FRANKLIN
EQUITY FUND
PROSPECTUS November 1, 1995
as amended February 2, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
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Franklin Equity Fund (the "Fund") is a diversified, open-end management
investment company with the principal investment objective of capital
appreciation and a secondary objective of current income return. It is
anticipated that the Fund's assets will generally be primarily invested in
common stocks, or securities convertible into common stocks.
The Fund may invest in domestic and foreign securities as described under
"Investment Objectives and Policies of the Fund."
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
The Fund offers two classes of shares to its investors: Franklin Equity Fund -
Class I ("Class I") and Franklin Equity Fund - Class II ("Class II"). Investors
can choose between Class I shares, which generally bear a higher front-end sales
charge and lower ongoing Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and
Class II shares, which generally have a lower front-end sales charge and higher
ongoing Rule 12b-1 fees. Investors should consider the differences between the
two classes, including the impact of sales charges and Rule 12b-1 fees, in
choosing the more suitable class given their anticipated investment amount and
time horizon. See "How to Buy Shares of the Fund - Differences Between Class I
and Class II."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
A Statement of Additional Information (the "SAI") concerning the Fund, dated
November 1, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
Contents Page
Expense Table............................................ 3
Financial Highlights..................................... 5
About the Fund........................................... 6
Investment Objectives and
Policies of the Fund.................................... 6
Management of the Fund................................... 11
Distributions to Shareholders............................ 13
Taxation of the Fund
and Its Shareholders.................................... 14
How to Buy Shares of the Fund............................ 15
Purchasing Shares of the
Fund in Connection with
Retirement Plans Involving
Tax-Deferred Investments................................. 22
Other Programs and Privileges
Available to Fund Shareholders.......................... 23
Exchange Privilege....................................... 25
How to Sell Shares of the Fund........................... 28
Telephone Transactions................................... 32
Valuation of Fund Shares................................. 33
How to Get Information Regarding
an Investment in the Fund............................... 34
Performance.............................................. 35
General Information...................................... 35
Account Registrations.................................... 37
Important Notice Regarding
Taxpayer IRS Certifications............................. 38
Portfolio Operations..................................... 38
Expense Table
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The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on the
aggregate operating expenses of Class I shares, for the fiscal year ended June
30, 1995.
Class I Class II
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).............. 4.50% 1.00%++
Deferred Sales Charge............................. NONE + 1.00%++
Exchange Fee (per transaction).................... $5.00 * $5.00*
++Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fee for Class II may cause shareholders to pay more for
Class II shares than for Class I shares. Given the maximum front-end sales
charge and the rate of Rule 12b-1 fees of each class, it is estimated that this
will take less than six years for shareholders who maintain total shares valued
at less than $100,000 in the Franklin Templeton Funds. Shareholders with larger
investments in the Franklin Templeton Funds will reach the crossover point more
quickly. See "How to Buy Shares of the Fund - Purchase Price of Fund Shares" for
the definition of Franklin Templeton Funds and similar references.
+Class I investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally imposed
on certain redemptions within a "contingency period" of 12 months of the
calendar month of such investments. See "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
++Class II shares redeemed within a "contingency period" of 18 months of the
calendar month of such investments are subject to a 1% contingent deferred sales
charge. See "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."
*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
Class I Class II
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.................................. 0.54% 0.54%
Rule 12b-1 Fees.................................. 0.18%* 1.00%*
Other Expenses:
Shareholder Servicing Costs...................... 0.09% 0.09%
Reports to Shareholders.......................... 0.08% 0.08%
Other............................................ 0.06% 0.06%
Total Other Expenses............................. 0.23% 0.23%**
Total Fund Operating Expenses.................... 0.95% 1.77%
*The maximum annual amount of Rule 12b-1 fees allowed pursuant to the Class I
distribution plan is 0.25%. The Class II Rule 12b-1 fee is based on the maximum
amount allowed pursuant to the Class II plan of distribution. See "Plans of
Distribution" under "Management of the Fund". Consistent with National
Association of Securities Dealers, Inc.'s rules, it is possible that the
combination of front-end sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the maximum front-end
sales charges permitted under those same rules.
**"Other Expenses" for Class II shares are estimates based on the actual
expenses incurred by Class I shares for the fiscal year ended June 30, 1995.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge and applicable contingent deferred
sales charges, that apply to a $1,000 investment in the Fund over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end of
each time period.
One Year Three Years Five Years Ten Years
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Class I...... $54* $74 $95 $156
Class II..... $38 $65 $105 $216
*Assumes that a contingent deferred sales charge will not apply to Class I
shares.
A shareholder would pay the following expenses on the same investment, assuming
no redemption.
