2,226
(1) Assumes a contingent deferred sales charge (CDSC) will not apply.
(2) Assumes conversion of Class B shares to Class A shares after eight years.
(3) For the same Class C investment, your costs would be $284 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.
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MANAGEMENT
Templeton Global Advisors Limited (Global Advisors), Lyford Cay, Nassau,
Bahamas, is the fund's investment manager. Together, Global Advisors and its
affiliates manage over $207 billion in assets.
LEAD PORTFOLIO MANAGER
Mark G. Holowesko CFA, Mr. Holowesko has been the fund's lead portfolio
President of Global manager since 1987. He joined the Franklin Templeton
Advisors Group in 1985.
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SECONDARY PORTFOLIO MANAGERS
Jeffrey A. Everett CFA, Mr. Everett has been a manager on the fund since
Executive Vice President 1994. He joined the Franklin Templeton Group in 1989.
of Global Advisors
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Richard Sean Farrington Mr. Farrington has been a manager on the fund since
CFA, Vice President of 1996. He joined the Franklin Templeton Group in 1991.
Global Advisors
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The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended August 31, 1998, the fund paid
0.61% of its average monthly net assets to the manager.
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The fund's business operations depend on a worldwide network of computer
systems that contain date fields, including securities trading systems,
securities transfer agent operations and stock market links. Many of the
systems currently use a two digit date field to represent the date, and unless
these systems are changed or modified, they may not be able to distinguish the
Year 1900 from the Year 2000 (commonly referred to as the Year 2000 problem).
In addition, the fact that the Year 2000 is a non-standard leap year may create
difficulties for some systems.
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YEAR 2000 PROBLEM When the Year 2000 arrives, the fund's operations could be
adversely affected if the computer systems used by the manager, its service
providers and other third parties it does business with are not Year 2000 ready.
For example, the fund's portfolio and operational areas could be impacted,
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody functions
and others. The fund could experience difficulties in effecting transactions if
any of its foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.
The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.
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DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least annually representing substantially all of its net investment income and
any net realized capital gains. The amount of this dividend will vary and there
is no guarantee the fund will pay dividends.
To receive an income dividend, you must be a shareholder on the record date. The
record date for the fund's dividends will vary. You may not want to invest a
large amount in the fund shortly before the record date since you will receive
some of your investment back as a taxable distribution.
TAX CONSIDERATIONS In general, fund distributions are taxable to you as either
ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the fund or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital gains
no matter how long you have owned your shares.
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BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, or if the IRS instructs the fund to do so.
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Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares, you may have a capital gain or loss. For tax
purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale. The tax rate on any gain from the sale or
exchange of your shares depends on how long you have held your shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Any foreign taxes the fund
pays on its investments may be passed through to you as a foreign tax credit.
Non-U.S. investors may be subject to U.S. withholding and estate tax. You should
consult your tax professional about federal, state, local or foreign tax
consequences.
For more information, please call 1-800/DIAL BEN to request a free copy of the
Franklin Templeton Tax Information Handbook.
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FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by McGladrey & Pullen, LLP.
CLASS A YEAR ENDED AUGUST 31,
1998 1997 1996 1995(1) 1994
--------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 22.47 18.75 18.96 18.95 17.47
--------------------------------------------
Net investment income .50 .54 .50 .39 .29
Net realized and unrealized
gains (losses) (2.76) 4.48 1.34 1.20 2.58
--------------------------------------------
Total from investment operations (2.26) 5.02 1.84 1.59 2.87
--------------------------------------------
Distributions from net
investment income (.55) (.49) (.44) (.29) (.27)
Distributions from net realized
gains (2.88) (.81) (1.61) (2.29) (1.12)
--------------------------------------------
Total distributions (3.43) (1.30) (2.05) (1.58) (1.39)
--------------------------------------------
Net asset value, end of year 16.78 22.47 18.75 18.96 18.95
============================================
Total return (%)(2) (12.61) 28.28 10.85 9.51 17.47
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1 million) 11,117 12,129 8,451 6,964 5,612
Ratios to average net assets: (%)
Expenses 1.08 1.08 1.09 1.12 1.10
Net investment income 2.53 2.81 2.87 2.40 1.76
Portfolio turnover rate (%) 48.23 41.81 19.63 35.21 27.35
CLASS C
PER SHARE DATA ($)
Net asset value, beginning of year 22.18 18.57 18.90 17.48
---------------------------------
Net investment income .38 .42 .49 .04
Net realized and unrealized
gains (losses) (2.77) 4.39 1.19 1.38
---------------------------------
Total from investment operations (2.39) 4.81 1.68 1.42
---------------------------------
Distributions from net
investment income (.42) (.39) (.40) --
Distributions from net
realized gains (2.88) (.81) (1.61) --
---------------------------------
Total distributions (3.30) (1.20) (2.01) --
---------------------------------
Net asset value, end of year 16.49 22.18 18.57 18.90
=================================
Total return (%)(2) (13.32) 27.30 9.99 8.12
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 872,219 755,184 280,087 42,548
Ratios to average net assets: (%)
Expenses 1.83 1.84 1.87 1.86(3)
Net investment income 1.79 2.14 2.25 1.61(3)
Portfolio turnover rate (%) 48.23 41.81 19.63 35.21
(1) The 1995 numbers for Class C are for the period May 1, 1995 (effective date)
through August 31, 1995.
(2) Total return does not include sales charges, and is not annualized.
(3) Annualized.
10
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YOUR ACCOUNT
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CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment representative
can help you decide.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
/bullet/ Initial sales /bullet/ No initial sales /bullet/ Initial sales
charge of 5.75% or charge charge of 1%
less
/bullet/ Deferred sales /bullet/ Deferred sales /bullet/ Deferred sales
charge of 1% on charge of 4% or charge of 1% on
purchases of $1 less on shares shares you sell
million or more you sell within within 18 months
sold within one year six years
/bullet/ Lower annual /bullet/ Automatic /bullet/ No conversion to
expenses than Class conversion to Class A shares,
B or C due to lower Class A shares so annual
distribution fees after eight expenses do not
years, reducing decrease
future annual
expenses
</TABLE>
BEFORE JANUARY 1, 1999, CLASS A SHARES WERE DESIGNATED CLASS I AND CLASS C
SHARES WERE DESIGNATED CLASS II. THE FUND BEGAN OFFERING CLASS B SHARES ON
JANUARY 1, 1999.
SALES CHARGES
CLASS A
WHICH EQUALS THIS %
THIS % IS DEDUCTED OF YOUR NET
WHEN YOU INVEST THIS AMOUNT FOR SALES CHARGES INVESTMENT
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as a
lump sum or through our cumulative quantity discount or letter of intent
programs (see page 14), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC is
the same for each class (please see page 13).
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DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows Class A to pay distribution fees of up
to 0.25% per year to those who sell and distribute its shares and provide other
services to shareholders. Because these fees are paid out of Class A's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
CLASS B
IF YOU SELL YOUR SHARES THIS % IS DEDUCTED FROM
WITHIN THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a CDSC
if you sell your shares within six years, as described in the table above. The
way we calculate the CDSC is the same for each class (please see page 13). After
8 years, your Class B shares automatically convert to Class A shares, lowering
your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares at
one time is $249,999. We invest any investment of $250,000 or more in Class A
shares, since a reduced initial sales charge is available and Class A's annual
expenses are lower.
RETIREMENT PLANS Class B shares are not available to all retirement plans.
Generally, Class B shares are only available to IRAs (of any type), SAR-SEPs,
Franklin Templeton Trust Company 403(b) plans, and Franklin Templeton Trust
Company qualified plans with participant or earmarked accounts.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows Class B to pay distribution and other
fees of up to 1% per year for the sale of its shares and for services provided
to shareholders. Because these fees are paid out of Class B's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
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CLASS C
WHICH EQUALS THIS %
THIS % IS DEDUCTED OF YOUR NET
WHEN YOU INVEST THIS AMOUNT FOR SALES CHARGES INVESTMENT
Under $1 million 1.00 1.01
WE INVEST ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE IS
NO INITIAL SALES CHARGE AND CLASS A ANNUAL EXPENSES ARE LOWER.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C shares
you sell within 18 months of purchase.
The CDSC is based on the current value of the shares being sold or their net
asset value when purchased, whichever is less. There is no CDSC on shares you
acquire by reinvesting your dividends.
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The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, suppose you bought Class C shares on June 15th. On December 15th
of the following year, you could sell your Class C shares without a CDSC.
- --------------------------------------------------------------------------------
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to a
CDSC. If there are not enough of these to meet your request, we will sell the
shares in the order they were purchased. We will use this same method if you
exchange your shares into another Franklin Templeton Fund (please see page 19
for exchange information).
DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows Class C to pay distribution and other
fees of up to 1% per year for the sale of its shares and for services provided
to shareholders. Because these fees are paid out of Class C's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
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SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below, please
let us know at the time you make your investment to help ensure you receive the
lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A shares.
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The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton
U.S. registered mutual funds, except Franklin Valuemark Funds, Templeton
Capital Accumulator Fund, Inc., and Templeton Variable Products Series Fund
- --------------------------------------------------------------------------------
/bullet/ Cumulative quantity discount - lets you combine all of your shares in
the Franklin Templeton Funds for purposes of calculating the sales
charge. You may also combine the shares of your spouse, and your
children or grandchildren, if they are under the age of 21. Certain
company and retirement plan accounts may also be included.
/bullet/ Letter of intent (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same
sales charge as if all shares had been purchased at one time. We will
reserve a portion of your shares to cover any additional sales charge
that may apply if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS,
COMPLETE THE APPROPRIATE SECTION OF YOUR ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you may
reinvest some or all of the proceeds within 365 days without an initial sales
charge. The proceeds must be reinvested in the same share class, except proceeds
from the sale of Class B shares will be reinvested in Class A shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit your
account with the amount of the CDSC paid but a new CDSC will apply. For Class B
shares reinvested in Class A, a new CDSC will not apply, although your account
will not be credited with the amount of any CDSC paid when you sold your Class B
shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD) may
also be reinvested without an initial sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject to
a sales charge.
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PAGE
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS Class A shares may be purchased
without an initial sales charge or CDSC by investors who reinvest within 365
days:
/bullet/ certain annuity payments received under an annuity contract that
offers a Franklin Templeton investment option
/bullet/ distributions from an existing retirement plan invested in the
Franklin Templeton Funds
/bullet/ dividend or capital gain distributions from a real estate investment
trust sponsored or advised by Franklin Properties, Inc.
/bullet/ redemption proceeds from a repurchase of Franklin Floating Rate Trust
shares held continuously for at least 12 months
/bullet/ redemption proceeds from Class A of any Templeton Global Strategy
Fund, if you are a qualified investor. If you paid a CDSC when you
sold your shares, we will credit your account with the amount of the
CDSC paid but a new CDSC will apply.
WAIVERS FOR CERTAIN INVESTORS Class A shares may also be purchased without an
initial sales charge or CDSC by various individuals and institutions, including
/bullet/ certain trust companies and bank trust departments investing $1
million or more in assets over which they have full or shared
investment discretion
/bullet/ government entities that are prohibited from paying mutual fund sales
charges
/bullet/ certain unit investment trusts and their holders reinvesting trust
distributions
/bullet/ group annuity separate accounts offered to retirement plans
/bullet/ employees and other associated persons or entities of Franklin
Templeton or of certain dealers
/bullet/ certain German insurance companies
CDSC WAIVERS The CDSC for any share class will generally be waived:
/bullet/ to pay account fees
/bullet/ to make payments through systematic withdrawal plans, up to certain
amounts
/bullet/ for IRA distributions due to death or disability or upon periodic
distributions based on life expectancy (for Class B this applies to
all retirement accounts, not only IRAs)
/bullet/ to return excess contributions from employee benefit plans for
redemptions following the death of the shareholder or beneficial owner
/bullet/ for redemptions by Franklin Templeton Trust Company employee benefit
plans or employee benefit plans serviced by ValuSelect(R) (not
applicable to Class B)
/bullet/ for participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE WAIVER,
CALL YOUR INVESTMENT REPRESENTATIVE
OR SHAREHOLDER SERVICES FOR MORE INFORMATION.
15
PAGE
RETIREMENT PLANS Certain retirement plans may buy Class A shares without an
initial sales charge. To qualify, the plan must be sponsored by an employer:
/bullet/ with at least 100 employees, or
/bullet/ with retirement plan assets of $1 million or more, or
/bullet/ that agrees to invest at least $500,000 in the Franklin Templeton
Funds over a 13 month period
A CDSC may apply. Retirement plans other than SIMPLEs, SEPs, or plans that
qualify under section 401 of the tax code must also qualify under our group
investment program to buy Class A shares without an initial sales charge. Any
retirement plan that does not qualify to buy Class A shares without an initial
sales charge and that was a shareholder of the fund on or before February 1,
1995, may buy Class A shares with a maximum initial sales charge of 4% (as a
percentage of the offering price).
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are added
together. There are certain other requirements and the group must have a purpose
other than buying fund shares at a discount.
FOR MORE INFORMATION, CALL YOUR INVESTMENT REPRESENTATIVE
OR RETIREMENT PLAN SERVICES AT 1-800/527-2020.
[OBJECT OMITTED]
BUYING SHARES
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
MINIMUM INVESTMENTS
INITIAL ADDITIONAL
Regular accounts $1,000 $50
- --------------------------------------------------------------------------------
UGMA/UTMA accounts $ 100 $50
- --------------------------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers, Education IRAs or
Roth IRAs)
- --------------------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or Roth IRAs $ 250 $50
- --------------------------------------------------------------------------------
Broker-dealer sponsored wrap account programs $ 250 $50
- --------------------------------------------------------------------------------
Full-time employees, officers, trustees and
directors of Franklin Templeton entities, and their
immediate family members $ 100 $50
16
PAGE
ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. Make sure you indicate the share class you
have chosen. If you do not indicate a class, we will invest your purchase in
Class A shares. To save time, you can sign up now for services you may want on
your account by completing the appropriate sections of the application (see the
next page).
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
[GRAPHIC OMITTED]
THROUGH YOUR INVESTMENT Contact your investment Contact your investment
REPRESENTATIVE representative representative
- --------------------------------------------------------------------------------
Make your check payable Make your check payable
[GRAPHIC OMITTED] to Templeton Growth Fund. to Templeton Growth
Fund. Include your
BY MAIL Mail the check and your account number on the
signed application to check.
Investor Services.
Fill out the deposit
slip from your account
statement. If you do not
have a slip, include a
note with your name, the
fund name, and your
account number.
Mail the check and
deposit slip or note to
Investor Services.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
Call to receive a wire Call to receive a wire
control number and wire control number and wire
instructions. instructions.
BY WIRE Mail your signed To make a same day wire
application to Investor investment, please call
1-800/632-2301 Services. Please include us by 1:00 p.m. pacific
(or 1-650/312-2000 the wire control number time and make sure your
collect) or your new account wire arrives by 3:00
number on the application. p.m.
To make a same day wire
investment, please call
us by 1:00 p.m. pacific
time and make sure your
wire arrives by 3:00 p.m.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Call Shareholder Services Call Shareholder
at the number below, or Services at the number
BY EXCHANGE send signed written below or our automated
instructions. The TeleFACTS system, or
TeleFACTS system cannot send signed written
TeleFACTS(R) 1-800/247-1753 be used to open a new instructions.
(around-the-clock access) account.
(Please see page 19 for (Please see page 19 for
information on exchanges.) information on
exchanges.)
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
100 FOUNTAIN PARKWAY, P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME)
17
PAGE
[OBJECT OMITTED]
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares. The minimum investment to open an account with
an automatic investment plan is $50 ($25 for an Education IRA).
AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in Class A
or B shares of the fund by transferring money from your paycheck to the fund by
electronic funds transfer. If you are interested, indicate on your application
that you would like to receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund
in the same share class* of the fund or another Franklin Templeton Fund.
Initial sales charges and CDSCs will not apply if you reinvest your
distributions within 365 days. You can also have your distributions deposited
in a bank account, or mailed by check. Deposits to a bank account may be made
by electronic funds transfer.
- --------------------------------------------------------------------------------
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
- --------------------------------------------------------------------------------
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
*Class B and C shareholders may reinvest their distributions in Class A shares
of any Franklin Templeton money fund.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require a separate application and their
policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure or
application, please call Retirement Plan Services at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
18
PAGE
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class*, generally without paying any additional sales charges.
If you exchange shares held for less than six months, however, you may be
charged the difference between the initial sales charge of the two funds if the
difference is more than 0.25%. If you exchange shares from a money fund, a sales
charge may apply no matter how long you have held the shares.
- --------------------------------------------------------------------------------
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the
same tax consequences as ordinary sales and purchases.
- --------------------------------------------------------------------------------
Exchanges may only be made between identically registered accounts, unless you
send written instructions with a signature guarantee. Any CDSC will continue to
be calculated from the date of your initial investment and will not be charged
at the time of the exchange. If you exchange shares subject to a CDSC into a
Class A money fund, the time your shares are held there will not count towards
the CDSC holding period.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. To protect shareholders, there are limits on the number and amount
of exchanges you may make (please see Market timers on page 23 ).
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange
into Class A without any sales charge. Advisor Class shareholders of another
Franklin Templeton Fund who do not qualify to buy the fund's Advisor Class may
also exchange into Class A without any sales charge. Advisor Class shareholders
who exchange their shares for Class A shares and later decide they would like to
exchange into another fund that offers Advisor Class may do so.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed 1% a month of an account's net asset value. Certain
terms and minimums apply. To sign up, complete the appropriate section of your
application.
19
PAGE
[OBJECT OMITTED]
SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect your account against fraud.
You can obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
/bullet/ you are selling more than $100,000 worth of shares
/bullet/ you want your proceeds paid to someone who is not a registered owner
/bullet/ you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
/bullet/ you have changed the address on your account by phone within the last
15 days
We may also require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the fund
against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.
RETIREMENT PLANS Before you can sell shares in a Franklin Templeton Trust
Company retirement plan, you need to complete additional forms required by the
Internal Revenue Service. For participants under age 591/2 , tax penalties may
apply. Call Retirement Plan Services at 1-800/527-2020 to request the necessary
forms.
20
PAGE
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
[GRAPHIC OMITTED]
THROUGH YOUR INVESTMENT Contact your investment representative
REPRESENTATIVE
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Send written instructions and endorsed share
certificates (if you hold share certificates) to
BY MAIL Investor Services. Corporate, partnership or trust
accounts may need to send additional documents.
Specify the fund, the account number and the dollar
value or number of shares you wish to sell. If you
own both Class A and B shares, also specify the
class of shares, otherwise we will sell your Class A
shares first. Be sure to include all necessary
signatures and any additional documents, as well as
signature guarantees if required.
A check will be mailed to the name(s) and address
on the account, or otherwise according to your
written instructions.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] As long as your transaction is for $100,000 or
less, you do not hold share certificates and you
BY PHONE have not changed your address by phone within
the last 15 days, you can sell your shares by phone.
1-800/632-2301
A check will be mailed to the name(s) and address
on the account. Written instructions, with a
signature guarantee, are required to send the check
to another address or to make it payable to another
person.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
You can call or write to have redemption proceeds of
$1,000 or more wired to a bank or escrow account.
See the policies above for selling shares by mail or
phone.
BY WIRE Before requesting a wire, please make sure we have
your bank account information on file. If we do not
have this information, you will need to send
written instructions with your bank's name and
address, your bank account number, the ABA routing
number, and a signature guarantee.
Requests received in proper form by 1:00 p.m.
pacific time will be wired the next business day.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Obtain a current prospectus for the fund you are
considering.
BY EXCHANGE
Call Shareholder Services at the number below or
TeleFACTS 1-800/247-1753 our automated TeleFACTS(R) system, or send signed
(around-the-clock access) written instructions. See the policies above for
selling shares by mail or phone.
If you hold share certificates, you will need to
return them to the fund before your exchange can be
processed.
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES
100 FOUNTAIN PARKWAY, P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME)
21
PAGE
[OBJECT OMITTED]
ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. pacific time). Each class's NAV is calculated by dividing
its net assets by the number of its shares outstanding.
- --------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the NAV
plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
- --------------------------------------------------------------------------------
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record. You will not
be charged a CDSC if your account is closed for this reason.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also receive the fund's financial
reports every six months. To reduce fund expenses, we try to identify related
shareholders in a household and send only one copy of the financial reports. If
you need additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and other
information about your account directly from the fund.
22
PAGE
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5.00. You will be
considered a market timer if you have (i) requested an exchange out of the fund
within two weeks of an earlier exchange request, or (ii) exchanged shares out of
the fund more than twice in a calendar quarter, or (iii) exchanged shares equal
to at least $5 million, or more than 1% of the fund's net assets. Shares under
common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
/bullet/ The fund may refuse any order to buy shares, including any purchase
under the exchange privilege.
/bullet/ At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.
/bullet/ The fund may modify or discontinue the exchange privilege on 60 days'
notice.
/bullet/ You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
/bullet/ In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities
laws.
/bullet/ For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case
of an emergency or if the payment by check would be harmful to
existing shareholders.
/bullet/ To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to the fund promptly.
23
PAGE
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. from sales charges, distribution and service (12b-1) fees and
its other resources.
CLASS A CLASS B CLASS C
COMMISSION (%) --- 4.00 2.00
Investment under $50,000 5.00 --- ---
$50,000 but under $100,000 3.75 --- ---
$100,000 but under $250,000 2.80 --- ---
$250,000 but under $500,000 2.00 --- ---
$500,000 but under $1 million 1.60 --- ---
$1 million or more up to 1.00(1) --- ---
12B-1 FEE TO DEALER 0.25 0.25(2) 1.00(3)
A dealer commission of up to 1% may be paid on Class A NAV purchases by certain
retirement plans(1) and up to 0.25% on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive fee
programs. For certain retirement plans that do not qualify to buy Class A shares
at NAV but that qualify to buy Class A shares with a maximum initial sales
charge of 4%, a dealer commission of 3.2% may be paid.
(1) During the first year after purchase, dealers may not be eligible to receive
the 12b-1 fee.
(2) Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
(3) Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the 13th
month.
24
PAGE
[GRAPHIC OMITTED]
QUESTIONS
More detailed information about the fund and its policies can be found in the
fund's Statement of Additional Information (SAI). If you have any questions
about the fund or your account, you can write to us at 100 Fountain Parkway,
P.O. Box 33030, St. Petersburg, FL 33733-8030. You can also call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME, MONDAY
DEPARTMENT NAME TELEPHONE NUMBER THROUGH FRIDAY)
- --------------------------------------------------------------------------------
Shareholder Services 1-800/ 632-2301 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/ DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/ 342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/ 527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/ 524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/ 321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/ 851-0637 5:30 a.m. to 5:00 p.m.
25
PAGE
F You can learn more about the fund in the following documents:
O
R ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
M Includes a discussion of recent market conditions and fund strategies,
0 financial statements, detailed performance information, portfolio
R holdings, and the auditor's report.
E
STATEMENT OF ADDITIONAL INFORMATION (SAI)
I
N Contains more information about the fund, its investments and policies.
F It is incorporated by reference (is legally a part of this prospectus).
O
R For a free copy of the current annual/semiannual report or the SAI,
M please contact your investment representative or call us at the number
A below.
T
I FRANKLIN(R)TEMPLETON(R)
O 1-800/DIAL BEN(R) (1-800/342-5236)
N TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com
You can also obtain information about the fund by visiting the SEC's
Public Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by
sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009. You can also visit the
SEC's Internet site at http://www.sec.gov.
Investment Company Act file # 811-4892
Lit. Code #101-P
PAGE
PART A
TEMPLETON GROWTH FUND, INC.
ADVISOR CLASS PROSPECTUS
PAGE
Prospectus
TEMPLETON
GROWTH FUND, INC.
Advisor Class
INVESTMENT STRATEGY GLOBAL GROWTH
JANUARY 1, 1999
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PAGE
Contents
THE FUND
- --------------------------------------------------------------------------------
Information about 2 Goal and Strategies
the fund you
should know 3 Main Risks
before investing
5 Performance
6 Fees and Expenses
7 Management
9 Distributions and Taxes
10 Financial Highlights
YOUR ACCOUNT
- --------------------------------------------------------------------------------
Information about 11 Qualified Investors
qualified
investors, 12 Buying Shares
account
transactions and 13 Investor Services
services
15 Selling Shares
17 Account Policies
19 Questions
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Where to learn Back Cover
more about the
fund
1
PAGE
THE FUND
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the common stocks of companies located anywhere in the world,
including emerging markets. The fund also invests in American, European and
Global Depositary Receipts, which are certificates typically issued by a bank or
trust company that give their holders the right to receive securities issued by
a foreign or domestic company.
- --------------------------------------------------------------------------------
When choosing investments, the fund's manager will focus on the market price of
a company's securities relative to the manager's evaluation of the company's
long-term earnings, asset value and cash flow potential. A company's historical
value measures, including price/earnings ratio, profit margins and liquidation
value, will also be considered.
- --------------------------------------------------------------------------------
Depending upon current market conditions, the fund generally invests up to 25%
of its total assets in debt securities of companies and governments located
anywhere in the world.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
the securities trading markets or the economy are experiencing excessive
volatility or a prolonged general decline, or other adverse conditions exist.
Under these circumstances, the fund may be unable to pursue its investment
goal.
2
PAGE
[GRAPHIC OMITTED]
MAIN RISKS
STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole.
- --------------------------------------------------------------------------------
Because the stocks the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
- --------------------------------------------------------------------------------
FOREIGN SECURITIES Securities of companies located outside the U.S. may offer
significant opportunities for gain, but they also involve additional risks that
can increase the potential for losses in the fund. Investments in American,
European and Global Depositary Receipts also involve some or all of the
following risks.
COUNTRY RISK. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund owns
which trade in that country. These movements will affect the fund's share price.
The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, expropriation, restrictions on removal of currency or other
assets, nationalization of assets and punitive taxes.
The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of legal, business and social frameworks to support securities
markets. While short-term volatility in these markets can be disconcerting,
declines of 40% to 50% are not unusual.
COMPANY RISK. Foreign companies are not subject to the same accounting, auditing
and financial reporting standards and practices as U.S. companies and their
stocks may not be as liquid as stocks of similar U.S. companies. Foreign stock
exchanges, brokers and companies generally have less government supervision and
regulation than in the U.S. The fund may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies and obtaining judgments
with respect to foreign investments in foreign courts than with respect to U.S.
companies in U.S. courts.
3
PAGE
- --------------------------------------------------------------------------------
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency of the
U.S. government. Mutual fund shares involve investment risks, including the
possible loss of principal.
- --------------------------------------------------------------------------------
CURRENCY Many of the fund's investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what the
fund owns and the fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars.
EURO. On January 1, 1999, the European Monetary Union (EMU) plans to introduce a
new single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries with
currencies replaced by the euro, the investment process, including trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted.
Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on the value of fund shares. To the extent the fund holds non-U.S.
dollar (euro or other) denominated securities, it will still be exposed to
currency risk due to fluctuations in those currencies versus the U.S. dollar.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is only one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit each company and its major suppliers to verify their Year
2000 readiness.
If a company the fund is invested in is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see page 8 for more information.
4
PAGE
[OBJECT OMITTED]
PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.
ADVISOR CLASS ANNUAL TOTAL RETURNS(1) (2)
------------------
Best quarter:
Q1 '91 14.81%
[OBJECT OMITTED]
Worst quarter:
Q3 '90 -15.52%
------------------
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997
1 YEAR 5 YEARS 10 YEARS
- ------------------------------------------ ---------- --------- ------------
Templeton Growth Fund - Advisor Class(2) 16.42% 17.61% 15.55%
MSCI World Index(3) 16.23% 15.88% 11.14%
(1) As of September 30, 1998, the fund's year-to-date return was -11.19%.
(2) Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.
(3) Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index tracks
the performance of approximately 1500 securities in 23 countries and is designed
to measure world stock market performance. It includes reinvested dividends. One
cannot invest directly in an index, nor is an index representative of the fund's
portfolio.
5
PAGE
[OBJECT OMITTED]
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. It is based on the fund's expenses for the fiscal year ended
August 31, 1998.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
Maximum sales charge (load) imposed on purchases None
Exchange fee (1) None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
ADVISOR CLASS
Management fees 0.61%
Distribution and service (12b-1) fees None
Other expenses 0.22%
----------------------
Total annual fund operating expenses 0.83%
======================
(1) There is a $5 fee for each exchange by a market timer (see page 18).
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------- ---------------- --------------- ---------------
$85 $265 $460 $1,025
6
PAGE
[OBJECT OMITTED]
MANAGEMENT
Templeton Global Advisors Limited (Global Advisors), Lyford Cay, Nassau,
Bahamas, is the fund's investment manager. Together, Global Advisors and its
affiliates manage over $207 billion in assets.
