File Nos. 33-9981 and 811-4892
As filed with the Securities and Exchange Commission on December 30, 1998.
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. 18 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 20 [X]
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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
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(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)
[X ] on January 1, 1999 pursuant to paragraph (b)
---------------
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) 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
PROSPECTUS
TEMPLETON
GROWTH
FUND, INC.
Class A, B & C
INVESTMENT STRATEGY
GLOBAL GROWTH
JANUARY 1, 1999
[FRANKLIN TEMPLETON LOGO]
FRANKLIN(R) TEMPLETON(R)
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 THE 2 Goal and Strategies
FUND YOU SHOULD KNOW
BEFORE INVESTING 3 Main Risks
6 Performance
7 Fees and Expenses
9 Management
11 Distributions and Taxes
12 Financial Highlights
YOUR ACCOUNT
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INFORMATION ABOUt 13 Choosing a Share Class
SALES CHARGES, ACCOUNT
TRANSACTIONS AND 19 Buying Shares
SERVICES
21 Investor Services
24 Selling Shares
26 Account Policies
29 Questions
FOR MORE INFORMATION
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WHERE TO LEARN MORE Back Cover
ABOUT THE FUND
PAGE
2 .
THE FUND
GOAL AND STRATEGIES
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[GRAPHIC OF TARGET]
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the equity securities of companies located anywhere in the world,
including emerging markets.
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The fund invests primarily in a globally diversified portfolio of common stocks.
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Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks. The
fund also invests in American, European and Global Depositary Receipts. These
are certificates issued typically by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic company.
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. 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.
The Templeton investment philosophy is "bottom-up", value-oriented, and
long-term. In choosing equity investments, the fund's manager will focus on the
market price of a company's securities relative to its 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.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
the manager believes the 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,
because it may not invest or may invest less in global stocks.
PAGE
Templeton Growth Fund, Inc. 3
MAIN RISKS
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[GRAPHIC OF LINE GRAPH]
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 markets as a whole. Value stock prices are
considered "cheap" relative to the company's perceived value. They may not
increase in value, as anticipated by the manager, if other investors fail to
recognize the company's value and bid up the price or in markets favoring
faster-growing companies.
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Because the securities 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 and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in Depositary Receipts also involve some or all of the following
risks.
COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. These movements will affect the fund's share price and
fund performance.
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, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.
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 established legal, political, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
While short-term volatility in these markets can be disconcerting, declines in
excess of 50% are not unusual.
PAGE
4
COMPANY. Foreign companies are not subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies and
their securities may not be as liquid as securities of similar U.S. companies.
Foreign stock exchanges, trading systems, 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.
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. Devaluation of currency by a
country's government or banking authority also has a significant impact on the
value of any securities denominated in that currency.
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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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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 the
eleven 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 and fund performance. 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.
PAGE
Templeton Growth Fund, Inc. 5
ILLIQUID SECURITIES The fund may invest up to 10% of its total assets in
securities with a limited trading market. Such a market can result from
political or economic conditions affecting previously established securities
markets, particularly in emerging market countries.
INTEREST RATE When interest rates rise, debt security prices fall. The opposite
is also true: debt security prices go up when interest rates fall. Generally,
interest rates rise during times of inflation or a growing economy, and fall
during an economic slowdown or recession. Securities with longer maturities
usually are more sensitive to interest rate changes than securities with shorter
maturities.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by 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 any company and its major suppliers to verify their Year
2000 readiness.
If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see page 10 for more information.
More detailed information about the fund, its policies and risks can be found in
the fund's Statement of Additional Information (SAI).
PAGE
6
PERFORMANCE
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[GRAPHIC BULL AND BEAR]
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)
[BAR GRAPH]
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C> <C>
88 23.60%
89 22.56% ----------------
90 -9.06% Best Quarter
91 31.33% Q1 '91
92 4.21% 14.81%
93 32.70%
94 0.82% Worst Quarter
95 19.83% Q3 '90
96 20.55% -15.52%
97 16.18% -----------------
</TABLE>
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)
- --------------------------------------------------------------------------------
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, Class A 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 1,500 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.
PAGE
Templeton Growth Fund, Inc. 7
FEES AND EXPENSES
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[PERCENT GRAPHIC]
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)
CLASS A(1) CLASS B(2) CLASS C(1)
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Maximum sales charge (Load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum Deferred Sales Charge (Load) None(3) 4.00% 0.99%(4)
Exchange fee(5) None None None
Please see "Choosing a Share Class" on page 13 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)
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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) A contingent deferred sales charge (CDSC) of 1% may apply to purchases of $1
million or more sold within 12 months (see page 13) and to purchases by certain
retirement plans without an initial sales charge (see page 18).
(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 27).
(6) Because of the distribution and service (12b-1) fees, over the long term you
may indirectly pay more than the equivalent of the maximum permitted initial
sales charge.
PAGE
8
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
(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,
lowering your annual expenses from that time on.
(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.
PAGE
Templeton Growth Fund, Inc. 9
MANAGEMENT
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[GRAPHIC OF BRIEFCASE]
Templeton Global Advisors Limited (Global Advisors), Lyford Cay, Nassau,
Bahamas, is the fund's investment manager. Together, Global Advisors and its
affiliates manage over $216 billion in assets.
The fund's lead portfolio manager is:
MARK G. HOLOWESKO CFA, PRESIDENT OF GLOBAL ADVISORS
Mr. Holowesko has been a manager of the fund since 1987. He joined the Franklin
Templeton Group in 1985.
The following individuals have secondary portfolio management responsibilities:
JEFFREY A. EVERETT CFA, EXECUTIVE VICE PRESIDENT OF GLOBAL ADVISORS
Mr. Everett has been a manager of the fund since 1994. He joined the Franklin
Templeton Group in 1989.
RICHARD SEAN FARRINGTON CFA, VICE PRESIDENT OF GLOBAL ADVISORS
Mr. Farrington has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1991.
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 daily net assets to the manager.
PAGE
10
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a non-standard leap
year may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund 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.
PAGE
Templeton Growth Fund, Inc. 11
DISTRIBUTIONS AND TAXES
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[GRAPHIC OF MONEY]
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 distribution will vary and
there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that if
you invest in the fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call 1-800/DIAL BEN.
BACKUP WITHHOLDING
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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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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.
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 advisor about federal, state, local or foreign tax consequences
of your investment in the fund.
PAGE
12
FINANCIAL HIGHLIGHTS
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[GRAPHIC OF DOLLAR BILLS]
This table presents the fund's financial performance for the past five years.
This information has been audited by McGladrey & Pullen, LLP.
<TABLE>
<CAPTION>
CLASS A YEAR ENDED AUGUST 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995(1) 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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) (1.29) (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
</TABLE>
1. Figures 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.
PAGE
Templeton Growth Fund, Inc. 13
YOUR ACCOUNT
CHOOSING A SHARE CLASS
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[GRAPHIC OF PENCIL]
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>
- - Initial sales charge of 5.75% - No initial sales charge - Initial sales charge of 1%
or less
- Deferred sales charge of 4% - Deferred sales charge of
- - Deferred sales charge of 1% or less on shares you sell 1% on shares you sell within
on purchases of $1 million or within six years 18 months
more sold within 12 months
- Higher annual expenses than - Higher annual expenses than
- - Lower annual expenses than Class A (same as Class C) Class A (same as Class B)
Class B or C due to lower due to higher distribution due to higher distribution
distribution fees fees. Automatic conversion to fees. No conversion to
Class A shares after eight Class A shares, so annual
years, reducing future expenses do not decrease.
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
<TABLE>
<CAPTION>
THE SALES CHARGE MAKES UP WHICH EQUALS THIS %
when you invest this amount THIS % OF THE OFFERING PRICE OF YOUR NET INVESTMENT
- -------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
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 16), 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 15).
DISTRIBUTION AND SERVICE (12b-1) FEES Class A has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution fees of up
to 0.25% per year to those who sell and distribute Class A shares and provide
other services to shareholders. Because
PAGE
14
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.
SALES CHARGES - CLASS B
if you sell your shares within THIS % IS DEDUCTED FROM
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 15). 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. Class
B shares are only available to IRAs (of any type), 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 the fund to pay distribution and other
fees of up to 1% per year for the sale of Class B 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.
PAGE
Templeton Growth Fund, Inc. 15
SALES CHARGES - CLASS C
<TABLE>
<CAPTION>
THE SALES CHARGE MAKES UP WHICH EQUALS THIS %
when you invest this amount THIS % OF THE OFFERING PRICE OF YOUR NET INVESTMENT
- -----------------------------------------------------------------------------------
<S> <C> <C>
Under $1 million 1.00 1.01
</TABLE>
We invest any investment of $1 million or more in Class A shares, since there is
no initial sales charge and Class A's 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 way we calculate the CDSC is the same
for each class (please see below).
- --------------------------------------------------------------------------------
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, if you buy shares on the 18th of the month, they will age one month
on the 18th day of the next month and each following month.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES Class C has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution and other
fees of up to 1% per year for the sale of Class C 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.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C The CDSC for each class
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.
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 22
for exchange information).
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.
PAGE
16
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.
- - 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.
- - 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 within 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) also
may 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.
PAGE
Templeton Growth Fund, Inc. 17
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:
- - certain payments received under an annuity contract that offers a Franklin
Templeton insurance fund option
- - distributions from an existing retirement plan invested in the Franklin
Templeton Funds
- - dividend or capital gain distributions from a real estate investment trust
sponsored or advised by Franklin Properties, Inc.
- - redemption proceeds from a repurchase of Franklin Floating Rate Trust
shares held continuously for at least 12 months
- - 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 also may be purchased without an
initial sales charge or CDSC by various individuals and institutions, including:
- - certain trust companies and bank trust departments investing $1 million or
more in assets over which they have full or shared investment discretion
- - government entities that are prohibited from paying mutual fund sales
charges
- - certain unit investment trusts and their holders reinvesting trust
distributions
- - group annuity separate accounts offered to retirement plans
- - employees and other associated persons or entities of Franklin Templeton
or of certain dealers
- - Chilean retirement plans that meet the requirements for retirement plans
described below.
- - certain German insurance companies
If you think you may be eligible for a sales charge waiver,
call your investment representative or call Shareholder Services
at 1-800/632-2301 for more information.
PAGE
18
CDSC WAIVERS The CDSC for each class generally will be waived:
- - to pay account fees
- - to make payments through systematic withdrawal plans, up to 1% monthly, 3%
quarterly, 6% semiannually or 12% annually depending on the frequency of
your plan
- - for redemptions by Franklin Templeton Trust Company employee benefit plans
or employee benefit plans serviced by ValuSelect(R) (not applicable to
Class B)
- - 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)
- - to return excess contributions (and earnings, if applicable) from
retirement plan accounts
- - for redemptions following the death of the shareholder or beneficial owner
- - for participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
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:
- - with at least 100 employees, or
- - with retirement plan assets of $1 million or more, or
- - 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 Internal Revenue Code also must 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).
For more information, call your investment representative or
Retirement Plan Services at 1-800/527-2020.
PAGE
Templeton Growth Fund, Inc. 19
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.
BUYING SHARES
- -------------------------------------------------------------------------------
[GRAPHIC OF PEN AND PAPER]
MINIMUM INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
INITIAL ADDITIONAL
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Regular accounts $1,000 $50
- ------------------------------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- ------------------------------------------------------------------------------------------
Retirement accounts
(other than IRAs, IRA rollovers, Education IRAs or Roth IRAs) no minimum no minimum
- ------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------
</TABLE>
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).
PAGE
20
BUYING SHARES
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------
[GRAPHIC OF TWO PEOPLE
SHAKING HANDS]
THROUGH YOUR INVESTMENT Contact your investment Contact your investment
REPRESENTATIVE representative representative
- --------------------------------------------------------------------------------
[
GRAPHIC ENVELOPE]
BY MAIL Make your check payable Make your check payable
to Templeton Growth Fund, to Templeton Growth
Inc. Fund, Inc. Include your
account number on the
Mail the check and your check.
signed application to
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.
- --------------------------------------------------------------------------------
[GRAPHIC ELECTRICITY]
BY WIRE
1-800/632-2301 Call to receive a wire Call to receive a wire
(or 1-650/312-2000 control number and wire control number and wire
collect) instructions. instructions.
Mail your signed To make a same day wire
application to Investor investment, please call
Services. Please include us by 1:00 p.m. pacific
the wire control number time and make sure your
or your new account wire arrives by 3:00
number on the p.m.
application.
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 EXCHANGE
ARROWS]
BY EXCHANGE Call Shareholder Services Call Shareholder Services
at the number below, or at the number below or
TeleFACTS(R) send signed written our automated TeleFACTS
1-800/247-1753 instructions. The system, or send signed
(around-the-clock TeleFACTS system cannot written instructions.
access) be used to open a new
account.
(Please see page 22 for (Please see page 22 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)
PAGE
Templeton Growth Fund, Inc. 21
INVESTOR SERVICES
[GRAPHIC OF MAN WEARING HEADSET]
- -------------------------------------------------------------------------------
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). To sign up,
complete the appropriate section of your account application.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account 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.
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 separate applications 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.
PAGE
22
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
Generally 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. The purchase price for determining a
CDSC on exchanged shares will be the price you paid for the original shares. If
you exchange shares subject to a CDSC into a Class A money fund, the time your
PAGE
Templeton Growth Fund, Inc. 23
shares are held in the money fund will not count towards the CDSC holding
period.
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will count
towards the eight year period for automatic conversion to Class A shares.
Frequent exchanges can interfere with fund management or operations 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
27).
*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 also
may 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 certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.
PAGE
24
SELLING SHARES
- -------------------------------------------------------------------------------
[GRAPHIC CERTIFICATE]
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:
- - you are selling more than $100,000 worth of shares
- - you want your proceeds paid to someone who is not a registered owner
- - you want to send your proceeds somewhere other than the address of record, or
preauthorized bank or brokerage firm account
- - 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 may need to complete additional forms. For
participants under age 59 1/2, tax penalties may apply. Call Retirement Plan
Services at 1-800/527-2020 for details.
PAGE
Templeton Growth Fund, Inc. 25
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
- --------------------------------------------------------------------------------
[GRAPHIC TWO PEOPLE Contact your investment representative
SHAKING HANDS]
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- --------------------------------------------------------------------------------
[GRAPHIC ENVELOPE] 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 PHONE] As long as your transaction is for $100,000 or less,
you do not hold share certificates and you have not
BY PHONE 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.
- --------------------------------------------------------------------------------
[GRAPHIC ELECTRICITY] You can call or write to have redemption proceeds of
$1,000 or more wired to a bank or escrow account. See
BY WIRE the policies above for selling shares by mail or
phone.
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 EXCHANGE Obtain a current prospectus for the fund you are
ARROWS] considering.
BY EXCHANGE Call Shareholder Services at the number below or our
automated TeleFACTS system, or send signed written
instructions. See the policies above for selling
TeleFACTS(R) shares by mail or phone.
1-800/247-1753
(around-the-clock If you hold share certificates, you will need to
access) 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)
PAGE
26
ACCOUNT POLICIES
- -------------------------------------------------------------------------------
[GRAPHIC PAGE]
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.
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.