One Year Three Years Five Years Ten Years
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Class II... $28 $65 $105 $216
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES, WHICH MAY BE MORE
OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund and only
indirectly by shareholders as a result of their investment in the Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but the Fund's actual return may be more or less than 5%.
Financial Highlights
Set forth below is a table containing the financial highlights for a share of
each class of the Fund. The information for each of the five fiscal years in the
period ended June 30, 1995 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial statements in
the Fund's Annual Report to Shareholders dated June 30, 1995. The remaining
figures, which are also audited, are not covered by the auditor's current
report. See "Reports to Shareholders" under "General Information."
<TABLE>
<CAPTION>
Class I Shares: Year ended June 30
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Per Share Operating Performance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year $6.53 $7.25 $7.12 $7.36 $7.17 $7.21 $6.67 $7.73 $7.19 $5.43
Net investment income......... .08 .10 .12 .14 .15 .17 .19 .12 .10 .11
Net realized & unrealized
gains on securities.......... 1.329 .107 .557 .089 .190 .344 .558 (.249) 1.141 2.000
Total from investment operations 1.409 .207 .677 .229 .340 .514 .748 (.129) 1.241 2.110
Less distributions:
Distributions from net
investment income............ (.079) (.103) (.119) (.142) (.150) (.296) (.109) (.116) (.100) (.118)
Distributions from net capital gains (.620) (.824) (.428) (.327) - (.258) (.099) (.815) (.601) (.232)
Total Distributions........... (.699) (.927) (.547) (.469) (.150) (.554) (.208) (.931) (.701) (.350)
Net asset value at end of year $7.24 $6.53 $7.25 $7.12 $7.36 $7.17 $7.21 $6.67 $7.73 $7.19
Total Return**................ 23.78% 2.28% 9.53% 3.36% 4.87% 7.00% 11.54% (.53)% 19.66% 41.26%
Ratios/Supplemental Data
Net assets at end of period (in 000's) $317,463 $279,880 $345,755 $364,826$374,993 $419,422 $370,705 $341,520 $299,353 $161,222
Ratio of expenses to average net assets .95% .79% .69% .70% .69% .69% .70% .72% .78% .89%
Ratio of net income to average
net assets................... 1.21% 1.27% 1.67% 1.86% 2.29% 2.51% 2.82% 1.97% 1.74% 2.00%
Portfolio turnover rate....... 86.20% 95.18% 51.12% 49.19% 56.76% 42.71% 51.17% 85.03% 44.82% 48.96%
</TABLE>
Class II Shares: May 1, 1995 to
June 30, 1995
Per Share Operating Performance
Net asset value at beginning of period............... $6.65
Net investment income................................ .010
Net realized & unrealized gains on securities........ .615
Total from investment operations..................... .625
Less Distributions from net investment income........ (.035)
Net asset value at end of period..................... $7.24
Total Return**....................................... 9.42%
Ratios/Supplemental Data
Net assets at end of year (in 000's)................. $342
Ratio of expenses to average net assets.............. 1.77%*
Ratio of net income to average net assets............ .74%*
Portfolio turnover rate.............................. 86.20%
*Annualized
**Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum front-end sales charge and assumes
reinvestment of dividends and capital gains at net asset value. Prior to May 1,
1994, dividends were reinvested at the maximum offering price.
About the Fund
The Fund, known as Research Equity Fund, Inc. until October 1984, is a
diversified open-end management investment company, commonly called a "mutual
fund," and registered with the SEC under the Investment Company Act of 1940 as
amended (the "1940 Act"). The Fund was originally organized in 1933,
reincorporated in Maryland on September 6, 1973, and reincorporated in
California in October 1984 through the merger of the Maryland corporation into a
newly formed California corporation. The Fund has two classes of shares of
capital stock ("multiclass" structure) with no par value: Franklin Equity Fund -
Class I and Franklin Equity Fund - Class II. All Fund shares outstanding before
May 1, 1995, have been redesignated as Class I shares, and will retain their
previous rights and privileges, except for legally required modifications to
shareholder voting procedures, as discussed in "General Information -
Organization and Voting Rights."
Investment Objectives
and Policies of the Fund
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The principal investment objective of the Fund is capital appreciation. In
seeking to achieve this objective, the Fund seeks to purchase securities which
the investment manager believes have the potential to increase in value, so that
the Fund's shares will in turn increase in value. Such investments may be more
volatile than other types of investments and may be subject to a greater degree
of risk. The secondary objective of the Fund is to provide current income return
through the receipt of dividends or interest from its investments. The payment
of dividends may be a consideration when securities are purchased. The Fund's
investment objectives are fundamental policies and may not be changed without
shareholder approval. As with any other investment, there is no assurance that
the Fund's objectives will be achieved.