LEAD PORTFOLIO MANAGER
Mark G. Holowesko CFA, Mr. Holowesko has been the fund's lead portfolio
President of Global manager since 1987. He joined the Franklin Templeton
Advisors Group in 1985.
SECONDARY PORTFOLIO MANAGERS
Jeffrey A. Everett CFA, Mr. Everett has been a manager on the fund since
Executive Vice President 1994. He joined the Franklin Templeton Group in 1989.
of Global Advisors
- --------------------------------------------------------------------------------
Richard Sean Farrington Mr. Farrington has been a manager on the fund since
CFA, Vice President of 1996. He joined the Franklin Templeton Group in 1991.
Global Advisors
- --------------------------------------------------------------------------------
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended August 31, 1998, the fund paid
0.61% of its average monthly net assets to the manager.
7
PAGE
- --------------------------------------------------------------------------------
The fund's business operations depend on a worldwide network of computer
systems that contain date fields, including securities trading systems,
securities transfer agent operations and stock market links. Many of the
systems currently use a two digit date field to represent the date, and unless
these systems are changed or modified, they may not be able to distinguish the
Year 1900 from the Year 2000 (commonly referred to as the Year 2000 problem).
In addition, the fact that the Year 2000 is a non-standard leap year may create
difficulties for some systems.
- --------------------------------------------------------------------------------
YEAR 2000 PROBLEM When the Year 2000 arrives, the fund's operations could be
adversely affected if the computer systems used by the manager, its service
providers and other third parties it does business with are not Year 2000 ready.
For example, the fund's portfolio and operational areas could be impacted,
including securities trade processing, interest and dividend payments,
securities pricing, shareholder account services, reporting, custody functions
and others. The fund could experience difficulties in effecting transactions if
any of its foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.
The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.
8
PAGE
[GRAPHIC OMITTED]
DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least annually representing substantially all of its net investment income and
any net realized capital gains. The amount of this dividend will vary and there
is no guarantee the fund will pay dividends.
To receive an income dividend, you must be a shareholder on the record date. The
record date for the fund's dividends will vary. You may not want to invest a
large amount in the fund shortly before the record date since you will receive
some of your investment back as a taxable distribution.
TAX CONSIDERATIONS In general, fund distributions are taxable to you as either
ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the fund or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital gains
no matter how long you have owned your shares.
- --------------------------------------------------------------------------------
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, or if the IRS instructs the fund to do so.
- --------------------------------------------------------------------------------
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares, you may have a capital gain or loss. For tax
purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale. The tax rate on any gain from the sale or
exchange of your shares depends on how long you have held your shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Any foreign taxes the
fund pays on its investments may be passed through to you as a foreign tax
credit. Non-U.S. investors may be subject to U.S. withholding and estate tax.
You should consult your tax professional about federal, state, local or
foreign tax consequences.
For more information, please call 1-800/DIAL BEN to request a free copy of the
Franklin Templeton Tax Information Handbook.
9
PAGE
[OBJECT OMITTED]
FINANCIAL HIGHLIGHTS
This table presents the financial performance for Advisor Class since its
inception. This information has been audited by McGladrey & Pullen, LLP.
ADVISOR CLASS YEAR ENDED AUGUST 31,
1998 1997(1)
-----------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 22.49 19.37
-----------------------------
Net investment income .56 .37
Net realized and unrealized gains (losses) (2.78) 2.75
-----------------------------
Total from investment operations (2.22) 3.12
-----------------------------
Distributions from net investment income (.59) --
Distributions from net realized gains (2.88) --
-----------------------------
Total distributions (3.47) --
-----------------------------
Net asset value, end of year 16.80 22.49
=============================
Total return (%)(2) (12.41) 16.11
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 36,301 29,531
Ratios to average net assets: (%)
Expenses .83 .83(3)
Net investment income 2.81 3.68(3)
Portfolio turnover rate (%) 48.23 41.81
(1) For the period January 2, 1997 (effective date) through August 31, 1997.
(2) Total return is not annualized.
(3) Annualized.
10
PAGE
YOUR ACCOUNT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
QUALIFIED INVESTORS
The following investors may qualify to buy Advisor Class shares of the fund.
/bullet/ Qualified registered investment advisors or certified financial
planners with clients invested in any series of Franklin Mutual Series
Fund Inc. on October 31, 1996, or who buy through a broker-dealer or
service agent who has an agreement with Franklin Templeton
Distributors, Inc. (Distributors). Minimum investments: $1,000 initial
and $50 additional.
/bullet/ Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients
participating in comprehensive fee programs. Minimum investments:
$250,000 initial ($100,000 initial for an individual client) and $25
additional.
/bullet/ Officers, trustees, directors and full-time employees of Franklin
Templeton and their immediate family members. Minimum investments:
$100 initial and $25 additional.
/bullet/ Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.
/bullet/ Accounts managed by the Franklin Templeton Group. Minimum investments:
No initial minimum and $25 additional.
/bullet/ The Franklin Templeton Profit Sharing 401(k) Plan. Minimum
investments: No initial minimum and $25 additional.
11
PAGE
[OBJECT OMITTED]
BUYING SHARES
ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. To save time, you can sign up now for services
you may want on your account by completing the appropriate sections of the
application (see the next page).
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
[GRAPHIC OMITTED]
THROUGH YOUR INVESTMENT Contact your investment Contact your investment
REPRESENTATIVE representative representative
- --------------------------------------------------------------------------------
Make your check payable Make your check payable
[GRAPHIC OMITTED] to Templeton Growth Fund. to Templeton Growth
Fund. Include your
BY MAIL Mail the check and your account number on the
signed application to check.
Investor Services.
Fill out the deposit
slip from your account
statement. If you do not
have a slip, include a
note with your name, the
fund name, and your
account number.
Mail the check and
deposit slip or note to
Investor Services.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
Call to receive a wire Call to receive a wire
control number and wire control number and wire
instructions. instructions.
BY WIRE Mail your signed To make a same day wire
application to Investor investment, please call
1-800/632-2301 Services. Please include us by 1:00 p.m. pacific
(or 1-650/312-2000 the wire control number time and make sure your
collect) or your new account wire arrives by 3:00
number on the application. p.m.
To make a same day wire
investment, please call
us by 1:00 p.m. pacific
time and make sure your
wire arrives by 3:00 p.m.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Call Shareholder Services Call Shareholder
at the number below, or Services at the number
BY EXCHANGE send signed written below, or send signed
instructions. (Please written instructions.
see page 14 for (Please see page 14 for
information on exchanges.) information on
exchanges.)
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 100 FOUNTAIN PARKWAY,
P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME)
12
PAGE
[OBJECT OMITTED]
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
the same share class of the fund or in Advisor Class or Class A shares of
another Franklin Templeton Fund. For distributions invested in Class A shares of
another Franklin Templeton Fund, initial sales charges and CDSCs will not apply
if you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.
13
PAGE
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class. You may also exchange your Advisor Class shares for Class
A shares of a fund that does not currently offer an Advisor Class (without any
sales charge)* or for Class Z shares of Franklin Mutual Series Fund Inc.
- --------------------------------------------------------------------------------
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the
same tax consequences as ordinary sales and purchases.
- --------------------------------------------------------------------------------
Exchanges may only be made between identically registered accounts, unless you
send written instructions with a signature guarantee.
Frequent exchanges can interfere with fund management and drive up costs for
all shareholders. To protect shareholders, there are limits on the number and
amount of exchanges you may make (please see Market timers on page 18 ).
* If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your Class
A shares for Advisor Class shares if you otherwise qualify to buy the fund's
Advisor Class.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.
14
PAGE
[OBJECT OMITTED]
SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect your account against fraud.
You can obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
/bullet/ you are selling more than $100,000 worth of shares
/bullet/ you want your proceeds paid to someone who is not a registered owner
/bullet/ you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
/bullet/ you have changed the address on your account by phone within the last
15 days
We may also require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the fund
against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.
15
PAGE
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
[GRAPHIC OMITTED]
THROUGH YOUR INVESTMENT Contact your investment representative
REPRESENTATIVE
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Send written instructions and endorsed share
certificates (if you hold share certificates) to
BY MAIL Investor Services. Corporate, partnership or trust
accounts may need to send additional documents.
Specify the fund, the account number and the dollar
value or number of shares you wish to sell. Be sure
to include all necessary signatures and any
additional documents, as well as signature
guarantees if required.
A check will be mailed to the name(s) and address
on the account, or otherwise according to your
written instructions.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] As long as your transaction is for $100,000 or
less, you do not hold share certificates and you
BY PHONE have not changed your address by phone within
the last 15 days, you can sell your shares by phone.
1-800/632-2301
A check will be mailed to the name(s) and address
on the account. Written instructions, with a
signature guarantee, are required to send the check
to another address or to make it payable to another
person.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
You can call or write to have redemption proceeds of
$1,000 or more wired to a bank or escrow account.
See the policies above for selling shares by mail or
phone.
BY WIRE Before requesting a wire, please make sure we have
your bank account information on file. If we do not
have this information, you will need to send
written instructions with your bank's name and
address, your bank account number, the ABA routing
number, and a signature guarantee.
Requests received in proper form by 1:00 p.m.
pacific time will be wired the next business day.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Obtain a current prospectus for the fund you are
considering.
BY EXCHANGE
Call Shareholder Services at the number below, or
send signed written instructions. See the policies
above for selling shares by mail or phone.
If you hold share certificates, you will need to
return them to the fund before your exchange can be
processed.
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 100 FOUNTAIN PARKWAY,
P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME)
16
PAGE
[OBJECT OMITTED]
ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. pacific time). The NAV for Advisor Class is calculated by
dividing its net assets by the number of its shares outstanding.
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee accounts) because you sell some of your shares, we may mail you a
notice asking you to bring the account back up to its applicable minimum
investment amount. If you choose not to do so within 30 days, we may close your
account and mail the proceeds to the address of record.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also receive the fund's financial
reports every six months. To reduce fund expenses, we try to identify related
shareholders in a household and send only one copy of the financial reports. If
you need additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and other
information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
17
PAGE
JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5.00. You will be
considered a market timer if you have (i) requested an exchange out of the fund
within two weeks of an earlier exchange request, or (ii) exchanged shares out of
the fund more than twice in a calendar quarter, or (iii) exchanged shares equal
to at least $5 million, or more than 1% of the fund's net assets. Shares under
common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
/bullet/ The fund may refuse any order to buy shares, including any purchase
under the exchange privilege.
/bullet/ At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.
/bullet/ The fund may modify or discontinue the exchange privilege on 60 days'
notice.
/bullet/ You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
/bullet/ In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities
laws.
/bullet/ For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case
of an emergency or if the payment by check would be harmful to
existing shareholders.
/bullet/ To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may
receive up to 0.25% of the amount invested. This amount is paid by Franklin
Templeton Distributors, Inc. from its own resources.
18
PAGE
[GRAPHIC OMITTED]
QUESTIONS
More detailed information about the fund and its policies can be found in the
fund's Statement of Additional Information (SAI). If you have any questions
about the fund or your account, you can write to us at 100 Fountain Parkway,
P.O. Box 33030, St. Petersburg, FL 33733-8030. You can also call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME, MONDAY
DEPARTMENT NAME TELEPHONE NUMBER THROUGH FRIDAY)
- --------------------------------------------------------------------------------
Shareholder Services 1-800/ 632-2301 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/ DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/ 342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/ 527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/ 524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/ 321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/ 851-0637 5:30 a.m. to 5:00 p.m.
19
PAGE
You can learn more about the fund in the following documents:
F
O ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
R
Includes a discussion of recent market conditions and fund strategies,
M financial statements, detailed performance information, portfolio
O holdings, and the auditor's report.
R
E STATEMENT OF ADDITIONAL INFORMATION (SAI)
I Contains more information about the fund, its investments and policies.
N It is incorporated by reference (is legally a part of this prospectus).
F
O For a free copy of the current annual/semiannual report or the SAI,
R please contact your investment representative or call us at the number
M below.
A
T FRANKLIN(R)TEMPLETON(R)
I 1-800/DIAL BEN(R) (1-800/342-5236)
O TDD (Hearing Impaired) 1-800/851-0637
N www.franklin-templeton.com
You can also obtain information about the fund by visiting the SEC's
Public Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by
sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009. You can also visit the
SEC's Internet site at http://www.sec.gov.
Investment Company Act file #811-4892
Lit. Code #101-PA
PAGE
PART B
TEMPLETON GROWTH FUND, INC.
CLASS A, B AND C
STATEMENT OF ADDITIONAL INFORMATION
PAGE
TEMPLETON GROWTH FUND, INC.
CLASS A, B & C
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 1, 1999
100 FOUNTAIN PARKWAY, P.O. BOX 33030
ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN/registered trademark/
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectus. The fund's
prospectus, dated January 1, 1999, which we may amend from time to time,
contains the basic information you should know before investing in the fund. You
should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended August 31, 1998, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies
Risks
Officers and Directors
Management and Other Services
Portfolio Transactions
Distributions and Taxes
Organization, Voting Rights and Principal Holders
Buying and Selling Shares
Pricing Shares
The Underwriter
Performance
Miscellaneous Information
Description of Bond Ratings
PAGE
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
/bullet/ ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT;
/bullet/ ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK;
/bullet/ ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
GOAL AND STRATEGIES
- -------------------------------------------------------------------------------
The fund's investment goal is long-term capital growth. This goal is
fundamental, which means it may not be changed without shareholder approval.
The fund tries to achieve its goal by investing in the equity and debt
securities of companies and governments located anywhere in the world.
The fund may invest without percentage limitation in domestic or foreign
securities. It may invest up to 5% of its total assets in securities issued by
any one company or foreign government. It may invest any amount of its assets in
U.S. government securities. It may invest in any industry, although it will not
concentrate (invest more than 25% of its total assets) in any one industry. It
may invest up to 15% of its total assets in foreign securities that are not
listed on a recognized U.S. or foreign securities exchange, including up to 10%
of its total assets in securities with a limited trading market.
The fund's principal investments are in common stocks. It also invests in
American, European and Global Depositary Receipts. Depending upon current market
conditions, it generally invests up to 25% of its assets in rated and unrated
debt securities. Independent rating organizations rate debt securities based
upon their assessment of the financial soundness of the issuer. Generally, a
lower rating indicates higher risk. The fund may buy debt securities that are
rated Caa by Moody's Investors Service, Inc. (Moody's) or CCC by Standard &
Poor's Corporation (S&P) or better; or unrated debt that it determines to be of
comparable quality. At present, the fund does not intend to invest more than
PAGE
5% of its total assets in non-investment grade securities (rated lower than Baa
by Moody's or BBB by S&P).
EQUITY SECURITIES Equity securities generally entitle the holder to participate
in a company's general operating results. These include common stock; preferred
stock; convertible securities; warrants or rights. The purchaser of an equity
security typically receives an ownership interest in the company as well as
certain voting rights. The owner of an equity security may participate in a
company's success through the receipt of dividends, which are distributions of
earnings by the company to its owners. Equity security owners may also
participate in a company's success or lack of success through increases or
decreases in the value of the company's shares as traded in the public trading
market for such shares. Equity securities generally take the form of common
stock or preferred stock. Preferred stockholders typically receive greater
dividends but may receive less appreciation than common stockholders and may
have greater voting rights as well. Equity securities may also include
convertible securities, warrants or rights. Convertible securities typically are
debt securities or preferred stocks that are convertible into common stock after
certain time periods or under certain circumstances. Warrants or rights give the
holder the right to buy a common stock at a given time for a specified price.
DEBT SECURITIES Debt securities represent an obligation of the issuer to repay a
loan of money to it, and generally, provide for the payment of interest. These
include bonds, notes and debentures; commercial paper; time deposits; bankers'
acceptances; and structured investments. A debt security typically has a fixed
payment schedule that obligates the issuer to pay interest to the lender and to
return the lender's money over a certain time period. A company typically meets
its payment obligations associated with its outstanding debt securities before
it declares and pays any dividend to holders of its equity securities. Bonds,
notes, debentures and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.
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 debt
securities generally
PAGE
declines. These changes in market value will be reflected in the fund's net
asset value.
STRUCTURED INVESTMENTS Included among the issuers of debt securities in which
the fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms, which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities (structured
investments) backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions. The extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
the fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
The fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940 (1940 Act). As a
result, the fund's investment in these structured investments may be limited by
the restrictions contained in the 1940 Act. Structured investments are typically
sold in private placement transactions, and there currently is no active trading
market for structured investments. To the extent
PAGE
such investments are illiquid, they will be subject to the fund's restrictions
on investments in illiquid securities.
DEPOSITARY RECEIPTS Depositary receipts are certificates that give their holders
the right to receive securities (i) of a foreign issuer deposited in a U.S. bank
or trust company (American Depositary Receipts, "ADRs"); or (ii) of a foreign or
U.S. issuer deposited in a foreign bank or trust company (Global Depositary
Receipts, "GDRs" or European Depositary Receipts, "EDRs").
REPURCHASE AGREEMENTS The fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the fund agrees
to buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
fund's custodian, securities with an initial value of at least 102% of the
dollar amount invested by the fund in each repurchase agreement.
Repurchase agreements may involve risks in the event of default or insolvency of
the seller, including possible delays or restrictions upon the fund's ability to
dispose of the underlying securities. The fund will enter into repurchase
agreements only with parties who meet creditworthiness standards approved by the
fund's board of directors, I.E., banks or broker-dealers that have been
determined by the manager to present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.
LOANS OF PORTFOLIO SECURITIES The fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets. These loans must be secured by collateral (consisting of any
combination of cash, U.S. government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. The fund retains all or a portion
of the interest received on investment of the cash collateral or receives a fee
from the borrower. The fund may terminate the loans at any time and obtain the
return of
PAGE
the securities loaned within five business days. The fund will continue to
receive any interest or dividends paid on the loaned securities and will
continue to have voting rights with respect to the securities. However, as with
other extensions of credit, there are risks of delay in recovery or even loss of
rights in collateral should the borrower fail.
STOCK INDEX FUTURES CONTRACTS Changes in interest rates, securities prices or
foreign currency valuations may affect the value of the fund's investments. To
reduce its exposure to these factors, the fund may invest up to 20% of its total
assets buying and selling stock index futures contracts.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. The value of a unit is the current value of the stock index. For example,
the S&P 500 Stock Index (S&P 500 Index) is composed of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The S&P 500
Index assigns relative weightings to the value of one share of each of these 500
common stocks included in the index, and the index fluctuates with changes in
the market values of the shares of those common stocks. In the case of the S&P
500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P
500 Index were $150, one contract would be worth $75,000 (500 units x $150). The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if the fund enters into a futures
contract to BUY 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
fund will gain $2,000 (500 units x gain of $4). If the fund enters into a
futures contract to SELL 500 units of the stock index at a specified future date
at a contract price of $150 and the S&P 500 Index is at $154 on that future
date, the fund will lose $2,000 (500 units x loss of $4).
During or in anticipation of a period of market appreciation, the fund may enter
into a "long hedge" of common stock which it proposes to add to its portfolio by
buying stock index futures for the purpose of reducing the effective purchase
price of such common stock. To the extent that the securities which the fund
PAGE
proposes to buy change in value in correlation with the stock index contracted
for, the purchase of futures contracts on that index would result in gains to
the fund that could be offset against rising prices of such common stock.
During or in anticipation of a period of market decline, the fund may "hedge"
common stock in its portfolio by selling stock index futures for the purpose of
limiting the exposure of its portfolio to such decline. To the extent that the
fund's portfolio of securities changes in value in correlation with a given
stock index, the sale of futures contracts on that index could substantially
reduce the risk to the portfolio of a market decline and, by so doing, provide
an alternative to the liquidation of securities positions in the portfolio with
resultant transaction costs.
Parties to an index futures contract must make initial margin deposits to secure
performance of the contract, which currently range from 1 1/2% to 5% of the
contract amount. Initial margin requirements are determined by the respective
exchanges on which the futures contracts are traded. There also are requirements
to make variation margin deposits as the value of the futures contract
fluctuates.
At the time the fund buys a stock index futures contract, an amount of cash,
U.S. government securities, or other highly liquid debt securities equal to the
market value of the contract will be deposited in a segregated account with the
fund's custodian. When selling a stock index futures contract, the fund will
maintain with its custodian liquid assets that, when added to the amounts
deposited with a futures commission merchant or broker as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, the
fund may "cover" its position by owning a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based, or holding a call option permitting the fund to buy the same futures
contract at a price no higher than the price of the contract written by the fund
(or at a higher price if the difference is maintained in liquid assets with the
fund's custodian).
SECURITIES INDEX OPTIONS The fund may buy and sell put and call options on
securities indices to earn additional income and/or to help protect its
portfolio against market and/or exchange rate movements. An option on a
securities index is a contract that
PAGE
allows the buyer of the option the right to receive from the seller cash, in an
amount equal to the difference between the index's closing price and the
option's exercise price. The fund may only buy options if the total premiums it
paid for such options are 5% or less of its total assets.
The fund may write call options and put options only if they are "covered." A
call option on an index is covered if the fund maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if the fund holds a call on the same index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call
written, provided the difference is maintained by the fund in cash or cash
equivalents in a segregated account with its custodian. A put option on an index
is covered if the fund maintains cash or cash equivalents equal to the exercise
price in a segregated account with its custodian. A put option is also covered
if the fund holds a put on the same index as the put written where the exercise
price of the put held is (i) equal to or greater than the exercise price of the
put written, or (ii) less than the exercise price of the put written, provided
the difference is maintained by the fund in cash or cash equivalents in a
segregated account with its custodian.
If an option written by the fund expires, the fund will realize a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the fund expires unexercised, the fund will realize a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
index, exercise price and expiration). There can be no assurance, however, that
a closing purchase or sale transaction can be effected when the fund desires.
TEMPORARY INVESTMENTS When the manager believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the fund's
portfolio in a temporary defensive manner. Under such circumstances, the fund
may invest up to 100% of its assets in: (i) U.S. government securities; (ii)
bank time deposits denominated in the currency of
PAGE
any major nation; (iii) commercial paper rated A-1 by S&P or Prime-1 by Moody's
or, if unrated, issued by a company which, at the date of investment, had an
outstanding debt issue rated AAA or AA by S&P or Aaa or Aa by Moody's; and (iv)
repurchase agreements with banks and broker-dealers.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50% of
the fund's outstanding shares are represented at the meeting in person or by
proxy, whichever is less.
The fund may not:
1. Invest in real estate or mortgages on real estate (although the fund may
invest in marketable securities secured by real estate or interests
therein or issued by companies or investment trusts which invest in real
estate or interests therein); invest in interests (other than debentures
or equity stock interests) in oil, gas or other mineral exploration or
development programs; purchase or sell commodity contracts except stock
index futures contracts; invest in other open-end investment companies
or, as an operating policy approved by the board, invest in closed-end
investment companies.
2. Purchase or retain securities of any company in which directors or
officers of the fund or the manager, individually owning more than
one-half of 1% of the securities of such company, in the aggregate own
more than 5% of the securities of such company.
3. 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.
4. Act as an underwriter; issue senior securities; purchase on margin or
sell short; write, buy or sell puts, calls, straddles or spreads (but the
fund may make margin payments in connection with, and purchase and sell,
stock index futures contracts and options on securities indices).
PAGE
5. Loan money, apart from the purchase of a portion of an issue of publicly
distributed bonds, debentures, notes and other evidences of indebtedness,
although the fund may buy U.S. government obligations with a simultaneous
agreement by the seller to repurchase them within no more than seven days
at the original purchase price plus accrued interest.
6. Borrow money for any purpose other than redeeming its shares or
purchasing its shares for cancellation, and then only as a temporary
measure to an amount not exceeding 5% of the value of its total assets,
or pledge, mortgage, or hypothecate its assets other than to secure such
temporary borrowings, and then only to such extent not exceeding 10% of
the value of its total assets as the board may by resolution approve.
(For the purposes of this restriction, collateral arrangements with
respect to margin for a stock index futures contract are not deemed to be
a pledge of assets.)
7. Invest more than 5% of the value of the fund's total assets in securities
of issuers which have been in continuous operation less than three years.
8. Invest more than 5% of the fund's total assets in warrants, whether or
not listed on the New York Stock Exchange or the American Stock Exchange,
including no more than 2% of its total assets which may be invested in
warrants that are not listed on those exchanges. Warrants acquired by the
fund in units or attached to securities are not included in this
restriction. This restriction does not apply to options on securities
indices.
9. Invest more than 15% of the fund's total assets in securities of foreign
issuers that are not listed on a recognized U.S. or foreign securities
exchange, including no more than 10% of its total assets (including
warrants) which may be invested in securities with a limited trading
market. The fund's position in the latter type of securities may be of
such size as to affect adversely their liquidity and marketability and
the fund may not be able to dispose of its holdings in these securities
at the current market price.
10. Invest more than 25% of the fund's total assets in a single industry.
PAGE
11. Invest in "letter stocks" or securities on which there are sales
restrictions under a purchase agreement.
12. Participate on a joint or a joint and several basis in any trading
account in securities. (See "Portfolio Transactions" as to transactions
in the same securities for the fund, other clients and/or other mutual
funds within the Franklin Templeton Group of Funds.)
The fund may also be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in the value or liquidity of
portfolio securities or the amount of assets will not be considered a violation
of any of the foregoing restrictions.
None of the fund's investment policies or restrictions (except restrictions 9
and 10) shall be deemed to prohibit the fund from buying securities pursuant to
subscription rights distributed to the fund by any issuer of securities held at
the time in its portfolio, as long as such purchase is not contrary to the
fund's status as a diversified investment company under the Investment Company
Act of 1940.
RISKS
- -------------------------------------------------------------------------------
FOREIGN SECURITIES The fund has an unlimited right to buy securities in any
foreign country, developed or developing, if they are listed on a stock
exchange, as well as a limited right to buy 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.
PAGE
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its net asset value. Foreign markets have
substantially less volume than the New York Stock Exchange and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Although the fund may invest up to 15% of its total
assets in unlisted foreign securities, including up to 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 U.S., 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 U.S.
The fund may invest up to 100% of its total assets in emerging markets.
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 that 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.
In addition, many countries in which the fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid
PAGE
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain countries. Moreover,
the economies of some developing countries may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product, rate
of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments position.
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
certain Eastern European countries. Finally, even though certain Eastern
European currencies may be convertible into U.S. dollars, the conversion rates
may be artificial to the actual market values and may be adverse to fund
shareholders.
The fund may invest up to 5% of its total assets in Russian securities.
Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. These risks include,
together with Russia's continuing political and economic instability and the
slow-paced development of its market economy, the following: (i) delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody; (ii) the risk that it may be impossible or
more difficult than in other countries to obtain and/or enforce a judgment;
(iii) pervasiveness of corruption, insider trading, and crime in the Russian
economic system; (iv) currency exchange rate volatility and the lack of
available currency hedging instruments; (v) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation); (vi)
controls on foreign investment and local practices disfavoring foreign investors
and limitations on repatriation of invested capital, profits and dividends, and
on the fund's ability to exchange local currencies for U.S. dollars; (vii) the
risk that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could
PAGE
follow radically different political and/or economic policies to the detriment
of investors, including non-market-oriented policies such as the support of
certain industries at the expense of other sectors or investors, a return to the
centrally planned economy that existed before the dissolution of the Soviet
Union, or the nationalization of privatized enterprises; (viii) the risks of
investing in securities with substantially less liquidity and in issuers having
significantly smaller market capitalizations, when compared to securities and
issuers in more developed markets; (ix) the difficulties associated in obtaining
accurate market valuations of many Russian securities, based partly on the
limited amount of publicly available information; (x) the financial condition of
Russian companies, including large amounts of inter-company debt that may create
a payments crisis on a national scale; (xi) dependency on exports and the
corresponding importance of international trade; (xii) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (xiii) possible difficulty in identifying a buyer of securities held by
the fund due to the underdeveloped nature of the securities markets; (xiv) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (xv) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (xvi) the difficulty
in obtaining information about the financial condition of Russian issuers, in
light of the different disclosure and accounting standards applicable to Russian
companies.
There is little long-term historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
PAGE
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision nor are they licensed with any
governmental entity and it is possible for the fund to lose its registration
through fraud, negligence or even mere oversight. While the fund will endeavor
to ensure that its interest continues to be appropriately recorded either itself
or through a custodian or other agent inspecting the share register and by
obtaining extracts of share registers through regular confirmations, these
extracts have no legal enforceability and it is possible that subsequent illegal
amendment or other fraudulent act may deprive the fund of its ownership rights
or improperly dilute its interests. In addition, while applicable Russian
regulations impose liability on registrars for losses resulting from their
errors, it may be difficult for the fund to enforce any rights it may have
against the registrar or issuer of the securities in the event of loss of share
registration. Furthermore, although a Russian public enterprise with more than
500 shareholders is required by law to contract out the maintenance of its
shareholder register to an independent entity that meets certain criteria, in
practice this regulation has not always been strictly enforced. Because of this
lack of independence, management of a company may be able to exert considerable
influence over who can buy and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the fund from
investing in the securities of certain Russian companies deemed suitable by the
manager. Further, this also could cause a delay in the sale of Russian company
securities by the fund if a potential buyer is deemed unsuitable, which may
expose the fund to potential loss on the investment.