- --------------------------------------------------------------------------------
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).
- --------------------------------------------------------------------------------
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.
PAGE
Templeton Growth Fund, Inc. 27
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.
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. 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, or (iv)
otherwise made large or frequent exchanges. 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:
- - The fund may refuse any order to buy shares, including any purchase under the
exchange privilege.
- - At any time, the fund may change its investment minimums or waive or lower its
minimums for certain purchases.
- - The fund may modify or discontinue the exchange privilege on 60 days' notice.
- - You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
- - In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.
PAGE
28
- - 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.
- - 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 fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and service
(12b-1) fees and its other resources.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <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)
</TABLE>
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.
PAGE
Templeton Growth Fund, Inc. 29
QUESTIONS
- -------------------------------------------------------------------------------
[GRAPHIC QUESTION MARK]
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.
<TABLE>
<CAPTION>
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
</TABLE>
PAGE
30
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Templeton Growth Fund, Inc. 31
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Templeton Growth Fund, Inc. 33
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34
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Templeton Growth Fund, Inc. 35
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36
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PAGE
FRANKLIN TEMPLETON LITERATURE REQUEST
Call 1-800/DIAL BEN(R) (1-800/342-5236) today for a free descriptive brochure
and prospectus on any of the funds listed below. The prospectus contains more
complete information, including fees, sales charges and expenses, and should be
read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Global Infrastructure Fund
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH
AND INCOME
Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
GLOBAL INCOME
Franklin Global Government Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Templeton Americas Government Securities Fund
GROWTH
Franklin Biotechnology Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet Investment Fund*
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INCOME
Franklin Adjustable Rate Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade Income Fund
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government Securities Fund
Franklin Money Fund
TAX-FREE INCOME
Federal Intermediate-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
STATE-SPECIFIC TAX-FREE INCOME
Alabama
Arizona**
Arkansas***
California**
Colorado
Connecticut
Florida**
Georgia
Hawaii***
Indiana
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan**
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
Washington***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton Valuemark Income Plus (an immediate annuity)
* These funds are now closed to new accounts, with the exception of retirement
plan accounts.
** Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
*** The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
+ Portfolio of insured municipal securities.
++ Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.
12/98
PAGE
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
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 101 P 01/99
PAGE
PROSPECTUS
TEMPLETON
GROWTH
FUND, INC.
ADVISOR CLASS
INVESTMENT STRATEGY
GLOBAL GROWTH
January 1, 1999
[FRANKLIN TEMPLETON LOGO]
FRANKLIN(R) TEMPLETON(R)
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 THE 2 Goal and Strategies
FUND YOU SHOULD KNOW
BEFORE INVESTING 3 Main Risks
6 Performance
7 Fees and Expenses
8 Management
10 Distributions and Taxes
12 Financial Highlights
YOUR ACCOUNT
- -------------------------------------------------------------------------------
INFORMATION ABOUT 13 Qualified Investors
QUALIFIED INVESTORS,
ACCOUNT TRANSACTIONS 14 Buying Shares
AND SERVICES
15 Investor Services
17 Selling Shares
19 Account Policies
21 Questions
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
WHERE TO LEARN MORE Back Cover
ABOUT THE FUND
PAGE
2
THE FUND
GOAL AND STRATEGIES
- --------------------------------------------------------------------------------
[GRAPHIC OF TARGET]
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the equity securities of companies located anywhere in the world,
including emerging markets.
- --------------------------------------------------------------------------------
The fund invests primarily in a globally diversified portfolio of common stocks.
- --------------------------------------------------------------------------------
Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks. The
fund also invests in American, European and Global Depositary Receipts. These
are certificates issued typically by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic company.
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. 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.
The Templeton investment philosophy is "bottom-up", value-oriented, and
long-term. In choosing equity investments, the fund's manager will focus on the
market price of a company's securities relative to its 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.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
the manager believes the 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,
because it may not invest or may invest less in global stocks.
PAGE
Templeton Growth Fund, Inc. 3
MAIN RISKS
- --------------------------------------------------------------------------------
[GRAPHIC LINE GRAPH]
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 markets as a whole. Value stock prices are
considered "cheap" relative to the company's perceived value. They may not
increase in value, as anticipated by the manager, if other investors fail to
recognize the company's value and bid up the price or in markets favoring
faster-growing companies.
- --------------------------------------------------------------------------------
Because the securities 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 and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in Depositary Receipts also involve some or all of the following
risks.
COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. These movements will affect the fund's share price and
fund performance.
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, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.
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 established legal, political, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
While short-term volatility in these markets can be disconcerting, declines in
excess of 50% are not unusual.
PAGE
4
COMPANY. Foreign companies are not subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies and
their securities may not be as liquid as securities of similar U.S. companies.
Foreign stock exchanges, trading systems, 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.
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. Devaluation of currency by a
country's government or banking authority also has a significant impact on the
value of any securities denominated in that currency.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 the
eleven 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 and fund performance. 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.
PAGE
Templeton Growth Fund, Inc. 5
ILLIQUID SECURITIES The fund may invest up to 10% of its total assets in
securities with a limited trading market. Such a market can result from
political or economic conditions affecting previously established securities
markets, particularly in emerging market countries.
INTEREST RATE When interest rates rise, debt security prices fall. The opposite
is also true: debt security prices go up when interest rates fall. Generally,
interest rates rise during times of inflation or a growing economy, and fall
during an economic slowdown or recession. Securities with longer maturities
usually are more sensitive to interest rate changes than securities with shorter
maturities.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by 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 any company and its major suppliers to verify their Year
2000 readiness.
If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see page 9 for more information.
More detailed information about the fund, its policies and risks can be found in
the fund's Statement of Additional Information (SAI).
PAGE
6
PERFORMANCE
- --------------------------------------------------------------------------------
[GRAPHIC OF BULL AND BEAR]
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)
YEAR TOTAL RETURNS
- ------------------------ -----------------
88 23.60% Best Quarter:
89 22.56% Q1 '91 14.81%
90 -9.06%
91 31.33%
92 4.21% Worst Quarter:
93 32.70% Q3 '90 -15.52%
94 0.82% ------------------
95 19.83%
96 20.55%
97 16.42%
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Templeton Growth Fund - Advisor Class(2) 16.42% 17.61% 15.55%
MSCI World Index(3) 16.23% 15.88% 11.14%
</TABLE>
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 1,500 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.
PAGE
Templeton Growth Fund, Inc. 7
FEES AND EXPENSES
- ------------------------------------------------------------------------------
[GRAPHIC OF PERCENT SIGN]
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 20).
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
PAGE
8
MANAGEMENT
- ------------------------------------------------------------------------------
[GRAPHIC OF SUITCASE]
Templeton Global Advisors Limited (Global Advisors), Lyford Cay, Nassau,
Bahamas, is the fund's investment manager. Together, Global Advisors and its
affiliates manage over $216 billion in assets.
The fund's lead portfolio manager is:
MARK G. HOLOWESKO CFA, PRESIDENT OF GLOBAL ADVISORS
Mr. Holowesko has been a manager of the fund since 1987. He joined the Franklin
Templeton Group in 1985.
The following individuals have secondary portfolio management responsibilities:
JEFFREY A. EVERETT CFA, EXECUTIVE VICE PRESIDENT OF GLOBAL ADVISORS
Mr. Everett has been a manager of the fund since 1994. He joined the Franklin
Templeton Group in 1989.
RICHARD SEAN FARRINGTON CFA, VICE PRESIDENT OF GLOBAL ADVISORS
Mr. Farrington has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1991.
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 daily net assets to the manager.
PAGE
Templeton Growth Fund, Inc. 9
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a non-standard leap
year may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund 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.
PAGE
10
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
[GRAPHIC OF MONEY]
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 distribution will vary and
there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that if
you invest in the fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call 1-800/DIAL BEN.
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.
PAGE
Templeton Growth Fund, Inc. 11
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 advisor about federal, state, local or foreign tax consequences
of your investment in the fund.
PAGE
12
FINANCIAL HIGHLIGHTS
[GRAPHIC OF DOLLAR BILLS]
- -------------------------------------------------------------------------------
This table presents the financial performance for Advisor Class since its
inception. This information has been audited by McGladrey & Pullen, LLP.
<TABLE>
<CAPTION>
ADVISOR CLASS YEAR ENDED AUGUST 31,
- ---------------------------------------------------------------------------------------
1998 1997(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
1. For the period January 2, 1997 (effective date) through August 31, 1997.
2. Total return is not annualized.
3. Annualized.
PAGE
Templeton Growth Fund, Inc. 13
YOUR ACCOUNT
QUALIFIED INVESTORS
- --------------------------------------------------------------------------------
[GRAPHIC OF PEN AND PAPER]
The following investors may qualify to buy Advisor Class shares of the fund.
- - 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.
- - 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 $50 additional.
- - Officers, trustees, directors and full-time employees of Franklin
Templeton and their immediate family members. Minimum investments: $100
initial ($50 for accounts with an automatic investment plan) and $50
additional.
- - Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.
- - Accounts managed by the Franklin Templeton Group. Minimum investments: No
initial minimum and $50 additional.
- - The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments: No
initial minimum and $50 additional.
PAGE
14
Buying Shares
- --------------------------------------------------------------------------------
[GRAPHIC OF PEN AND WRITING PAPER]
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
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[GRAPHIC OF HANDSHAKE] THROUGH YOUR Contact your investment Contact your investment
INVESTMENT representative representative
REPRESENTATIVE
- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF LETTER] BY MAIL Make your check payable to Make your check payable to
Templeton Growth Fund, Inc. Templeton Growth Fund, Inc. Include
your account number on the check.
Mail the check and your signed
application to 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.
- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF WIRE] BY WIRE Call to receive a wire control Call to receive a wire control number
number and wire instructions. and wire instructions.
1-800/632-2301
(or 1-650/312-2000 Mail your signed application to To make a same day wire
collect) Investor Services. Please include the investment, please call us by
wire control number or your new 1:00 p.m. pacific time and make
account number on the application. sure your wire arrives by 3:00 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 OF ARROWS] BY EXCHANGE Call Shareholder Services at the Call Shareholder Services at the
number below, or send signed number below, or send signed
written instructions. (Please see written instructions. (Please see
page 16 for information on page 16 for information on
exchanges.) exchanges.)
</TABLE>
- ------------------------------------------------------------------------------
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)
PAGE
Templeton Growth Fund, Inc. 15
INVESTOR SERVICES
- ------------------------------------------------------------------------------
[GRAPHIC OF PERSON]
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. To sign up, complete the appropriate section
of your account application.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account in the same share class of the fund or in Advisor Class or
Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial sales
charges and contingent deferred sales charges (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.
PAGE
16
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. You also may 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.
Generally 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 or operations 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
20).
* 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 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 consequence as ordinary sales and purchases.
- --------------------------------------------------------------------------------
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.
PAGE
Templeton Growth Fund, Inc. 17
SELLING SHARES
- ------------------------------------------------------------------------------
[GRAPHIC OF CERTIFICATE]
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:
- - you are selling more than $100,000 worth of shares
- - you want your proceeds paid to someone who is not a registered owner
- - you want to send your proceeds somewhere other than the address of record,
or preauthorized bank or brokerage firm account
- - you have changed the address on your account by phone within the last 15
days
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
PAGE
18
SELLING SHARES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TO SELL SOME OR ALL OF YOUR SHARES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[GRAPHIC OF HANDS SHAKING] Through your Contact your investment representative
investment
representative
- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF ENVELOPE] BY MAIL Send written instructions and endorsed share
certificates (if you hold share certificates) to
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 OF TELEPHONE] BY PHONE As long as your transaction is for $100,000 or less, you
1-800/632-2301 do not hold share certificates and you have not changed
your address by phone within the last 15 days, you can
sell your shares by phone.
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.
- ------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OF WIRE] BY WIRE 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.
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 OF ARROWS] BY EXCHANGE Obtain a current prospectus for the fund you are
considering.
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.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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)
PAGE
Templeton Growth Fund, Inc. 19
ACCOUNT POLICIES
- --------------------------------------------------------------------------------
[GRAPHIC OF NOTE PAD]
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.
PAGE
20
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.
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. 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, or (iv)
otherwise made large or frequent exchanges. 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:
- - The fund may refuse any order to buy shares, including any purchase under
the exchange privilege.
- - At any time, the fund may change its investment minimums or waive or lower
its minimums for certain purchases.
- - The fund may modify or discontinue the exchange privilege on 60 days'
notice.
- - You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
- - In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
PAGE
Templeton Growth Fund, Inc. 21
- - 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.
- - 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.
QUESTIONS
- ------------------------------------------------------------------------------
[GRAPHIC OF QUESTION MARK]
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.
<TABLE>
<CAPTION>
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
--------------- ---------------- ----------------------
<S> <C> <C>
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.
</TABLE>
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Templeton Growth Fund, Inc. 27
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PAGE
FRANKLIN TEMPLETON LITERATURE REQUEST
Call 1-800/DIAL BEN(R) (1-800/342-5236) today for a free descriptive brochure
and prospectus on any of the funds listed below. The prospectus contains more
complete information, including fees, sales charges and expenses, and should be
read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
GLOBAL INCOME
Franklin Global Government Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Templeton Americas Government Securities Fund
GROWTH
Franklin Biotechnology Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet Investment Fund*
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INCOME
Franklin Adjustable Rate Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade Income Fund
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government Securities Fund
Franklin Money Fund
TAX-FREE INCOME
Federal Intermediate-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
STATE-SPECIFIC TAX-FREE INCOME
Alabama
Arizona**
Arkansas***
California**
Colorado
Connecticut
Florida**
Georgia
Hawaii***
Indiana
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan**
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
Washington***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton Valuemark Income Plus (an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
***The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
+Portfolio of insured municipal securities.
++Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.
12/98
PAGE
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
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 101 PA 01/99
PAGE
PART B
TEMPLETON GROWTH FUND, INC.
CLASS A, B & C
STATEMENT OF ADDITIONAL INFORMATION
PAGE
TEMPLETON GROWTH
FUND, INC. -
CLASS A, B & C
STATEMENT OF
ADDITIONAL INFORMATION [LOGO]
FRANKLIN(R) TEMPLETON(R)
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.......................................... 2
Risks........................................................ 6
Officers and Directors........................................ 10
Management and Other Services................................. 15
Portfolio Transactions........................................ 16
Distributions and Taxes....................................... 17
Organization, Voting Rights and
Principal Holders............................................ 19
Buying and Selling Shares..................................... 20
Pricing Shares................................................ 27
The Underwriter............................................... 27
Performance................................................... 30
Miscellaneous Information..................................... 32
Description of Bond Ratings................................... 32
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.
1
101 SAI 01/99
PAGE
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, including
emerging markets.
The fund may invest without percentage limitation in domestic or foreign
securities. It may invest up to 100% of its total assets in emerging markets,
including up to 5% of its total assets in Russian 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 equity securities, including common and
preferred 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.
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 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 declines. These changes in market value will be reflected
in the fund's net asset value.
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. As an operating policy, the fund will not invest more than
5% of its total assets in non-investment grade securities (rated lower than Baa
by Moody's or BBB by S&P).
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
2
PAGE
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 such investments are illiquid,
they will be subject to the fund's restrictions on investments in illiquid
securities.