CURRENCY RISK The fund's management endeavors to buy and sell foreign currencies
on as favorable a basis as practicable. Some price spread on currency exchange
(to cover service charges) may be incurred, particularly when the fund changes
investments from one country to another or when proceeds of the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies that would prevent the fund from
transferring cash out of the country or
PAGE
withhold portions of interest and dividends at the source. There is the
possibility of cessation of trading on national exchanges, 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 that 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. Some countries in which the fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies may not be internationally traded.
Certain of these currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which the fund's
portfolio securities are denominated may have a detrimental impact on the fund.
Through the fund's flexible policy, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places the fund's investments.
The exercise of this flexible policy may include decisions to buy 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 fund's board of directors considers at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions that would
affect the liquidity of the fund's assets maintained with custodians in foreign
countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The board also considers the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories. However, in the absence of willful
PAGE
misfeasance, bad faith or gross negligence on the part of the 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 board's appraisal of the risks
will always be correct or that such exchange control restrictions or political
acts of foreign governments might not occur.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. The transition and the elimination
of currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets.
Franklin Resources, Inc. has created an interdepartmental team to handle all
euro-related changes to enable the Franklin Templeton Funds to process
transactions accurately and completely with minimal disruption to business
activities. While the implementation of the euro could have a negative effect on
the fund, the fund's manager and its affiliated services providers are taking
steps they believe are reasonably designed to address the euro issue.
INTEREST RATE RISK To the extent the fund invests in debt securities, changes in
interest rates in any country where the fund is invested will affect the value
of the fund's portfolio and, consequently, its share price. Rising interest
rates, which often occur during times of inflation or a growing economy, are
likely to cause the face value of a debt security to decrease, having a negative
effect on the value of the fund's shares. Of course, interest rates have
increased and decreased, sometimes very dramatically, in the past. These changes
are likely to occur again in the future at unpredictable times.
LOW RATED SECURITIES Bonds rated Caa by Moody's are of poor standing. These
securities may be in default or there may be present elements of danger with
respect to principal or interest. Bonds rated CCC by S&P are regarded, on
balance, as speculative. These securities will have some quality and protective
characteristics, but these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Although they may offer higher yields than do higher rated securities, low rated
and unrated debt securities generally
PAGE
involve greater volatility of price and risk to principal and income, including
the possibility of default by, or bankruptcy of, the issuers of the securities.
The fund may invest up to 10% of its total assets in defaulted debt securities.
The purchase of defaulted debt securities involves risks such as the possibility
of complete loss of the investment in the event the issuer does not restructure
or reorganize to enable it to resume paying interest and principal to holders.
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
goal 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
PAGE
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 income to shareholders. Thus, the fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash in order to satisfy the distribution requirement.
DERIVATIVE SECURITIES Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments or
indices; in contrast to common stock, for example, whose value is dependent upon
the operations of the issuer. Stock index futures contracts and options on
securities indices are considered derivative investments. To the extent the fund
enters into these transactions, their success will depend upon the manger's
ability to predict pertinent market movements.
Some of the risks involved in stock index futures transactions relate to the
fund's ability to reduce or eliminate its futures positions, which will depend
upon the liquidity of the secondary markets for such futures. The fund intends
to buy or sell futures only on exchanges or boards of trade where there appears
to be an active secondary market, but there is no assurance that a liquid
secondary market will exist for any particular contract or at any particular
time. Use of stock index futures for hedging may involve risks because of
imperfect correlations between movements in the prices of the stock index
futures on the one hand and movements in the prices of the securities being
hedged or of the underlying stock index on the other. Successful use of stock
index futures by the fund for hedging purposes also depends upon the manager's
ability to predict correctly movements in the direction of the market, as to
which no assurance can be given.
There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as
PAGE
to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when the fund seeks to close out an
option position. If the fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by the fund, it would not be able to close out
the option. If restrictions on exercise were imposed, the fund might be unable
to exercise an option it has purchased. Except to the extent that a call option
on an index written by the fund is covered by an option on the same index
purchased by the fund, movements in the index may result in a loss to the fund;
however, such losses may be mitigated by changes in the value of the fund's
securities during the period the option was outstanding.
OFFICERS AND DIRECTORS
- -------------------------------------------------------------------------------
The fund has a board of directors. The board is responsible for the overall
management of the fund, including general supervision and review of the fund's
investment activities. The board, in turn, elects the officers of the fund who
are responsible for administering the fund's day-to-day operations. The board
also monitors the fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.
The affiliations of the officers and board members and their principal
occupations for the past five years are shown below.
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS THE FUND DURING THE PAST FIVE YEARS
- -------------------------------------------------------------------------------
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Director
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case
PAGE
may be, of 49 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, President, Chief Executive Officer and Chairman of the
Board, General Host Corporation (nursery and craft centers).
*Nicholas F. Brady (68)
The Bullitt House
102 East Dover Street
Easton, MD 21601
Director
Chairman, Templeton Emerging Markets Investment Trust PLC, Templeton Latin
America Investment Trust PLC, Darby Overseas Investments, Ltd. and Darby
Emerging Markets Investments LDC (investment firms) (1994-present); Director,
Templeton Global Strategy Funds, Amerada Hess Corporation (exploration and
refining of natural gas), Christiana Companies, Inc. (operating and investment
companies), and H.J. Heinz Company (packaged foods and allied products);
director or trustee, as the case may be, of 21 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Secretary of the United
States Department of the Treasury (1988-1993) and Chairman of the Board, Dillon,
Read & Co., Inc. (investment banking) prior to 1988.
S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 51 of the investment companies in the Franklin Templeton
Group of Funds.
John Wm. Galbraith (77)
360 Central Avenue
Suite 1300
St. Petersburg, FL 33701
Director
President, Galbraith Properties, Inc. (personal investment company); Director
Emeritus, Gulf West Banks, Inc. (bank holding
PAGE
company) (1995-present); director or trustee, as the case may be, of 20 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Director, Mercantile Bank (1991-1995), Vice Chairman, Templeton, Galbraith &
Hansberger Ltd. (1986-1992), and Chairman, Templeton Funds Management, Inc.
(1974-1991).
Andrew H. Hines, Jr. (75)
150 2nd Avenue N.
St. Petersburg, FL 33701
Director
Consultant for the Triangle Consulting Group; Executive-in-Residence of Eckerd
College (1991-present); director or trustee, as the case may be, of 22 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Director, Precise Power Corporation (1990-1997), Director, Checkers
Drive-In Restaurant, Inc. (1994-1997), and Chairman of the Board and Chief
Executive Officer, Florida Progress Corporation (holding company in the energy
area) (1982-1990) and director of various of its subsidiaries.
*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404
Director and Vice President
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc. and Franklin Templeton Services, Inc.; and officer and/or director or
trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 50 of the investment companies in the Franklin Templeton
Group of Funds.
Betty P. Krahmer (69)
2201 Kentmere Parkway
Wilmington, DE 19806
Director
PAGE
Director or trustee of various civic associations; director or trustee, as the
case may be, of 21 of the investment companies in the Franklin Templeton Group
of Funds; and FORMERLY, Economic Analyst, U.S. government.
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Director
Director, Fund American Enterprises Holdings, Inc., MCI WorldCom, MedImmune,
Inc. (biotechnology), Spacehab, Inc. (aerospace services) and Real 3D
(software); director or trustee, as the case may be, of 49 of the investment
companies in the Franklin Templeton Group of Funds; and FORMERLY, Chairman,
White River Corporation (financial services) and Hambrecht and Quist Group
(investment banking), and President, National Association of Securities Dealers,
Inc.
Fred R. Millsaps (69)
2665 NE 37th Drive
Fort Lauderdale, FL 33308
Director
Manager of personal investments (1978-present); director of various business and
nonprofit organizations; director or trustee, as the case may be, of 22 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Chief Executive Officer, Landmark Banking Corporation (1969-1978),
Financial Vice President, Florida Power and Light (1965-1969), and Vice
President, Federal Reserve Bank of Atlanta (1958-1965).
Mark G. Holowesko (38)
Lyford Cay
Nassau, Bahamas
President
President, Templeton Global Advisors Limited; Chief Investment Officer, Global
Equity Group; Executive Vice President and Director, Templeton Worldwide, Inc.;
officer of 21 of the investment companies in the Franklin Templeton Group of
Funds;
PAGE
and FORMERLY, Investment Administrator, RoyWest Trust Corporation (Bahamas)
Limited (1984-1985).
Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 53 of
the investment companies in the Franklin Templeton Group of Funds.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
Charles E. Johnson (42)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment Counsel,
Inc.; Vice President, Franklin Advisers, Inc.; officer and/or director of some
of the
PAGE
other subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 34 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal Officer
and Chief Operating Officer, Franklin Investment Advisory Services, Inc.; and
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds.
Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and Franklin
Investment Advisory Services, Inc.; President and Director, Franklin Templeton
Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor Services, Inc.; officer and/or director of some of
the other subsidiaries of Franklin Resources, Inc.; and officer and/or director
or trustee, as the case may be, of 53 of the investment companies in the
Franklin Templeton Group of Funds.
John R. Kay (58)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President
PAGE
Vice President and Treasurer, Templeton Worldwide, Inc.; Assistant Vice
President, Franklin Templeton Distributors, Inc.; officer of 25 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Vice President and Controller, Keystone Group, Inc.
Elizabeth M. Knoblock (43)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President - Compliance
General Counsel, Secretary and Senior Vice President, Templeton Investment
Counsel, Inc.; Senior Vice President, Templeton Global Investors, Inc.; officer
of 21 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Vice President and Associate General Counsel, Kidder Peabody & Co.
Inc. (1989-1990), Assistant General Counsel, Gruntal & Co., Inc. (1988), Vice
President and Associate General Counsel, Shearson Lehman Hutton Inc. (1988),
Vice President and Assistant General Counsel, E.F. Hutton & Co. Inc.
(1986-1988), and Special Counsel of the Division of Investment Management, U.S.
Securities and Exchange Commission (1984-1986).
James R. Baio (44)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Treasurer
Certified Public Accountant; Treasurer, Franklin Mutual Advisers, Inc.; Senior
Vice President, Templeton Worldwide, Inc., Templeton Global Investors, Inc. and
Templeton Funds Trust Company; officer of 22 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Senior Tax Manager, Ernst &
Young (certified public accountants) (1977-1989).
Barbara J. Green (51)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Secretary
Senior Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 21 of the investment companies
PAGE
in the Franklin Templeton Group of Funds; and FORMERLY, Deputy Director of the
Division of Investment Management, Executive Assistant and Senior Advisor to the
Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S.
Securities and Exchange Commission (1986-1995), Attorney, Rogers & Wells, and
Judicial Clerk, U.S. District Court (District of Massachusetts).
* This board member is considered an "interested person" under federal
securities laws. Mr. Brady's status as an interested person results from his
business affiliations with Franklin Resources, Inc. and Templeton Global
Advisors Limited. Mr. Brady and Franklin Resources, Inc. are both limited
partners of Darby Overseas Partners, L.P. (Darby Overseas). In addition, Darby
Overseas and Templeton Global Advisors Limited are limited partners of Darby
Emerging Markets Fund, L.P.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father
and uncle, respectively, of Charles E. Johnson.
The fund pays noninterested board members and Mr. Brady an annual retainer of
$12,000 and a fee of $900 per board meeting attended. Board members who serve on
the audit committee of the fund and other funds in the Franklin Templeton Group
of Funds receive a flat fee of $2,000 per committee meeting attended, a portion
of which is allocated to the fund. Members of the nominating and compensation
committee are not compensated for any committee meeting held in conjunction with
a board meeting. Noninterested board members may also serve as directors or
trustees of other funds in the Franklin Templeton Group of Funds and may receive
fees from these funds for their services. The following table provides the total
fees paid to noninterested board members and Mr. Brady by the fund and by other
funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP OF
RECEIVED FRANKLIN TEMPLETON FUNDS ON WHICH
NAME FROM THE FUND(1) GROUP OF FUNDS(2) EACH SERVES(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harris J. Ashton $18,825 $361,157 49
Nicholas F. Brady 18,825 140,975 21
S. Joseph Fortunato 18,825 367,835 51
John Wm. Galbraith 18,487 134,425 20
Andrew H. Hines, Jr. 19,437 208,075 22
Betty P. Krahmer 18,825 141,075 21
Gordon S. Macklin 18,825 361,157 49
Fred R. Millsaps 19,437 210,075 22
</TABLE>
PAGE
(1)For the fiscal year ended August 31, 1998. During the period from September
1, 1997, through February 27, 1998, an annual retainer of $12,500 and fees at
the rate of $950 per meeting attended were in effect.
(2)For the calendar year ended December 31, 1998.
(3)We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the board
members are responsible. The Franklin Templeton Group of Funds currently
includes 54 registered investment companies, with approximately 168 U.S. based
funds or series.
Noninterested board members and Mr. Brady are reimbursed for expenses incurred
in connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.
MANAGEMENT AND OTHER SERVICES
- -------------------------------------------------------------------------------
MANAGER AND SERVICES PROVIDED The fund's manager is Templeton Global Advisors
Limited. The manager is wholly owned by Franklin Resources, Inc. (Resources), a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources.
The manager provides investment research and portfolio management services, and
selects the securities for the fund to buy, hold or sell. The manager also
selects the brokers who execute the fund's portfolio transactions. The manager
provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance. The manager
renders its services to the fund from outside the U.S.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager
PAGE
on behalf of the fund. Similarly, with respect to the fund, the manager is not
obligated to recommend, buy or sell, or to refrain from recommending, buying or
selling any security that the manager and access persons, as defined by
applicable federal securities laws, may buy or sell for its or their own account
or for the accounts of any other fund. The manager is not obligated to refrain
from investing in securities held by the fund or other funds it manages. Of
course, any transactions for the accounts of the manager and other access
persons will be made in compliance with the fund's code of ethics.
Under the fund's code of ethics, employees of the Franklin Templeton Group who
are access persons may engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed by the close
of the business day following the day clearance is granted; (ii) copies of all
brokerage confirmations and statements must be sent to a compliance officer;
(iii) all brokerage accounts must be disclosed on an annual basis; and (iv)
access persons involved in preparing and making investment decisions must, in
addition to (i), (ii) and (iii) above, file annual reports of their securities
holdings each January and 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 FEES The fund pays the manager a fee equal to an annual rate of:
/bullet/ 0.75% of the value of net assets up to and including $200 million;
/bullet/ 0.675% of the value of net assets over $200 million and not over
$1.3 billion; and
/bullet/ 0.60% of the value of net assets in excess of $1.3 billion.
The fee is computed monthly, based on the fund's average daily net assets during
the month preceding each payment, according to the terms of the management
agreement. Each class of the fund's shares pays its proportionate share of the
fee.
For the last three fiscal years ended August 31, the fund paid the following
management fees:
PAGE
MANAGEMENT FEES PAID ($)
- ---------------------------------------------------------
1998 86,332,815
1997 65,767,491
1996 48,379,594
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the fund to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by Resources
and is an affiliate of the fund's manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The fund pays FT Services a monthly fee equal to an annual
rate of:
/bullet/ 0.15% of the fund's average daily net assets up to $200 million;
/bullet/ 0.135% of average daily net assets over $200 million up to $700
million;
/bullet/ 0.10% of average daily net assets over $700 million up to $1.2
billion; and
/bullet/ 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended August 31, the fund paid the following
administration fees:
ADMINISTRATION FEES PAID ($)
---------------------------------------------------------
1998 11,225,977
1997(1) 8,655,311
1996(1) 6,481,909
(1) Before October 1, 1996, Templeton Global Investors, Inc. provided
administrative services to the fund.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
PAGE
For its services, Investor Services receives a fixed fee per account. The fund
may also reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the fund. The amount of reimbursements
for these services per benefit plan participant fund account per year may not
exceed the per account fee payable by the fund to Investor Services in
connection with maintaining shareholder accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech Center,
Brooklyn, NY 11245, and at the offices of its branches and agencies throughout
the world, acts as custodian of the fund's assets. As foreign custody manager,
the bank selects and monitors foreign sub-custodian banks, selects and evaluates
non-compulsory foreign depositories, and furnishes information relevant to the
selection of compulsory depositories.
AUDITOR McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, is the
fund's independent auditor. The auditor gives an opinion on the financial
statements included in the fund's Annual Report to Shareholders and reviews the
fund's registration statement filed with the U.S. Securities and Exchange
Commission (SEC).
PORTFOLIO TRANSACTIONS
- -------------------------------------------------------------------------------
The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the manager and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors
PAGE
of comparable size. The manager will ordinarily place orders to buy and sell
over-the-counter securities on a principal rather than agency basis with a
principal market maker unless, in the opinion of the manager, a better price and
execution can otherwise be obtained. Purchases of portfolio securities from
underwriters will include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread between the bid
and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the manager's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the manager include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the manager in carrying out its investment advisory
responsibilities. These services may not always directly benefit the fund. They
must, however, be of value to the manager in carrying out its overall
responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services allows the manager to supplement its own research
and analysis activities and to receive the views and information of individuals
and research staffs of other securities firms. As long as it is lawful and
appropriate to do so, the manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. If the fund's
officers are satisfied that the best execution is obtained, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture
PAGE
brokerage for the benefit of the fund, any portfolio securities tendered by the
fund will be tendered through Distributors if it is legally permissible to do
so. In turn, the next management fee payable to the manager will be reduced by
the amount of any fees received by Distributors in cash, less any costs and
expenses incurred in connection with the tender.
If purchases or sales of securities of the fund and one or more other investment
companies or clients supervised by the manager are considered at or about the
same time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
fund.
Purchases and sales of securities, without the payment of brokerage commissions,
fees (except customary transfer fees) or other remuneration, may be effected
between the fund and one or more other investment companies or clients
supervised by the manager according to procedures adopted under the Investment
Company Act of 1940.
During the last three fiscal years ended August 31, the fund paid the following
brokerage commissions:
BROKERAGE COMMISSIONS ($)
--------------------------------------------------------
1998 26,366,655
1997 15,953,126
1996 7,918,000
As of August 31, 1998, the fund owned securities issued by Merrill Lynch & Co.
valued in the aggregate at $104,300,000. Except as noted, the fund did not own
any securities issued by its regular broker-dealers as of the end of the fiscal
year.
DISTRIBUTIONS AND TAXES
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The fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will
PAGE
differ, however, generally due to the difference in the distribution and service
(Rule 12b-1) fees of each class. The fund does not pay "interest" or guarantee
any fixed rate of return on an investment in its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in the
form of dividends and interest on its investments. This income, less expenses
incurred in the operation of the fund, constitutes the fund's net investment
income from which dividends may be paid to you. Any distributions by the fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income. Distributions
paid from long-term capital gains realized by the fund will be taxable to you as
long-term capital gain, regardless of how long you have held your shares in the
fund. Any net short-term or long-term capital gains realized by the fund (net of
any capital loss carryovers) generally will be distributed once each year, and
may be distributed more frequently, if necessary, in order to reduce or
eliminate federal excise or income taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized by the fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the fund's ordinary
income distributions to you, and may cause some or all of the fund's previously
distributed income to be classified as a return of capital.
The fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the fund. If this election is made, the year-end statement you receive from the
fund will show more taxable income than was
PAGE
actually distributed to you. However, you will be entitled to either deduct your
share of such taxes in computing your taxable income or claim a foreign tax
credit for such taxes against your U.S. federal income tax. The fund will
provide you with the information necessary to complete your individual income
tax return if such election is made.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount and character of your distributions at the time they are paid, and
will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held fund shares for a full year, you may have designated as ordinary income or
capital gain a percentage of income that is not equal to the actual amount of
such income earned during the period of your investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected to
be treated as a regulated investment company under Subchapter M of the tax code,
has qualified as such for its most recent fiscal year, and intends to so qualify
during the current fiscal year. As a regulated investment company, the fund
generally pays no federal income tax on the income and gains it distributes to
you. The board reserves the right not to maintain the qualification of the fund
as a regulated investment company if it determines such course of action to be
beneficial to shareholders. In such case, the fund will be subject to federal,
and possibly state, corporate taxes on its taxable income and gains, and
distributions to you will be taxed as ordinary dividend income to the extent of
the fund's available earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS The tax code requires the fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal excise
taxes. The fund intends to declare and pay sufficient dividends in December (or
in January of the following year that are treated by you as received in December
of the prior year) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
PAGE
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes that cause you to
recognize a gain or loss. If you hold your shares as a capital asset, the gain
or loss that you realize will be capital gain or loss. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you buy other shares in the fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.
DEFERRAL OF BASIS All or a portion of the sales charge that you paid for your
shares in the fund will be excluded from your tax basis in any of the shares
sold within 90 days of their purchase (for the purpose of determining gain or
loss upon the sale of such shares) if you reinvest the proceeds in the fund or
in another Franklin Templeton Fund, and the sales charge that would otherwise
apply to your reinvestment is reduced or eliminated. The portion of the sales
charge excluded from your tax basis in the shares sold will equal the amount
that the sales charge is reduced on your reinvestment. Any portion of the sales
charge excluded from your tax basis in the shares sold will be added to the tax
basis of the shares you acquire from your reinvestment.
U.S. GOVERNMENT OBLIGATIONS Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that 12.44% of the dividends paid by the fund for
the most recent fiscal year qualified for the dividends-received deduction. In
some circumstances, you will be allowed to deduct these qualified
PAGE
dividends, thereby reducing the tax that you would otherwise be required to pay
on these dividends. The dividends-received deduction will be available only with
respect to dividends designated by the fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the fund or defer the fund's ability to recognize losses, and, in limited
cases, subject the fund to U.S. federal income tax on income from certain of its
foreign securities. In turn, these rules may affect the amount, timing or
character of the income distributed to you by the fund.
For more information, please call 1-800/ DIAL BEN to request a free copy of the
Franklin Templeton Tax Information Handbook.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- -------------------------------------------------------------------------------
The fund is a diversified, open-end management investment company, commonly
called a mutual fund. The fund was organized as a Maryland corporation on
November 10, 1986, from its predecessor entity, which commenced operations on
November 29, 1954, and is registered with the SEC.
The fund currently offers four classes of shares, Class A, Class B, Class C and
Advisor Class. Before January 1, 1999, Class A shares were designated Class I
and Class C shares were designated Class II. The fund began offering Class B
shares on January 1, 1999. The fund may offer additional classes of shares in
the future. The full title of each class is:
/bullet/ Templeton Growth Fund, Inc. - Class A
/bullet/ Templeton Growth Fund, Inc. - Class B
/bullet/ Templeton Growth Fund, Inc. - Class C
/bullet/ Templeton Growth Fund, Inc. - Advisor Class
Shares of each class represent proportionate interests in the fund's assets. On
matters that affect the fund as a whole, each class has the same voting and
other rights and preferences as any
PAGE
other class. On matters that affect only one class, only shareholders of that
class may vote. Each class votes separately on matters affecting only that
class, or expressly required to be voted on separately by state or federal law.
The fund has noncumulative voting rights. For board member elections, this gives
holders of more than 50% of the shares voting the ability to elect all of the
members of the board. If this happens, holders of the remaining shares voting
will not be able to elect anyone to the board.
The fund does not intend to hold annual shareholder meetings. The fund may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may be called by the board to consider the removal of a board member if
requested in writing by shareholders holding at least 10% of the outstanding
shares. In certain circumstances, we are required to help you communicate with
other shareholders about the removal of a board member. A special meeting may
also be called by the board in its discretion.
From time to time, the number of fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the fund, no other person holds beneficially or of record more
than 5% of the outstanding shares of any class.
As of October 2, 1998, the officers and board members, as a group, owned of
record and beneficially 2.92% of the fund's Advisor Class shares and less than
1% of the outstanding shares of the fund's other classes. The board members may
own shares in other funds in the Franklin Templeton Group of Funds.
BUYING AND SELLING SHARES
- -------------------------------------------------------------------------------
The fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer orders
and accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity. Banks and financial
PAGE
institutions that sell shares of the fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the fund we may impose a $10 charge against your account for each returned item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
INITIAL SALES CHARGES The maximum initial sales charge is 5.75% for Class A and
1% for Class C. There is no initial sales charge for Class B.
The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in the Franklin Templeton Funds to take advantage of the
lower sales charges for large purchases. The Franklin Templeton Funds include
the U.S. registered mutual funds in the Franklin Group of Funds/registered
trademark/ and the Templeton Group of Funds except Franklin Valuemark Funds,
PAGE
Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products Series
Fund.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds. You may also combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge by
completing the letter of intent section of your account application. A letter of
intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. By completing the letter of intent section of the application, you
acknowledge and agree to the following:
/bullet/ You authorize Distributors to reserve 5% of your total intended
purchase in Class A shares registered in your name until you fulfill
your LOI. Your periodic statements will include the reserved shares
in the total shares you own, and we will pay or reinvest dividend and
capital gain distributions on the reserved shares according to the
distribution option you have chosen.
/bullet/ You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
/bullet/ Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.
/bullet/ Although you may exchange your shares, you may not sell reserved
shares until you complete the LOI or pay the higher sales charge.
After you file your LOI with the fund, you may buy Class A shares at the sales
charge applicable to the amount specified in your
PAGE
LOI. Sales charge reductions based on purchases in more than one Franklin
Templeton Fund will be effective only after notification to Distributors that
the investment qualifies for a discount. Any Class A purchases you made within
90 days before you filed your LOI may also qualify for a retroactive reduction
in the sales charge. If you file your LOI with the fund before a change in the
fund's sales charge, you may complete the LOI at the lower of the new sales
charge or the sales charge in effect when the LOI was filed.
Your holdings in the Franklin Templeton Funds acquired more than 90 days before
you filed your LOI will be counted towards the completion of the LOI, but they
will not be entitled to a retroactive reduction in the sales charge. Any
redemptions you make during the 13 month period, except in the case of certain
retirement plans, will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of your
total purchases, less redemptions, is more than the amount specified in your LOI
and is an amount that would qualify for a further sales charge reduction, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made. The price adjustment will be made on
purchases made within 90 days before and on those made after you filed your LOI
and will be applied towards the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases.
If the amount of your total purchases, less redemptions, is less than the amount
specified in your LOI, the sales charge will be adjusted upward, depending on
the actual amount purchased (less redemptions) during the period. You will need
to send Distributors an amount equal to the difference in the actual dollar
amount of sales charge paid and the amount of sales charge that would have
applied to the total purchases if the total of the purchases had been made at
one time. Upon payment of this amount, the reserved shares held for your account
will be deposited to an account in your name or delivered to you or as you
direct. If within 20 days after written request the difference in sales charge
is not paid, we will redeem an appropriate number of reserved shares to realize
the difference.
PAGE
If you redeem the total amount in your account before you fulfill your LOI, we
will deduct the additional sales charge due from the sale proceeds and forward
the balance to you.
For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the LOI. These plans are not subject to the requirement to reserve 5% of
the total intended purchase or to the policy on upward adjustments in sales
charges described above, or to any penalty as a result of the early termination
of a plan, nor are these plans entitled to receive retroactive adjustments in
price for investments made before executing the LOI.
GROUP PURCHASES. If you are a member of a qualified group, you may buy Class A
shares at a reduced sales charge that applies to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase.
A qualified group is one that:
/bullet/ Was formed at least six months ago,
/bullet/ Has a purpose other than buying fund shares at a discount,
/bullet/ Has more than 10 members,
/bullet/ Can arrange for meetings between our representatives and group
members,
/bullet/ Agrees to include Franklin Templeton Fund sales and other materials
in publications and mailings to its members at reduced or no cost to
Distributors,
/bullet/ Agrees to arrange for payroll deduction or other bulk transmission
of investments to the fund, and
/bullet/ Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions, although any such plan that
PAGE
purchased the fund's Class A shares at a reduced sales charge under the group
purchase privilege before February 1, 1998, may continue to do so.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be purchased
without an initial sales charge or contingent deferred sales charge (CDSC) by
investors who reinvest within 365 days:
/bullet/ Dividend and capital gain distributions from any Franklin Templeton
Fund. The distributions generally must be reinvested in the same
share class. Certain exceptions apply, however, to Class C
shareholders who chose to reinvest their distributions in Class A
shares of the fund before November 17, 1997, and to Advisor Class or
Class Z shareholders of a Franklin Templeton Fund who may reinvest
their distributions in the fund's Class A shares. This waiver
category also applies to Class B and C shares.
/bullet/ Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
/bullet/ Annuity payments received under either an annuity option or from
death benefit proceeds, if the annuity contract offers as an
investment option the Franklin Valuemark Funds or the Templeton
Variable Products Series Fund. You should contact your tax advisor
for information on any tax consequences that may apply.
/bullet/ Redemption proceeds from a repurchase of shares of Franklin Floating
Rate Trust, if the shares were continuously held for at least 12
months.
If you immediately placed your redemption proceeds in a Franklin Bank
CD or a Franklin Templeton money fund, you may reinvest them as
described above. The proceeds must be reinvested within 365 days from
the date the CD matures, including any rollover, or the date you
redeem your money fund shares.
/bullet/ Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
PAGE
If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of fund shares
and the CDSC holding period will begin again. We will, however, credit your
fund account with additional shares based on the CDSC you previously paid
and the amount of the redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
/bullet/ Distributions from an existing retirement plan invested in the
Franklin Templeton Funds
WAIVERS FOR CERTAIN INVESTORS. Class A shares may also be purchased without an
initial sales charge or CDSC by various individuals and institutions due to
anticipated economies in sales efforts and expenses, including:
/bullet/ Trust companies and bank trust departments agreeing to invest in
Franklin Templeton Funds over a 13 month period at least $1 million
of assets held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust
departments or other plan fiduciaries or participants, in the case of
certain retirement plans, have full or shared investment discretion.
We will accept orders for these accounts by mail accompanied by a
check or by telephone or other means of electronic data transfer
directly from the bank or trust company, with payment by federal
funds received by the close of business on the next business day
following the order.
/bullet/ Any state or local government or any instrumentality, department,
authority or agency thereof that has determined the fund is a legally
permissible investment and that can only buy fund shares without
paying sales charges. Please consult your legal and investment
advisors to determine if an investment in the fund is permissible and
suitable for you and the effect, if any, of payments by the fund on
arbitrage rebate calculations.
PAGE
/bullet/ Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs
/bullet/ Qualified registered investment advisors who buy through a
broker-dealer or service agent who has entered into an agreement with
Distributors
/bullet/ Registered securities dealers and their affiliates, for their
investment accounts only
/bullet/ Current employees of securities dealers and their affiliates and
their family members, as allowed by the internal policies of their
employer
/bullet/ Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies
/bullet/ Investment companies exchanging shares or selling assets pursuant to
a merger, acquisition or exchange offer
/bullet/ Accounts managed by the Franklin Templeton Group
/bullet/ Certain unit investment trusts and their holders reinvesting
distributions from the trusts
/bullet/ Group annuity separate accounts offered to retirement plans
/bullet/ Chilean retirement plans that meet the requirements described under
"Retirement plans" below
/bullet/ German insurance companies that publicly offer variable annuities or
unit linked life policies in Germany and that have entered into an
agreement with Templeton Global Strategic Services (Deutschland) GmbH
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period
PAGE
may buy Class A shares without an initial sales charge. Retirement plans that
are not qualified retirement plans (employer sponsored pension or profit-sharing
plans that qualify under section 401 of the tax code, including 401(k), money
purchase pension, profit sharing and defined benefit plans), SIMPLEs (savings
incentive match plans for employees) or SEPs (employer sponsored simplified
employee pension plans established under section 408(k) of the tax code) must
also meet the group purchase requirements described above to be able to buy
Class A shares without an initial sales charge. We may enter into a special
arrangement with a securities dealer, based on criteria established by the fund,
to add together certain small qualified retirement plan accounts for the purpose
of meeting these requirements.
For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply if
the retirement plan is transferred out of the Franklin Templeton Funds or
terminated within 365 days of the retirement plan account's initial purchase in
the Franklin Templeton Funds.
Any retirement plan that does not meet the requirements to buy Class A shares
without an initial sales charge and that was a shareholder of the fund on or
before February 1, 1995, may buy shares of the fund subject to a maximum initial
sales charge of 4% of the offering price, 3.2% of which will be retained by
securities dealers.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the fund's shares are available to these banks' trust accounts without a
sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining a
service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.
The fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE (%)
- ------------------------------------------------------------------
PAGE
Under $30,000 3.0
$30,000 but less than $50,000 2.5
$50,000 but less than $100,000 2.0
$100,000 but less than $200,000 1.5
$200,000 but less than $400,000 1.0
$400,000 or more 0
DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may be
deemed an underwriter under the Securities Act of 1933, as amended. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the dealer compensation table in the fund's
prospectus.
Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million to $2 million, plus
0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to securities dealers who initiate and are responsible for
purchases of Class A shares by certain retirement plans without an initial sales
charge: 1% on sales of $500,000 to $2 million, plus 0.80% on sales over $2
million to $3 million, plus 0.50% on sales over $3 million to $50 million, plus
0.25% on sales over $50 million to $100 million, plus 0.15% on sales over $100
million. Distributors may make these payments in the form of contingent advance
payments, which may be recovered from the securities dealer or set off against
other payments due to the dealer if shares are sold within 12 months of the
calendar month of purchase. Other conditions may apply. All terms and conditions
may be imposed by an agreement between Distributors, or one of its affiliates,
and the securities dealer.
These breakpoints are reset every 12 months for purposes of additional
purchases.
Distributors and/or its affiliates provide financial support to various
securities dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the
PAGE
amount of sales of fund shares. The amount of support may be affected by: total
sales; net sales; levels of redemptions; the proportion of a securities dealer's
sales and marketing efforts in the Franklin Templeton Group of Funds; a
securities dealer's support of, and participation in, Distributors' marketing
programs; a securities dealer's compensation programs for its registered
representatives; and the extent of a securities dealer's marketing programs
relating to the Franklin Templeton Group of Funds. Financial support to
securities dealers may be made by payments from Distributors' resources, from
Distributors' retention of underwriting concessions and, in the case of funds
that have Rule 12b-1 plans, from payments to Distributors under such plans. In
addition, certain securities dealers may receive brokerage commissions generated
by fund portfolio transactions in accordance with the rules of the National
Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in the Franklin Templeton Funds,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity discount
or letter of intent programs, a CDSC may apply on any shares you sell within 12
months of purchase. For Class C shares, a CDSC may apply if you sell your shares
within 18 months of purchase. The CDSC is 1% of the value of the shares sold or
the net asset value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge may also be
subject to a CDSC if the retirement plan is transferred out of the Franklin
Templeton Funds or terminated within 365 days of the account's initial purchase
in the Franklin Templeton Funds.
For Class B shares, there is a CDSC if you sell your shares within six years, as
described in the table below. The charge is
PAGE
based on the value of the shares sold or the net asset value at the time of
purchase, whichever is less.
IF YOU SELL YOUR CLASS B SHARES THIS % IS DEDUCTED FROM
WITHIN THIS MANY YEARS AFTER YOUR PROCEEDS AS A CDSC
BUYING THEM
- --------------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
CDSC WAIVERS. The CDSC for any share class will generally be waived for:
/bullet/ Account fees
/bullet/ Sales of Class A shares purchased without an initial sales charge by
certain retirement plan accounts if (i) the account was opened before
May 1, 1997, or (ii) the securities dealer of record received a
payment from Distributors of 0.25% or less, or (iii) Distributors did
not make any payment in connection with the purchase, or (iv) the
securities dealer of record has entered into a supplemental agreement
with Distributors
/bullet/ Redemptions by the fund when an account falls below the minimum
required account size
/bullet/ Redemptions following the death of the shareholder or beneficial
owner
/bullet/ Redemptions through a systematic withdrawal plan set up before
February 1, 1995
/bullet/ Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, at a rate of up to 1% a month of an account's net
asset value.
/bullet/ Distributions from individual retirement accounts (IRAs) due to death
or disability or upon periodic distributions based on
PAGE
life expectancy (for Class B this applies to all retirement accounts,
not only IRAs)
/bullet/ Returns of excess contributions from employee benefit plans
/bullet/ Redemptions by Franklin Templeton Trust Company employee benefit
plans or employee benefit plans serviced by ValuSelect(R) (not
applicable to Class B)
/bullet/ Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be exchanged into the new fund and invested at net asset value.
Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the fund's investment goal exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing money market instruments and invested in portfolio securities
in as orderly a manner as is possible when attractive investment opportunities
arise.
The proceeds from the sale of shares of an investment company are generally not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your
PAGE
account on a monthly, quarterly, semiannual or annual basis. The value of your
account must be at least $5,000 and the minimum payment amount for each
withdrawal must be at least $50. For retirement plans subject to mandatory
distribution requirements, the $50 minimum will not apply. There are no service
charges for establishing or maintaining a systematic withdrawal plan. Once your
plan is established, any distributions paid by the fund will be automatically
reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled. If the 25th falls on a weekend or holiday, we will process
the redemption on the next business day. When you sell your shares under a
systematic withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan may also be
subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. The fund may discontinue a systematic withdrawal plan by
notifying you in writing and will automatically discontinue a systematic
withdrawal plan if all shares in your account are withdrawn or if the fund
receives notification of the shareholder's death or incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets
PAGE
at the beginning of the 90-day period. This commitment is irrevocable without
the prior approval of the Securities and Exchange Commission (SEC). In the case
of redemption requests in excess of these amounts, the board reserves the right
to make payments in whole or in part in securities or other assets of the fund,
in case of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
fund's net assets and you may incur brokerage fees in converting the securities
to cash. The fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
SHARE CERTIFICATES We will credit your shares to your fund account. We do not
issue share certificates unless you specifically request them. This eliminates
the costly problem of replacing lost, stolen or destroyed certificates. If a
certificate is lost, stolen or destroyed, you may have to pay an insurance
premium of up to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the fund marked "unable
to forward" by the postal service, we will consider this a request by you to
change your dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at net asset value until we receive new
instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.
PAGE
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, the fund is not bound to
meet any redemption request in less than the seven day period prescribed by law.
Neither the fund nor its agents shall be liable to you or any other person if,
for any reason, a redemption request by wire is not processed as described in
the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the fund on behalf of
numerous beneficial owners for recordkeeping operations performed with respect
to such owners. For each beneficial owner in the omnibus account, the fund may
reimburse Investor Services an amount not to exceed the per account fee that the
fund normally pays Investor Services. These financial institutions may also
charge a fee for their services directly to their clients.
If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to the fund in
a timely fashion. Your redemption proceeds will not earn interest between the
time we receive the order from your dealer and the time we receive any required
documents. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the fund in a timely fashion must be settled between you and
your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.
PAGE
In the event of disputes involving multiple claims of ownership or authority to
control your 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, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a notice of levy.
PRICING SHARES
- -------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the net
asset value (NAV) plus any applicable sales charge, calculated to two decimal
places using standard rounding criteria. When you sell shares, you receive the
NAV minus any applicable CDSC.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of shares
outstanding.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. pacific
time). The fund does not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager.
PAGE
The fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the fund holds is its last sale price on the relevant exchange before the fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the fund values options within the range of the
current closing bid and ask prices if the fund believes the valuation fairly
reflects the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the fund's NAV is not calculated. Thus, the calculation of the fund's NAV
does not take place contemporaneously with the determination of the prices of
many of the portfolio securities used in the calculation and, if events
materially affecting the values of these foreign securities occur, the
securities will be valued at fair value as determined by management and approved
in good faith by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are
PAGE
valued at fair value as determined following procedures approved by the board.
With the approval of the board, the fund may use a pricing service, bank or
securities dealer to perform any of the above described functions.
THE UNDERWRITER
- -------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares throughout
the world, except in Europe, Hong Kong and other parts of Asia. Templeton Global
Strategic Services (DEUTSCHLAND) GMbH (Templeton Strategic Services) acts as the
principal underwriter in Europe, and Templeton Franklin Investment Services
(Asia) Limited (Templeton Investment Services) acts as the principal underwriter
in Hong Kong and other parts of Asia. The terms of the underwriting agreements
between the fund and each of the foreign underwriters are substantially similar
to those of the agreement with Distributors. In addition to the compensation
listed in the following tables, each of the underwriters may be entitled to
reimbursement under the Rule 12b-1 plans, as discussed below.
DISTRIBUTORS is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances to
dealers, and the amounts Distributors received in connection with redemptions or
repurchases of shares for the last three fiscal years ended August 31:
<TABLE>
<CAPTION>
AMOUNT RECEIVED IN
TOTAL CONNECTION WITH
COMMISSIONS AMOUNT RETAINED BY REDEMPTIONS AND
RECEIVED ($) DISTRIBUTORS ($) REPURCHASES ($)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 40,309,300 4,661,855 474,453
1997 40,795,777 6,509,259 178,223
</TABLE>
PAGE
<TABLE>
<S> <C> <C> <C>
1996 37,616,480 5,546,704 52,196
</TABLE>
Except as noted, Distributors received no other compensation from the fund for
acting as underwriter.
TEMPLETON STRATEGIC SERVICES is located at Taunusanlage 11, D-60329, Frankfurt.
The table below shows the aggregate underwriting commissions Templeton Strategic
Services received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Templeton Strategic Services retained
after allowances to dealers, and the amounts Templeton Strategic Services
received in connection with redemptions or repurchases of shares for the last
three fiscal years ended August 31:
<TABLE>
<CAPTION>
AMOUNT RETAINED BY AMOUNT RECEIVED IN
TOTAL TEMPLETON CONNECTION WITH
COMMISSIONS STRATEGIC SERVICES REDEMPTIONS AND
RECEIVED ($) ($) REPURCHASES ($)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
1997 22,502,343 4,522,039 0
1996 8,433,252 1,735,895 0
</TABLE>
Except as noted, Templeton Strategic Services received no other compensation
from the fund for acting as underwriter.
TEMPLETON INVESTMENT SERVICES is located at 2701 Shui On Centre, Hong Kong. The
table below shows the aggregate underwriting commissions Templeton Investment
Services received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Templeton Investment Services retained
after allowances to dealers, and the amounts Templeton Investment Services
received in connection with redemptions or repurchases of shares for the last
three fiscal years ended August 31:
<TABLE>
<CAPTION>
AMOUNT RETAINED BY AMOUNT RECEIVED IN
TOTAL TEMPLETON CONNECTION WITH
COMMISSIONS INVESTMENT REDEMPTIONS AND
RECEIVED ($) SERVICES ($) REPURCHASES ($)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
1997 5,178 945 0
1996 10,262 1,965 0
</TABLE>
Except as noted, Templeton Investment Services received no other compensation
from the fund for acting as underwriter.
PAGE
DISTRIBUTION AND SERVICE (12B-1) FEES Each class has a separate distribution or
"Rule 12b-1" plan. Under the plan, each class shall pay or may reimburse
Distributors or others for the expenses of activities that are primarily
intended to sell its shares. These expenses may include, among others,
distribution or service fees paid to securities dealers or others who have
executed a servicing agreement with the fund, Distributors or its affiliates; a
prorated portion of Distributors' overhead expenses; and the expenses of
printing prospectuses and reports used for sales purposes, and preparing and
distributing sales literature and advertisements.
The distribution and service (12b-1) fees charged to each class are based only
on the fees attributable to that particular class.
THE CLASS A PLAN. Payments by the fund under the Class A plan may not exceed
0.25% per year of Class A's average daily net assets, payable quarterly.
Expenses not reimbursed in any quarter may be reimbursed in future quarters or
years. This includes expenses not reimbursed because they exceeded the
applicable limit under the plan. As of August 31, 1998, there were no
unreimbursed expenses under the Class A plan.
THE CLASS B AND C PLANS. Under the Class B and C plans, the fund pays
Distributors up to 0.75% per year of the class's average daily net assets,
payable quarterly, to pay Distributors or others for providing distribution and
related services and bearing certain expenses. All distribution expenses over
this amount will be borne by those who have incurred them. The fund may also pay
a servicing fee of up to 0.25% per year of the class's average daily net assets,
payable quarterly. This fee may be used to pay securities dealers or others for,
among other things, helping to establish and maintain customer accounts and
records, helping with requests to buy and sell shares, receiving and answering
correspondence, monitoring dividend payments from the fund on behalf of
customers, and similar servicing and account maintenance activities.
The expenses relating to each of the Class B and C plans are also used to pay
Distributors for advancing the commission costs to securities dealers with
respect to the initial sale of Class B and C shares. Further, the expenses
relating to the Class B plan may be used by Distributors to pay third party
financing entities that have provided financing to Distributors in connection
with advancing commission costs to securities dealers.
THE CLASS A, B AND C PLANS. The terms and provisions of each plan relating to
required reports, term, and approval are consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include
payments made under each plan, plus any other payments
PAGE
deemed to be made pursuant to a plan, exceed the amount permitted to be paid
under the rules of the National Association of Securities Dealers, Inc.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
Each plan has been approved in accordance with the provisions of Rule 12b-1. The
plans are renewable annually by a vote of the board, including a majority vote
of the board members who are not interested persons of the fund and who have no
direct or indirect financial interest in the operation of the plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such board members be done by the noninterested
members of the fund's board. The plans and any related agreement may be
terminated at any time, without penalty, by vote of a majority of the
noninterested board members on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with the manager or by
vote of a majority of the outstanding shares of the class. Distributors or any
dealer or other firm may also terminate their respective distribution or service
agreement at any time upon written notice.
The plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the class, and all material amendments to the plans
or any related agreements shall be approved by a vote of the noninterested board
members, cast in person at a meeting called for the purpose of voting on any
such amendment.
PAGE
Distributors is required to report in writing to the board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, as well as to furnish the board with such other information as may
reasonably be requested in order to enable the board to make an informed
determination of whether the plans should be continued.
For the fiscal year ended August 31, 1998, the amounts paid by the fund pursuant
to the plans were:
CLASS A ($) CLASS C ($)
- -------------------------------------------------------------------------------
Advertising 1,955,888 1,417,579
Printing and mailing prospectuses
other than to current shareholders 1,416,897 1,026,932
Payments to underwriters 609,792 129,834
Payments to broker-dealers 28,572,015 6,915,798
Other -- --
--------------------------------
Total 32,554,592 9,490,143
================================
PERFORMANCE
- -------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC. If a Rule
12b-1 plan is adopted, performance figures reflect fees from the date of the
plan's implementation. An explanation of these and other methods used by the
fund to compute or express performance follows. Regardless of the method used,
past performance does not guarantee future results, and is an indication of the
return to shareholders only for the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum initial sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions are
reinvested at net asset value. The quotation
PAGE
assumes the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. If a change is made to the sales
charge structure, historical performance information will be restated to reflect
the maximum initial sales charge currently in effect.
When considering the average annual total return quotations, you should keep in
mind that the maximum initial sales charge reflected in each quotation is a one
time fee charged on all direct purchases, which will have its greatest impact
during the early stages of your investment. This charge will affect actual
performance less the longer you retain your investment in the fund. The average
annual total returns for the indicated periods ended August 31, 1998, were:
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
Class A -17.63% 8.55% 11.49%
1 YEAR SINCE INCEPTION (5/1/95)
- -------------------------------------------------------
Class C -14.86% 8.19%
These figures were calculated according to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of each period at the end
of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, and income dividends and capital gain distributions are
reinvested at net asset value. Cumulative total return, however, is based on the
actual return for a specified period rather than on the average return over the
periods indicated above. The cumulative total returns for the indicated periods
ended August 31, 1998, were:
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
Class A -17.63% 50.71% 196.64%
PAGE
1 YEAR SINCE INCEPTION (5/1/95)
- -----------------------------------------------------------
Class C -14.86% 30.04%
VOLATILITY Occasionally statistics may be used to show the fund's volatility or
risk. Measures of volatility or risk are generally used to compare the fund's
net asset value or performance to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities in
which the fund invests. A beta of more than 1.00 indicates volatility greater
than the market and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset value or total return
around an average over a specified period of time. The idea is that greater
volatility means greater risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS The fund may also quote the performance of shares
without a sales charge. Sales literature and advertising may quote a cumulative
total return, average annual total return and other measures of performance with
the substitution of net asset value for the public offering price.
Sales literature referring to the use of the fund as a potential investment for
IRAs, business retirement plans, and other tax-advantaged retirement plans may
quote a total return based upon compounding of dividends on which it is presumed
no federal income tax applies.
The fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:
PAGE
(i) unmanaged indices so that you may compare the fund's results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities market in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm that
ranks mutual funds by overall performance, investment goals 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.
From time to time, the fund and the manager may also refer to the following
information:
/bullet/ The 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.
/bullet/ The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital
International(R) or a similar financial organization.
/bullet/ The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley
Capital International(R) or a similar financial organization.
/bullet/ The geographic and industry distribution of the fund's portfolio and
the fund's top ten holdings.
/bullet/ The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due
to a liberalization of securities laws and a reduction of foreign
exchange controls, and improving communication technology, of various
countries as published by various statistical organizations.
/bullet/ 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
PAGE
indices (E.G., Ibbotson Associates, Inc. Charts and Morgan Stanley
EAFE - Index).
/bullet/ The major industries located in various jurisdictions as published
by the Morgan Stanley Index.
/bullet/ Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
/bullet/ Allegorical stories illustrating the importance of persistent
long-term investing.
/bullet/ The fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical Services, Inc.
or Morningstar, Inc.
/bullet/ 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.
/bullet/ Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.
/bullet/ Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing, including the following:
/bullet/ "Never follow the crowd. Superior performance is possible
only if you invest differently from the crowd."
/bullet/ "Diversify by company, by industry and by country."
/bullet/ "Always maintain a long-term perspective."
/bullet/ "Invest for maximum total real return."
/bullet/ "Invest - don't trade or speculate."
- --------
* Sir John Templeton sold the Templeton organization to Franklin
Resources, Inc. in October 1992 and resigned from the board on April
16, 1995. He is no longer involved with the investment management
process.
PAGE
/bullet/ "Remain flexible and open-minded about types of investment."
/bullet/ "Buy low."
/bullet/ "When buying stocks, search for bargains among quality
stocks."
/bullet/ "Buy value, not market trends or the economic outlook."
/bullet/ "Diversify. In stocks and bonds, as in much else, there is
safety in numbers."
/bullet/ "Do your homework or hire wise experts to help you."
/bullet/ "Aggressively monitor your investments."
/bullet/ "Don't panic."
/bullet/ "Learn from your mistakes."
/bullet/ "Outperforming the market is a difficult task."
/bullet/ "An investor who has all the answers doesn't even
understand all the questions."
/bullet/ "There's no free lunch."
/bullet/ "And now the last principle: Do not be fearful or negative
too often."
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a CD issued
by a bank. For example, as the general level of
PAGE
interest rates rise, the value of the fund's fixed-income investments, if any,
as well as the value of its shares that are based upon the value of such
portfolio investments, can be expected to decrease. Conversely, when interest
rates decrease, the value of the fund's shares can be expected to increase. CDs
are frequently insured by an agency of the U.S. government. An investment in the
fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the fund to calculate its figures. In addition,
there can be no assurance that the fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
- -------------------------------------------------------------------------------
The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
fund cannot guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of the
oldest mutual fund organizations and now services more than 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined forces
with Templeton, a pioneer in international investing. The Mutual Series team,
known for its value-driven approach to domestic equity investing, became part of
the organization four years later. Together, the Franklin Templeton Group has
over $207 billion in assets under management for more than 6 million U.S. based
mutual
PAGE
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 117 U.S. based open-end investment companies to the public. The fund may
identify itself by its NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has already
begun making necessary software changes to help the computer systems that
service the fund and their shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests have been planned to verify
their effectiveness. Resources continues to seek reasonable assurances from all
major hardware, software or data-services suppliers that they will be Year 2000
compliant on a timely basis. Resources is also in the process of developing
contingency plans for Year 2000 failures. In an operation as complex and
geographically distributed as Resources' business, however, this means
identifying only those mission critical systems for which it is practical to
develop a contingency plan.
DESCRIPTION OF BOND RATINGS
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CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
PAGE
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations that are speculative to a high degree.
These issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
PAGE
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION (S&P)
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC 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 obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1
PAGE
rating is reserved for income bonds on which no interest is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more
PAGE
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations.
PAGE
PART B
TEMPLETN GROWTH FUND, INC.
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION
PAGE
TEMPLETON GROWTH FUND, INC.
ADVISOR CLASS
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 1, 1999
100 FOUNTAIN PARKWAY, P.O. BOX 33030
ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN/registered trademark/
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectus. The fund's
prospectus, dated January 1, 1999, which we may amend from time to time,
contains the basic information you should know before investing in the fund. You
should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended August 31, 1998, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies
Risks
Officers and Directors
Management and Other Services
Portfolio Transactions
Distributions and Taxes
Organization, Voting Rights and Principal Holders
Buying and Selling Shares
Pricing Shares
The Underwriter
Performance
Miscellaneous Information
Description of Bond Ratings
PAGE
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
/bullet/ ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
/bullet/ ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
/bullet/ ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- --------------------------------------------------------------------------------
GOAL AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment goal is long-term capital growth. This goal is
fundamental, which means it may not be changed without shareholder approval.
The fund tries to achieve its goal by investing in the equity and debt
securities of companies and governments located anywhere in the world.
The fund may invest without percentage limitation in domestic or foreign
securities. It may invest up to 5% of its total assets in securities issued by
any one company or foreign government. It may invest any amount of its assets in
U.S. government securities. It may invest in any industry, although it will not
concentrate (invest more than 25% of its total assets) in any one industry. It
may invest up to 15% of its total assets in foreign securities that are not
listed on a recognized U.S. or foreign securities exchange, including up to 10%
of its total assets in securities with a limited trading market.
The fund's principal investments are in common stocks. It also invests in
American, European and Global Depositary Receipts. Depending upon current market
conditions, it generally invests up to 25% of its assets in rated and unrated
debt securities. Independent rating organizations rate debt securities based
upon their assessment of the financial soundness of the issuer. Generally, a
lower rating indicates higher risk. The fund may buy debt securities that are
rated Caa by Moody's Investors Service, Inc. (Moody's) or CCC by Standard &
Poor's Corporation (S&P) or better; or unrated debt that it determines to be of
comparable quality. At present, the fund does not intend to invest more than
PAGE
5% of its total assets in non-investment grade securities (rated lower than Baa
by Moody's or BBB by S&P).
EQUITY SECURITIES Equity securities generally entitle the holder to participate
in a company's general operating results. These include common stock; preferred
stock; convertible securities; warrants or rights. The purchaser of an equity
security typically receives an ownership interest in the company as well as
certain voting rights. The owner of an equity security may participate in a
company's success through the receipt of dividends, which are distributions of
earnings by the company to its owners. Equity security owners may also
participate in a company's success or lack of success through increases or
decreases in the value of the company's shares as traded in the public trading
market for such shares. Equity securities generally take the form of common
stock or preferred stock. Preferred stockholders typically receive greater
dividends but may receive less appreciation than common stockholders and may
have greater voting rights as well. Equity securities may also include
convertible securities, warrants or rights. Convertible securities typically are
debt securities or preferred stocks that are convertible into common stock after
certain time periods or under certain circumstances. Warrants or rights give the
holder the right to buy a common stock at a given time for a specified price.
DEBT SECURITIES Debt securities represent an obligation of the issuer to repay a
loan of money to it, and generally, provide for the payment of interest. These
include bonds, notes and debentures; commercial paper; time deposits; bankers'
acceptances; and structured investments. A debt security typically has a fixed
payment schedule that obligates the issuer to pay interest to the lender and to
return the lender's money over a certain time period. A company typically meets
its payment obligations associated with its outstanding debt securities before
it declares and pays any dividend to holders of its equity securities. Bonds,
notes, debentures and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.
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 debt
securities generally
PAGE
declines. These changes in market value will be reflected in the fund's net
asset value.
STRUCTURED INVESTMENTS Included among the issuers of debt securities in which
the fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms, which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities (structured
investments) backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions. The extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
the fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
The fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940 (1940 Act). As a
result, the fund's investment in these structured investments may be limited by
the restrictions contained in the 1940 Act. Structured investments are typically
sold in private placement transactions, and there currently is no active trading
market for structured investments. To the extent
PAGE
such investments are illiquid, they will be subject to the fund's restrictions
on investments in illiquid securities.
DEPOSITARY RECEIPTS Depositary receipts are certificates that give their holders
the right to receive securities (i) of a foreign issuer deposited in a U.S. bank
or trust company (American Depositary Receipts, "ADRs"); or (ii) of a foreign or
U.S. issuer deposited in a foreign bank or trust company (Global Depositary
Receipts, "GDRs" or European Depositary Receipts, "EDRs").
REPURCHASE AGREEMENTS The fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the fund agrees
to buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
fund's custodian, securities with an initial value of at least 102% of the
dollar amount invested by the fund in each repurchase agreement.