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 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.
Although the fund has the authority to invest up to 20% of its total assets
buying and selling stock index futures contracts traded on a recognized stock
exchange or board of trade, it does not currently intend to enter into such
transactions.
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
3
PAGE
$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).
SECURITIES INDEX OPTIONS Although the fund has the authority to buy and sell put
and call options on securities indices in standardized contracts traded on
national securities exchanges, boards of trade, or similar entities or quoted on
NASDAQ, it does not currently intend to enter into such transactions. An option
on a securities index is a contract that 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.
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).
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 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.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS The fund has adopted the
following investment policies and restrictions as fundamental policies. This
4
PAGE
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 seeks to achieve its investment goal of long-term capital growth
through a flexible policy of investing in stocks and debt obligations of
companies and governments of any nation. Although the fund generally invests in
common stock, it may also invest in preferred stocks and certain debt securities
(which may include structured investments, as described under "Goal and
Strategies-Structured Investments"), rated or unrated, such as convertible bonds
and bonds selling at a discount. Whenever, in the judgment of the manager,
market or economic conditions warrant, the fund may, for temporary defensive
purposes, invest without limit in U.S. government securities, bank time deposits
in the currency of any major nation and commercial paper meeting the quality
ratings set forth under "Goal and Strategies-Temporary Investments", and
purchase from banks or broker-dealers Canadian or U.S. government securities
with a simultaneous agreement by the seller to repurchase them within no more
than seven days at the original purchase price plus accrued interest. The fund
may invest no more than 5% of its total assets in securities issued by any one
company or government, exclusive of U.S. government securities. The fund may not
invest more than 10% of its assets in securities with a limited trading market.
In addition, 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 of directors, 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 1/2 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).
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 of directors 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.
5
PAGE
9. Invest 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.
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 1940 Act.
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.
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 generally 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.
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 many developing countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in some developing countries 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
6
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periods extremely high, rates of inflation for many years. Inflation and rapid
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 developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, 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 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 developing countries. Finally, even though the
currencies of some developing countries, such as certain Eastern European
countries, 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.
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 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
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
7
PAGE
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 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 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.
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. 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 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
8
PAGE
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 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
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 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
9
PAGE
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 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.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harris J. Ashton (66) Director Director, RBC Holdings, Inc. (bank holding company)
191 Clapboard Ridge Road and Bar-S Foods (meat packing company); director
Greenwich, CT 06830 or trustee, as the case 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) Director Chairman, Templeton Emerging Markets Investment Trust
The Bullitt House PLC, Templeton Latin America Investment Trust PLC,
102 East Dover Street Darby Overseas Investments, Ltd. and Darby Emerging
Easton, MD 21601 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 (processed 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.
- -----------------------------------------------------------------------------------------------------------------------------------
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POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
S. Joseph Fortunato (66) Director Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Park Avenue at Morris County director or trustee, as the case may be, of 51 of
P.O. Box 1945 the investment companies in the Franklin Templeton Group
Morristown, NJ 07962-1945 of Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
John Wm. Galbraith (77) Director President, Galbraith Properties, Inc. (personal investment
360 Central Avenue company); Director Emeritus, Gulf West Banks, Inc. (bank holding
Suite 1300 company) (1995-present); director or trustee, as the case may be,
St. Petersburg, FL 33701 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) Director Consultant for the Triangle Consulting Group;
150 2nd Avenue N. Executive-in-Residence of Eckerd College (1991-present); director
St. Petersburg, FL 33701 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) Director and Vice President, Chief Executive Officer and Director, Franklin
777 Mariners Island Blvd. President Resources, Inc.; Chairman of the Board and Director, Franklin
San Mateo, CA 94404 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) Director Director or trustee of various civic associations; director or
2201 Kentmere Parkway trustee, as the case may be, of 21 of the investment companies in
Wilmington, DE 19806 the Franklin Templeton Group of Funds; and FORMERLY, Economic
Analyst, U.S. Government.
- -----------------------------------------------------------------------------------------------------------------------------------
Gordon S. Macklin (70) Director Director, Fund American Enterprises Holdings, Inc., Martek
8212 Burning Tree Road Biosciences Corporation, MCI WorldCom (information services),
Bethesda, MD 20817 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.
- -----------------------------------------------------------------------------------------------------------------------------------
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POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fred R. Millsaps (69) Director Manager of personal investments (1978-present); director of
2665 NE 37th Drive various business and nonprofit organizations; director or
Fort Lauderdale, FL 33308 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) President President, Templeton Global Advisors Limited; Chief Investment
Lyford Cay Officer, Global Equity Group; Executive Vice President and
Nassau, Bahamas Director, Templeton Worldwide, Inc.; officer of 21 of the
investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Investment Administrator, RoyWest Trust Corporation
(Bahamas) Limited (1984-1985).
- -----------------------------------------------------------------------------------------------------------------------------------
Rupert H. Johnson, Jr. (58) Vice President Executive Vice President and Director, Franklin Resources, Inc.
777 Mariners Island Blvd. and Franklin Templeton Distributors, Inc.; President and Director,
San Mateo, CA 94404 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) Vice President Executive Vice President and Director, Franklin Resources, Inc.,
777 Mariners Island Blvd. Franklin Templeton Distributors, Inc. and Franklin Templeton
San Mateo, CA 94404 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) Vice President Senior Vice President and Director, Franklin Resources, Inc.;
500 East Broward Blvd. Senior Vice President, Franklin Templeton Distributors, Inc.;
Fort Lauderdale, FL President and Director, Templeton Worldwide, Inc.; Chairman and
33394-3091 Director, Templeton Investment Counsel, Inc.; Vice
President, Franklin Advisers, 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 34
of the investment companies in the Franklin Templeton Group of
Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
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PAGE
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deborah R. Gatzek (50) Vice President Senior Vice President and General Counsel, Franklin Resources,
777 Mariners Island Blvd. Inc.; Senior Vice President, Franklin Templeton Services, Inc. and
San Mateo, CA 94404 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) Vice President Senior Vice President and Chief Financial Officer, Franklin
777 Mariners Island Blvd. Resources, Inc.; Executive Vice President and Director, Templeton
San Mateo, CA 94404 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) Vice President Vice President and Treasurer, Templeton Worldwide, Inc.; Assistant
500 East Broward Blvd. Vice President, Franklin Templeton Distributors, Inc.; officer
Fort Lauderdale, FL of 25 of the investment companies in the Franklin Templeton
33394-3091 Group of Funds; and FORMERLY, Vice President and Controller,
Keystone Group, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Elizabeth M. Knoblock (43) Vice President- General Counsel, Secretary and Senior Vice President, Templeton
500 East Broward Blvd. Compliance Investment Counsel, Inc.; Senior Vice President, Templeton Global
Fort Lauderdale, FL Investors, Inc.; officer of 21 of the investment companies in the
33394-3091 Franklin Templeton Group of Funds; and FORMERLY, Vice President
and Associate General Counsel, Kidder Peabody & Co. (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).
- -----------------------------------------------------------------------------------------------------------------------------------
13
PAGE
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James R. Baio (44) Treasurer Certified Public Accountant; Treasurer, Franklin Mutual Advisers,
500 East Broward Blvd. Inc.; Senior Vice President, Templeton Worldwide, Inc., Templeton
Fort Lauderdale, FL Global Investors, Inc. and Templeton Funds Trust Company; officer
33394-3091 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) Secretary Senior Vice President, Templeton Worldwide, Inc. and Templeton
500 East Broward Blvd. Global Investors, Inc.; officer of 21 of the investment companies
Fort Lauderdale, FL in the Franklin Templeton Group of Funds; and FORMERLY, Deputy
33394-3091 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).
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* 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.
</FN>
</TABLE>
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 a committee are not compensated
for any committee meeting held on the day of 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 the Franklin
Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP
RECEIVED FROM FRANKLIN TEMPLETON OF FUNDS ON WHICH
NAME 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
<FN>
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 board 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.
</FN>
</TABLE>
14
PAGE
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.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.
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 Templeton organization has been investing globally since 1940. The manager
and its affiliates have offices in Argentina, Australia, Bahamas, Bermuda,
Brazil, the British Virgin Islands, Canada, China, Cyprus, France, Germany, Hong
Kong, India, Italy, Japan, Korea, Luxembourg, Mauritius, the Netherlands,
Poland, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan,
United Kingdom and 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 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 average daily net assets up to and including $200
million;
15
PAGE
/bullet/ 0.675% of the value of average daily net assets over $200 million and
up to and including $1.3 billion; and
/bullet/ 0.60% of the value of average daily net assets over $1.3 billion.
The fee is computed monthly, based on the fund's average daily net assets during
the month preceding each payment, according to the terms of the management
agreement. Each class of the fund's shares pays its proportionate share of the
fee.
For the last three fiscal years ended August 31, the fund paid the following
management fees:
MANAGEMENT
FEES PAID ($)
- -------------------------------------------------------------------------------
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 ................................................................ 8,655,311
1996 ................................................................ 6,481,909
For the periods prior to 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.
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 monitors 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 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
16
PAGE
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 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.
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 $104,299,800. 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
- --------------------------------------------------------------------------------
The fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will 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 from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as
17
PAGE
long-term capital gain, regardless of how long you have held your shares in the
fund. Any net capital gains realized by the fund generally will be distributed
once each year, and may be distributed more frequently, if necessary, in order
to reduce or eliminate 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 (subject to limitations) 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 it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held fund shares for a full year, the fund may designate and distribute to
you, 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 Internal
Revenue 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 earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these amounts in
December (or in January that are treated by you as received in December) to
avoid these excise taxes, but can give no assurances that its distributions will
be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. If you redeem your fund
shares, or exchange your fund shares for shares of a different Franklin
Templeton Fund, the IRS will require that you report a gain or loss on your
redemption or exchange. If you hold your shares as a capital asset, the gain or
loss that you realize will be capital gain or loss and will be long-term or
short-term, generally depending on how long you hold your shares. 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 If you redeem some or all of your shares in the fund, and then
reinvest the sales proceeds in the fund or in another Franklin Templeton Fund
within 90 days of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. The IRS will
require you to report gain or loss on the redemption of your original shares of
the fund. In doing so, all or a portion of the sales charge that you
18
PAGE
paid for your original shares in the fund will be excluded from your tax basis
in the shares sold (for the purpose of determining gain or loss upon the sale of
such shares). The portion of the sales charge excluded 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 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 calculations.
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 and/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.
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
19
PAGE
shareholders holding at least 10% of the outstanding shares. In certain
circumstances, the fund is 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.
As of December 14, 1998, the principal shareholders of the fund, beneficial or
of record were:
NAME AND ADDRESS SHARE CLASS PERCENTAGE (%)
- -------------------------- ------------- ------------------
Jupiter & Co.
c/o Investor Bank &
Trust Co.
P.O. Box 9130 FPG 90
Boston, MA 02117-9130..... Advisor 10.95
Franklin Templeton
Trust Company/1/
Trustee for ValuSelect
Franklin Templeton 401K
P.O. Box 2438
Rancho Cordova,
CA 95741-2438 ........... Advisor 34.62
Franklin Templeton
Trust Company/1/
Trustee for ValuSelect
Franklin Resources Profit
Sharing Plans
P.O. Box 2438
Rancho Cordova,
CA 95741-2438 ........... Advisor 13.59
1. Franklin Templeton Trust Company is a California corporation and is wholly
owned by Franklin Resources, Inc.
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.
As of December 14, 1998, the officers and board members, as a group, owned of
record and beneficially 2.70% 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 his legal and investment advisors 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 /R/ and the
Templeton Group of Funds except Franklin Valuemark Funds, 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
20
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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 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. 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.
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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 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.
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
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PAGE
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.
/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 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 Internal
Revenue 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 Internal Revenue 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:
SALES
SIZE OF PURCHASE - U.S. DOLLARS CHARGE (%)
- -------------------------------------------------------------------------------
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.
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PAGE
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 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 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
WITHIN THIS MANY YEARS AFTER FROM YOUR PROCEEDS
BUYING THEM AS A CDSC
- ------------------------------------------------------------------------------
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
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/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, up to 1% monthly, 3% quarterly, 6% semiannually or
12% annually of your account's net asset value depending on the
frequency of your plan.
/bullet/ Redemptions by Franklin Templeton Trust Company employee benefit plans
or employee benefit plans serviced by ValuSelect /R/ not applicable to
Class B)
/bullet/ Distributions from individual retirement accounts (IRAs) due to death
or disability or upon periodic distributions based on life expectancy
(for Class B, this applies to all retirement plan accounts, not only
IRAs)
/bullet/ Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
/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 reinvested in the fund and exchanged into the new fund at net asset
value when paid. 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 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.
25
PAGE
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 U.S. 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.
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.
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
26
PAGE
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) per share 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.
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, Far Eastern and some other 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 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
27
PAGE
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:
AMOUNT RECEIVED
TOTAL AMOUNT IN CONNECTION
COMMISSIONS RETAINED BY WITH REDEMPTIONS
RECEIVED ($) DISTRIBUTORS ($) AND REPURCHASES ($)
-------------- ------------------ --------------------
1998 40,309,300 4,661,855 474,453
1997 40,795,777 6,509,259 178,223
1996 37,616,480 5,546,704 52,196
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,
Germany. 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:
AMOUNT
RETAINED BY AMOUNT RECEIVED
TOTAL TEMPLETON IN CONNECTION
COMMISSIONS STRATEGIC WITH REDEMPTIONS
RECEIVED ($) SERVICES ($) AND REPURCHASES ($)
-------------- -------------- --------------------
1998 42,148,728 7,711,253 0
1997 22,502,343 4,522,039 0
1996 8,433,252 1,735,895 0
Except as noted, Templeton Strategic Services received no other compensation
from the fund for acting as underwriter.
TEMPLETON INVESTMENT SERVICES is located at 2701 Shui On Centre, Hong Kong. The
table below shows the aggregate underwriting commissions Templeton Investment
Services received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Templeton Investment Services retained
after allowances to dealers, and the amounts Templeton Investment Services
received in connection with redemptions or repurchases of shares for the last
three fiscal years ended August 31:
AMOUNT
RETAINED BY AMOUNT RECEIVED
TOTAL TEMPLETON IN CONNECTION
COMMISSIONS INVESTMENT WITH REDEMPTIONS
RECEIVED ($) SERVICES ($) AND REPURCHASES ($)
-------------- -------------- --------------------
1998 17,152 3,163 0
1997 5,178 945 0
1996 10,262 1,965 0
Except as noted, Templeton Investment Services received no other compensation
from the fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES Each class has a separate distribution or
"Rule 12b-1" plan. Under each plan, the fund shall pay or may reimburse
Distributors or others for the expenses of activities that are primarily
intended to sell shares of the class. These expenses may include, among others,
distribution or service fees paid to securities dealers or others who have
executed a servicing agreement with the fund, Distributors or its affiliates; a
prorated portion of Distributors' overhead expenses; and the expenses of
printing prospectuses and reports used for sales purposes, and preparing and
distributing sales literature and advertisements.
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
28
PAGE
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 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.