Repurchase agreements may involve risks in the event of default or insolvency of
the seller, including possible delays or restrictions upon the fund's ability to
dispose of the underlying securities. The fund will enter into repurchase
agreements only with parties who meet creditworthiness standards approved by the
fund's board of directors, I.E., banks or broker-dealers that have been
determined by the manager to present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.
LOANS OF PORTFOLIO SECURITIES The fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets. These loans must be secured by collateral (consisting of any
combination of cash, U.S. government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. The fund retains all or a portion
of the interest received on investment of the cash collateral or receives a fee
from the borrower. The fund may terminate the loans at any time and obtain the
return of
PAGE
the securities loaned within five business days. The fund will continue to
receive any interest or dividends paid on the loaned securities and will
continue to have voting rights with respect to the securities. However, as with
other extensions of credit, there are risks of delay in recovery or even loss of
rights in collateral should the borrower fail.
STOCK INDEX FUTURES CONTRACTS Changes in interest rates, securities prices or
foreign currency valuations may affect the value of the fund's investments. To
reduce its exposure to these factors, the fund may invest up to 20% of its total
assets buying and selling stock index futures contracts.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. The value of a unit is the current value of the stock index. For example,
the S&P 500 Stock Index (S&P 500 Index) is composed of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The S&P 500
Index assigns relative weightings to the value of one share of each of these 500
common stocks included in the index, and the index fluctuates with changes in
the market values of the shares of those common stocks. In the case of the S&P
500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P
500 Index were $150, one contract would be worth $75,000 (500 units x $150). The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if the fund enters into a futures
contract to BUY 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
fund will gain $2,000 (500 units x gain of $4). If the fund enters into a
futures contract to SELL 500 units of the stock index at a specified future date
at a contract price of $150 and the S&P 500 Index is at $154 on that future
date, the fund will lose $2,000 (500 units x loss of $4).
During or in anticipation of a period of market appreciation, the fund may enter
into a "long hedge" of common stock which it proposes to add to its portfolio by
buying stock index futures for the purpose of reducing the effective purchase
price of such common stock. To the extent that the securities which the fund
PAGE
proposes to buy change in value in correlation with the stock index contracted
for, the purchase of futures contracts on that index would result in gains to
the fund that could be offset against rising prices of such common stock.
During or in anticipation of a period of market decline, the fund may "hedge"
common stock in its portfolio by selling stock index futures for the purpose of
limiting the exposure of its portfolio to such decline. To the extent that the
fund's portfolio of securities changes in value in correlation with a given
stock index, the sale of futures contracts on that index could substantially
reduce the risk to the portfolio of a market decline and, by so doing, provide
an alternative to the liquidation of securities positions in the portfolio with
resultant transaction costs.
Parties to an index futures contract must make initial margin deposits to secure
performance of the contract, which currently range from 1 1/2% to 5% of the
contract amount. Initial margin requirements are determined by the respective
exchanges on which the futures contracts are traded. There also are requirements
to make variation margin deposits as the value of the futures contract
fluctuates.
At the time the fund buys a stock index futures contract, an amount of cash,
U.S. government securities, or other highly liquid debt securities equal to the
market value of the contract will be deposited in a segregated account with the
fund's custodian. When selling a stock index futures contract, the fund will
maintain with its custodian liquid assets that, when added to the amounts
deposited with a futures commission merchant or broker as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, the
fund may "cover" its position by owning a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based, or holding a call option permitting the fund to buy the same futures
contract at a price no higher than the price of the contract written by the fund
(or at a higher price if the difference is maintained in liquid assets with the
fund's custodian).
SECURITIES INDEX OPTIONS The fund may buy and sell put and call options on
securities indices to earn additional income and/or to help protect its
portfolio against market and/or exchange rate movements. An option on a
securities index is a contract that
PAGE
allows the buyer of the option the right to receive from the seller cash, in an
amount equal to the difference between the index's closing price and the
option's exercise price. The fund may only buy options if the total premiums it
paid for such options are 5% or less of its total assets.
The fund may write call options and put options only if they are "covered." A
call option on an index is covered if the fund maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if the fund holds a call on the same index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call
written, provided the difference is maintained by the fund in cash or cash
equivalents in a segregated account with its custodian. A put option on an index
is covered if the fund maintains cash or cash equivalents equal to the exercise
price in a segregated account with its custodian. A put option is also covered
if the fund holds a put on the same index as the put written where the exercise
price of the put held is (i) equal to or greater than the exercise price of the
put written, or (ii) less than the exercise price of the put written, provided
the difference is maintained by the fund in cash or cash equivalents in a
segregated account with its custodian.
If an option written by the fund expires, the fund will realize a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the fund expires unexercised, the fund will realize a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
index, exercise price and expiration). There can be no assurance, however, that
a closing purchase or sale transaction can be effected when the fund desires.
TEMPORARY INVESTMENTS When the manager believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the fund's
portfolio in a temporary defensive manner. Under such circumstances, the fund
may invest up to 100% of its assets in: (i) U.S. government securities; (ii)
bank time deposits denominated in the currency of
PAGE
any major nation; (iii) commercial paper rated A-1 by S&P or Prime-1 by Moody's
or, if unrated, issued by a company which, at the date of investment, had an
outstanding debt issue rated AAA or AA by S&P or Aaa or Aa by Moody's; and (iv)
repurchase agreements with banks and broker-dealers.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50% of
the fund's outstanding shares are represented at the meeting in person or by
proxy, whichever is less.
The fund may not:
1. Invest in real estate or mortgages on real estate (although the fund may
invest in marketable securities secured by real estate or interests
therein or issued by companies or investment trusts which invest in real
estate or interests therein); invest in interests (other than debentures
or equity stock interests) in oil, gas or other mineral exploration or
development programs; purchase or sell commodity contracts except stock
index futures contracts; invest in other open-end investment companies
or, as an operating policy approved by the board, invest in closed-end
investment companies.
2. Purchase or retain securities of any company in which directors or
officers of the fund or the manager, individually owning more than
one-half of 1% of the securities of such company, in the aggregate own
more than 5% of the securities of such company.
3. 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.
4. Act as an underwriter; issue senior securities; purchase on margin or
sell short; write, buy or sell puts, calls, straddles or spreads (but the
fund may make margin payments in connection with, and purchase and sell,
stock index futures contracts and options on securities indices).
PAGE
5. Loan money, apart from the purchase of a portion of an issue of publicly
distributed bonds, debentures, notes and other evidences of indebtedness,
although the fund may buy U.S. government obligations with a simultaneous
agreement by the seller to repurchase them within no more than seven days
at the original purchase price plus accrued interest.
6. Borrow money for any purpose other than redeeming its shares or
purchasing its shares for cancellation, and then only as a temporary
measure to an amount not exceeding 5% of the value of its total assets,
or pledge, mortgage, or hypothecate its assets other than to secure such
temporary borrowings, and then only to such extent not exceeding 10% of
the value of its total assets as the board may by resolution approve.
(For the purposes of this restriction, collateral arrangements with
respect to margin for a stock index futures contract are not deemed to be
a pledge of assets.)
7. Invest more than 5% of the value of the fund's total assets in securities
of issuers which have been in continuous operation less than three years.
8. Invest more than 5% of the fund's total assets in warrants, whether or
not listed on the New York Stock Exchange or the American Stock Exchange,
including no more than 2% of its total assets which may be invested in
warrants that are not listed on those exchanges. Warrants acquired by the
fund in units or attached to securities are not included in this
restriction. This restriction does not apply to options on securities
indices.
9. Invest more than 15% of the fund's total assets in securities of foreign
issuers that are not listed on a recognized U.S. or foreign securities
exchange, including no more than 10% of its total assets (including
warrants) which may be invested in securities with a limited trading
market. The fund's position in the latter type of securities may be of
such size as to affect adversely their liquidity and marketability and
the fund may not be able to dispose of its holdings in these securities
at the current market price.
10. Invest more than 25% of the fund's total assets in a single industry.
PAGE
11. Invest in "letter stocks" or securities on which there are sales
restrictions under a purchase agreement.
12. Participate on a joint or a joint and several basis in any trading
account in securities. (See "Portfolio Transactions" as to transactions
in the same securities for the fund, other clients and/or other mutual
funds within the Franklin Templeton Group of Funds.)
The fund may also be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in the value or liquidity of
portfolio securities or the amount of assets will not be considered a violation
of any of the foregoing restrictions.
None of the fund's investment policies or restrictions (except restrictions 9
and 10) shall be deemed to prohibit the fund from buying securities pursuant to
subscription rights distributed to the fund by any issuer of securities held at
the time in its portfolio, as long as such purchase is not contrary to the
fund's status as a diversified investment company under the Investment Company
Act of 1940.
RISKS
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FOREIGN SECURITIES The fund has an unlimited right to buy securities in any
foreign country, developed or developing, if they are listed on a stock
exchange, as well as a limited right to buy 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.
PAGE
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its net asset value. Foreign markets have
substantially less volume than the New York Stock Exchange and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Although the fund may invest up to 15% of its total
assets in unlisted foreign securities, including up to 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 U.S., 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 U.S.
The fund may invest up to 100% of its total assets in emerging markets.
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 that 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.
In addition, many countries in which the fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid
PAGE
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain countries. Moreover,
the economies of some developing countries may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product, rate
of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments position.
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
certain Eastern European countries. Finally, even though certain Eastern
European currencies may be convertible into U.S. dollars, the conversion rates
may be artificial to the actual market values and may be adverse to fund
shareholders.
The fund may invest up to 5% of its total assets in Russian securities.
Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. These risks include,
together with Russia's continuing political and economic instability and the
slow-paced development of its market economy, the following: (i) delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody; (ii) the risk that it may be impossible or
more difficult than in other countries to obtain and/or enforce a judgment;
(iii) pervasiveness of corruption, insider trading, and crime in the Russian
economic system; (iv) currency exchange rate volatility and the lack of
available currency hedging instruments; (v) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation); (vi)
controls on foreign investment and local practices disfavoring foreign investors
and limitations on repatriation of invested capital, profits and dividends, and
on the fund's ability to exchange local currencies for U.S. dollars; (vii) the
risk that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could
PAGE
follow radically different political and/or economic policies to the detriment
of investors, including non-market-oriented policies such as the support of
certain industries at the expense of other sectors or investors, a return to the
centrally planned economy that existed before the dissolution of the Soviet
Union, or the nationalization of privatized enterprises; (viii) the risks of
investing in securities with substantially less liquidity and in issuers having
significantly smaller market capitalizations, when compared to securities and
issuers in more developed markets; (ix) the difficulties associated in obtaining
accurate market valuations of many Russian securities, based partly on the
limited amount of publicly available information; (x) the financial condition of
Russian companies, including large amounts of inter-company debt that may create
a payments crisis on a national scale; (xi) dependency on exports and the
corresponding importance of international trade; (xii) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (xiii) possible difficulty in identifying a buyer of securities held by
the fund due to the underdeveloped nature of the securities markets; (xiv) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (xv) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (xvi) the difficulty
in obtaining information about the financial condition of Russian issuers, in
light of the different disclosure and accounting standards applicable to Russian
companies.
There is little long-term historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
PAGE
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision nor are they licensed with any
governmental entity and it is possible for the fund to lose its registration
through fraud, negligence or even mere oversight. While the fund will endeavor
to ensure that its interest continues to be appropriately recorded either itself
or through a custodian or other agent inspecting the share register and by
obtaining extracts of share registers through regular confirmations, these
extracts have no legal enforceability and it is possible that subsequent illegal
amendment or other fraudulent act may deprive the fund of its ownership rights
or improperly dilute its interests. In addition, while applicable Russian
regulations impose liability on registrars for losses resulting from their
errors, it may be difficult for the fund to enforce any rights it may have
against the registrar or issuer of the securities in the event of loss of share
registration. Furthermore, although a Russian public enterprise with more than
500 shareholders is required by law to contract out the maintenance of its
shareholder register to an independent entity that meets certain criteria, in
practice this regulation has not always been strictly enforced. Because of this
lack of independence, management of a company may be able to exert considerable
influence over who can buy and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the fund from
investing in the securities of certain Russian companies deemed suitable by the
manager. Further, this also could cause a delay in the sale of Russian company
securities by the fund if a potential buyer is deemed unsuitable, which may
expose the fund to potential loss on the investment.
CURRENCY RISK The fund's management endeavors to buy and sell foreign currencies
on as favorable a basis as practicable. Some price spread on currency exchange
(to cover service charges) may be incurred, particularly when the fund changes
investments from one country to another or when proceeds of the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies that would prevent the fund from
transferring cash out of the country or
PAGE
withhold portions of interest and dividends at the source. There is the
possibility of cessation of trading on national exchanges, 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 that 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. Some countries in which the fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies may not be internationally traded.
Certain of these currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which the fund's
portfolio securities are denominated may have a detrimental impact on the fund.
Through the fund's flexible policy, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places the fund's investments.
The exercise of this flexible policy may include decisions to buy 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 fund's board of directors considers at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions that would
affect the liquidity of the fund's assets maintained with custodians in foreign
countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The board also considers the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories. However, in the absence of willful
PAGE
misfeasance, bad faith or gross negligence on the part of the 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 board's appraisal of the risks
will always be correct or that such exchange control restrictions or political
acts of foreign governments might not occur.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. The transition and the elimination
of currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets.
Franklin Resources, Inc. has created an interdepartmental team to handle all
euro-related changes to enable the Franklin Templeton Funds to process
transactions accurately and completely with minimal disruption to business
activities. While the implementation of the euro could have a negative effect on
the fund, the fund's manager and its affiliated services providers are taking
steps they believe are reasonably designed to address the euro issue.
INTEREST RATE RISK To the extent the fund invests in debt securities, changes in
interest rates in any country where the fund is invested will affect the value
of the fund's portfolio and, consequently, its share price. Rising interest
rates, which often occur during times of inflation or a growing economy, are
likely to cause the face value of a debt security to decrease, having a negative
effect on the value of the fund's shares. Of course, interest rates have
increased and decreased, sometimes very dramatically, in the past. These changes
are likely to occur again in the future at unpredictable times.
LOW RATED SECURITIES Bonds rated Caa by Moody's are of poor standing. These
securities may be in default or there may be present elements of danger with
respect to principal or interest. Bonds rated CCC by S&P are regarded, on
balance, as speculative. These securities will have some quality and protective
characteristics, but these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Although they may offer higher yields than do higher rated securities, low rated
and unrated debt securities generally
PAGE
involve greater volatility of price and risk to principal and income, including
the possibility of default by, or bankruptcy of, the issuers of the securities.
The fund may invest up to 10% of its total assets in defaulted debt securities.
The purchase of defaulted debt securities involves risks such as the possibility
of complete loss of the investment in the event the issuer does not restructure
or reorganize to enable it to resume paying interest and principal to holders.
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
goal 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
PAGE
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 income to shareholders. Thus, the fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash in order to satisfy the distribution requirement.
DERIVATIVE SECURITIES Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments or
indices; in contrast to common stock, for example, whose value is dependent upon
the operations of the issuer. Stock index futures contracts and options on
securities indices are considered derivative investments. To the extent the fund
enters into these transactions, their success will depend upon the manger's
ability to predict pertinent market movements.
Some of the risks involved in stock index futures transactions relate to the
fund's ability to reduce or eliminate its futures positions, which will depend
upon the liquidity of the secondary markets for such futures. The fund intends
to buy or sell futures only on exchanges or boards of trade where there appears
to be an active secondary market, but there is no assurance that a liquid
secondary market will exist for any particular contract or at any particular
time. Use of stock index futures for hedging may involve risks because of
imperfect correlations between movements in the prices of the stock index
futures on the one hand and movements in the prices of the securities being
hedged or of the underlying stock index on the other. Successful use of stock
index futures by the fund for hedging purposes also depends upon the manager's
ability to predict correctly movements in the direction of the market, as to
which no assurance can be given.
There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as
PAGE
to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when the fund seeks to close out an
option position. If the fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by the fund, it would not be able to close out
the option. If restrictions on exercise were imposed, the fund might be unable
to exercise an option it has purchased. Except to the extent that a call option
on an index written by the fund is covered by an option on the same index
purchased by the fund, movements in the index may result in a loss to the fund;
however, such losses may be mitigated by changes in the value of the fund's
securities during the period the option was outstanding.
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
The fund has a board of directors. The board is responsible for the overall
management of the fund, including general supervision and review of the fund's
investment activities. The board, in turn, elects the officers of the fund who
are responsible for administering the fund's day-to-day operations. The board
also monitors the fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.
The affiliations of the officers and board members and their principal
occupations for the past five years are shown below.
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS THE FUND DURING THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Director
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case
PAGE
may be, of 49 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, President, Chief Executive Officer and Chairman of the
Board, General Host Corporation (nursery and craft centers).
*Nicholas F. Brady (68)
The Bullitt House
102 East Dover Street
Easton, MD 21601
Director
Chairman, Templeton Emerging Markets Investment Trust PLC, Templeton Latin
America Investment Trust PLC, Darby Overseas Investments, Ltd. and Darby
Emerging Markets Investments LDC (investment firms) (1994-present); Director,
Templeton Global Strategy Funds, Amerada Hess Corporation (exploration and
refining of natural gas), Christiana Companies, Inc. (operating and investment
companies), and H.J. Heinz Company (packaged foods and allied products);
director or trustee, as the case may be, of 21 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Secretary of the United
States Department of the Treasury (1988-1993) and Chairman of the Board, Dillon,
Read & Co., Inc. (investment banking) prior to 1988.
S. Joseph Fortunato (66)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 51 of the investment companies in the Franklin Templeton
Group of Funds.
John Wm. Galbraith (77)
360 Central Avenue
Suite 1300
St. Petersburg, FL 33701
Director
President, Galbraith Properties, Inc. (personal investment company); Director
Emeritus, Gulf West Banks, Inc. (bank holding
PAGE
company) (1995-present); director or trustee, as the case may be, of 20 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Director, Mercantile Bank (1991-1995), Vice Chairman, Templeton, Galbraith &
Hansberger Ltd. (1986-1992), and Chairman, Templeton Funds Management, Inc.
(1974-1991).
Andrew H. Hines, Jr. (75)
150 2nd Avenue N.
St. Petersburg, FL 33701
Director
Consultant for the Triangle Consulting Group; Executive-in-Residence of Eckerd
College (1991-present); director or trustee, as the case may be, of 22 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Director, Precise Power Corporation (1990-1997), Director, Checkers
Drive-In Restaurant, Inc. (1994-1997), and Chairman of the Board and Chief
Executive Officer, Florida Progress Corporation (holding company in the energy
area) (1982-1990) and director of various of its subsidiaries.
*Charles B. Johnson (65)
777 Mariners Island Blvd.
San Mateo, CA 94404
Director and Vice President
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc. and Franklin Templeton Services, Inc.; and officer and/or director or
trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 50 of the investment companies in the Franklin Templeton
Group of Funds.
Betty P. Krahmer (69)
2201 Kentmere Parkway
Wilmington, DE 19806
Director
PAGE
Director or trustee of various civic associations; director or trustee, as the
case may be, of 21 of the investment companies in the Franklin Templeton Group
of Funds; and FORMERLY, Economic Analyst, U.S. government.
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Director
Director, Fund American Enterprises Holdings, Inc., MCI WorldCom, MedImmune,
Inc. (biotechnology), Spacehab, Inc. (aerospace services) and Real 3D
(software); director or trustee, as the case may be, of 49 of the investment
companies in the Franklin Templeton Group of Funds; and FORMERLY, Chairman,
White River Corporation (financial services) and Hambrecht and Quist Group
(investment banking), and President, National Association of Securities Dealers,
Inc.
Fred R. Millsaps (69)
2665 NE 37th Drive
Fort Lauderdale, FL 33308
Director
Manager of personal investments (1978-present); director of various business and
nonprofit organizations; director or trustee, as the case may be, of 22 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Chief Executive Officer, Landmark Banking Corporation (1969-1978),
Financial Vice President, Florida Power and Light (1965-1969), and Vice
President, Federal Reserve Bank of Atlanta (1958-1965).
Mark G. Holowesko (38)
Lyford Cay
Nassau, Bahamas
President
President, Templeton Global Advisors Limited; Chief Investment Officer, Global
Equity Group; Executive Vice President and Director, Templeton Worldwide, Inc.;
officer of 21 of the investment companies in the Franklin Templeton Group of
Funds;
PAGE
and FORMERLY, Investment Administrator, RoyWest Trust Corporation (Bahamas)
Limited (1984-1985).
Rupert H. Johnson, Jr. (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 53 of
the investment companies in the Franklin Templeton Group of Funds.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
Charles E. Johnson (42)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment Counsel,
Inc.; Vice President, Franklin Advisers, Inc.; officer and/or director of some
of the
PAGE
other subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 34 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal Officer
and Chief Operating Officer, Franklin Investment Advisory Services, Inc.; and
officer of 53 of the investment companies in the Franklin Templeton Group of
Funds.
Martin L. Flanagan (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and Franklin
Investment Advisory Services, Inc.; President and Director, Franklin Templeton
Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor Services, Inc.; officer and/or director of some of
the other subsidiaries of Franklin Resources, Inc.; and officer and/or director
or trustee, as the case may be, of 53 of the investment companies in the
Franklin Templeton Group of Funds.
John R. Kay (58)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President
PAGE
Vice President and Treasurer, Templeton Worldwide, Inc.; Assistant Vice
President, Franklin Templeton Distributors, Inc.; officer of 25 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Vice President and Controller, Keystone Group, Inc.
Elizabeth M. Knoblock (43)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President - Compliance
General Counsel, Secretary and Senior Vice President, Templeton Investment
Counsel, Inc.; Senior Vice President, Templeton Global Investors, Inc.; officer
of 21 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Vice President and Associate General Counsel, Kidder Peabody & Co.
Inc. (1989-1990), Assistant General Counsel, Gruntal & Co., Inc. (1988), Vice
President and Associate General Counsel, Shearson Lehman Hutton Inc. (1988),
Vice President and Assistant General Counsel, E.F. Hutton & Co. Inc.
(1986-1988), and Special Counsel of the Division of Investment Management, U.S.
Securities and Exchange Commission (1984-1986).
James R. Baio (44)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Treasurer
Certified Public Accountant; Treasurer, Franklin Mutual Advisers, Inc.; Senior
Vice President, Templeton Worldwide, Inc., Templeton Global Investors, Inc. and
Templeton Funds Trust Company; officer of 22 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Senior Tax Manager, Ernst &
Young (certified public accountants) (1977-1989).
Barbara J. Green (51)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Secretary
Senior Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 21 of the investment companies
PAGE
in the Franklin Templeton Group of Funds; and FORMERLY, Deputy Director of the
Division of Investment Management, Executive Assistant and Senior Advisor to the
Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S.
Securities and Exchange Commission (1986-1995), Attorney, Rogers & Wells, and
Judicial Clerk, U.S. District Court (District of Massachusetts).
* This board member is considered an "interested person" under federal
securities laws. Mr. Brady's status as an interested person results from his
business affiliations with Franklin Resources, Inc. and Templeton Global
Advisors Limited. Mr. Brady and Franklin Resources, Inc. are both limited
partners of Darby Overseas Partners, L.P. (Darby Overseas). In addition, Darby
Overseas and Templeton Global Advisors Limited are limited partners of Darby
Emerging Markets Fund, L.P.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father
and uncle, respectively, of Charles E. Johnson.
The fund pays noninterested board members and Mr. Brady an annual retainer of
$12,000 and a fee of $900 per board meeting attended. Board members who serve on
the audit committee of the fund and other funds in the Franklin Templeton Group
of Funds receive a flat fee of $2,000 per committee meeting attended, a portion
of which is allocated to the fund. Members of the nominating and compensation
committee are not compensated for any committee meeting held in conjunction with
a board meeting. Noninterested board members may also serve as directors or
trustees of other funds in the Franklin Templeton Group of Funds and may receive
fees from these funds for their services. The following table provides the total
fees paid to noninterested board members and Mr. Brady by the fund and by other
funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP OF
RECEIVED FRANKLIN TEMPLETON FUNDS ON WHICH
NAME FROM THE FUND(1) GROUP OF FUNDS(2) EACH SERVES(3)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harris J. Ashton $18,825 $361,157 49
Nicholas F. Brady 18,825 140,975 21
S. Joseph Fortunato 18,825 367,835 51
John Wm. Galbraith 18,487 134,425 20
Andrew H. Hines, Jr. 19,437 208,075 22
Betty P. Krahmer 18,825 141,075 21
Gordon S. Macklin 18,825 361,157 49
Fred R. Millsaps 19,437 210,075 22
</TABLE>
PAGE
(1)For the fiscal year ended August 31, 1998. During the period from September
1, 1997, through February 27, 1998, an annual retainer of $12,500 and fees at
the rate of $950 per meeting attended were in effect.
(2)For the calendar year ended December 31, 1998.
(3)We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the board
members are responsible. The Franklin Templeton Group of Funds currently
includes 54 registered investment companies, with approximately 168 U.S. based
funds or series.
Noninterested board members and Mr. Brady are reimbursed for expenses incurred
in connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.
MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
MANAGER AND SERVICES PROVIDED The fund's manager is Templeton Global Advisors
Limited. The manager is wholly owned by Franklin Resources, Inc. (Resources), a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources.
The manager provides investment research and portfolio management services, and
selects the securities for the fund to buy, hold or sell. The manager also
selects the brokers who execute the fund's portfolio transactions. The manager
provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance. The manager
renders its services to the fund from outside the U.S.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager
PAGE
on behalf of the fund. Similarly, with respect to the fund, the manager is not
obligated to recommend, buy or sell, or to refrain from recommending, buying or
selling any security that the manager and access persons, as defined by
applicable federal securities laws, may buy or sell for its or their own account
or for the accounts of any other fund. The manager is not obligated to refrain
from investing in securities held by the fund or other funds it manages. Of
course, any transactions for the accounts of the manager and other access
persons will be made in compliance with the fund's code of ethics.
Under the fund's code of ethics, employees of the Franklin Templeton Group who
are access persons may engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed by the close
of the business day following the day clearance is granted; (ii) copies of all
brokerage confirmations and statements must be sent to a compliance officer;
(iii) all brokerage accounts must be disclosed on an annual basis; and (iv)
access persons involved in preparing and making investment decisions must, in
addition to (i), (ii) and (iii) above, file annual reports of their securities
holdings each January and 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 FEES The fund pays the manager a fee equal to an annual rate of:
/bullet/ 0.75% of the value of net assets up to and including $200 million;
/bullet/ 0.675% of the value of net assets over $200 million and not over $1.3
billion; and
/bullet/ 0.60% of the value of net assets in excess of $1.3 billion.
The fee is computed monthly, based on the fund's average daily net assets during
the month preceding each payment, according to the terms of the management
agreement. Each class of the fund's shares pays its proportionate share of the
fee.
For the last three fiscal years ended August 31, the fund paid the following
management fees:
PAGE
MANAGEMENT FEES PAID ($)
- --------------------------------------------------------
1998 86,332,815
1997 65,767,491
1996 48,379,594
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the fund to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by Resources
and is an affiliate of the fund's manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The fund pays FT Services a monthly fee equal to an annual
rate of:
/bullet/ 0.15% of the fund's average daily net assets up to $200 million;
/bullet/ 0.135% of average daily net assets over $200 million up to $700
million;
/bullet/ 0.10% of average daily net assets over $700 million up to $1.2
billion; and
/bullet/ 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended August 31, the fund paid the following
administration fees:
ADMINISTRATION FEES PAID ($)
--------------------------------------------------------
1998 11,225,977
1997(1) 8,655,311
1996(1) 6,481,909
(1) Before October 1, 1996, Templeton Global Investors, Inc. provided
administrative services to the fund.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
PAGE
For its services, Investor Services receives a fixed fee per account. The fund
may also reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the fund. The amount of reimbursements
for these services per benefit plan participant fund account per year may not
exceed the per account fee payable by the fund to Investor Services in
connection with maintaining shareholder accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech Center,
Brooklyn, NY 11245, and at the offices of its branches and agencies throughout
the world, acts as custodian of the fund's assets. As foreign custody manager,
the bank selects and monitors foreign sub-custodian banks, selects and evaluates
non-compulsory foreign depositories, and furnishes information relevant to the
selection of compulsory depositories.
AUDITOR McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, is the
fund's independent auditor. The auditor gives an opinion on the financial
statements included in the fund's Annual Report to Shareholders and reviews the
fund's registration statement filed with the U.S. Securities and Exchange
Commission (SEC).