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:
29
PAGE
CLASS A ($) CLASS C ($)
------------- ------------
Advertising ............. 1,666,237 219,655
Printing and mailing
prospectuses other
than to current
shareholders ........... 1,207,083 186,665
Payments to
underwriters ........... 1,109,257 2,168,025
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
nonstandardized 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 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%
SINCE
INCEPTION
1 YEAR (5/1/95)
---------- ---------
Class C ......... -15.03% 8.16%
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%
SINCE
INCEPTION
1 YEAR (5/1/95)
---------- ---------
Class C ......... -15.03% 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.
30
PAGE
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:
(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 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
Templeton,* advocating the virtues of diversification and long-term
investing.
- -------------------------
* 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.
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
31
PAGE
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 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 $216 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 its shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs 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 beginning to develop a contingency plan, including identification of those
mission critical systems for which it is practical to develop a contingency
plan. However, in an operation as complex and geographically distributed as
Resources' business, the alternatives to use of normal systems, especially
mission critical systems, supplies of electricity or long distance voice and
data lines are limited.
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
32
PAGE
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 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 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.
33
PAGE
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 vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
34
PAGE
PART B
TEMPLETON GROWTH FUND, INC.
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION
PAGE
TEMPLETON
GROWTH FUND, INC. -
ADVISOR CLASS
STATEMENT OF
ADDITIONAL INFORMATION [GRAPHIC OMITTED]
FRANKLIN(R) TEMPLETON(R)
JANUARY 1, 1999 100 FOUNTAIN PARKWAY, P.O. BOX 33030
ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN /R/
- --------------------------------------------------------------------------------
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 each 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.......................................... 2
Risks........................................................ 6
Officers and Directors........................................ 10
Management and Other Services................................. 15
Portfolio Transactions........................................ 17
Distributions and Taxes....................................... 18
Organization, Voting Rights and
Principal Holders............................................. 19
Buying and Selling Shares..................................... 20
Pricing Shares................................................ 22
The Underwriter............................................... 23
Performance................................................... 23
Miscellaneous Information..................................... 25
Description of Bond Ratings................................... 26
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.
1
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GOAL AND STRATEGIES
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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, including
emerging markets.
The fund may invest without percentage limitation in domestic or foreign
securities. It may invest up to 100% of its total assets in emerging markets,
including up to 5% of its total assets in Russian 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 equity securities, including common and
preferred 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.
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 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 declines. These changes in market value will be reflected
in the fund's net asset value.
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. As an operating policy, the fund will not invest more than
5% of its total assets in non-investment grade securities (rated lower than Baa
by Moody's or BBB by S&P).
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
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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 such investments are illiquid,
they will be subject to the fund's restrictions on investments in illiquid
securities.
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 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.
Although the fund has the authority to invest up to 20% of its total assets
buying and selling stock index futures contracts traded on a recognized stock
exchange or board of trade, it does not currently intend to enter into such
transactions.
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
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$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).
SECURITIES INDEX OPTIONS Although the fund has the authority to buy and sell put
and call options on securities indices in standardized contracts traded on
national securities exchanges, boards of trade, or similar entities or quoted on
NASDAQ, it does not currently intend to enter into such transactions. An option
on a securities index is a contract that 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.
Parties to an index futures contract must make initial margin deposits to secure
performance of the contract, which currently range from 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).
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 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.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS The fund has adopted the
following investment policies and restrictions as fundamental policies. This
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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 seeks to achieve its investment goal of long-term capital growth
through a flexible policy of investing in stocks and debt obligations of
companies and governments of any nation. Although the fund generally invests in
common stock, it may also invest in preferred stocks and certain debt securities
(which may include structured investments, as described under "Goal and
Strategies-Structured Investments"), rated or unrated, such as convertible bonds
and bonds selling at a discount. Whenever, in the judgment of the manager,
market or economic conditions warrant, the fund may, for temporary defensive
purposes, invest without limit in U.S. government securities, bank time deposits
in the currency of any major nation and commercial paper meeting the quality
ratings set forth under "Goal and Strategies-Temporary Investments", and
purchase from banks or broker-dealers Canadian or U.S. government securities
with a simultaneous agreement by the seller to repurchase them within no more
than seven days at the original purchase price plus accrued interest. The fund
may invest no more than 5% of its total assets in securities issued by any one
company or government, exclusive of U.S. government securities. The fund may not
invest more than 10% of its assets in securities with a limited trading market.
In addition, 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 of directors, 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 1/2
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).
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 of directors 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
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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.
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 of 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 1940 Act.
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.
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 generally 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.
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 many developing countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in some developing countries 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 fluctuations in inflation rates have had and may
continue to have negative effects
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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 developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, 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 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 developing countries. Finally, even though the
currencies of some developing countries, such as certain Eastern European
countries, 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.
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 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
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
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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 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 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.
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. 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 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.
8
PAGE
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 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
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 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
9
PAGE
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 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.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harris J. Ashton (66) Director Director, RBC Holdings, Inc. (bank holding company)
191 Clapboard Ridge Road and Bar-S Foods (meat packing company); director
Greenwich, CT 06830 or trustee, as the case 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) Director Chairman, Templeton Emerging Markets Investment Trust
The Bullitt House PLC, Templeton Latin America Investment Trust PLC,
102 East Dover Street Darby Overseas Investments, Ltd. and Darby Emerging
Easton, MD 21601 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 (processed 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.
- -------------------------------------------------------------------------------------------------------------------------------
10
PAGE
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
S. Joseph Fortunato (66) Director Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Park Avenue at Morris County director or trustee, as the case may be, of 51 of
P.O. Box 1945 the investment companies in the Franklin Templeton Group
Morristown, NJ 07962-1945 of Funds.
----------------------------------------------------------------------------------------------------------------------------------
John Wm. Galbraith (77) Director President, Galbraith Properties, Inc. (personal investment
360 Central Avenue company); Director Emeritus, Gulf West Banks, Inc. (bank holding
Suite 1300 company) (1995-present); director or trustee, as the case may be,
St. Petersburg, FL 33701 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) Director Consultant for the Triangle Consulting Group;
150 2nd Avenue N. Executive-in-Residence of Eckerd College (1991-present); director
St. Petersburg, FL 33701 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) Director and Vice President, Chief Executive Officer and Director, Franklin
777 Mariners Island Blvd. President Resources, Inc.; Chairman of the Board and Director, Franklin
San Mateo, CA 94404 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) Director Director or trustee of various civic associations; director or
2201 Kentmere Parkway trustee, as the case may be, of 21 of the investment companies in
Wilmington, DE 19806 the Franklin Templeton Group of Funds; and FORMERLY, Economic
Analyst, U.S. Government.
- -----------------------------------------------------------------------------------------------------------------------------------
11
PAGE
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gordon S. Macklin (70) Director Director, Fund American Enterprises Holdings, Inc., Martek
8212 Burning Tree Road Biosciences Corporation, MCI WorldCom (information services),
Bethesda, MD 20817 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) Director Manager of personal investments (1978-present); director of
2665 NE 37th Drive various business and nonprofit organizations; director or
Fort Lauderdale, FL 33308 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) President President, Templeton Global Advisors Limited; Chief Investment
Lyford Cay Officer, Global Equity Group; Executive Vice President and
Nassau, Bahamas Director, Templeton Worldwide, Inc.; officer of 21 of the
investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Investment Administrator, RoyWest Trust Corporation
(Bahamas) Limited (1984-1985).
- -----------------------------------------------------------------------------------------------------------------------------------
Rupert H. Johnson, Jr. (58) Vice President Executive Vice President and Director, Franklin Resources, Inc.
777 Mariners Island Blvd. and Franklin Templeton Distributors, Inc.; President and Director,
San Mateo, CA 94404 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) Vice President Executive Vice President and Director, Franklin Resources, Inc.,
777 Mariners Island Blvd. Franklin Templeton Distributors, Inc. and Franklin Templeton
San Mateo, CA 94404 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.
- -----------------------------------------------------------------------------------------------------------------------------------
12
PAGE
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles E. Johnson (42) Vice President Senior Vice President and Director, Franklin Resources, Inc.;
500 East Broward Blvd. Senior Vice President, Franklin Templeton Distributors, Inc.;
Fort Lauderdale, FL President and Director, Templeton Worldwide, Inc.; Chairman and
33394-3091 Director, Templeton Investment Counsel, Inc.; Vice
President, Franklin Advisers, 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 34
of the investment companies in the Franklin Templeton Group of
Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
Deborah R. Gatzek (50) Vice President Senior Vice President and General Counsel, Franklin Resources,
777 Mariners Island Blvd. Inc.; Senior Vice President, Franklin Templeton Services, Inc. and
San Mateo, CA 94404 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) Vice President Senior Vice President and Chief Financial Officer, Franklin
777 Mariners Island Blvd. Resources, Inc.; Executive Vice President and Director, Templeton
San Mateo, CA 94404 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) Vice President Vice President and Treasurer, Templeton Worldwide, Inc.; Assistant
500 East Broward Blvd. Vice President, Franklin Templeton Distributors, Inc.; officer
Fort Lauderdale, FL of 25 of the investment companies in the Franklin Templeton
33394-3091 Group of Funds; and FORMERLY, Vice President and Controller,
Keystone Group, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
13
PAGE
POSITION(S) HELD
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Elizabeth M. Knoblock (43) Vice President- General Counsel, Secretary and Senior Vice President, Templeton
500 East Broward Blvd. Compliance Investment Counsel, Inc.; Senior Vice President, Templeton Global
Fort Lauderdale, FL Investors, Inc.; officer of 21 of the investment companies in the
33394-3091 Franklin Templeton Group of Funds; and FORMERLY, Vice President
and Associate General Counsel, Kidder Peabody & Co. (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) Treasurer Certified Public Accountant; Treasurer, Franklin Mutual Advisers,
500 East Broward Blvd. Inc.; Senior Vice President, Templeton Worldwide, Inc., Templeton
Fort Lauderdale, FL Global Investors, Inc. and Templeton Funds Trust Company; officer
33394-3091 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) Secretary Senior Vice President, Templeton Worldwide, Inc. and Templeton
500 East Broward Blvd. Global Investors, Inc.; officer of 21 of the investment companies
Fort Lauderdale, FL in the Franklin Templeton Group of Funds; and FORMERLY, Deputy
33394-3091 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).
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* 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.
</FN>
</TABLE>
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 a committee are not compensated
for any committee meeting held on the day of 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 the Franklin
Templeton Group of Funds.
14
PAGE
<TABLE>
<CAPTION>
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP OF
RECEIVED FROM FRANKLIN TEMPLETON FUNDS ON WHICH
NAME 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
<FN>
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 board 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.
</FN>
</TABLE>
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.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.
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 Templeton organization has been investing globally since 1940. The manager
and its affiliates have offices in Argentina, Australia, Bahamas, Brazil, the
British Virgin Islands, Canada, China, Cyprus, France, Germany, Hong Kong,
India, Italy, Japan, Korea, Luxembourg, Mauritius, the Netherlands, Poland,
Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, United
Kingdom and 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 on behalf of the fund. Similarly, with respect to the fund,
the manager is not obligated to
15
PAGE
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 average daily net assets up to and including
$200 million;
/bullet/ 0.675% of the value of average daily net assets over $200 million and
up to and including $1.3 billion; and
/bullet/ 0.60% of the value of average daily net assets over $1.3 billion.
The fee is computed monthly, based on the fund's average daily net assets during
the month preceding each payment, according to the terms of the management
agreement. Each class of the fund's shares pays its proportionate share of the
fee.
For the last three fiscal years ended August 31, the fund paid the following
management fees:
MANAGEMENT
FEES PAID ($)
- -------------- --------------
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 ......... 8,655,311
1996 ......... 6,481,909
For the periods prior to 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.
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,
16
PAGE
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 monitors 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 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 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.
During the last three fiscal years ended August 31, the fund paid the following
brokerage commissions:
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PAGE
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 $104,299,800. 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
- --------------------------------------------------------------------------------
The fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
the difference in any 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 from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the fund. Any net capital gains realized by the fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate 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 (subject to limitations) 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 it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held fund shares for a full year, the fund may designate and distribute to
you, 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 Internal
Revenue 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 earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these amounts in
December (or in January that are treated
18
PAGE
by you as received in December) to avoid these excise taxes, but can give no
assurances that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. If you redeem your fund
shares, or exchange your fund shares for shares of a different Franklin
Templeton Fund, the IRS will require that you report a gain or loss on your
redemption or exchange. If you hold your shares as a capital asset, the gain or
loss that you realize will be capital gain or loss and will be long-term or
short-term, generally depending on how long you hold your shares. 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.
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 calculations.
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 and/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.
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, the fund is required to help you communicate
with other
19
PAGE
shareholders about the removal of a board member. A special meeting may also be
called by the board in its discretion.
As of December 14, 1998, the principal shareholders of the fund, beneficial or
or record, were:
NAME AND ADDRESS SHARE CLASS PERCENTAGE (%)
- -------------------------- ----------- -------------
Jupiter & Co.
c/o Investor Bank &
Trust Co.
P.O. Box 9130 FPG 90
Boston, MA 02117-9130..... Advisor 10.95
Franklin Templeton
Trust Company/1/
Trustee for ValuSelect
Franklin Templeton 401K
P.O. Box 2438
Rancho Cordova,
CA 95741-2438 ........... Advisor 34.62
Franklin Templeton
Trust Company/1/
Trustee for ValuSelect
Franklin Resources Profit
Sharing Plans
P.O. Box 2438
Rancho Cordova,
CA 95741-2438 ........... Advisor 13.59
1. Franklin Templeton Trust Company is a California corporation and is wholly
owned by Franklin Resources, Inc.
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.
As of December 14, 1998, the officers and board members, as a group, owned of
record and beneficially 2.70% 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 his legal and investment advisors 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.
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
20
PAGE
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.
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 reinvested in the fund and exchanged into the new fund at net asset
value when paid. 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. 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.
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 U.S. 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.
21
PAGE
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.
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.
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 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
22
PAGE
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, Far Eastern and some other 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 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.
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
nonstandardized 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
23
PAGE
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
- ----------------------- ------- ------ --------
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 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:
24
PAGE
/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 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
Templeton,* advocating the virtues of diversification and long-term
investing.
- -------------------------
* 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.
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 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
25
PAGE
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 $216 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 its shareholders to be Year 2000 compliant. After
completing these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs 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 beginning to develop a contingency plan, including identification of those
mission critical systems for which it is practical to develop a contingency
plan. However, in an operation as complex and geographically distributed as
Resources' business, the alternatives to use of normal systems, especially
mission critical systems, or supplies of electricity or long distance voice and
data lines are limited.
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 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.
26
PAGE
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 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
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.