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the manager and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors
PAGE
of comparable size. The manager will ordinarily place orders to buy and sell
over-the-counter securities on a principal rather than agency basis with a
principal market maker unless, in the opinion of the manager, a better price and
execution can otherwise be obtained. Purchases of portfolio securities from
underwriters will include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread between the bid
and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the manager's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the manager include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the manager in carrying out its investment advisory
responsibilities. These services may not always directly benefit the fund. They
must, however, be of value to the manager in carrying out its overall
responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services allows the manager to supplement its own research
and analysis activities and to receive the views and information of individuals
and research staffs of other securities firms. As long as it is lawful and
appropriate to do so, the manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. If the fund's
officers are satisfied that the best execution is obtained, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture
PAGE
brokerage for the benefit of the fund, any portfolio securities tendered by the
fund will be tendered through Distributors if it is legally permissible to do
so. In turn, the next management fee payable to the manager will be reduced by
the amount of any fees received by Distributors in cash, less any costs and
expenses incurred in connection with the tender.
If purchases or sales of securities of the fund and one or more other investment
companies or clients supervised by the manager are considered at or about the
same time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
fund.
Purchases and sales of securities, without the payment of brokerage commissions,
fees (except customary transfer fees) or other remuneration, may be effected
between the fund and one or more other investment companies or clients
supervised by the manager according to procedures adopted under the Investment
Company Act of 1940.
During the last three fiscal years ended August 31, the fund paid the following
brokerage commissions:
BROKERAGE COMMISSIONS ($)
-------------------------------------------------------
1998 26,366,655
1997 15,953,126
1996 7,918,000
As of August 31, 1998, the fund owned securities issued by Merrill Lynch & Co.
valued in the aggregate at $104,300,000. Except as noted, the fund did not own
any securities issued by its regular broker-dealers as of the end of the fiscal
year.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in the
form of dividends and interest on its
PAGE
investments. This income, less expenses incurred in the operation of the fund,
constitutes the fund's net investment income from which dividends may be paid to
you. Any distributions by the fund from such income will be taxable to you as
ordinary income, whether you take them in cash or in additional shares. The fund
does not pay "interest" or guarantee any fixed rate of return on an investment
in its shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income. Distributions
paid from long-term capital gains realized by the fund will be taxable to you as
long-term capital gain, regardless of how long you have held your shares in the
fund. Any net short-term or long-term capital gains realized by the fund (net of
any capital loss carryovers) generally will be distributed once each year, and
may be distributed more frequently, if necessary, in order to reduce or
eliminate federal excise or income taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized by the fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the fund's ordinary
income distributions to you, and may cause some or all of the fund's previously
distributed income to be classified as a return of capital.
The fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the fund. If this election is made, the year-end statement you receive from the
fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or claim a foreign tax credit for such taxes
against your U.S. federal income tax. The fund will provide you with the
PAGE
information necessary to complete your individual income tax return if such
election is made.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount and character of your distributions at the time they are paid, and
will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held fund shares for a full year, you may have designated as ordinary income or
capital gain a percentage of income that is not equal to the actual amount of
such income earned during the period of your investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected to
be treated as a regulated investment company under Subchapter M of the tax code,
has qualified as such for its most recent fiscal year, and intends to so qualify
during the current fiscal year. As a regulated investment company, the fund
generally pays no federal income tax on the income and gains it distributes to
you. The board reserves the right not to maintain the qualification of the fund
as a regulated investment company if it determines such course of action to be
beneficial to shareholders. In such case, the fund will be subject to federal,
and possibly state, corporate taxes on its taxable income and gains, and
distributions to you will be taxed as ordinary dividend income to the extent of
the fund's available earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS The tax code requires the fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal excise
taxes. The fund intends to declare and pay sufficient dividends in December (or
in January of the following year that are treated by you as received in December
of the prior year) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes that cause you to
recognize a gain or loss. If you hold your shares as a capital asset, the gain
or loss that you realize will be capital gain or loss. Any loss incurred on the
redemption
PAGE
or exchange of shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gains distributed to you by
the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you buy other shares in the fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.
U.S. GOVERNMENT OBLIGATIONS Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that 12.44% of the dividends paid by the fund for
the most recent fiscal year qualified for the dividends-received deduction. In
some circumstances, you will be allowed to deduct these qualified dividends,
thereby reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with respect
to dividends designated by the fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the fund or defer the fund's ability to recognize losses, and, in limited
cases, subject the fund to U.S. federal income tax on income from certain of its
foreign securities. In turn, these rules may affect the amount, timing or
character of the income distributed to you by the fund.
PAGE
For more information, please call 1-800/ DIAL BEN to request a free copy of the
Franklin Templeton Tax Information Handbook.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- --------------------------------------------------------------------------------
The fund is a diversified, open-end management investment company, commonly
called a mutual fund. The fund was organized as a Maryland corporation on
November 10, 1986, from its predecessor entity, which commenced operations on
November 29, 1954, and is registered with the SEC.
The fund currently offers four classes of shares, Class A, Class B, Class C and
Advisor Class. Before January 1, 1999, Class A shares were designated Class I
and Class C shares were designated Class II. The fund began offering Class B
shares on January 1, 1999. The fund may offer additional classes of shares in
the future. The full title of each class is:
/bullet/ Templeton Growth Fund, Inc. - Class A
/bullet/ Templeton Growth Fund, Inc. - Class B
/bullet/ Templeton Growth Fund, Inc. - Class C
/bullet/ Templeton Growth Fund, Inc. - Advisor Class
Shares of each class represent proportionate interests in the fund's assets. On
matters that affect the fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only one
class, only shareholders of that class may vote. Each class votes separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law.
The fund has noncumulative voting rights. For board member elections, this gives
holders of more than 50% of the shares voting the ability to elect all of the
members of the board. If this happens, holders of the remaining shares voting
will not be able to elect anyone to the board.
The fund does not intend to hold annual shareholder meetings. The fund may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may be called by the board to consider the removal of a board member if
requested in writing by shareholders holding at least 10% of the outstanding
shares. In certain circumstances, we are required to help you communicate with
other shareholders about the removal of a board member. A
PAGE
special meeting may also be called by the board in its discretion.
From time to time, the number of fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the fund, no other person holds beneficially or of record more
than 5% of the outstanding shares of any class.
As of October 2, 1998, the officers and board members, as a group, owned of
record and beneficially 2.92% of the fund's Advisor Class shares and less than
1% of the outstanding shares of the fund's other classes. The board members may
own shares in other funds in the Franklin Templeton Group of Funds.
BUYING AND SELLING SHARES
- --------------------------------------------------------------------------------
The fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer orders
and accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity. Banks and financial institutions that
sell shares of the fund may be required by state law to register as securities
dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the
PAGE
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the fund we may impose a $10 charge against your account for each returned item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
DEALER COMPENSATION Distributors and/or its affiliates provide financial support
to various securities dealers that sell shares of the Franklin Templeton Group
of Funds. This support is based primarily on the amount of sales of fund shares.
The amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a securities dealer's support of, and
participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to securities dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain securities dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the rules of the National Association of Securities Dealers,
Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in the Franklin Templeton Funds,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by Distributors.
PAGE
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be exchanged into the new fund and invested at net asset value. Backup
withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the fund's investment goal exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing money market instruments and invested in portfolio securities
in as orderly a manner as is possible when attractive investment opportunities
arise.
The proceeds from the sale of shares of an investment company are generally not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled. If the 25th falls on a weekend or holiday, we will process
the redemption on
PAGE
the next business day. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. The fund may discontinue a systematic withdrawal plan by
notifying you in writing and will automatically discontinue a systematic
withdrawal plan if all shares in your account are withdrawn or if the fund
receives notification of the shareholder's death or incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the Securities and Exchange
Commission (SEC). In the case of redemption requests in excess of these amounts,
the board reserves the right to make payments in whole or in part in securities
or other assets of the fund, in case of an emergency, or if the payment of such
a redemption in cash would be detrimental to the existing shareholders of the
fund. In these circumstances, the securities distributed would be valued at the
price used to compute the fund's net assets and you may incur brokerage fees in
converting the securities to cash. The fund does not intend to redeem illiquid
securities in kind. If this happens, however, you may not be able to recover
your investment in a timely manner.
SHARE CERTIFICATES We will credit your shares to your fund account. We do not
issue share certificates unless you specifically request them. This eliminates
the costly problem of replacing lost, stolen or destroyed certificates. If a
PAGE
certificate is lost, stolen or destroyed, you may have to pay an insurance
premium of up to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the fund marked "unable
to forward" by the postal service, we will consider this a request by you to
change your dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at net asset value until we receive new
instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, the fund is not bound to
meet any redemption request in less than the seven day period prescribed by law.
Neither the fund nor its agents shall be liable to you or any other person if,
for any reason, a redemption request by wire is not processed as described in
the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the fund on behalf of
numerous beneficial owners for
PAGE
recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the fund may reimburse Investor
Services an amount not to exceed the per account fee that the fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to the fund in
a timely fashion. Your redemption proceeds will not earn interest between the
time we receive the order from your dealer and the time we receive any required
documents. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the fund in a timely fashion must be settled between you and
your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority to
control your 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, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a notice of levy.
PRICING SHARES
- --------------------------------------------------------------------------------
When you buy and sell shares, you pay the net asset value (NAV) per share.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset
PAGE
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
The fund calculates the NAV per share each business day at the close of trading
on the New York Stock Exchange (normally 1:00 p.m. pacific time). The fund does
not calculate the NAV on days the New York Stock Exchange (NYSE) is closed for
trading, which include New Year's Day, Martin Luther King Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager.
The fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the fund holds is its last sale price on the relevant exchange before the fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the fund values options within the range of the
current closing bid and ask prices if the fund believes the valuation fairly
reflects the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the fund's NAV is not calculated. Thus, the calculation of the fund's NAV
does not take place contemporaneously with the determination of the prices of
many of
PAGE
the portfolio securities used in the calculation and, if events materially
affecting the values of these foreign securities occur, the securities will be
valued at fair value as determined by management and approved in good faith by
the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the board. With the approval of the board, the
fund may use a pricing service, bank or securities dealer to perform any of the
above described functions.
THE UNDERWRITER
- --------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
PAGE
Distributors does not receive compensation from the fund for acting as
underwriter of the fund's Advisor Class shares.
PERFORMANCE
- --------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC.
For periods before January 2, 1997, Advisor Class standardized performance
quotations are calculated by substituting Class A performance for the relevant
time period, excluding the effect of Class A's maximum initial sales charge, and
including the effect of the distribution and service (Rule 12b-1) fees
applicable to the fund's Class A shares. For periods after January 2, 1997,
Advisor Class standardized performance quotations are calculated as described
below.
An explanation of these and other methods used by the fund to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results, and is an indication of the return to shareholders
only for the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes income dividends and capital gain distributions are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum initial sales
charge currently in effect.
The average annual total returns for the indicated periods ended August 31,
1998, were:
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
PAGE
Advisor Class -12.41% 9.92% 12.18%
These figures were calculated according to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
net asset value. Cumulative total return, however, is based on the actual return
for a specified period rather than on the average return over the periods
indicated above. The cumulative total returns for the indicated periods ended
August 31, 1998, were:
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Advisor Class -12.41% 60.47% 215.70%
VOLATILITY Occasionally statistics may be used to show the fund's volatility or
risk. Measures of volatility or risk are generally used to compare the fund's
net asset value or performance to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities in
which the fund invests. A beta of more than 1.00 indicates volatility greater
than the market and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset value or total return
around an average over a specified period of time. The idea is that greater
volatility means greater risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS Sales literature referring to the use of the fund
as a potential investment for IRAs, business retirement plans, and other
tax-advantaged retirement plans may
PAGE
quote a total return based upon compounding of dividends on which it is presumed
no federal income tax applies.
The fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:
(i) unmanaged indices so that you may compare the fund's results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities market in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm that
ranks mutual funds by overall performance, investment goals 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.
From time to time, the fund and the manager may also refer to the following
information:
/bullet/ The 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.
/bullet/ The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital
International/registered trademark/ or a similar financial
organization.
/bullet/ The capitalization of U.S. and foreign stock markets as
PAGE
prepared or published by the International Finance Corporation, Morgan
Stanley Capital International/registered trademark/ or a similar
financial organization.
/bullet/ The geographic and industry distribution of the fund's portfolio and
the fund's top ten holdings.
/bullet/ The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due
to a liberalization of securities laws and a reduction of foreign
exchange controls, and improving communication technology, of various
countries as published by various statistical organizations.
/bullet/ 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).
/bullet/ The major industries located in various jurisdictions as published by
the Morgan Stanley Index.
/bullet/ Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
/bullet/ Allegorical stories illustrating the importance of persistent
long-term investing.
/bullet/ The fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical Services, Inc. or
Morningstar, Inc.
/bullet/ 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.
/bullet/ Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.
/bullet/ Quotations from the Templeton organization's founder, Sir John
PAGE
Templeton,* advocating the virtues of diversification and long-term
investing, including the following:
/bullet/ "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
/bullet/ "Diversify by company, by industry and by
country."
/bullet/ "Always maintain a long-term perspective."
/bullet/ "Invest for maximum total real return."
/bullet/ "Invest - don't trade or speculate."
/bullet/ "Remain flexible and open-minded about types of
investment."
/bullet/ "Buy low."
/bullet/ "When buying stocks, search for bargains among
quality stocks."
/bullet/ "Buy value, not market trends or the economic
outlook."
/bullet/ "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
/bullet/ "Do your homework or hire wise experts to help
you."
/bullet/ "Aggressively monitor your investments."
/bullet/ "Don't panic."
/bullet/ "Learn from your mistakes."
/bullet/ "Outperforming the market is a difficult task."
/bullet/ "An investor who has all the answers doesn't even
understand all the questions."
- ----------
* Sir John Templeton sold the Templeton organization to Franklin Resources,
Inc. in October 1992 and resigned from the board on April 16, 1995. He is
no longer involved with the investment management process.
PAGE
/degree/ "There's no free lunch."
/degree/ "And now the last principle: Do not be fearful or
negative too often."
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a CD issued
by a bank. For example, as the general level of interest rates rise, the value
of the fund's fixed-income investments, if any, as well as the value of its
shares that are based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of the
fund's shares can be expected to increase. CDs are frequently insured by an
agency of the U.S. government. An investment in the fund is not insured by any
federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the fund to calculate its figures. In addition,
there can be no assurance that the fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected
PAGE
amount available in the future to fund a child's college education. (Projected
college cost estimates are based upon current costs published by the College
Board.) The Franklin Retirement Planning Guide leads you through the steps to
start a retirement savings program. Of course, an investment in the fund cannot
guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of the
oldest mutual fund organizations and now services more than 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined forces
with Templeton, a pioneer in international investing. The Mutual Series team,
known for its value-driven approach to domestic equity investing, became part of
the organization four years later. Together, the Franklin Templeton Group has
over $207 billion in assets under management for more than 6 million U.S. based
mutual fund shareholder and other accounts. The Franklin Templeton Group of
Funds offers 117 U.S. based open-end investment companies to the public. The
fund may identify itself by its NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has already
begun making necessary software changes to help the computer systems that
service the fund and their shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests have been planned to verify
their effectiveness. Resources continues to seek reasonable assurances from all
major hardware, software or data-services suppliers that they will be Year 2000
compliant on a timely basis. Resources is also in the process of developing
contingency plans for Year 2000 failures. In an operation as complex and
geographically distributed as Resources' business, however, this
PAGE
means identifying only those mission critical systems for which it is practical
to develop a contingency plan.
DESCRIPTION OF BOND RATINGS
- --------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and
PAGE
bad times over the future. Uncertainty of position characterizes bonds in this
class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations that are speculative to a high degree.
These issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION (S&P)
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit
PAGE
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC 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 obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC-rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
PAGE
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
PAGE
TEMPLETON GROWTH FUND, INC.
File Nos. 33-9981 and 811-4892
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
The following exhibits are incorporated by reference to the previously filed
document indicated below, except as noted:
(a) ARTICLES OF INCORPORATION
(i) Amended and Restated Articles of Incorporation dated
January 26, 1989 /2/
(ii) Articles of Amendment dated April 17, 1995 /1/
(iii) Articles Supplementary dated April 13, 1995 /1/
(iv) Articles Supplementary dated December 27, 1996 /4/
(v) Articles Supplementary dated April 10, 1997
(B) BY-LAWS
(i) Amended and Restated By-Laws of Templeton Growth Fund, Inc.
dated October 1, 1996 /3/
(C) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
Not Applicable
(D) INVESTMENT ADVISORY CONTRACTS
(i) Amended and Restated Management Agreement between the Registrant
and Templeton Galbraith & Hansberger, Ltd. dated
December 6, 1994 /1/
(E) UNDERWRITING CONTRACTS
(i) Amended and Restated Distribution Agreement between the
Registrant and Franklin Templeton Distributors, Inc., dated
May 1, 1995 /2/
(ii) Non-Exclusive Underwriting Agreement between the Registrant and
Templeton Global Strategic Services (Deutschland) GmbH dated
October 31, 1995 /2/
(iii) Non-Exclusive Underwriting Agreement dated September 18, 1995
between the Registrant and Templeton Franklin Investment
Services (Asia) Limited /5/
(iv) Form of Dealer Agreement between Registrant and Franklin
Templeton Distributors, Inc. and Securities Dealers
(v) Amendment of Dealer Agreement dated May 15, 1998
(F) BONUS OR PROFIT SHARING CONTRACTS
Not applicable
PAGE
(G) CUSTODIAN AGREEMENTS
(i) Custody Agreement between Registrant and The Chase Manhattan
Bank dated December 31, 1986 /2/
(ii) Amendment dated March 3, 1998 to the Custody Agreement
(iii) Amendment No. 2 dated July 23, 1998 to the Custody Agreement
(H) OTHER MATERIAL CONTRACTS
(i) Fund Administration Agreement dated October 1, 1996 between
the Registrant and Franklin Templeton Services, Inc. /3/
(ii) Amended and Restated Transfer Agent Agreement dated July 1,
1996 between the Registrant and Franklin/Templeton Investor
Services, Inc. /5/
(iii) Sub-Transfer Agent Agreement dated March 1, 1992 between the
Registrant, Templeton Funds Trust Company and The Shareholder
Services Group, Inc. /2/
(iv) Sub-Accounting Services Agreement dated May 1, 1991 between
the Registrant, Templeton Funds Trust Company, Financial Data
Services, Inc., and Merrill Lynch, Pierce, Fenner & Smith,
Inc. /2/
(v) Shareholder Services Agreement dated September 18, 1995 between
Franklin/Templeton Investor Services, Inc. and Templeton
Franklin Investment Services (Asia) Limited /5/
(I) LEGAL OPINION
(i) Opinion and consent of counsel dated October 27, 1998
(J) OTHER OPINIONS
(i) Consent of Independent Accountants
(K) OMITTED FINANCIAL STATEMENTS
Not applicable
(L) INITIAL CAPITAL AGREEMENTS
(i) Letter of Understanding dated April 28, 1995 /1/
(m) RULE 12B-1 PLAN
(i) Plan of Distribution pursuant to Rule 12b-1 dated May 1, 1995 /1/
(ii) Class II Distribution Plan pursuant to Rule 12b-1 dated
May 1, 1995 /1/
PAGE
(O) RULE 18F-3 PLAN
(i) Multiple Class Plan, Templeton Growth Fund - Advisor Class /5/
(p) POWER OF ATTORNEY
(i) Power of Attorney dated December 12, 1996 3
PAGE
(27) FINANCIAL DATA SCHEDULE
(i) Financial Data Schedule for Templeton Growth Fund - Class I
(ii) Financial Data Schedule for Templeton Growth Fund - Class II
(iii) Financial Data Schedule for Templeton Growth Fund - Advisor Class
- ---------------------------
1 Previously filed with Post Effective Amendment No. 11 to the Registration
Statement on April 28, 1995
2 Previously filed with Post Effective Amendment No. 12 to the Registration
Statement on December 29, 1995
3 Previously filed with Post Effective Amendment No. 13 to the Registration
Statement on December 27, 1996
4 Previously filed with Post Effective Amendment No. 14 to the Registration
Statement on December 31, 1996
5 Previously filed with Post Effective Amendment No. 15 to the Registration
Statement on October 8, 1997
PAGE
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None
ITEM 25. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the By-Laws 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
successfully defense of any act, suit or proceeding) is asserted by such
directors, officers or controlling person 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 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
The officers and directors of the Registrant's manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Templeton Group of
Funds. For additional information please see Part B and Schedules A and D of
Form ADV of the Fund's investment manager (SEC File 801-42343), incorporated
herein by reference, which sets forth the officers and directors of the
investment manager and information as to any business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years.
ITEM 27. PRINCIPAL UNDERWRITERS
a) Franklin Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
PAGE
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
(b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this Form N-1A
and Schedule A of Form BD filed by Distributors with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (SEC File No. 8-5889).
(c) Not Applicable. Registrant's principal underwriter is an affiliated person
of an affiliated person of the Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained by the
Registrant pursuant to Section 31 (a) of the Investment Company Act and the
rules thereunder are located at 500 East Broward Boulevard, Fort Lauderdale,
Florida 33394. Other records are maintained at the offices of Franklin/Templeton
Investor Services, Inc., 100 Fountain Parkway, St. Petersburg, Florida
33716-1205 and Franklin Resources, Inc., 777 Mariners Island Blvd., San Mateo,
CA 94404.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 30. UNDERTAKINGS
(i) Registrant undertakes to furnish to each person to whom a Prospectus for
Templeton Growth Fund is provided a copy of such Fund's latest Annual Report,
upon request and without charge.
PAGE
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Fort Lauderdale and the State of Florida, on the 30th day of October,
1998.
TEMPLETON GROWTH FUND, INC.
(Registrant)
By:
Mark G. Holowesko *
President
* By:/s/BARBARA J. GREEN
- -------------------------------
Barbara J. Green
Attorney-in-Fact **
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Principal Executive Officer
- ------------------------------
Mark G. Holowesko* Dated: October 30, 1998
Principal Financial and
- ------------------------------ Accounting Officer
James R. Baio *
Dated: October 30, 1998
Director
- -----------------------------
Betty P. Krahmer * Dated: October 30, 1998
Director
- -----------------------------
Harris J. Ashton * Dated: October 30, 1998
Director
- -----------------------------
S. Joseph Fortunato* Dated: October 30, 1998
Director, Chairman and
- ----------------------------- Vice President
Charles B. Johnson *
Dated: October 30, 1998
Director
- -----------------------------
Fred R. Millsaps * Dated: October 30, 1998
Director
- -----------------------------
John Wm. Galbraith * Dated: October 30, 1998
PAGE
Director
- -----------------------------
Gordon S. Macklin * Dated: October 30, 1998
Director
- -----------------------------
Andrew H. Hines,Jr. * Dated: October 30, 1998
Director
- -----------------------------
Nicholas F. Brady * Dated: October 30, 1998
*By: /s/BARBARA J. GREEN
- -----------------------------
Barbara J. Green
Attorney-in-Fact **
** Powers of Attorney were previously filed in Post Effective Amendment No. 13
to the Registration on Form N-1A of Templeton Growth Fund, Inc., (File Nos.
33-9981 and 811-4892) filed on December 27, 1996
PAGE
TEMPLETON GROWTH FUND, INC.
REGISTRATION STATEMENT
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EX-99.(a)(v ) Articles Supplementary dated April 10, 1997 Attached
EX-99.(e)(iv) Form of Dealer Agreement between the Registrant, Franklin Attached
Templeton Distributors, Inc., and Securities Dealers
EX-99.(e)(v) Amendment of Dealer Agreement dated May 15, 1998 Attached
EX-99.(g)(ii) Amendment dated March 3, 1998 to the Custody Agreement Attached
EX-99.(g)(iii) Amendment No. 2 dated July 23, 1998 to the Custody Attached
Agreement
EX-99.(e)(v) Amendment of Dealer Agreement dated May 15, 1998 Attached
EX-99.(i)(i) Opinion and consent of counsel dated October 27, 1998 Attached
EX-99.(j)(i) Consent of Independent Accountants Attached
EX-27.(i) Financial Data Schedule for Templeton Growth Fund - Class I Attached
EX-27.(ii) Financial Data Schedule for Templeton Growth Fund - Attached
Class II
EX-27.(iii) Financial Data Schedule for Templeton Growth Fund - Attached
Advisor Class
</TABLE>
TEMPLETON GROWTH FUND, INC.
ARTICLES SUPPLEMENTARY
TEMPLETON GROWTH FUND, INC., a Maryland corporation registered
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 February 21, 1997, adopted a resolution to
increase the total number of Shares of Common Stock which the Corporation shall
have the authority to issue to ONE BILLION EIGHT HUNDRED MILLION (1,800,000,000)
Common Shares of the par value $0.01 per Share and of the aggregate par value of
ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS ($1,800,000).
SECOND: Immediately prior to the effectiveness of the
Articles Supplementary of the Corporation as hereinabove set forth, the
Corporation had authority to issue ONE BILLION FOUR HUNDRED MILLION
(1,400,000,000) shares of Common Stock, par value $0.01 per Share, and having an
aggregate par value of ONE MILLION FOUR HUNDRED THOUSAND ($1,400,000) dollars,
of which the Board of Directors had classified EIGHT HUNDRED MILLION
(800,000,000) Shares as Templeton Growth Fund, Inc. Class I shares of Common
Stock, classified FOUR HUNDRED MILLION (400,000,000) Shares as Templeton Growth
Fund, Inc. Class II shares of Common Stock and classified TWO HUNDRED MILLION
(200,000,000) Shares as Templeton Growth Fund, Inc. Advisor Class shares of
Common Stock. As amended hereby, the Corporation's Articles of Incorporation
authorize the issuance of ONE BILLION EIGHT HUNDRED MILLION (1,800,000,000)
Shares of Common Stock of the par value of $0.01 per Share and having an
aggregate par value of ONE MILLION EIGHT HUNDRED THOUSAND ($1,800,000) dollars,
of which the Board of Directors has classified ONE BILLION TWO HUNDRED MILLION
PAGE
(1,200,000,000) Shares as Templeton Growth Fund, Inc. Class I shares of Common
Stock, classified FOUR HUNDRED MILLION (400,000,000) Shares as Templeton Growth
Fund, Inc. Class II shares of Common Stock and classified TWO HUNDRED MILLION
(200,000,000) Shares as Templeton Growth Fund, Inc. Advisor Class shares of
Common Stock. The preferences, rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption of the
classes of shares, as set forth in the Articles of Incorporation of the
Corporation as heretofore amended and supplemented, are not changed by these
Articles Supplementary.
THIRD: The Shares of Common Stock of the Corporation
authorized and classified pursuant to Articles First and Second 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
total number of Shares of Common Stock of the various classes that the
Corporation has authority to issue has been increased by the Board of Directors
in accordance with Section 2-105(c) of the Maryland General Corporation Law.
PAGE
IN WITNESS WHEREOF, Templeton 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: April 10, 1997
TEMPLETON GROWTH FUND, INC.
[CORPORATE SEAL]
By:/s/JOHN R. KAY
--------------------
John R. Kay
Vice President
Attest: /s/JEFFREY L. STEELE
-------------------------
Jeffrey L. Steele
Assistant Secretary
DEALER AGREEMENT
Effective: March 1, 1998
Dear Securities Dealer:
Franklin/Templeton Distributors, Inc. ("we" or "us") invites you to participate
in the distribution of shares of the Franklin Templeton investment companies
(the "Funds") for which we now or in the future serve as principal underwriter,
subject to the terms of this Agreement. We will notify you from time to time of
the Funds which are eligible for distribution and the terms of compensation
under this Agreement. This Agreement supersedes any prior dealer agreements
between us, as stated in Section 18, below.
1. LICENSING.
(a) You represent that you are (i) a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD") and
are presently licensed to the extent necessary by the appropriate regulatory
agency of each jurisdiction in which you will offer and sell shares of the
Funds, or (ii) a broker, dealer or other company licensed, registered or
otherwise qualified to effect transactions in securities in a country (a
"foreign country") other than the United States of America (the "U.S.") where
you will offer or sell shares of the Funds. You agree that termination or
suspension of such membership with the NASD, or of your license to do business
by any regulatory agency having jurisdiction, at any time shall terminate or
suspend this Agreement forthwith and shall require you to notify us in writing
of such action. If you are not a member of the NASD but are a broker, dealer or
other company subject to the laws of a foreign country, you agree to conform to
the Conduct Rules of the NASD. This Agreement is in all respects subject to the
Conduct Rules of the NASD, particularly Conduct Rule 2830 of the NASD, which
shall control any provision to the contrary in this Agreement.
(b) You agree to notify us immediately in writing if at
any time you are not a member in good standing of the Securities Investor
Protection Corporation ("SIPC").