27
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 /6/
(vi) Articles of Amendment dated December 23, 1998
(vii) Articles Supplementary dated December 23, 1998
(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 /6/
PAGE
(v) Amendment of Dealer Agreement dated May 15, 1998 /6/
(vi) Form of Non-Exclusive Underwriting Agreement
(vii) Amendment dated October 18, 1997 to the Non-Exclusive
Underwriting Agreement between the Registrant and Templeton
Global Strategic Services (Deutschland) GmbH dated
October 31, 1995
(F) BONUS OR PROFIT SHARING CONTRACTS
Not applicable
(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 /6/
(iii) Amendment No. 2 dated July 23, 1998 to the Custody Agreement /6/
(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 /6/
(J) OTHER OPINIONS
(i) Consent of Independent Accountants
(K) OMITTED FINANCIAL STATEMENTS
Not applicable
PAGE
(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 C Distribution Plan pursuant to Rule 12b-1 dated
May 1, 1995 /1/
(iii) Form of Class B Distribution Plan
(O) RULE 18F-3 PLAN
(i) Multiple Class Plan, Templeton Growth Fund - Advisor Class /5/
(ii) Form of Class B Multiple Class Plan
PAGE
(P) POWER OF ATTORNEY
(i) Powers of Attorney dated December 11, 1998
(27) FINANCIAL DATA SCHEDULE
(i) Financial Data Schedule for Templeton Growth Fund - Class A
(ii) Financial Data Schedule for Templeton Growth Fund - Class C
(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 30, 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
6 Previously filed with Post-Effective Amendment No. 17 to the Registration
Statement on October 30, 1998
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 certifies that it meets all the requirements
for effectiveness of the Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and 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 December,
1998.
TEMPLETON GROWTH FUND, INC.
(Registrant)
By:
Mark G. Holowesko *
President
* By:/s/ALLAN S. MOSTOFF
- -------------------------------
Allan S. Mostoff
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: December 30, 1998
Principal Financial and
- ------------------------------ Accounting Officer
James R. Baio *
Dated: December 30, 1998
Director
- -----------------------------
Betty P. Krahmer * Dated: December 30, 1998
Director
- -----------------------------
Harris J. Ashton * Dated: December 30, 1998
Director
- -----------------------------
S. Joseph Fortunato* Dated: December 30, 1998
Director, Chairman and
- ----------------------------- Vice President
Charles B. Johnson *
Dated: December 30, 1998
Director
- -----------------------------
Fred R. Millsaps * Dated: December 30, 1998
Director
- -----------------------------
John Wm. Galbraith * Dated: December 30, 1998
PAGE
Director
- -----------------------------
Gordon S. Macklin * Dated: December 30, 1998
Director
- -----------------------------
Andrew H. Hines,Jr. * Dated: December 30, 1998
Director
- -----------------------------
Nicholas F. Brady * Dated: December 30, 1998
*By: /s/Allan S. Mostoff
- -----------------------------
Allan S. Mostoff
Attorney-in-Fact **
** Filed herewith.
PAGE
POWER OF ATTORNEY
The undersigned Officers and Directors of TEMPLETON GROWTH FUND, INC. (the
"Registrant") hereby appoint Allan S. Mostoff, Jeffrey L. Steele, Mark H.
Plafker, Bruce G. Leto, Deborah R. Gatzek, Barbara J. Green, Larry L. Greene,
and Leiann Nuzum (with full power to each of them to act alone) his/her
attorney-in-fact and agent, in all capacities, to execute, and to file any of
the documents referred to below relating to Post-Effective Amendments to the
Registrant's registration statement on Form N-1A under the Investment Company
Act of 1940, as amended, and under the Securities Act of 1933, as amended,
covering the sale of shares by the Registrant under prospectuses becoming
effective after this date, including any amendment or amendments increasing or
decreasing the amount of securities for which registration is being sought, with
all exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority. Each of the undersigned grants to each of said
attorneys, full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes as he/she could do if
personally present, thereby ratifying all that said attorneys-in-fact and
agents, may lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in one or more counterparts, each of
which shall be deemed to be an original, and all of which shall be deemed to be
a single document.
The undersigned Officers and Directors hereby execute this Power of
Attorney as of the 11th day of December, 1998.
/s/HARRIS J. ASHTON /s/BETTY P. KRAHMER
- --------------------------- ------------------------------
Harris J. Ashton, Director Betty P. Krahmer, Director
/s/NICHOLAS F. BRADY /s/GORDON S. MACKLIN
- --------------------------- ------------------------------
Nicholas F. Brady, Director Gordon S. Macklin, Director
/s/S. JOSEPH FORTUNATO /s/FRED R. MILLSAPS
- ------------------------------ ------------------------------
S. Joseph Fortunato, Director Fred R. Millsaps, Director
/s/JOHN WM. GALBRAITH /s/MARK G. HOLOWESKO
- ------------------------------ -------------------------------
John Wm. Galbraith, Director Mark G. Holowesko, President
ANDREW H. HINES, JR. /s/JAMES R. BAIO
- ------------------------------ -------------------------------
Andrew H. Hines, Jr., Director James R. Baio, Treasurer
/s/CHARLES B. JOHNSON
- ------------------------------
Charles B. Johnson, Director
PAGE
TEMPLETON GROWTH FUND, INC.
REGISTRATION STATEMENT
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
EX-99.(a)(vi) Articles of Amendment dated December 23, 1998 Attached
EX-99.(a)(vii) Articles Supplementary dated December 23, 1998 Attached
EX-99.(e)(vi) Form of Non-Exclusive Underwriting Agreement Attached
EX-99.(e) (vii) Amendment dated October 18, 1997 to the Non-Exclusive Attached
Underwriting Agreement between the Registrant and
Templeton Global Strategic Services (Deutschland) GmbH
dated October 31, 1995
EX-99.(j)(i) Consent of Independent Accountants Attached
EX-99.(m)(iii) Form of Class B Distribution Plan Attached
EX-99.(o)(ii) Form of Class B Multiple Class Plan Attached
EX-99.(p)(i) Powers of Attorney Attached
EX-27.(i) Financial Data Schedule for Templeton Growth Fund - Attached
Class A
EX-27.(ii) Financial Data Schedule for Templeton Growth Fund - Attached
Class C
EX-27.(iii) Financial Data Schedule for Templeton Growth Fund - Attached
Advisor Class
</TABLE>
TEMPLETON GROWTH FUND, INC.
ARTICLES OF AMENDMENT
Templeton Growth Fund, Inc., a Maryland corporation (the
"Corporation"), having its principal office in Baltimore City, Maryland, hereby
certifies to the State Department of Assessments and Taxation of the State of
Maryland that:
FIRST: The Charter of the Corporation is hereby amended to provide as
follows:
(A) The name of the "Templeton Growth Fund, Inc. Class I"
class of shares of Common Stock of the Corporation is hereby changed to the
"Templeton Growth Fund, Inc. Class A" class of shares of Common Stock of the
Corporation.
(B) The name of the "Templeton Growth Fund, Inc. Class II"
class of shares of Common Stock of the Corporation is hereby changed to the
"Templeton Growth Fund, Inc. Class C" class of shares of Common Stock of the
Corporation.
SECOND: The foregoing amendment to the Charter of the Corporation has
been approved by a majority of the entire Board of Directors and is limited to a
change expressly permitted by Section 2-605(a)(4) of the Maryland General
Corporation Law to be made without action by the stockholders of the
Corporation.
THIRD: The Corporation is registered as an open-end company under the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed in
its name on its behalf by its Vice President and witnessed by its Secretary on
this 23rd day of December, 1998.
TEMPLETON GROWTH FUND, INC.
By: /s/JOHN R. KAY
--------------------------
John R. Kay
Vice President
ATTEST:/s/BARBARA J. GREEN
----------------------
Barbara J. Green
Secretary
THE UNDERSIGNED, the Vice President of Templeton Growth Fund, Inc., who
executed on behalf of the Corporation the foregoing Articles of Amendment of
which this Certificate is made a part, hereby acknowledges in the name and on
behalf of the Corporation the foregoing Articles of Amendment to be the
corporate act of the Corporation and hereby certifies to the best of his/her
knowledge, information and belief that the matters and facts set forth herein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/JOHN R. KAY
------------------------
John R. Kay
Vice President
TEMPLETON GROWTH FUND, INC.
ARTICLES SUPPLEMENTARY
Templeton Growth Fund, Inc., a Maryland corporation registered as an
open-end, management investment company under the Investment Company Act of
1940, as amended (the "1940 Act") 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 May 21, 1998, adopted resolutions to change
the designation of the ONE BILLION TWO HUNDRED MILLION (1,200,000,000)
shares of Common Stock, par value of $0.01 per share, previously
designated as "Templeton Growth Fund, Inc. Class I" shares to
"Templeton Growth Fund, Inc. Class A" shares, change the designation of
the FOUR HUNDRED MILLION (400,000,000) shares of Common Stock, par
value $0.01 per share, previously designated as "Templeton Growth Fund,
Inc. Class II" shares to "Templeton Growth Fund, Inc. Class C" shares,
and classify ONE HUNDRED MILLION (100,000,000) shares of previously
authorized but unissued Common Stock previously designated as
"Templeton Growth Fund, Inc. Advisor Class" shares of Common Stock as
"Templeton Growth Fund, Inc. Class B" shares of Common Stock.
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 EIGHT HUNDRED MILLION
(1,800,000,000) shares of Common Stock, par value of $0.01 per share
and of the aggregate par value of EIGHTEEN MILLION DOLLARS
($18,000,000), of which the Board of Directors had classified:
(a) ONE BILLION TWO HUNDRED MILLION (1,200,000,000) shares as
Templeton Growth Fund, Inc. Class I shares of Common
Stock;
(b) FOUR HUNDRED MILLION (400,000,000) shares as Templeton
Growth Fund, Inc. Class II Shares of Common Stock; and
(c) 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, par value of $0.01 per share
and of the aggregate par value of EIGHTEEN MILLION DOLLARS
($18,000,000), of which the Board of Directors has classified:
PAGE
(a) ONE BILLION TWO HUNDRED MILLION (1,200,000,000) shares as
Templeton Growth Fund, Inc. Class A shares of Common
Stock;
(b) ONE HUNDRED MILLION (100,000,000) shares as Templeton
Growth Fund, Inc. Class B shares of Common Stock;
(c) FOUR HUNDRED MILLION (400,000,000) shares as Templeton
Growth Fund, Inc. Class C shares of Common Stock; and
(d) ONE HUNDRED MILLION (100,000,000) 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
established by the Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law.
FOURTH: The preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the classes of shares shall be as
set forth in the Corporation's charter and shall be subject to all
provision of the charter relating to shares of the Corporation
generally, including those set forth as follows:
(a) The assets of each class shall be invested in the same
investment portfolio of the Corporation.
(b) The dividends and distribution of investment income
and capital gains with respect to each class of shares shall be in such
amounts as may be declared from time to time by the Board of Directors,
and the dividends and distribution of each class of shares may vary
from the dividends and distributions of the other classes of shares to
reflect differing allocation of the expenses of the Corporation among
the holders of each class and any resultant differences between the net
asset value per share of each class, to such extent and for such
purposes as the Board of Directors may deem appropriate. The allocation
of investment income or capital gains and expenses and liabilities of
the Corporation among the classes shall be determined by the Board of
Directors in a manner it deems appropriate.
PAGE
(c) Class A shares (including fractional shares) may be
subject to an initial sales charge and service and/or distribution fee
pursuant to the terms of the issuance of such shares, and the proceeds
of the redemption of Class A shares (including fractional shares) may
be reduced by the amount of any contingent deferred sales charge
payable on such redemption pursuant to the terms of the issuance of
such shares, as set forth in the Corporation's then-current
registration statement on Form N-1A pursuant to the Securities Act of
1933 and the 1940 Act (the "Registration Statement") and determined in
accordance with the applicable provisions of the 1940 Act and the rules
and the regulations of the National Association of Securities Dealers,
Inc. (the "NASD").
(d) Class B shares (including fractional shares) may be
subject to service and/or distribution fees pursuant to the terms of
the issuance of such shares, and the proceeds of the redemption of
Class B shares (including fractional shares) may be reduced by the
amount of any contingent deferred sales charge payable on such
redemption pursuant to the terms of the issuance of such shares, as set
forth in the Registration Statement and determined in accordance with
the applicable provisions of the 1940 Act and the rules and regulations
of the NASD.
(e) Class C shares (including fractional shares) may be
subject to an initial sales charge and service and/or distribution fee
pursuant to the terms of the issuance of such shares, and the proceeds
of the redemption of Class C shares (including fractional shares) may
be reduced by the amount of any contingent deferred sales charge
payable on such redemption pursuant to the terms of the issuance of
such shares, as set forth in the Registration Statement and determined
in accordance with the applicable provisions of the 1940 Act and the
rules and regulations of the NASD.
(f) Advisor Class shares (including fractional shares)
may be subject to an initial sales charge and service and/or
distribution fee pursuant to the terms of the issuance of such shares,
and the proceeds of the redemption of Advisor Class shares (including
fractional shares) may be reduced by the amount of any contingent
deferred sales charge payable on such redemption pursuant to the terms
of the issuance of such shares, as set forth in the Registration
Statement, and determined in accordance with the applicable provisions
of the 1940 Act and the rules and regulations of the NASD.
(g) Class B shares (including fractional shares) may be
subject to automatic conversion into Class A shares pursuant to the
terms of the issuance of such shares as described in the Registration
Statement.
(h) The holders of Class A, Class B, Class C and Advisor
Class shares, as the case may be, shall have (i) exclusive voting
rights with respect to provisions of any service plan or service
and distribution plan adopted by the Corporation pursuant to Rule 12b-1
under the 1940 Act (a "Plan") applicable to the respective class and
(ii) no voting rights with respect to the provisions of any Plan
applicable to another class of shares or with regard to any other
matter submitted to a vote of shareholders which does not affect
holders of that respective class of shares.
PAGE
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed in its name and on its behalf by its undersigned
authorized officers who acknowledge that these Articles Supplementary are the
act of the Corporation, that to the best of their knowledge, information and
belief, the 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.
Presented and witnessed on this 23rd day of December, 1998.
TEMPLETON GROWTH FUND, INC.
[CORPORATE SEAL]
By:/s/JOHN R. KAY
-------------------------
John R. Kay
Vice President
ATTEST:/s/BARBARA J. GREEN
------------------------
Barbara J. Green
Secretary
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V E R T R A G A G R E E M E N T
zwischen der between
Skandia Lebensversicherung AG Skandia Lebensversicherung AG
Bismarckstra(beta)e 101 Bismarckstra(beta)e 101
10625 Berlin 10625 Berlin
- nachstehend "Skandia" genannt - hereinafter "Skandia"
und der and
Templeton Global Stategic Templeton Global Stategic
Services (Deutschland) GmbH Services (Deutschland) GmbH
Taunusanlage 11 Taunusanlage 11
60329 Frankfurt 60329 Frankfurt
- nachstehend "Templeton GmbH" genannt - hereinafter "Templeton GmbH"
wird folgendes vereinbart: the following Agreement is entered into
SS. 1 SEC. 1
a. Die Skandia Lebensversicherung AG bietet a. Skandia Lebensversicherung AG offers
Fondsgebundene Lebensversicherungen Fund-Linked Life Insurance Policies ("FLV")
("FLV") und Fondsgebundene and Fund-Linked Pension Insurance Policies
Rentenversicherungen ("FRV") an. Die ("FRV"). The parties to this Agreement
Vertragspartner sind sich daruber einig, agree that Class I - Shares ("Shares") in
da(beta)die Klasse I - Anteile ("Anteile") the US-American Templeton Growth Fund, Inc.
des US-amerikanischen Templeton Growth ("TGF") will be included in the Fund-Linked
Fund, Inc. ("TGF") in die Fondsgebundene Life Insurance Policies and the Fund-Linked
Lebensversicherungen und die Pension Insurance Policies of Skandia.
Fondsgebundene Rentenversicherungen der
Skandia aufgenommen werden.
b. Soweit nicht in diesem Vertrag etwas b. Save as set out specifically in this
anderes ausdrucklich bestimmt ist, Agreement, the terms governing the holding
unterliegt die Anteilinhaberschaft von of Shares by Skandia are as set out in the
Skandia den Bedingungen des jeweils current Prospectus, the current Statement
gultigen Prospektes, der jeweils of Additional Information, the Articles of
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gultigen Weiteren Informationen, der Incorporation and By-Laws, as amended, of
Grundungsurkunde sowie der jeweils TGF.
gultigen Satzung des TGF.
SS. 2 SEC. 2
a. Templeton GmbH wird dafur Sorge tragen, a. Templeton GmbH shall arrange that TGF's
da(beta) der Transfer-Agent des TGF, transfer agent, Franklin/Templeton Investor
die Franklin/Templeton Investor Services, Services, Inc. the ("Transfer Agent") Inc.,
(der "Transfer-Agent") eine issues a Waiver of Collateral as described
Pfandverzichtserklarung gema(beta) Anlage 1 in Schedule 1.
abgibt.
b. Da sich die Parteien nach eingehender b. After thorough discussions, the parties
Erorterung daruber einig sind, da(beta)der agree, that the wording of the Waiver of
Wortlaut der Pfandverzichtserklarung dem Collateral does not address the protection
Sicherungsbedurfnis der Skandia nicht required by Skandia, as the Shares in TGF
gerecht wird, da die Investmentanteile are only booked in and administered in the
an TGF von Franklin/Templeton Investor Register, while certificates/documents of
Services, Inc. lediglich buchma(beta)ig im title are not being issued and taken into
Anteilinhaberregister eingetragen und safe custody in the ordinary course of
verwaltet werden, wahrend Zertifikate/ business. Therefore, with respect to the
Urkunden im Regelfall nicht ausgestellt effect of the Waiver of Collateral, the
und verwahrt werden, vereinbaren die parties agree as follows:
Parteien hinsichtlich der Wirkungen der
Pfandverzichtserklarung folgendes:
(1) Samtliche von der Skandia erworbenen UND (1) Any Shares, acquired AND paid for by
--- ---
von der Skandia bezahlten Skandia shall be deemed to be part of
Investmentanteile gelten als dem Skandia's cover fund.
Deckungsstock der Skandia zugehorig
(2) Weder Franklin/Templeton Investor (2) Neither Franklin/Templeton Investor
Services, Inc. noch Templeton GmbH Services, Inc. nor Templeton GmbH shall set
konnen wegen sonstiger Forderungen (z.B. off any other claims against Skandia (e.g.
Ausgabeaufschlage, sales charges, damage claims against
Schadensersatzforderungen gegen Skandia) Skandia) by redeeming Shares acquired by
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PAGE
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eine Aufrechnung mit den ausgegebenen and paid for by Skandia and neither shall
und bezahlten Investmentanteilen Franklin/Templeton Investor Services, Inc.
vornehmen oder auf diese in sonstiger nor Templeton GmbH have any other right of
Weise zugreifen. lien against these Shares.
(3) Das Recht zur (auch zwangsweisen) (3) The right to a (compulsory) redemption of
Rucknahme von Investmentanteilen durch Shares by Franklin/Templeton Investor
Franklin/Templeton Investor Services, Services, Inc. according to the Articles of
Inc. gema(beta)der Grundungsurkunde des TGF Incorporation of TGF against the payment of
gegen Zahlung des Nettoinventarwertes the net asset value of those Shares to a
dieser Anteile auf ein von der Skandia bank account designated by Skandia and the
und dem gema(beta)ss. 70 VAG bestellten trustee named according to Sec. 70 VAG is
Treuhander bezeichnetes Bankkonto bleibt not affected by the Waiver of Collateral.
unberuhrt.
(4) Der Erwerb von Investmentanteilen (4) The acquisition of Shares is made upon the
erfolgt gema(beta)den alleinigen Anweisungen sole instructions of Skandia. Skandia
der Skandia. Skandia verpflichtet sich, agrees to provide Templeton GmbH with a
Templeton GmbH eine Liste der fur sie list of authorized signatories.
Zeichnungsberechtigten zu ubergeben.
(5) Die Ruckgabe von Investmentanteilen (5) The redemption of Shares requires the
bedarf der Zustimmung des gema(beta)ss. 70 VAG approval of the trustee named according to
bestellten Treuhanders. Sec. 70 VAG (the "Trustee").
Deshalb wird jede entsprechende Weisung, Accordingly, any respective instruction,
die Templeton GmbH erteilt wird, von which is sent to Templeton GmbH, shall
be einem/den Zeichungsberechtigten und dem signed jointly by an authorized signatory
Treuhander gemeinsam unterschrieben. and by the Trustee.
Skandia wird dafur Sorge tragen, da(beta) der Skandia undertakes to receive the Trustee's
Treuhander sich damit einverstanden consent to making instructions via
erklart, da(beta) Weisungen per Telefax telecopier.
erteilt werden konnen.
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Templeton GmbH haftet nicht fur die
Befolgung von Weisungen, die sie Templeton GmbH shall not be liable for
vernunftigerweise fur autorisiert halten following instructions reasonably believed
durfte. to be authorized.
SS. 3 SEC. 3
a. Skandia erkennt an, da(beta) Templeton GmbH a. Skandia acknowledges that Templeton GmbH
das Recht hat, Skandia als Anteilinhaber shall be entitled to treat Skandia as the an
TGF mit allen entsprechenden Rechten holder of full legal title and beneficial
und Pflichten zu behandeln. title in the Shares, which it holds.
b. Skandia verpflichtet sich, Templeton b. Skandia undertakes to indemnify and hold
GmbH, TGF und Franklin/Templeton harmless Templeton GmbH, TGF and
Investor Services, Inc., deren Franklin/Templeton Investor Services, Inc.,
verbundene Unternehmen und/oder or any of their affiliates, or successor
Nachfolgeunternehmen von allen Schaden, entities against any loss, claims, damages
Klagen und sonstigen Anspruchen or demands suffered by the aforementioned
freizuhalten und entsprechend zu companies as a result of the breach by
entschadigen, die den vorgenannten Skandia of any of its obligations set out
Gesellschaften dadurch entstehen, da(beta) in this Agreement and/or against any loss
Skandia die in diesem Vertrag whatsoever suffered by the aforementioned
enthaltenen Bestimmungen verletzt companies as a result of any claim, action
und/oder die den vorgenannten or demand from a third party that is or was
Gesellschaften dadurch entstehen, da(beta) interested in any investments. Such
eine dritte Partei Klagen oder Anspruche indemnity shall survive termination of this
gegen die vorgenannten Gesellschaften Agreement howsoever caused.
erhebt, weil sie Rechte an den Anteilen
hat oder habe. Diese Freihalte- und
Schadensersatzverpflichtung besteht
auch nach der Beendigung des Vertrages
fort.
c. Skandia verpflichtet sich, ihre c. Skandia undertakes to provide its services
Dienstleistungen mit der erforderlichen with the requisite knowledge, care and
Sachkenntnis, Sorgfalt und conscientiousness in the interest ot its
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Gewissenhaftigkeit im Interesse ihrer customers, to take steps to avoid conflicts
Kunden zu erbringen, sich um die of interest or, where such conflicts of
Vermeidung von Interessenkonflikten zu interest cannot be avoided, to carry out
bemuhen und dafur zu sorgen, da(beta)bei its customer`s instructions with due regard
unvermeidbaren Interessenkonflikten der to the interest of such customer.
Kundenauftrag unter der gebotenen Furthertmore, Skandia undertakes to require
Wahrung des Kundeninteresses ausgefuhrt from its customers information regarding
wird. Skandia ist ferner verpflichtet, their knowledge or experience of business
von seinen Kunden Angaben uber ihre related to securities services, their goals
Erfahrungen oder Kenntnisse in in any transaction undertaken, and their
Geschaften, die Gegenstand von financial circumstances and to provide its
Wertpapierdienstleistungen sein sollen, customers with all pertinent information
uber ihre mit den Geschaften verfolgten availabale insofar as this is necessary to
Ziele und ihre finanziellen Verhaltnisse protect the interests of the customer, and
zu verlangen und seinen Kunden alle in regard to the manner and extent of the
zweckdienlichen Informationen intended transaction.
mitzuteilen, soweit dies zur Wahrung der
Interessen der Kunden und im Hinblick
auf Art und Umfang der beabsichtigten
Geschafte erforderlich ist.
SS. 4 SEC. 4
a. Skandia kann jederzeit Anlagen per a. Skandia may make investments at any time by
Telefax tatigen gema(beta) einem facsimile according to procedures notified
Verfahren, da(beta) Templeton GmbH der to Skandia by Templeton GmbH from time to
Skandia von Zeit zu Zeit mitteilt. time.
b. Als Ausgabe- und Rucknahmepreis fur die b. The purchase price and the redemption price
Investmentanteile wird der shall be the equivalent of the net asset
Nettoinventarwert je Anteil vereinbart, value per Share next computed on the day
der als nachster nach Eingang der Order Skandia`s order is received by the Transfer
beim Transfer-Agenten von TGF errechnet Agent of TGF.
wird. Normally, if the order is received by
Wenn der entsprechende Auftrag bis 16.00 Templeton GmbH prior to 4 pm. Frankfurt
Uhr Frankfurter Zeit bei der Templeton time on a day, on which the net asset value
GmbH an einem Tag eingeht, an dem der of Shares in TGF is computed, the order
Nettoinventarwert der Anteile des TGF will be effected at the net asset value
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berechnet wird, erfolgt die Abwicklung calculated on that day.
unter normalen Umstanden zum
Nettoinventarwert, der an diesem Tag
berechnet wird.
Auftrage konnen bei der Templeton GmbH Orders may only be sent to Templeton GmbH
allerdings nur an Frankfurter on Frankfurt business days.
Bankarbeitstagen eingereicht werden.
Die Verbuchung der Anteile und die Skandia does not have to pay any separate
Fuhrung des Anteilinhaberregisters ist charges for the administration of the
fur Skandia kostenfrei. Skandia nimmt Register. However, Skandia acknowledges
aber zur Kenntnis, da(beta)der that the Transfer Agent of TGF receives a
Transfer-Agent von TGF aus dem fee for its services from TGF.
Fondsvermogen ein Honorar fur seine
Tatigkeit erhalt.
c. Templeton GmbH verpflichtet sich dazu, c. Templeton GmbH undertakes to inform Skandia
Skandia borsentaglich (Frankfurter on each day the Frankfurt Stock Exchange is
Borse) den Nettoinventarwert je Anteil open for business of the net asset value in
Deutsche Mark mitzuteilen. Der per Share in German Marks. The official
amtliche Wechselkurs soll ebenfalls exchange rate shall be disclosed (mid price
mitgeteilt werden (Mittelkurs). basis).
d. Die Zahlung des Ausgabepreises der von d. Payment of the offering price of Shares
Skandia erworbenen Anteile hat durch purchased by Skandia shall be effected by
Skandia innerhalb von drei deutschen Skandia within three German business days
Arbeitstagen nach Ausgabe der Anteile an after the respective Shares have been
Skandia durch elektronische issued to Skandia through electronic
Bankuberweisung der entsprechenden Summe transfer of the respective amounts to a
auf eine Konto zu erfolgen, das von der bank account designated by Templeton GmbH
Templeton GmbH bezeichnet wird ("Settlement Period").
("Erfullungsfrist").
e. Erfolgt die Bezahlung der Anteile nicht e. If payment for the Shares is not received
innerhalb der Erfullungsfrist, kann die within the Settlement Period, the issue of
Ausgabe der Anteile storniert werden, Shares may be cancelled forthwith without
ohne da(beta) dadurch irgendeine any responsibility or liability on
Verpflichtung oder Schadensersatzpflicht Templeton GmbH`s part or on part of TGF, or
seitens Templeton GmbH und TGF begrundet at the option of Templeton GmbH, the Shares
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wird; nach Ermessen der Templeton GmbH may be redeemed, in which latter case
konnen die Anteile auch zuruckgenommen Templeton GmbH may hold Skandia responsible
werden. In diesem letzteren Fall haftet for any loss to TGF and any costs and
Skandia fur alle Verluste des TGF und charges arising to Templeton GmbH and TGF
samtliche Schaden und Kosten von resulting from Skandia`s failure to make
Templeton GmbH und TGF, die auf dem payment as aforesaid. In this context,
Verzug der Skandia beruhen. Skandia Skandia waives the requirement for
verzichtet in diesem Zusammenhang auf Templeton GmbH to set a time limit with the
eine Fristsetzung mit threat to refuse payment. Termination or
Ablehnungsandrohung seitens Templeton cancellation of this Agreement shall not
GmbH. Die Kundigung oder Auflosung relieve any party from this paragraph's
dieses Vertrages entbindet keine der requirements.
Parteien von den in diesem Paragraphen
vereinbarten Verpflichtungen.
SS. 5 SEC. 5
Ausschuttungen auf die erworbenen Distributions on the Shares issued shall be
Anteile werden zum Erwerb neuer Anteile reinvested in new Shares without charging
verwendet, fur die ein Ausgabeaufschlag a sales charge.
nicht berechnet wird.
SS. 6 SEC. 6
a. Unter den nachfolgenden Bedingungen und a. Subject to the conditions that follow below
unter der Voraussetzung und in dem and provided and to the extend that the
Umfang, in dem der Verwaltungsrat des Board of Directors of TGF approves such
TGF dieser Praxis zustimmt, wird practice, Templeton GmbH - during the
Templeton GmbH wahrend der Dauer des continuance of this Agreement - will pay
Vertrages an Skandia eine Skandia a servicing fee according to a Plan
Bestandspflegeprovision gema(beta)einem Plan adopted by TGF pursuant to Rule 12b-1 under
zahlen, den TGF unter der Rule 12b-1 zum the Investment Company Act of 1940 ( "TGF
Investment Company Act of 1940 Plan") at a rate of up to 0.25% per annum
eingefuhrt hat (der "TGF Plan") und zwar based on the average daily net asset value
in Hohe von bis zu 0,25% p.a. des of the Shares held by Skandia and should be
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durchschnittlichen taglichen paid quarterly.