2. SALES OF FUND SHARES. You may offer and sell shares of each
Fund and class of each Fund only at the public offering price which shall be
applicable to, and in effect at the time of, each transaction. The procedures
relating to all orders and the handling of them shall be subject to the terms of
the applicable then current prospectus and statement of additional information
(hereafter, the "prospectus") and new account application, including amendments,
for each such Fund and each class of such Fund, and our written instructions
from time to time. This Agreement is not exclusive, and either party may enter
into similar agreements with third parties.
3. DUTIES OF DEALER: You agree:
(a) To act as principal, or as agent on behalf of your
customers, in all transactions in shares of the Funds except as provided in
Section 4 hereof. You shall not have any authority to act as agent for the
issuer (the Funds), for the Principal Underwriter, or for any other dealer in
any respect, nor will you represent to any third party that you have such
authority or are acting in such capacity.
(b) To purchase shares only from us or from your
customers.
(c) To enter orders for the purchase of shares of the
Funds only from us and only for the purpose of covering purchase orders you have
already received from your customers or for your own bona fide investment.
(d) To maintain records of all sales, redemptions and
repurchases of shares made through you and to furnish us with copies of such
records on request.
(e) To distribute prospectuses and reports to your
customers in compliance with applicable legal requirements, except to the extent
that we expressly undertake to do so on your behalf.
PAGE
(f) That you will not withhold placing customers'
orders for shares so as to profit yourself as a result of such withholding or
place orders for shares in amounts just below the point at which sales charges
are reduced so as to benefit from a higher sales charge applicable to an amount
below the breakpoint.
(g) That if any shares confirmed to you hereunder are
repurchased or redeemed by any of the Funds within seven business days after
such confirmation of your original order, you shall forthwith refund to us the
full concession, allowed to you on such orders, including any payments we made
to you from our own resources as provided in Section 6(b) hereof with respect to
such orders. We shall forthwith pay to the appropriate Fund the share, if any,
of the sales charge we retained on such order and shall also pay to such Fund
the refund of the concession we receive from you as herein provided (other than
the portion of such concession we paid to you from our own resources as provided
in Section 6(b) hereof). We shall notify you of such repurchase or redemption
within a reasonable time after settlement. Termination or suspension of this
Agreement shall not relieve you or us from the requirements of this subsection.
(h) That if payment for the shares purchased is not
received within the time customary or the time required by law for such payment,
the sale may be canceled without notice or demand and without any responsibility
or liability on our part or on the part of the Funds, or at our option, we may
sell the shares which you ordered back to the Funds, in which latter case we may
hold you responsible for any loss to the Funds or loss of profit suffered by us
resulting from your failure to make payment as aforesaid. We shall have no
liability for any check or other item returned unpaid to you after you have paid
us on behalf of a purchaser. We may refuse to liquidate the investment unless we
receive the purchaser's signed authorization for the liquidation.
(i) That you shall assume responsibility for any loss
to the Funds caused by a correction made subsequent to trade date, provided such
correction was not based on any error, omission or negligence on our part, and
that you will immediately pay such loss to the Funds upon notification.
(j) That if on a redemption which you have ordered,
instructions in proper form, including outstanding certificates, are not
received within the time customary or the time required by law, the redemption
may be canceled forthwith without any responsibility or liability on our part or
on the part of any Fund, or at our option, we may buy the shares redeemed on
behalf of the Fund, in which latter case we may hold you responsible for any
loss to the Fund or loss of profit suffered by us resulting from your failure to
settle the redemption.
(k) To obtain from your customers all consents required
by applicable privacy laws to permit us, any of our affiliates or the Funds to
provide you either directly or through a service established for that purpose
with confirmations, account statements and other information about your
customers' investments in the Funds.
4. DUTIES OF DEALER: RETIREMENT ACCOUNTS. In connection with
orders for the purchase of shares on behalf of an Individual Retirement Account,
Self-Employed Retirement Plan or other retirement accounts, by mail, telephone,
or wire, you shall act as agent for the custodian or trustee of such plans
(solely with respect to the time of receipt of the application and payments),
and you shall not place such an order until you have received from your customer
payment for such purchase and, if such purchase represents the first
contribution to such a plan, the completed documents necessary to establish the
plan and enrollment in the plan. You agree to indemnify us and Franklin
Templeton Trust Company and/or Templeton Funds Trust Company as applicable for
any claim, loss, or liability resulting from incorrect investment instructions
received from you which cause a tax liability or other tax penalty.
5. CONDITIONAL ORDERS; CERTIFICATES. We will not accept from
you any conditional orders for shares of any of the Funds. Delivery of
certificates or confirmations for shares purchased shall be made by the Funds
only against constructive receipt of the purchase price, subject to deduction
for your concession and our portion of the sales charge, if any, on such sale.
No certificates for shares of the Funds will be issued unless specifically
requested.
PAGE
6. DEALER COMPENSATION.
(a) On each purchase of shares by you from us, the
total sales charges and your dealer concessions shall be as stated in each
Fund's then current prospectus, subject to NASD rules and applicable laws. Such
sales charges and dealer concessions are subject to reductions under a variety
of circumstances as described in the Funds' prospectuses. For an investor to
obtain these reductions, we must be notified at the time of the sale that the
sale qualifies for the reduced charge. If you fail to notify us of the
applicability of a reduction in the sales charge at the time the trade is
placed, neither we nor any of the Funds will be liable for amounts necessary to
reimburse any investor for the reduction which should have been effected.
(b) In accordance with the Funds' prospectuses, we or
our affiliates may, but are not obligated to, make payments to you from our own
resources as compensation for certain sales which are made at net asset value
("Qualifying Sales"). If you notify us of a Qualifying Sale, we may make a
contingent advance payment up to the maximum amount available for payment on the
sale. If any of the shares purchased in a Qualifying Sale are repurchased or
redeemed within twelve months of the month of purchase, we shall be entitled to
recover any advance payment attributable to the repurchased or redeemed shares
by reducing any account payable or other monetary obligation we may owe to you
or by making demand upon you for repayment in cash. We reserve the right to
withhold advances to you, if for any reason we believe that we may not be able
to recover unearned advances from you. Termination or suspension of this
Agreement shall not relieve you or us from the requirements of this subsection.
7. REDEMPTIONS OR REPURCHASES. Redemptions or repurchases of
shares of the Funds will be made at the net asset value of such shares, less any
applicable deferred sales or redemption charges, in accordance with the
applicable prospectuses. Except as permitted by applicable law, you agree not to
purchase any shares from your customers at a price lower than the net asset
value of such shares next computed by the Funds after the purchase (the
"Redemption/Repurchase Price"). You shall, however, be permitted to sell shares
of the Funds for the account of the record owner to the Funds at the
Redemption/Repurchase Price for such shares.
8. EXCHANGES. Telephone exchange orders will be effective only
for uncertificated shares or for which share certificates have been previously
deposited and may be subject to any fees or other restrictions set forth in the
applicable prospectuses. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge, and exchanges from a Fund sold with a sales
charge to a Fund which carries a higher sales charge may be subject to a sales
charge in accordance with the terms of the applicable Fund's prospectus. You
will be obligated to comply with any additional exchange policies described in
the applicable Fund's prospectus, including without limitation any policy
restricting or prohibiting "Timing Accounts" as therein defined.
9. TRANSACTION PROCESSING. All orders are subject to acceptance
by us and by the Fund or its transfer agent, and become effective only upon
confirmation by us. If required by law, each transaction shall be confirmed in
writing on a fully disclosed basis and if confirmed by us, a copy of each
confirmation shall be sent simultaneously to you if you so request. All sales
are made subject to receipt of shares by us from the Funds. We reserve the right
in our discretion, without notice, to suspend the sale of shares of the Funds or
withdraw the offering of shares of the Funds entirely. Orders will be effected
at the price(s) next computed on the day they are received if, as set forth in
the applicable Fund's current prospectus, the orders are received by us, an
agent appointed by us or the Funds prior to the time the price of the Fund's
shares is calculated. Orders received after that time will be effected at the
price(s) computed on the next business day. All orders must be accompanied by
payment in U.S. Dollars. Orders payable by check must be drawn payable in U.S.
Dollars on a U.S. bank, for the full amount of the investment.
10. MULTIPLE CLASSES. We may from time to time provide to you
written compliance guidelines or standards relating to the sale or distribution
of Funds offering multiple classes of shares (each, a "Class") with different
sales charges and distribution related operating expenses. In addition, you will
PAGE
be bound by any applicable rules or regulations of government agencies or
self-regulatory organizations generally affecting the sale or distribution of
shares of investment companies offering multiple classes of shares.
11. RULE 12B-1 PLANS. You are invited to participate in all
distribution plans (each, a "Plan") adopted for a Class of a Fund or for a Fund
that has only a single Class (each, a "Plan Class") pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act").
To the extent you provide administrative and other services,
including, but not limited to, furnishing personal and other services and
assistance to your customers who own shares of a Plan Class, answering routine
inquiries regarding a Fund or Class, assisting in changing account designations
and addresses, maintaining such accounts or such other services as a Fund may
require, to the extent permitted by applicable statutes, rules, or regulations,
we shall pay you a Rule 12b-1 servicing fee. To the extent that you participate
in the distribution of Fund shares that are eligible for a Rule 12b-1
distribution fee, we shall also pay you a Rule 12b-1 distribution fee. All Rule
12b-1 servicing and distribution fees shall be based on the value of shares
attributable to customers of your firm and eligible for such payment, and shall
be calculated on the basis and at the rates set forth in the compensation
schedule then in effect for the applicable Plan (the "Schedule"). Without prior
approval by a majority of the outstanding shares of a particular Class of a Fund
which has a Plan, the aggregate annual fees paid to you pursuant to such Plan
shall not exceed the amounts stated as the "annual maximums" in such Plan Class'
prospectus, which amount shall be a specified percent of the value of such Plan
Class' net assets held in your customers' accounts which are eligible for
payment pursuant to this Agreement (determined in the same manner as such Plan
Class uses to compute its net assets as set forth in its effective prospectus).
You shall furnish us and each Fund that has a Plan Class
(each, a "Plan Fund") with such information as shall reasonably be requested by
the Board of Directors, Trustees or Managing General Partners (hereinafter
referred to as "Directors") of such Plan Fund with respect to the fees paid to
you pursuant to the Schedule of such Plan Fund. We shall furnish to the Boards
of Directors of the Plan Funds, for their review on a quarterly basis, a written
report of the amounts expended under the Plans and the purposes for which such
expenditures were made.
Each Plan and the provisions of any agreement relating to such
Plan must be approved annually by a vote of the Directors of the Fund that has
such Plan, including such persons who are not interested persons of such Plan
Fund and who have no financial interest in such Plan or any related agreement
("Rule 12b-1 Directors"). Each Plan or the provisions of this Agreement relating
to such Plan may be terminated at any time by the vote of a majority of the Rule
12b-1 Directors, or by a vote of a majority of the outstanding shares of the
Class that has such Plan, on sixty (60) days' written notice, without payment of
any penalty. A Plan or the provisions of this Agreement may also be terminated
by any act that terminates the Underwriting Agreement between us and the Fund
that has such Plan, and/or the management or administration agreement between
Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and such Plan Fund. In the event of the termination of a Plan for any
reason, the provisions of this Agreement relating to such Plan will also
terminate.
Continuation of a Plan and provisions of this Agreement
relating to such Plan are conditioned on Rule 12b-1 Directors being ultimately
responsible for selecting and nominating any new Rule 12b-1 Directors. Under
Rule 12b-1, Directors of any of the Plan Funds have a duty to request and
evaluate, and persons who are party to any agreement related to a Plan have a
duty to furnish, such information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be implemented or
continued. Under Rule 12b-1, a Plan Fund is permitted to implement or continue a
Plan or the provisions of this Agreement relating to such Plan from year-to-year
only if, based on certain legal considerations, the Board of Directors of such
Plan Fund is able to conclude that such Plan will benefit the Plan Class. Absent
such yearly determination, such Plan and the provisions of this Agreement
relating to such Plan must be terminated as set forth above. In addition, any
obligation assumed by a Fund pursuant to this Agreement shall be limited in all
cases to the assets of such Fund and no person shall seek satisfaction thereof
from shareholders of a Fund. You agree to waive payment of any amounts payable
PAGE
to you by us under a Fund's Plan until such time as we are in receipt of such
fee from the Fund.
The provisions of the Plans between the Plan Funds and us
shall control over the provisions of this Agreement in the event of any
inconsistency.
12. REGISTRATION OF SHARES. Upon request, we shall notify you of
the states or other jurisdictions in which each Fund's shares are currently
noticed, registered or qualified for offer or sale to the public. We shall have
no obligation to make notice filings of, register or qualify, or to maintain
notice filings of, registration of or qualification of, Fund shares in any state
or other jurisdiction. We shall have no responsibility, under the laws
regulating the sale of securities in any U.S. or foreign jurisdiction, for the
registration, qualification or licensed status of persons offering or selling
Fund shares or for the manner of offering or sale of Fund shares. If it is
necessary to file notice of, register or qualify Fund shares in any foreign
jurisdictions in which you intend to offer the shares of any Funds, it will be
your responsibility to arrange for and to pay the costs of such notice filing,
registration or qualification; prior to any such notice filing, registration or
qualification, you will notify us of your intent and of any limitations that
might be imposed on the Funds, and you agree not to proceed with such notice
filing, registration or qualification without the written consent of the
applicable Funds and of ourselves. Except as stated in this section, we shall
not, in any event, be liable or responsible for the issue, form, validity,
enforceability and value of such shares or for any matter in connection
therewith, and no obligation not expressly assumed by us in this Agreement shall
be implied. Nothing in this Agreement shall be deemed to be a condition,
stipulation or provision binding any person acquiring any security to waive
compliance with any provision of the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the 1940 Act, the rules and regulations of the U.S. Securities and Exchange
Commission, or any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offer or sale of shares of the Funds, or to relieve the parties hereto from any
liability arising under such laws, rules and regulations.
13. CONTINUOUSLY OFFERED CLOSED-END FUNDS. This Section 13
relates solely to shares of Funds that represent a beneficial interest in the
Franklin Floating Rate Trust and shares issued by any other continuously offered
closed-end investment company registered under the 1940 Act for which we or an
affiliate of ours serve as principal underwriter and that periodically
repurchases its shares (each, a "Trust"). Shares of a Trust that are offered to
the public will be registered under the 1933 Act, and are expected to be offered
during an offering period that may continue indefinitely ("Continuous Offering
Period"). There is no guarantee that such a continuous offering will be
maintained by a Trust. The Continuous Offering Period, shares of a Trust and
certain of the terms on which such shares are offered shall be as described in
the prospectus of the Trust.
As set forth in a Trust's then current prospectus, we may, but
are not obligated to, provide you with appropriate compensation for selling
shares of the Trust. In addition, you may be entitled to a fee for servicing
your clients who are shareholders in a Trust, subject to applicable law and NASD
Conduct Rules. You agree that any repurchases of shares of a Trust that were
originally purchased as Qualifying Sales shall be subject to Subsection 6(b)
hereof.
You expressly acknowledge and understand that, notwithstanding
anything to the contrary in this Agreement:
(a) No Trust has a Rule 12b-1 Plan and in no event will
a Trust pay, or have any obligation to pay, any compensation directly or
indirectly to you.
(b) Shares of a Trust will not be repurchased by either
the Trust (other than through repurchase offers by the Trust from time to time,
if any) or by us and no secondary market for such shares exists currently, or is
expected to develop. Any representation as to a repurchase or tender offer by a
Trust, other than that set forth in the Trust's then current prospectus,
notification letters, reports or other related material provided by the Trust,
is expressly prohibited.
PAGE
(c) An early withdrawal charge payable by shareholders
of a Trust to us may be imposed on shares accepted for repurchase by the Trust
that have been held for less than a stated period, as set forth in the Trust's
then current Prospectus.
(d) In the event your customer cancels his or her order for
shares of a Trust after confirmation, such shares will not be repurchased,
remarketed or otherwise disposed of by or though us.
14. FUND INFORMATION. No person is authorized to give any
information or make any representations concerning shares of any Fund except
those contained in the Fund's then current prospectus or in materials issued by
us as information supplemental to such prospectus. We will supply reasonable
quantities of prospectuses, supplemental sales literature, sales bulletins, and
additional information as issued by the Fund or us. You agree not to use other
advertising or sales material relating to the Funds except that which (a)
conforms to the requirements of any applicable laws or regulations of any
government or authorized agency in the U.S. or any other country having
jurisdiction over the offering or sale of shares of the Funds, and (b) is
approved in writing by us in advance of such use. Such approval may be withdrawn
by us in whole or in part upon notice to you, and you shall, upon receipt of
such notice, immediately discontinue the use of such sales literature, sales
material and advertising. You are not authorized to modify or translate any such
materials without our prior written consent.
15. INDEMNIFICATION. You agree to indemnify, defend and hold
harmless us, the Funds, and the respective officers, directors and employees of
the Funds and us from any and all losses, claims, liabilities and expenses
arising out of (1) any alleged violation of any statute or regulation (including
without limitation the securities laws and regulations of the U.S. or any state
or foreign country) or any alleged tort or breach of contract, in or related to
the offer or sale by you of shares of the Funds pursuant to this Agreement
(except to the extent that our negligence or failure to follow correct
instructions received from you is the cause of such loss, claim, liability or
expense), (2) any redemption or exchange pursuant to telephone instructions
received from you or your agents or employees, or (3) the breach by you of any
of the terms and conditions of this Agreement. This Section 15 shall survive the
termination of this Agreement.
16. TERMINATION; SUCCESSION; ASSIGNMENT; AMENDMENT. Each party
to this Agreement may terminate its participation in this Agreement by giving
written notice to the other parties. Such notice shall be deemed to have been
given and to be effective on the date on which it was either delivered
personally to the other parties or any officer or member thereof, or was mailed
postpaid or delivered by electronic transmission to the other parties' chief
legal officers at the addresses shown herein or in the most recent NASD Manual.
This Agreement shall terminate immediately upon the appointment of a Trustee
under the Securities Investor Protection Act or any other act of insolvency by
you. The termination of this Agreement by any of the foregoing means shall have
no effect upon transactions entered into prior to the effective date of
termination. A trade placed by you subsequent to your voluntary termination of
this Agreement will not serve to reinstate the Agreement. Reinstatement, except
in the case of a temporary suspension of a dealer, will be effective only upon
written notification by us to you. This Agreement will terminate automatically
in the event of its assignment by us. For purposes of the preceding sentence,
the word "assignment" shall have the meaning given to it in the 1940 Act. This
Agreement may not be assigned by you without our prior written consent. This
Agreement may be amended by us at any time by written notice to you and your
placing of an order or acceptance of payments of any kind after the effective
date and receipt of notice of any such Amendment shall constitute your
acceptance of such Amendment.
17. SETOFF; DISPUTE RESOLUTION. Should any of your concession
accounts with us have a debit balance, we may offset and recover the amount owed
to us or the Funds from any other account you have with us, without notice or
demand to you. In the event of a dispute concerning any provision of this
Agreement, either party may require the dispute to be submitted to binding
arbitration under the commercial arbitration rules of the NASD or the American
Arbitration Association. Judgment upon any arbitration award may be entered by
any court having jurisdiction. This Agreement shall be construed in accordance
PAGE
with the laws of the State of California, not including any provision that would
require the general application of the law of another jurisdiction.
18. ACCEPTANCE; CUMULATIVE EFFECT. This Agreement is cumulative
and supersedes any agreement previously in effect. It shall be binding upon the
parties hereto when signed by us and accepted by you. If you have a current
dealer agreement with us, your first trade or acceptance of payments from us
after your receipt of this Agreement, as it may be amended pursuant to Section
16, above, shall constitute your acceptance of its terms. Otherwise, your
signature below shall constitute your acceptance of its terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ GREG JOHNSON
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
415/312-2000
700 Central Avenue
St. Petersburg, Florida 33701-3628
813/823-8712
Dealer: If you have NOT previously signed a Dealer Agreement with us, please
complete and sign this section and return the original to us.
DEALER NAME:
By _________________
(Signature)
Name:
Title:
Address:
Telephone:
NASD CRD #
Franklin Templeton Dealer #
(Internal Use Only)
May 15, 1998
Re: Amendment of Dealer Agreement - Notice Pursuant to Section 16
Dear Securities Dealer:
This letter constitutes notice of amendment of the current Dealer Agreement (the
"Agreement") between Franklin/Templeton Distributors, Inc. ("we" or "us") and
you pursuant to Section 16 of the Agreement. The Agreement is hereby amended as
follows:
1. Defined terms in this amendment have the meanings as stated
in the Agreement unless otherwise indicated.
2. Section 6 is modified to add a subsection 6(c), as follows:
(c) The following limitations apply with respect to
shares of each Trust as described in Section 13 of this Agreement.
(1) Consistent with the NASD Conduct Rules, the total
compensation to be paid to us and selected dealers and their affiliates,
including you and your affiliates, in connection with the distribution of shares
of a Trust will not exceed the underwriting compensation limitation prescribed
by NASD Conduct Rule 2710. The total underwriting compensation to be paid to us
and selected dealers and their affiliates, including you and your affiliates,
may include: (i) at the time of purchase of shares a payment to you or another
securities dealer of 1% of the dollar amount of the purchased shares by the
Distributor; and (ii) a quarterly payment at an annual rate of .50% to you or
another securities dealer based on the value of such remaining shares sold by
you or such securities dealer, if after twelve (12) months from the date of
purchase, the shares sold by you or such securities dealer remain outstanding.
(2) The maximum compensation shall be no more
than as disclosed in the section "Payments to Dealers" of the prospectus of the
applicable Trust.
Pursuant to Section 16 of the Agreement, your placement of an order or
acceptance of payments of any kind after the effective date and receipt of
notice of this amendment shall constitute your acceptance of this amendment.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/GREG JOHNSON
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, FL 33716
813/299-8712
AMENDMENT, dated March 2, 1998 to the custody agreements (each an
"Agreement"), between the Templeton funds listed on Schedule A hereto (each a
"Fund"), with each having a place of business at 500 East Broward Blvd., Ft.
Lauderdale, FL 33394 and The Chase Manhattan Bank ("Chase"), having a place of
business at 270 Park Ave., New York, NY 10017-2070.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed in all
respects. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Agreement.
Section 2. The Agreement is amended as follows:
Delete all of Section 2 of the Agreement after subsection (B.) thereof, and
insert, in lieu thereof, the following:
(C.) Fund's board of directors (or equivalent body) (hereinafter "Board")
hereby delegates to Chase, and Chase hereby accepts the delegation to it, of the
obligation to perform as Fund's "Foreign Custody Manager" (as that term is
defined in SEC rule 17f-5(a)(2)), both for the purpose of selecting Eligible
Foreign Custodians (as that term is defined herein) to hold Securities and Cash
and of evaluating the contractual arrangements with such Eligible Foreign
Custodians (as set forth in SEC rule 17f-5(c)(2)); provided that, the term
Eligible Foreign Custodian shall not include any "Compulsory Depository." A
Compulsory Depository shall mean a Foreign Securities Depository or clearing
agency the use of which is compulsory because: (1) its use is required by law or
regulation, (2) securities cannot be withdrawn from the depository, or (3)
maintaining securities outside the depository is not consistent with prevailing
custodial practices in the country which the depository serves.
PAGE
Compulsory Depositories used by Chase as of the date hereof are set forth in
Appendix 1-A hereto, and as the same may be amended on notice to Fund from time
to time.
(i) In connection with the foregoing, Chase shall:
(1) provide written reports notifying Fund's Board of the placement of
Securities and Cash with particular Eligible Foreign Custodians and of
any material change in the arrangements with such Eligible Foreign
Custodians, with such reports to be provided to Fund's Board at such
times as the Board deems reasonable and appropriate based on the
circumstances of Fund's foreign custody arrangements;
(2) exercise such reasonable care, prudence and diligence in performing
as Fund's Foreign Custody Manager as a person having responsibility for
the safekeeping of Securities and Cash would exercise;
(3) in selecting an Eligible Foreign Custodian, first have determined
that Securities and Cash placed and maintained in the safekeeping of
such Eligible Foreign Custodian shall be subject to reasonable care,
based on the standards applicable to custodians in the relevant market,
after having considered all factors relevant to the safekeeping of such
Securities and Cash, including, without limitation, those factors set
forth in SEC rule 17f-5(c)(1)(i)-(iv);
(4) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodian that is a
non-Compulsory Depository or clearing agency, such contract, the rules
or established practices or procedures of the Depository, or any
combination of the foregoing) requires that the Eligible Foreign
Custodian will provide reasonable care for Securities and Cash based on
the standards applicable to custodians in the relevant market; and
2
PAGE
(5) have established a system to monitor the continued appropriateness
of maintaining Securities and Cash with particular Eligible Foreign
Custodians and of the governing contractual arrangements. Chase shall
also monitor Compulsory Depositories and shall advise Fund of any
material negative change in the performance of, or arrangements with,
any Compulsory Depository as the same would adversely affect the
custody of assets.
Subject to (i)(1)-(5) above, Chase is hereby authorized to place and maintain
Securities and Cash on behalf of Fund with Eligible Foreign Custodians pursuant
to a written contract deemed appropriate by Chase.
(ii) Except as expressly provided herein, Fund shall be solely responsible
to assure that the maintenance of Securities and Cash hereunder complies with
the rules, regulations, interpretations and exemptive orders promulgated by or
under the authority of the SEC.
(iii) Chase represents to Fund that it is a U.S. Bank as defined in Rule
17f-5(a)(7). Fund represents to Chase that: (1) the Securities and Cash being
placed and maintained in Chase's custody are subject to the Investment Company
Act of 1940, as amended (the "1940 Act"), as the same may be amended from time
to time; (2) its Board has determined that it is reasonable to rely on Chase to
perform as Fund's Foreign Custody Manager; and (3) its Board or its investment
adviser shall have determined that Fund may maintain Securities and Cash in each
country in which Fund's Securities and Cash shall be held hereunder and
determined to accept the risks arising therefrom (including, but not limited to,
a country's financial infrastructure (and including any Compulsory Depository
operating in such country), prevailing custody and settlement practices, laws
applicable to the safekeeping and recovery of Securities and Cash held in
custody, and the likelihood of nationalization, currency controls and the like)
(collectively ("Country Risk")). Nothing contained herein shall require Chase to
make any selection that would entail consideration of Country Risk.
3
PAGE
(iv) Chase shall assist Fund in monitoring Country Risk by furnishing such
information relating to the Country Risk as is specified in Appendix 1-B hereto.
Fund hereby acknowledges that: (1) such information is solely designed to inform
Fund of market conditions and procedures and is not intended as a recommendation
to invest or not invest in particular markets; and (2) Chase has gathered the
information from sources it considers reliable, but that Chase shall have no
responsibility for inaccuracies or incomplete information except to the extent
negligently obtained by Chase.
Section 3. Add the following at the end of Section 3(d):
and which shall be limited to Eligible Foreign Custodians as defined in
(i)-(ii) and (v) of the definition of Eligible Foreign Custodians contained
herein; provided that, for purposes of the sections of this Agreement
addressing Chase liability (including, but not limited to, Sections 7, 10,
14, and 16-17), Foreign Bank shall not include any Foreign Bank as to which
Chase has not acted as Foreign Custody Manager.
Section 4. Add the following at the end of Section 3(e):
and which shall be limited to Eligible Foreign Custodians as
defined in (iii) and (iv)-(v) of the definition of Eligible
Foreign Custodians contained herein; provided that, for
purposes of the sections of this Agreement addressing Chase
liability (including, but not limited to, Sections 7, 10, 14,
and 16-17) the term Foreign Securities Depository shall not
include any Compulsory Depository or any non-compulsory
depository as to which Chase has not acted as Foreign Custody
Manager.
Section 5. Add the following definitions in appropriate alphabetic sequence
to Section 3 of the Agreement:
4
PAGE
(1) a "U.S. Bank," shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7).
(2) an "Eligible Foreign Custodian," shall mean (i) a banking institution
or trust company, incorporated or organized under the laws of a country
other than the United States, that is regulated as such by that country's
government or an agency thereof, (ii) a majority-owned direct or indirect
subsidiary of a U.S. Bank or bank holding company which subsidiary is
incorporated or organized under the laws of a country other than the United
States; (iii) a securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United States, that
acts as a system for the central handling of securities or equivalent
book-entries in that country and that is regulated by a foreign financial
regulatory authority as defined under section 2(a)(50) of the 1940 Act,
(iv) a securities depository or clearing agency organized under the laws of
a country other than the United States when acting as a transnational
system ("Transnational Depository") for the central handling of securities
or equivalent book-entries, and (v) any other entity that shall have been
so qualified by exemptive order, rule or other appropriate action of the
SEC.