Nettoinventarwertes der von Skandia
gehaltenen Anteile, wobei die Zahlung
quartalsweise erfolgt.
b. Without prior approval by a majority of the
outstanding shares of TGF, the aggregate
b. Dabei darf ohne die vorherige Zustimmung annual fees paid to Skandia pursuant to the
einer Mehrheit der ausstehenden Anteile TGF Plan shall not exceed the amount stated
des TGF die Summe der jahrlich an as the "annual maximum" in TGF`s
Skandia gema(beta)dem TGF Plan gezahlten prospectus, which amount shall be a
Gebuhr nicht denjenigen Betrag specified percent of the value of TGF`s net
uberschreiten, der im Prospekt des TGF assets held by Skandia which are eligible
als jahrliches Maximum angegeben ist, for payment pursuant to this Agreement.
wobei dieser Betrag als ein Prozentsatz
des Nettoinventarwertes der von Skandia
an TGF gehaltenen Anteile, die sich
gema(beta)dieses Vertrages fur eine Zahlung The TGF Plan and provisions of any
der Gebuhr qualifizieren, entspricht. agreement relating to such Plan must be
approved annually by a vote of TGF`s
Der TGF Plan und die Bestimmungen jeder Directors, including such persons who are
Vereinbarung in Bezug auf diesen Plan not interested persons of TGF and who have
mussen vom Verwaltungsrat des TGF no financial interest in the Plan or any
jahrlich genehmigt werden, der related agreement ("Rule 12b-1 Directors").
diejenigen Personen einschlie(beta)t, die
nicht mit dem TGF verbundenen sind und
die kein finanzielles Interesse an dem The TGF Plan or the provisions of this
Plan oder eine auf ihn Bezug nehmende Agreement relating to the TGF Plan may be
Vereinbarung haben ("Rule 12b-1 terminated at any time by the vote of a
Verwaltungsratsmitglieder"). majority of TGF's Rule 12b-1 Directors, or
by a vote of a majority of the outstanding
Der TGF Plan oder die Bestimmungen shares of TGF, on sixty days written
dieses Vertrages, die sich auf den TGF notice, without payment of any penalty.
Plan beziehen, konnen jederzeit
schriftlich mit einer Frist von sechzig
Tagen ohne Verwirkung einer
Vertragsstrafe durch den Beschlu(beta)einer The TGF Plan or the provisions of this
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Mehrheit der Rule 12b-1 Agreement may also be terminated by any act
Verwaltungsratsmitglieder, oder durch that terminates the Underwriting Agreement
Beschlu(beta)der Mehrheit der ausgegebenen between Templeton GmbH and TGF and/or the
Anteile des TGF gekundigt werden. management or administration agreement
between Franklin Advisers, Inc. or
Der TGF Plan oder die entsprechenden Templeton Global Advisors Limited or their
Bestimmungen dieses Vertrages werden affiliates and TGF. In the event of the
auch durch jede Handlung aufgelost, die termination of the TGF Plan for any reason,
den Hauptvertriebsvertrag zwischen der the provisions of this Agreement relating
Templeton GmbH und dem TGF und/oder dem to the TGF Plan will also terminate.
Verwaltungs- oder
Geschaftsfuhrungsvertrag zwischen
Franklin Advisers, Inc. oder Templeton
Global Advisors Limited oder den ihnen
verbundenen Unternehmen und dem TGF
beendet werden. Im Falle der Beendigung Continuation of the TGF Plan and provisions
des TGF Plan, aus welchem Grunde auch of this Agreement relating to the TGF Plan
immer, gelten auch die Bestimmungen are conditioned on Rule 12b-1 Directors
dieses Vertrages, die sich auf den TGF being ultimately responsible for selecting
Plan beziehen, als aufgelost. and nominating any new Rule 12b-1
Directors. Under Rule 12b-1, Directors of
Die Fortfuhrung des TGF Plans und der TGF have the duty to request and evaluate,
entsprechenden Bestimmungen dieses and persons who are party to any agreement
Vertrages hangen davon ab, da(beta)die 12b-1 related to TGF Plan have a duty to furnish,
Verwaltungsratsmitglieder letztendlich such information as may reasonably be
dafur verantwortlich sind, neue 12b-1 necessary to an informed determination of
Verwaltungsratsmitglieder auszuwahlen whether the TGF Plan and any agreement
und zu ernennen. Gema(beta)der Rule 12b-1 should be implemented or continued.
haben die Verwaltungsratsmitglieder des
TGF die Pflicht, Informationen
einzuholen und zu bewerten, die eine
informierte Entscheidung daruber Under Rule 12b-1, TGF is permitted to
erlauben, ob ein TGF Plan eingefuhrt implement or continue the Plan or the
oder fortgesetzt werden sollte, und provisions of this Agreement relating to
Personen, die Parteien eines auf den TGF such Plan from year-to-year only if, based
Plan Bezug nehmenden Vertrages sind, on certain legal considerations, the Board
haben die Pflicht, Informationen, die of Directors is able to conclude that the
vernunftigerweise verlangt werden, zu Plan will benefit TGFand its shareholders.
liefern. Absent such yearly determination, the Plan
and the provisions of this Agreement
</TABLE>
PAGE
<TABLE>
<S> <C> <C> <C>
Gema(beta)Rule 12b-1 ist TGF nur berechtigt, relating to the Plan will terminate
den Plan oder die entsprechenden automatically.
Bedingungen dieses Vertrages jeweils von
Jahr zu Jahr einzufuhren oder
fortzufuhren, wenn auf der Grundlage Skandia agrees to waive payment of any
gewisser rechtserheblicher amounts payable to Skandia by Templeton
Entscheidungen der Verwaltungsrat in der GmbH in accordance with the TGF Plan until
Lage ist zu entscheiden, da(beta)TGF such time as Templeton GmbH is in actual
und seine Anteilinhaber von dem Plan receipt of such fee from TGF.
profitieren. Wenn diese Entscheidung
nicht im Jahresrhythmus getroffen wird,
enden der Plan und die entsprechenden The provisions of the TGF Plan and the
Bedingungen dieses Vertrages non-exclusive Underwriting Agreement dated
automatisch. October 1, 1995, as amended, between TGF
and Templeton GmbH, shall control over the
Skandia verpflichtet sich, keine provisions of this Agreement in the event
Zahlungen gema(beta) dem TGF Plan von of any inconsistency.
Templeton GmbH zu verlangen, solange
Templeton GmbH nicht selbst die
entsprechenden Gebuhren von TGF
tatsachlich erhalten hat.
Im Falle von Abweichungen gehen die
Bestimmungen des TGF Plans und des nicht-
exklusiven Vertriebsvertrages vom 1.
Oktober 1995, in seiner jeweils erganzten
Fassung, zwischen TGF und der Templeton GmbH
den Bestimmungen dieses Vertrages vor.
SS. 7 SEC. 7
a. Templeton GmbH stellt Skandia a. Templeton GmbH shall supply Skandia free of
Verkaufsprospekte, Halbjahresberichte charge with reasonable quantities of
und Rechenschaftsberichte, erganzende prospectuses, semi-annual and annual
</TABLE>
PAGE
<TABLE>
<S> <C> <C> <C>
Vertriebsliteratur und sonstige reports and supplemental sales literature,
Informationsblatter in vernunftiger Zahl sales bulletins, and additional
kostenfrei zur Verfugung. Skandia ist documentation as issued. Skandia shall be
berechtigt, diese Unterlagen auf entitled to distribute these documents to
Anforderung an Versicherungsnehmer its insurance customers upon request.
auszuhandigen.
b. Weiterhin benennt Templeton GmbH b. Furthermore, Templeton GmbH shall provide
Ansprechpartner, die auf Anforderung von liaison staff, which shall be available to
Skandia fur Schulung, Beratung und Skandia for training, advice and support.
Unterstutzung zur Verfugung stehen.
c. Skandia verpflichtet sich, keine Angaben c. Skandia will not make any representation to
uber TGF zu machen, die nicht in dem any person concerning TGF save where such
jeweils gultigen Prospekt und anderen representations are set out in current
schriftlichen Unterlagen und prospectus and other printed material or
Informationen, die von der Templeton documentation approved and sent to Skandia
GmbH genehmigt wurden, enthalten sind, by Templeton GmbH. Skandia undertakes to
die Skandia von Templeton GmbH erhalt impose on its dealers the same obligation
und wird diese Verpflichtung auch fur and will make arrangements that this
Skandia tatige Vermittler von obligation is being complied with.
Finanzprodukten auferlegen und dafur
Sorge tragen, da(beta)diese Verpflichtung
auch eingehalten wird.
SS. 8 SEC. 8
Skandia verpflichtet sich, kein anderes Skandia shall not use other sales
Werbe- oder Verkaufsmaterial in bezug literature, sales material or advertising
auf TGF zu verwenden, wenn dieses nicht relating to the TGF except that which (1)
(1) dem Recht und Anforderungen der conforms to the requirements of any
Aufsichtsbehorden in Deutschland applicable laws or regulations of any
entspricht und (2) von der Templeton government or authorized agency in Germany
GmbH schriftlich vor seiner Verwendung and (2) is approved by Templeton GmbH in
genehmigt wurde. Diese Genehmigung kann writing in advance of such use. Such
jederzeit durch Benachrichtigung der approval may be withdrawn by Templeton GmbH
</TABLE>
PAGE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Skandia vollstandig oder teilweise von in whole or in part upon notice to Skandia,
der Templeton GmbH zuruckgezogen werden and Skandia shall, upon receipt of such
und Skandia verpflichtet sich, notice, immediately discontinue the use of
unverzuglich nach Erhalt der such sales literature, sales material and
Benachrichtigung die weitere Verwendung advertising. Skandia is not authorized to
des Werbe- und Verkaufsmaterials modify any such materials without Templeton
einzustellen. Skandia ist nicht GmbH's prior written consent.
berechtigt, solches Werbe- und
Verkaufsmaterial ohne die vorherige
Zustimmung der Templeton GmbH zu
verandern.
SS. 9 SEC. 9
a. Jeder Vertragspartner wird den anderen b. Each party to the Agreement shall notify
uber Vorfalle und Entwicklungen the other of incidences and developments
unterrichten, die fur die weitere which are of significance to the further
Entwicklung dieses Vertrages von development of this Agreement.
Bedeutung sind.
b. Skandia verpflichtet sich, ihre Kunden, b. Skandia undertakes to make its policy
die in den USA steuerpflichtig sind, holders aware of potential US tax
ordnungsgema(beta) uber US-amerikanische implications in relation to policy holders,
Steuerrisiken zu informieren. Skandia who are subject to US taxation. Skandia
wird sich um seine eigenen will take care of its own potential tax
Steuerverpflichtungen selbst kummern. liabilities.
c. Anteile am TGF werden in den Vereinigten c. Shares in TGF are publicly available in the
Staaten offentlich vertrieben und United States and therefore shares in TGF
deshalb konnen von Skandia erworbene purchased by Skandia cannot be used for an
Anteile nicht als Bestandteil eines insurance product sold in the U.S. or to
Versicherungsprodukts in den Vereinigten U.S. residents or citizens.
Staaten oder Personen angeboten werden,
die U.S Staatsbuger oder in den U.S.A.
wohnhaft sind.
SS. 10 SEC. 10
</TABLE>
PAGE
<TABLE>
<S> <C> <C> <C>
a) Dieser Vertrag beginnt am __________ und a) This Agreement shall commence on
wird auf unbestimmte Zeit geschlossen. _____________ and is entered into for an
indefinite period.
b) Jeder Vertragspartner hat das Recht, den b) Each party to the Agreement shall be
Vertrag mit einer Frist von einem Monat entitled to terminate the Agreement subject
zu kundigen. Das Recht zur to a notice period of one month. The right
au(beta)erordentlichen Kundigung bleibt to extraordinary termination is not affected.
unberuhrt.
c) Die Kundigung dieses Vertrages hindert c) The termination of this Agreement shall not
Skandia nicht, fur bestehende prevent Skandia from purchasing Shares in
Versicherungsvertrage weitere Anteile an TGF in order to administer existing
TGF zu erwerben. Es wird ausdrucklich insurance policies. It is specifically
vereinbart, da(beta)nach der Beendigung agreed upon, that the Rule 12b-1 servicing
des Vertrages eine Rule fee will not be paid any more after
12b-1-Bestandspflegeprovision nicht mehr termination of the Agreement.
gezahlt wird.
d. Skandia verpflichtet sich, nach einer d. Skandia undertakes, to discontinue the
Kundigung dieses Vertrages die Anlage promotion of investing premiums in Shares
von Versicherungspramien in Anteilen von in TGF after the termination of the TGF
nicht weiter zu bewerben und die Agreement and to inform its policy holders
Versicherungsnehmer von der Kundigung of the termination of the Agreement
dieses Vertrages zu unterrichten.
Auf Wunsch von Templeton GmbH wird ein Upon request by Templeton GmbH, an
unabhangiger Wirtschaftsprufer im independent accountant will review and
jahrlichen Rhythmus anhand der verify annually, that transactions in
Versicherungspolicen prufen, da(beta) Shares are only made with respect to
Anteilgeschafte nur fur im Zeitpunkt der insurance policies which existed at the
Kundigung dieses Vertrages bestehende time of the termination of the Agreement.
Versicherungspolicen getatigt werden. The costs of the audit are to paid in equal
Die Kosten dieser Prufung tragen Skandia parts by Templeton GmbH and Skandia.
und Templeton GmbH zu gleichen Teilen.
</TABLE>
PAGE
<TABLE>
<S> <C> <C> <C>
SS. 11 SEC. 11
a. Sollte eine Bestimmung dieses Vertrages a. Should a term of this Agreement be or
ganz oder teilweise unwirksam sein oder become invalid wholly or in part, this
werden, so beruhrt das nicht die shall not affect the validity of the
Gultigkeit dieses Vertrages insgesamt. Agreement as a whole. In such case, the
Die Vertragspartner werden in diesem parties to the Agreement shall immediately
Fall unverzuglich die unwirksame replace the invalid term by a legally
Bestimmung durch eine gesetzlich permissible term which corresponds as
zulassige, dem wirtschaftlichen Zweck closely as possible to the commercial
dieses Vertrages nahekommenden intentions of the parties to this Agreement.
Bestimmung ersetzen.
b. Anderungen und Erganzungen dieses b. Amendments and addenda to this Agreement
Vertrages bedurfen der Schriftform. Die are required to be in writing. The German
deutsche Fassung dieses Vertrages hat version of this Agreement prevails over the
Vorrang vor der englischen Fassung des English version.
Vertrages.
c. Es gilt deutsches Recht als vereinbart, c. This Agreement is subject to German law to
soweit es nicht dem Investment Company the extent not inconsistent with the Act
von 1940 widerspricht. Investment Company Act of 1940.
d. Die Parteien verpflichten sich, einen d. The parties undertake to agree on an
Schiedsvertrag wegen der sich aus diesem arbitration clause regarding any possible
Vertrag moglicherweise ergebenden disputes or claims arising out of this
Streitigkeiten abzuschlie(beta)en. Agreement.
</TABLE>
Berlin, den ________________
- --------------------------
Skandia Lebensversicherung AG
Frankfurt, den __________________
- --------------------------------------------
Templeton Global Strategic Services (Deutschland) GmbH
PAGE
<TABLE>
<S> <C> <C>
SCHIEDSVERTRAG ARBITRATION CLAUSE
Jegliche Streitigkeiten aus dem Vertrag Any disputes arising out of the Agreement
vom zwischen Skandia dated between Skandia
Lebensversicherungs AG und Templeton Lebensversicherungs AG and Templeton GmbH
GmbH sollen von der Internationalen shall be referred to and resolved by the
Handelskammer in Luxembourg gema(beta)deren International Chamber of Commerce ("ICC")
Vergleichs- und Schiedsgerichtsordnung in Luxembourg in accordance with the ICC
entschieden werden. Conciliation and Arbitration Rules.