Section 6. Delete existing Section 5 of the Agreement and, insert, in lieu
thereof, the following:
At the request of Fund, Chase may, but need not, add an Eligible
Foreign Custodian that is a U.S. Bank, a Foreign Bank or Foreign
Securities Depository where Chase has not acted as Foreign Custody
Manager with respect to the selection thereof; provided that, any such
entities shall not be included for purposes of the sections of this
Agreement addressing Chase liability (including, but not limited to,
Sections 7, 10, 14, and 16-17). Chase shall notify Fund in the event
that it elects to add any such entity.
*********************
5
PAGE
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
TEMPLETON THE CHASE MANHATTAN BANK
By:/s/BARBARA J. GREEN By:/s/LENORE VANDEN HANDEL
----------------------- -------------------------------
Name: Barbara J. Green Name: Lenore Vanden Handel
Title: Secretary Title: Vice President
6
PAGE
Appendix 1-A
LIST OF COMPULSORY DEPOSITORIES APPROVED BY THE BOARD
PAGE
Appendix 1-B
INFORMATION REGARDING COUNTRY RISK
1. To aid Fund's board in its determinations regarding Country Risk,
Chase shall furnish board annually and upon the initial placing of Securities
and Cash into a country the following information (check items applicable):
A Opinions of local counsel concerning:
___ i. Whether applicable foreign law would restrict the access
afforded Fund's independent public accountants to books and
records kept by an eligible foreign custodian located in that
country.
___ ii. Whether applicable foreign law would restrict the Fund's ability
to recover its assets in the event of the bankruptcy of an
Eligible Foreign Custodian located in that country.
___ iii. Whether applicable foreign law would restrict the Fund's ability
to recover assets that are lost while under the control of an
Eligible Foreign Custodian located in the country.
B. Written information concerning:
___ i. The likelihood of expropriation, nationalization, freezes, or
confiscation of Fund's assets.
2
PAGE
___ ii. Whether difficulties in converting Fund's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
2. To aid Fund's board in monitoring Country Risk, Chase shall furnish
board the following additional information:
As more fully described in the FCM procedures, market flashes,
including with respect to changes in the information in market reports.
3
PAGE
Schedule A
TEMPLETON U.S. FUNDS
As of February 28, 1998
TEMPLETON GROWTH FUND, INC. ("TGF") - 12/31/86
TEMPLETON FUNDS, INC. ("TFI") - 2/11/86
Templeton World Fund
Templeton Foreign Fund
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC. ("TGSCF") - 5/15/96
TEMPLETON INCOME TRUST ("TIT") - 5/15/96
Templeton Global Bond Fund
TEMPLETON GLOBAL REAL ESTATE FUND ("TGREF") - 5/15/96
TEMPLETON CAPITAL ACCUMULATOR FUND, INC. ("TCAF") - 1/14/91
TEMPLETON DEVELOPING MARKETS TRUST ("TDMT") - 10/16/91
TEMPLETON AMERICAN TRUST, INC. ("TAT") - 2/26/91
TEMPLETON INSTITUTIONAL FUNDS, INC. ("TIFI") - 1/29/96
Templeton Foreign Equity Series
Templeton Growth Series
Templeton Emerging Markets Series
Templeton Emerging Fixed Income Series
TEMPLETON GLOBAL OPPORTUNITIES TRUST ("TGOT") - 1/18/90
TEMPLETON GLOBAL INVESTMENT TRUST ("TGIT") - 5/7/95
Templeton Growth and Income Fund
Templeton Global Infrastructure Fund
Templeton Americas Government Securities Fund
Templeton Greater European Fund
Templeton Latin America Fund
TEMPLETON EMERGING MARKETS FUND, INC. ("TEMF") - 2/1/87
TEMPLETON GLOBAL INCOME FUND, INC. ("TGIF") - 2/29/88
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST ("TGG") - 10/22/88
TEMPLETON EMERGING MARKETS INCOME FUND, INC. ("TEMIF") - 9/17/93
TEMPLETON CHINA WORLD FUND, INC. ("TCWF") - 9/7/93
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC. ("TEMAF") - 4/22/94
TEMPLETON DRAGON FUND, INC. ("TDF") - 8/30/94
TEMPLETON VIETNAM AND SOUTHEAST ASIA FUND, INC. ("TVF") - 9/15/94
TEMPLETON RUSSIA FUND, INC. ("TRF") - 6/15/95
TEMPLETONVARIABLE PRODUCTS SERIES FUND ("TVPSF") - 8/31/88 (amended & restated
2/23/96)
Templeton Money Market Fund
Templeton Bond Fund
Templeton Stock Fund
Templeton Asset Allocation Fund
Templeton International Fund
Templeton Developing Markets Fund
Mutual Discovery Investments Fund
Mutual Shares Investments Fund
Franklin Growth Investments Fund
Franklin Small Cap Investments Fund
FRANKLIN/TEMPLETON JAPAN FUND - 6/24/94
TEMPLETON VARIABLE ANNUITY FUND - 1/27/88
4
AMENDMENT No. 2, dated July 23, 1998 to the custody agreements (each an
"Agreement"), between each of the Templeton finds listed on Schedule A hereto
(each a "Fund"), with each having a place of business at 500 East Broward Blvd.,
Ft. Lauderdale, FL 33394, and The Chase Manhattan Bank ("Chase"), having a place
of business at 270 Park Ave., New York, NY 10017-2070.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed in all
respects. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Agreement. This Amendment supersedes in all
respects the Amendment between the parties, dated March 2, 1998, which shall
have no further force or effect as of the date hereof.
Section 2. The Agreement is amended as follows:
Delete all of Section 2 of the Agreement after subsection (B.) thereof, and
insert, in lieu thereof, the following:
(C.) Fund's board of directors (or equivalent body) (hereinafter "Board")
hereby delegates to Chase, and Chase hereby accepts the delegation to it of, the
obligation to perform as Fund's "Foreign Custody Manager" (as that term is
defined in Securities and Exchange Commission ("SEC") rule 17f-5(a)(2)), both
for the purpose of selecting Eligible Foreign Custodians (as that term is
defined herein) to hold Securities and Cash and of evaluating the contractual
arrangements with such Eligible Foreign Custodians (as set forth in SEC rule
17f-5(c)(2)); provided that, the term Eligible Foreign Custodian shall not
include any "Compulsory Depository." A Compulsory Depository shall mean a
Foreign Securities Depository or clearing agency the use of which is compulsory
because: (1) its use is required by law or regulation, (2) securities cannot be
withdrawn from the depository, or (3) maintaining securities outside the
depository is not consistent with prevailing custodial practices in the country
which the depository serves. Compulsory Depositories used by Chase as of the
date hereof are set forth in Appendix 1-A hereto, and as the same may be amended
on notice to Fund from time to time.
(i) In connection with the foregoing, Chase shall:
PAGE
(1) provide written reports notifying Fund's Board of the placement of
Securities and Cash with particular Eligible Foreign Custodians and of any
material change in the arrangements with such Eligible Foreign Custodians,
with such reports to be provided to Fund's Board at such times as the Board
deems reasonable and appropriate based on the circumstances of Fund's
foreign custody arrangements;
(2) exercise such reasonable care, prudence and diligence in performing as
Fund's Foreign Custody Manager as a person having responsibility for the
safekeeping of Securities and Cash would exercise;
(3) in selecting an Eligible Foreign Custodian, first have determined that
Securities and Cash placed and maintained in the safekeeping of such
Eligible Foreign Custodian shall be subject to reasonable care, based on
the standards applicable to custodians in the relevant market, after having
considered all factors relevant to the safekeeping of such Securities and
Cash, including, without limitation, those factors set forth in SEC rule
17f-5(c)(1)(i)-(iv);
(4) determine that the written contract with the Eligible Foreign Custodian
requires that the Eligible Foreign Custodian will provide reasonable care
for Securities and Cash based on the standards applicable to custodians in
the relevant market; provided that, in the case of an Eligible Foreign
Custodian that is a non-Compulsory Depository or clearing agency, such
determination shall only be made to the extent required by SEC rule 17f-5
as in effect from time to time and where so required shall be made based on
such contract, the rules or established practices or procedures of the
Depository, or any combination thereof; and
(5) have established a system to monitor the continued appropriateness of
maintaining Securities and Cash with particular Eligible Foreign Custodians
and of the governing contractual arrangements. Chase shall also monitor
Compulsory Depositories and shall advise Fund of any material negative
change in the performance of, or arrangements with, any Compulsory
Depository as the same would adversely affect the custody of assets. With
respect to monitoring Compulsory Depositories, Chase shall use its
reasonable efforts to obtain the information with respect to the factors
set forth on Schedule 1-C hereto: (i) by November 20, 1998 with respect to
any Compulsory Depository in a country in which Securities are held as of
the date hereof; (ii)
PAGE
to the extent feasible in light of the circumstances then prevailing in a
given country in which Securities are held, no later than 90 days after the
establishment of, or a determination by Chase that a depository has become,
a Compulsory Depository in such country; and (iii) to the extent feasible
in light of the circumstances then prevailing in a given country, no later
than 90 days after the first placement of Securities after the date hereof
with a Subcustodian where such country has a Compulsory Depository. Chase
shall advise Fund when, to Chase's knowledge based on such reasonable
efforts, there is a negative answer with respect to a Compulsory Depository
as to any of such factors. In connection with the foregoing: (i) Fund
acknowledges and agrees that Chase's agreements with Eligible Foreign
Custodians do not, as of the date hereof, comply with factor (i) on
Schedule 1-C and that Chase shall not amend such agreements to so comply
unless Rule 17f-5 is amended or interpreted by the Securities and Exchange
Commission to incorporate such a factor into the Rule with respect to
Compulsory Depositories; and (ii) to the extent that Rule 17f-5 is amended
or interpreted by the Securities and Exchange Commission to incorporate
materially one or more of (i)-(viii), Chase shall be obligated to obtain
the relevant information on such incorporated factors rather than being
limited only to using its reasonable efforts to do so.
In the event that the SEC adopts standards or criteria different from those
set forth in Schedule 1-C, the above provisions and Schedule 1-C shall be
deemed to be amended to conform to the standards or criteria adopted by the
SEC, it being understood that the time within which Chase must furnish the
required information shall be a reasonable time in light of such
differences.
Subject to (i)(1)-(4) and the first sentence of (5) above, Chase is hereby
authorized to place and maintain Securities and Cash on behalf of Fund with
Eligible Foreign Custodians pursuant to a written contract deemed appropriate by
Chase.
(ii) Except as expressly provided herein, Fund shall be responsible to
assure that the maintenance of Securities and Cash hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC.
(iii) Chase represents to Fund that it is a U.S. Bank as defined in Rule
17f-5(a)(7). Fund represents to Chase that: (1) the Securities and Cash being
placed and maintained in Chase's custody are subject to the Investment Company
Act of 1940, as amended (the "1940 Act"), as the same may be amended from time
PAGE
to time; (2) its Board has determined that it is reasonable to rely on Chase to
perform as Fund's Foreign Custody Manager; and (3) its Board or its investment
adviser shall have determined that Fund may maintain Securities and Cash in each
country in which Fund's Securities and Cash shall be held hereunder and
determined to accept the risks arising therefrom (including, but not limited to,
a country's financial infrastructure (and including any Compulsory Depository
operating in such country), prevailing custody and settlement practices, laws
applicable to the safekeeping and recovery of Securities and Cash held in
custody, and the likelihood of nationalization, currency controls and the like)
(collectively ("Country Risk")). Nothing contained herein shall require Chase to
make any selection that would entail consideration of Country Risk.
(iv) Chase shall assist Fund in monitoring Country Risk by furnishing such
information relating to the Country Risk as is specified in Appendix 1-B hereto.
Fund hereby acknowledges that: (1) such information is solely designed to inform
Fund of market conditions and procedures and is not intended as a recommendation
to invest or not invest in particular markets; and (2) Chase has gathered the
information from sources it considers reliable, but that Chase shall have no
responsibility for inaccuracies or incomplete information except to the extent
negligently obtained by Chase.
Section 3. Add the following at the end of Section 3(d):
and which shall be limited to Eligible Foreign Custodians as defined in
(i)-(ii) and (v) of the definition of Eligible Foreign Custodians contained
herein; provided that, for purposes of the sections of this Agreement
addressing Chase liability (including, but not limited to, Sections 7, 10,
14, and 16-17), Foreign Bank shall not include any Foreign Bank as to which
Chase has not acted as Foreign Custody Manager.
Section 4. Add the following at the end of Section 3(e):
and which shall be limited to Eligible Foreign Custodians as defined
in (iii) and (iv)-(v) of the definition of Eligible Foreign Custodians
contained herein; provided that, for purposes of the sections of this
Agreement addressing Chase liability (including, but not limited to,
Sections 7, 10, 14, and 16-17) the term Foreign Securities Depository
shall not include any Compulsory Depository or any non-compulsory
depository as to which Chase has not acted as Foreign Custody Manager.
PAGE
Section 5. Add the following definitions in appropriate alphabetic sequence
to Section 3 of the Agreement:
(1) a "U.S. Bank," shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7).
(2) an "Eligible Foreign Custodian," shall mean (i) a banking
institution or trust company, incorporated or organized under the laws
of a country other than the United States, that is regulated as such
by that country's government or an agency thereof, (ii) a
majority-owned direct or indirect subsidiary of a U.S. Bank or bank
holding company which subsidiary is incorporated or organized under
the laws of a country other than the United States; (iii) a securities
depository or clearing agency, incorporated or organized under the
laws of a country other than the United States, that acts as a system
for the central handling of securities or equivalent book-entries in
that country and that is regulated by a foreign financial regulatory
authority as defined under section 2(a)(50) of the 1940 Act, (iv) a
securities depository or clearing agency organized under the laws of a
country other than the United States when acting as a transnational
system ("Transnational Depository") for the central handling of
securities or equivalent book-entries, and (v) any other entity that
shall have been so qualified by exemptive order, rule or other
appropriate action of the SEC.
Section 6. Delete existing Section 5 of the Agreement and, insert, in lieu
thereof, the following:
At the request of Fund, Chase may, but need not, add an Eligible
Foreign Custodian that is a U.S. Bank, a Foreign Bank or Foreign
Securities Depository where Chase has not acted as Foreign Custody
Manager with respect to the selection thereof; provided that, any such
entities shall not be included for purposes of the sections of this
Agreement addressing Chase liability (including, but not limited to,
Sections 7, 10, 14, and 16-17). Chase shall notify Fund in the event
that it elects to add any such entity.
*********************
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
PAGE
TEMPLETON THE CHASE MANHATTAN BANK
(on behalf of each of the Funds
listed on Schedule A hereto)
By:/s/ BARBARA J. GREEN By:/s/LENORE VANDEN HANDEL
-------------------------- -------------------------------
Name: Barbara J. Green Name: Lenore Vanden Handel
Title: Secretary Title: Vice President
PAGE
Schedule A
TEMPLETON U.S. FUNDS
As of June 30, 1998
TEMPLETON GROWTH FUND, INC. ("TGF") - 12/31/86
TEMPLETON FUNDS, INC. ("TFI") - 2/11/86
Templeton World Fund
Templeton Foreign Fund
TEMPLETON GLOBAL SMALLER COMPANIES FUND, INC. ("TGSCF") - 5/15/96
TEMPLETON INCOME TRUST ("TIT") - 5/15/96
Templeton Global Bond Fund
TEMPLETON GLOBAL REAL ESTATE FUND ("TGREF") - 5/15/96
TEMPLETON CAPITAL ACCUMULATOR FUND, INC. ("TCAF") - 1/14/91
TEMPLETON DEVELOPING MARKETS TRUST ("TDMT") - 10/16/91
TEMPLETON AMERICAN TRUST, INC. ("TAT") - 2/26/91
TEMPLETON INSTITUTIONAL FUNDS, INC. ("TIFI") - 1/29/96
Templeton Foreign Equity Series
Templeton Growth Series
Templeton Emerging Markets Series
Templeton Emerging Fixed Income Series
TEMPLETON GLOBAL OPPORTUNITIES TRUST ("TGOT") - 1/18/90
TEMPLETON GLOBAL INVESTMENT TRUST ("TGIT") - 5/7/95
Templeton Growth and Income Fund
Templeton Global Infrastructure Fund
Templeton Americas Government Securities Fund
Templeton Greater European Fund
Templeton Latin America Fund
TEMPLETON EMERGING MARKETS FUND, INC. ("TEMF") - 2/1/87
TEMPLETON GLOBAL INCOME FUND, INC. ("TGIF") - 2/29/88
TEMPLETON GLOBAL GOVERNMENTS INCOME TRUST ("TGG") - 10/22/88
TEMPLETON EMERGING MARKETS INCOME FUND, INC. ("TEMIF") - 9/17/93
TEMPLETON CHINA WORLD FUND, INC. ("TCWF") - 9/7/93
TEMPLETON EMERGING MARKETS APPRECIATION FUND, INC. ("TEMAF") - 4/22/94
TEMPLETON DRAGON FUND, INC. ("TDF") - 8/30/94
TEMPLETON VIETNAM AND SOUTHEAST ASIA FUND, INC. ("TVF") - 9/15/94
TEMPLETON RUSSIA FUND, INC. ("TRF") - 6/15/95
TEMPLETON VARIABLE PRODUCTS SERIES FUND ("TVPSF") - 8/31/88 (amended & restated
2/23/96)
Templeton Money Market Fund
Templeton Bond Fund
Templeton Stock Fund
Templeton Asset Allocation Fund
Templeton International Fund
Templeton Developing Markets Fund
Mutual Discovery Investments Fund
Mutual Shares Investments Fund
Franklin Growth Investments Fund
Franklin Small Cap Investments Fund
PAGE
Appendix 1-A
LIST OF COMPULSORY DEPOSITORIES APPROVED BY THE BOARD
PAGE
Appendix 1-B
INFORMATION REGARDING COUNTRY RISK
1. To aid Fund's board in its determinations regarding Country Risk,
Chase shall furnish board annually and upon the initial placing of Securities
and Cash into a country the following information (check items applicable):
A Opinions of local counsel concerning:
___ i. Whether applicable foreign law would restrict the access
afforded Fund's independent public accountants to books and
records kept by an eligible foreign custodian located in that
country.
___ ii. Whether applicable foreign law would restrict the Fund's ability
to recover its assets in the event of the bankruptcy of an
Eligible Foreign Custodian located in that country.
___ iii. Whether applicable foreign law would restrict the Fund's ability
to recover assets that are lost while under the control of an
Eligible Foreign Custodian located in the country.
B. Written information concerning:
___ i. The likelihood of expropriation, nationalization, freezes, or
confiscation of Fund's assets.
___ ii. Whether difficulties in converting Fund's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.
C. A market report with respect to the following topics:
PAGE
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
2. To aid Fund in monitoring Country Risk, Chase shall furnish the
following additional information:
As more fully described in the Foreign Custody Manager procedures,
market flashes, including with respect to changes in the information in market
reports.
PAGE
Appendix 1-C
FACTORS REGARDING COMPULSORY DEPOSITORIES
(i) Whether the Eligible Foreign Custodian which is participating in
the Compulsory Depository has undertaken to adhere to the roles,
practices and procedures of such Compulsory Depository;
(ii) Whether no regulatory authority with oversight responsibility for
the Compulsory Depository has issued a public notice that the
Compulsory Depository is not in compliance with any material capital,
solvency, insurance or other similar financial strength requirements
imposed by such authority or, in the case of such notice having been
issued, that such notice has been withdrawn or the remedy of such
noncompliance has been publicly announced by the Compulsory
Depository;
(iii) Whether no regulatory authority with oversight responsibility
over the Compulsory Depository has issued a public notice that the
Compulsory Depository is not in compliance with any material internal
controls requirement imposed by such authority or, in the case of such
notice having been issued, that such notice has been withdrawn or the
remedy of such noncompliance has been publicly announced by the
Compulsory Depository;
(iv) Whether the Compulsory Depository maintains Fund's assets
deposited with the Compulsory Depository by the Eligible Foreign
Custodian participant under no less favorable safekeeping conditions
than those that apply generally to other participants in the
Compulsory Depository;
(v) Whether the Compulsory Depository maintains records that segregate
the Compulsory Depository's own assets from the assets of participants
in the Compulsory Depository;
PAGE
(vi) Whether the Compulsory Depository maintains records that identify
the assets of each of its participants;
(vii) Whether the Compulsory Depository provides periodic reports to
its participants with respect to the safekeeping of assets maintained
by the Compulsory Depository including by way of example, notification
of any transfer to or from participant accounts; and
(viii) Whether the Compulsory Depository is subject to periodic
review, such as audits by independent accountants or inspections by
regulatory authorities.
<TABLE>
<CAPTION>
LAW OFFICES OF
<S> <C> <C>
30 ROCKEFELLER PLAZA DECHERT PRICE & RHOADS TEN POST OFFICE SQUARE SOUTH
NEW YORK, NY 10112 BOSTON, MA 02109-4603
(212) 698-3500 1775 EYE STREET, N.W. (617) 728-7100
4000 BELL ATLANTIC TOWER WASHINGTON, DC 20006-2401 90 STATE HOUSE SQUARE
1717 ARCH STREET HARTFORD, CT 06103-3702
PHILADELPHIA, PA 19103-2793 (860) 524-3999
(215) 994-4000 TELEPHONE: (202) 261-3300
65 AVENUE LOUISE
THIRTY NORTH THIRD STREET FAX: (202) 261-3333 1050 BRUSSELS, BELGIUM
HARRISBURG, PA 17101-1603 (32-2) 535-5411
(717) 237-2000
TITMUSS SAINER DECHERT
PRINCETON PIKE CORPORATE CENTER 2 SERJEANTSINN
P.O. BOX 5218 LONDON EC4Y 1LT, ENGLAND
PRINCETON, NJ 08543-5218 (44-171) 583-5353
(609) 520-3200
151, BOULEVARD HAUSSMANN
75008 PARIS, FRANCE
(33-1) 53 83 84 70
</TABLE>
October 27, 1998
Templeton Growth Fund, Inc.
500 E. Broward Boulevard
Suite 2100
Ft. Lauderdale, Florida 33394
Dear Sirs:
As counsel for Templeton Growth Fund, Inc. (the "Fund"), a Maryland
corporation, we are familiar with the Fund's registration under the Investment
Company Act of 1940 and with the registration statement relating to its Common
Shares (the "Shares") under the Securities Act of 1933 (File No. 33-9981) (the
"Registration Statement"). We also have examined such other corporate records,
agreements, documents and instruments as we deemed appropriate.
Based upon the foregoing, it is our opinion that the Shares registered
pursuant to the Fund's Registration Statement will, when sold at the public
offering price and delivered by the Fund against receipt of the net asset value
of the Shares in accordance with the terms of the Registration Statement, the
Fund's Articles of Incorporation (as amended, restated, or supplemented from
time to time), and the requirements of applicable law, have been duly and
validly authorized, legally and validly issued, and fully paid and
non-assessable.
We consent to the filing of this opinion in connection with Post-Effective
Amendment No. 17 which is filed under the Securities Act of 1933 on behalf of
the Fund with the Securities and Exchange Commission.
Very truly yours,
/s/Dechert Price & Rhoads
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September 29,
1998, on the financial statements of Templeton Growth Fund, Inc.
referred to therein, which appears in the 1998 Annual Report to
Shareholders and which is incorporated herein by reference, in
Post-Effective Amendment No. 17 to the Registration Statement on
Form N-1A, File No 33-9981, as filed with the Securities and
Exchange Commission.
We also consent to the reference to our firm in the Prospectus
under the caption "Financial Highlights" and in the Statement of
Additional Information under the caption "Auditors."
/s/MCGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
October 27, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
Templeton Growth Fund August 31, 1998 Annual Report and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000805664
<NAME> TEMPLETON GROWTH FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> TEMPLETON GROWTH FUND, INC.- CLASS 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 13942422201
<INVESTMENTS-AT-VALUE> 12069248009
<RECEIVABLES> 64531447
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12133779456
<PAYABLE-FOR-SECURITIES> 45702869
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62992963
<TOTAL-LIABILITIES> 108695832
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12183498977
<SHARES-COMMON-STOCK> 662531683
<SHARES-COMMON-PRIOR> 539719731
<ACCUMULATED-NII-CURRENT> 268936336
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1445822503
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1873174192)
<NET-ASSETS> 12025083624
<DIVIDEND-INCOME> 312010645
<INTEREST-INCOME> 200283993
<OTHER-INCOME> 0
<EXPENSES-NET> (160253266)
<NET-INVESTMENT-INCOME> 352041372
<REALIZED-GAINS-CURRENT> 1794895388
<APPREC-INCREASE-CURRENT> (3948921534)
<NET-CHANGE-FROM-OPS> (1801984774)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (309635887)
<DISTRIBUTIONS-OF-GAINS> (1624126003)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 162377765
<NUMBER-OF-SHARES-REDEEMED> (123878907)
<SHARES-REINVESTED> 84313094
<NET-CHANGE-IN-ASSETS> (888914662)
<ACCUMULATED-NII-PRIOR> 243486766
<ACCUMULATED-GAINS-PRIOR> 1388600548
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (86332815)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (160253266)
<AVERAGE-NET-ASSETS> 13213631176
<PER-SHARE-NAV-BEGIN> 22.47
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> (2.76)
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> (2.88)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.78
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
Templeton Growth Fund August 31, 1998 Annual Report and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000805664
<NAME> TEMPLETON GROWTH FUND, INC.
<SERIES>
<NUMBER> 002
<NAME> TEMPLETON GROWTH FUND, INC.- CLASS II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 13942422201
<INVESTMENTS-AT-VALUE> 12069248009
<RECEIVABLES> 64531447
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12133779456
<PAYABLE-FOR-SECURITIES> 45702869
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62992963
<TOTAL-LIABILITIES> 108695832
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12183498977
<SHARES-COMMON-STOCK> 52878215
<SHARES-COMMON-PRIOR> 34049448
<ACCUMULATED-NII-CURRENT> 268936336
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1445822503
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1873174192)
<NET-ASSETS> 12025083624
<DIVIDEND-INCOME> 312010645
<INTEREST-INCOME> 200283993
<OTHER-INCOME> 0
<EXPENSES-NET> (160253266)
<NET-INVESTMENT-INCOME> 352041372
<REALIZED-GAINS-CURRENT> 1794895388
<APPREC-INCREASE-CURRENT> (3948921534)
<NET-CHANGE-FROM-OPS> (1801984774)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16109670)
<DISTRIBUTIONS-OF-GAINS> (109111611)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21887098
<NUMBER-OF-SHARES-REDEEMED> (8429791)
<SHARES-REINVESTED> 5371460
<NET-CHANGE-IN-ASSETS> (888914662)
<ACCUMULATED-NII-PRIOR> 243486766
<ACCUMULATED-GAINS-PRIOR> 1388600548
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (86332815)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (160253266)
<AVERAGE-NET-ASSETS> 948697716
<PER-SHARE-NAV-BEGIN> 22.18
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> (2.77)
<PER-SHARE-DIVIDEND> (.42)
<PER-SHARE-DISTRIBUTIONS> (2.88)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.49
<EXPENSE-RATIO> 1.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the
Templeton Growth Fund August 31, 1998 Annual Report and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000805664
<NAME> TEMPLETON GROWTH FUND, INC.
<SERIES>
<NUMBER> 003
<NAME> TEMPLETON GROWTH FUND, INC.-ADVISOR CLASS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 13942422201
<INVESTMENTS-AT-VALUE> 12069248009
<RECEIVABLES> 64531447
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12133779456
<PAYABLE-FOR-SECURITIES> 45702869
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62992963
<TOTAL-LIABILITIES> 108695832
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12183498977
<SHARES-COMMON-STOCK> 2160456
<SHARES-COMMON-PRIOR> 1313073
<ACCUMULATED-NII-CURRENT> 268936336
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1445822503
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 12025083624
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<INTEREST-INCOME> 200283993
<OTHER-INCOME> 0
<EXPENSES-NET> (160253266)
<NET-INVESTMENT-INCOME> 352041372
<REALIZED-GAINS-CURRENT> 1794895388
<APPREC-INCREASE-CURRENT> (3948921534)
<NET-CHANGE-FROM-OPS> (1801984774)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (846245)
<DISTRIBUTIONS-OF-GAINS> (4067274)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1306769
<NUMBER-OF-SHARES-REDEEMED> (694766)
<SHARES-REINVESTED> 235380
<NET-CHANGE-IN-ASSETS> (888914662)
<ACCUMULATED-NII-PRIOR> 243486766
<ACCUMULATED-GAINS-PRIOR> 1388600548
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (86332815)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (160253266)
<AVERAGE-NET-ASSETS> 38973622
<PER-SHARE-NAV-BEGIN> 22.49
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> (2.78)
<PER-SHARE-DIVIDEND> (.59)
<PER-SHARE-DISTRIBUTIONS> (2.88)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.80
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