</TABLE>
Berlin, den ________________
- --------------------------
Skandia Lebensversicherung AG
Frankfurt, den __________________
- --------------------------------------------
Templeton Global Strategic Services (Deutschland) GmbH
AMENDMENT TO NON-EXCLUSIVE UNDERWRITING AGREEMENT
The Non-Exclusive Underwriting Agreement dated October 31, 1995 between
Templeton Growth Fund, Inc. and Templeton Global Strategic Services
(Deutschland) GmbH ("Agreement") is hereby amended as follows:
Section 1. Except as specifically 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 last sentence of paragraph SIXTH of the Agreement is amended and
restated to read as follows:
In addition, the Selling Company shall be entitled to
reimbursement out of Fund assets for costs and expenses
incurred in connection with the distribution and marketing of
Fund shares, provided such reimbursement is consistent with
the terms of any distribution plan, with respect to any series
or class of shares of the Fund, adopted pursuant to Rule 12b-1
("Distribution Plan") under the Investment Company Act of
1940, as amended. The Selling Company is authorized to make
payments to selected dealers and others involved in the sale
of Fund shares from any amounts received by the Selling
Company under the Fund's Distribution Plan.
Section 3. The address of the Fund as set forth in paragraph FIFTEENTH of the
Agreement is redesignated as follows:
Templeton Growth Fund, Inc.
500 East Broward Boulevard
Fort Lauderdale, Florida 33394-3091
Attention: Barbara J. Green, Secretary
IN WITNESS WHEREOF, the Fund has executed this Amendment to the Agreement on
this 18th day of October, 1997.
TEMPLETON GROWTH FUND, INC.
By:/s/JOHN R. KAY
--------------------------
John R. Kay
Vice President
TEMPLETON GLOBAL STRATEGIC SERVICES
(Deutschland) GmbH
By:/s/HANS J. WISSER
------------------------
Hans J. Wisser
Managing Director
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. 18 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 "Auditor."
/s/MCGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
December 30, 1998
CLASS B DISTRIBUTION PLAN
I. Investment Company: Templeton Growth Fund, Inc.
II. Fund: Templeton Growth Fund, Inc.
III. Maximum Per Annum Rule 12b-1 Fees for Class B Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.75% equity
B. Service Fee: 0.25% equity
PREAMBLE TO CLASS B DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the class B shares
(the "Class") of each Fund named above ("Fund"), which Plan shall take effect as
of the date Class B shares are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Directors or Trustees
of the Investment Company (the "Board"), including a majority of the Board
members who are not interested persons of the Investment Company and who have no
direct, or indirect financial interest in the operation of the Plan (the
"non-interested Board members"), cast in person at a meeting called for the
purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Investment Company
and Templeton Global Advisors Limited (the "Adviser") and the terms of the
Underwriting Agreement between the Investment Company and Franklin/Templeton
Distributors, Inc. ("Distributors"). The Board concluded that the compensation
of the Adviser, under the Management Agreement, and of Distributors, under the
Underwriting Agreement, was fair and not excessive. The approval of the Plan
included a determination that in the exercise of their reasonable business
judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
The Board recognizes that Distributors has entered into an arrangement
with a third party in order to finance the distribution activities of the Class,
and further recognizes that it has an obligation to act in good faith and in the
best interests of the Fund and its shareholders when considering the
continuation or termination of the Plan and any payments to be made thereunder.
PAGE
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly
fee not to exceed the above-stated maximum distribution fee per annum of the
Class' average daily net assets represented by shares of the Class, as may be
determined by the Board from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to Distributors for payment to dealers or others, or (ii)
directly to others, an amount not to exceed the above-stated maximum service fee
per annum of the Class' average daily net assets represented by shares of the
Class, as may be determined by the Fund's Board from time to time, as a service
fee pursuant to servicing agreements which have been approved from time to time
by the Board, including the non-interested Board members.
2. (a) Distributors shall use the monies paid to it
pursuant to Paragraph 1(a) above to compensate it for amounts advanced to
securities dealers or their firms or others selling shares of the Class who have
executed an agreement with the Investment Company, Distributors or its
affiliates, which form of agreement has been approved from time to time by the
Board, including the non-interested Board members, with respect to the sale of
Class shares. In addition, such monies may be used to assist in the distribution
and promotion of shares of the Class. Payments made to Distributors under the
Plan may be used for, among other things, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a pro-rated portion of Distributors' overhead expenses
attributable to the distribution of Class shares, as well as for additional
distribution fees paid to securities dealers or their firms or others who have
executed agreements with the Investment Company, Distributors or its affiliates,
which form of agreement has been approved from time to time by the Board,
including the non-interested Board members.
(b) The monies to be paid pursuant to paragraph 1(b) above shall
be used to pay dealers or others for, among other things, furnishing
personal services and maintaining shareholder accounts, which services include,
among other things, assisting in establishing and maintaining customer accounts
and records; assisting with purchase and redemption requests; arranging for bank
wires; monitoring dividend payments from the Fund on behalf of customers;
forwarding certain shareholder communications from the Fund to customers;
receiving and answering correspondence; and aiding in maintaining the investment
of their respective customers in the Class. Any amounts paid under this
paragraph 2(b) shall be paid pursuant to a servicing or other agreement, which
form of agreement has been approved from time to time by the Board.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, the
Adviser, Distributors or other parties on behalf of the Fund, Adviser or
Distributors make payments that are deemed to be payments by the Fund for the
financing of any activity primarily intended to result in the sale of Class
shares issued by the Fund within the context of Rule 12b-1 under the Act, then
such payments shall be deemed to have been made pursuant to the Plan.
PAGE
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to Rule 2830(d) of the Conduct Rules of the National
Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its review, on
a quarterly basis, a written report of the monies reimbursed to it and to others
under the Plan, and shall furnish the Board with such other information as the
Board may reasonably request in connection with the payments made under the Plan
in order to enable the Board to make an informed determination of whether the
Plan should be continued.
5. (a) The Plan shall continue in effect for a period of more
than one year only so long as such continuance is specifically approved at least
annually by the Board, including the non-interested Board members, cast in
person at a meeting called for the purpose of voting on the Plan.
(b) In determining whether there is a reasonable likelihood
that the continuation of the Plan will benefit the Fund and its shareholders,
the Board may, but is not obligated to, consider that Distributors has entered
into an arrangement with a third party in order to finance the distribution
activities for the Class. In this regard, in the event that the Plan is
terminated by the action of the Board in accordance with Paragraph 6 hereof, the
Board may, but is not obligated to, determine that it is appropriate to
authorize the Fund to continue making payments under the Plan to Distributors
with respect to the shares of the Class sold prior to the termination of the
Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of a majority of
the outstanding voting securities of the Class of the Fund or by vote of a
majority of the non-interested Board members, on not more than sixty (60) days'
written notice, or by Distributors on not more than sixty (60) days' written
notice, and shall terminate automatically in the event of any act that
constitutes an assignment of the Management Agreement between the Fund and the
Adviser.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be spent for
distribution pursuant to Paragraph 1 hereof without approval by a majority of
the outstanding voting securities of the Class of the Fund.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by the non-interested
Board members cast in person at a meeting called for the purpose of voting on
any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Board members shall be committed to the
discretion of such non-interested Board members.
PAGE
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company and Distributors as evidenced by their
execution hereof.
Date: January 1, 1999
Templeton Growth Fund, Inc.
By:
------------------------
John R. Kay
Vice President
Franklin/Templeton Distributors, Inc.
By:
--------------------------
Peter D. Jones
Executive Vice President
MULTIPLE CLASS PLAN
ON BEHALF OF
TEMPLETON GROWTH FUND, INC.
This Multiple Class Plan (the "Plan") has been adopted by a majority of the
Board of Directors of Templeton Growth Fund, Inc. (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund. The Plan sets forth the provisions relating
to the establishment of multiple classes of shares of the Fund, and supersedes
any Plan previously adopted for the Fund.
1. The Fund shall offer four classes of shares, to be known as
Class A Shares, Class B Shares, Class C Shares and Advisor Class Shares.
2. Class A Shares shall carry a front-end sales charge ranging
from 0% - 5.75%, and Class C Shares shall carry a front-end sales charge of
1.00%. Class B Shares and the Advisor Class Shares shall not be subject to any
front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred
sales charge ("CDSC"), except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of 1.00%
of the lesser of the then-current net asset value or the original net asset
value at the time of purchase applies to redemptions of those investments within
the contingency period of 12 months from the calendar month following their
purchase. The CDSC is waived in certain circumstances, as described in the
Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC
schedule: (a) Class B Shares redeemed within 2 years of their purchase shall be
assessed a CDSC of 4% on the lesser of the then-current net asset value or the
original net asset value at the time of purchase; (b) Class B Shares redeemed
within the third and fourth years of their purchase shall be assessed a CDSC of
3% on the lesser of the then-current net asset value or the original net asset
value at the time of purchase; (c) Class B Shares redeemed within 5 years of
their purchase shall be assessed a CDSC of 2% on the lesser of the then-current
net asset value or the original net asset value at the time of purchase; and (d)
Class B Shares redeemed within 6 years of their purchase shall be assessed a
CDSC of 1% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase. The CDSC is waived in certain circumstances
described in the Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Advisor Class Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended,
PAGE
(the "Rule 12b-1 Plan") associated with the Class A Shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or others
for expenses incurred in the promotion and distribution of the Class A Shares.
Such expenses include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of the Distributor's overhead expenses
attributable to the distribution of the Class A Shares, as well as any
distribution or service fees paid to securities dealers or their firms or others
who have executed a servicing agreement with the Investment Company for the
Class A Shares, the Distributor or its affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two
components. The first component is an asset-based sales charge to be retained by
Distributor to compensate Distributor for amounts advanced to securities dealers
or their firms or others with respect to the sale of Class B Shares. In
addition, such payments may be retained by the Distributor to be used in the
promotion and distribution of Class B Shares in a manner similar to that
described above for Class A Shares. The second component is a shareholder
servicing fee to be paid to securities dealers or others who provide personal
assistance to shareholders in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two
components. The first component is a shareholder servicing fee, to be paid to
broker-dealers, banks, trust companies and others who maintain shareholder
accounts or provide personal assistance to shareholders in servicing their
accounts. The second component is an asset-based sales charge to be retained by
the Distributor during the first year after the sale of shares and, in
subsequent years, to be paid to dealers or retained by the Distributor to be
used in the promotion and distribution of Class C Shares, in a manner similar to
that described above for Class A Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Advisor Class
Shares and, therefore, the Advisor Class Shares shall not be subject to
deductions relating to Rule 12b-1 fees.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with Rule 2830(d) of the Conduct Rules of the National
Asociation of Securities Dealers, Inc.
5. The only difference in expenses as between Class A, Class B,
Class C, and Advisor Class Shares shall relate to differences in Rule 12b-1 plan
expenses, as described in the applicable Rule 12b-1 Plans; however, to the
extent that the Rule 12b-1 Plan expenses of one Class are the same as the Rule
12b-1 Plan expenses of another Class, such classes shall be subject to the same
expenses.
6. There shall be no conversion features associated with the
Class A, Class C, and Advisor Class Shares. Each Class B Share, however, shall
be converted automatically, and without any action or choice on the part of the
holder of the Class B Shares, into Class A Shares on the conversion date
specified, and in accordance with the terms and conditions approved by the
Templeton Growth Fund's Board of Directors and as described, in each fund's
prospectus relating to the Class B Shares, as such prospectus may be amended
PAGE
from time to time; provided, however, that the Class B Shares shall be converted
automatically into Class A Shares to the extent and on the terms permitted by
the Investment Company Act of 1940 and the rules and regulations adopted
thereunder.
7. Shares of Class A, Class B, Class C and Advisor Class may be
exchanged for shares of another investment company within the Franklin Templeton
Group of Funds according to the terms and conditions stated in each fund's
prospectus, as it may be amended from time to time, to the extent permitted by
the Investment Company Act of 1940 and the rules and regulations adopted
thereunder.
8. Each class will vote separately with respect to any Rule
12b-1 Plan related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their
fiduciary responsibilities under the Investment Company Act of 1940 and
otherwise, will monitor the Fund for the existence of any material conflicts
between the Board members interests of the various classes of shares. The Board
members, including a majority of the independent Board members, shall take such
action as is reasonably necessary to eliminate any such conflict that may
develop. Templeton Global Advisors Limited and Franklin/Templeton Distributors,
Inc. shall be responsible for alerting the Board to any material conflicts that
arise.
10. All material amendments to this Plan must be approved by a
majority of the Board members, including a majority of the Board members who are
not interested persons of the Investment Company.
11. I, Barbara J. Green, Secretary of the U.S. Templeton Funds,
do hereby certify that this Multiple Class Plan was adopted by a majority of the
Directors of the Fund on October 17, 1998.
------------------------------
Barbara J. Green
Secretary
POWER OF ATTORNEY
The undersigned Officers and Directors of TEMPLETON GROWTH FUND, INC. (the
"Registrant") hereby appoint Allan S. Mostoff, Jeffrey L. Steele, Mark H.
Plafker, Bruce G. Leto, Deborah R. Gatzek, Barbara J. Green, Larry L. Greene,
and Leiann Nuzum (with full power to each of them to act alone) his/her
attorney-in-fact and agent, in all capacities, to execute, and to file any of
the documents referred to below relating to Post-Effective Amendments to the
Registrant's registration statement on Form N-1A under the Investment Company
Act of 1940, as amended, and under the Securities Act of 1933, as amended,
covering the sale of shares by the Registrant under prospectuses becoming
effective after this date, including any amendment or amendments increasing or
decreasing the amount of securities for which registration is being sought, with
all exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority. Each of the undersigned grants to each of said
attorneys, full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes as he/she could do if
personally present, thereby ratifying all that said attorneys-in-fact and
agents, may lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in one or more counterparts, each of
which shall be deemed to be an original, and all of which shall be deemed to be
a single document.
The undersigned Officers and Directors hereby execute this Power of
Attorney as of the 11th day of December, 1998.
/s/HARRIS J. ASHTON /s/BETTY P. KRAHMER
- --------------------------- ------------------------------
Harris J. Ashton, Director Betty P. Krahmer, Director
/s/NICHOLAS F. BRADY /s/GORDON S. MACKLIN
- --------------------------- ------------------------------
Nicholas F. Brady, Director Gordon S. Macklin, Director
/s/S. JOSEPH FORTUNATO /s/FRED R. MILLSAPS
- ------------------------------ ------------------------------
S. Joseph Fortunato, Director Fred R. Millsaps, Director
/s/JOHN WM. GALBRAITH /s/MARK G. HOLOWESKO
- ------------------------------ -------------------------------
John Wm. Galbraith, Director Mark G. Holowesko, President
ANDREW H. HINES, JR. /s/JAMES R. BAIO
- ------------------------------ -------------------------------
Andrew H. Hines, Jr., Director James R. Baio, Treasurer
/s/CHARLES B. JOHNSON
- ------------------------------
Charles B. Johnson, Director
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The schedule contains summary financial information extracted from the
Templeton Growth Fund August 31, 1998 Annual Report and is qualified in its
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</LEGEND>
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<NAME> TEMPLETON GROWTH FUND, INC.
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<NAME> TEMPLETON GROWTH FUND, INC.
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</LEGEND>
<CIK> 0000805664
<NAME> TEMPLETON GROWTH FUND, INC.
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