Types of Securities the Fund May Purchase
The Fund will normally invest at least 65% of its assets in common stocks and
securities convertible into common stocks, which may be traded on a securities
exchange or over-the-counter to satisfy its primary objective of capital
appreciation. The balance of the Fund's assets, up to 35%, may be invested in
other securities which in the aggregate are consistent with the Fund's
investment objectives. In seeking income, the Fund may also purchase preferred
stocks and debt securities. Other investments may include options and financial
futures and securities of foreign issuers. See "Some of the Fund's other
Investment Policies" below. For temporary defensive purposes, the Fund may
invest up to 100% of its assets in securities of the U.S. government and its
agencies, commercial paper (short-term debt securities of large corporations),
or various bank debt instruments such as bankers' acceptances and certificates
of deposit.
The investment strategy of the Fund is generally to invest in undervalued
securities of companies which, in the opinion of the Fund's investment manager,
have strong future earnings growth prospects and whose securities are trading at
attractive valuation ratios relative to their industry. In attempting to provide
enhanced value to shareholders over the long term, the Fund's traditional
fundamental analysis and continuous active management will be used in
conjunction with disciplined, quantitative models which management believes
identify potentially rewarding investments. This strategy is not a fundamental
investment policy of the Fund and may be changed at any time at the directors'
discretion and without shareholder approval.
Smaller Companies. The Fund may invest in relatively new or unseasoned companies
which are in their early stages of development, or in new and emerging
industries where the opportunity for rapid growth is expected to be above
average. Securities of unseasoned companies present greater risks than
securities of larger, more established companies. The companies in which the
Fund may invest may have relatively small revenues, limited product lines, and
may have a small share of the market for their products or services. Due to
these and other factors, new or unseasoned companies may suffer significant
losses as well as realize substantial growth, and investments in such companies
tend to be more volatile and therefore more speculative than investments in
securities of more seasoned companies. Investments in the securities of issuers
which have less than three years continuous operation, including the operations
of any predecessor companies, will be limited to 5% of the Fund's total assets.
Convertible Securities. The Fund may invest in debt obligations and preferred
stocks which are convertible within a specified period of time into a certain
quantity of the common stock of the same or a different issuer. A convertible
security may be called by the issuer but only after a specified date and under
certain circumstances established at the time the security is issued.
Convertible securities provide a fixed-income stream and the opportunity,
through their conversion feature, to participate in any capital appreciation
resulting from a market price advance in the convertible security's underlying
common stock. Holders of a convertible security will have recourse only to the
issuer of the security which will be either an operating company or an
investment bank.
Because convertible securities have features of both common stocks and
fixed-income securities, their value can be influenced by both interest rate and
market movements. As with a fixed-income security, a convertible security tends
to increase in market value when interest rates decline and decrease in value
when interest rates rise. The price of a convertible security is also influenced
by the market value of the security's underlying common stock and tends to
increase as the market value of the underlying stock rises, whereas it tends to
decrease as the market value of the underlying stock declines.
When issued by an operating company, a convertible security tends to be senior
to common stock, but at the same time is often subordinate to other types of
fixed-income securities issued by the respective company. When convertible
securities issued by operating companies are converted, the operating company
typically issues new common stock to the holder of the security. However, if the
security is called by the issuer and the parity price of the convertible
security is less than the call price, the operating company will often pay cash
out instead of common stock. If the security is issued by an investment bank,
the security is an obligation of and is also convertible through such investment
bank.
The convertible debt obligations in which the Fund may invest are subject to the
same rating criteria as that Fund's investments in fixed-income securities. In
both cases the Fund may invest in securities rated investment grade (i.e.,
securities rated in one of the top four categories by Standard and Poor's
Corporation, or Moody's Investor Services) or below, or in unrated securities
deemed to be of comparable quality by the Fund's investment manager. However,
unlike convertible debt obligations, convertible preferred stocks are equity
securities. Like common stocks, preferred stocks are subordinated to all debt
obligations in the event of insolvency, and an issuer's failure to make a
dividend payment is generally not an event of default entitling the preferred
shareholder to take action. Preferred stocks generally have no maturity date,
and they pay dividends, rather than interest payments. For more information on
convertible securities, including enhanced convertible securities and liquidity
matters regarding these securities, please see the SAI.
Foreign Securities. There are no restrictions on the Fund's investment of assets
in foreign securities, providing such investments are consistent with the Fund's
objectives and comply with the concentration, diversification and other
investment policies of the Fund. The holding of foreign securities, however, may
be limited by the Fund to avoid investment in certain Passive Foreign Investment
Companies ("PFICs") as defined by the Code, and the imposition of a federal
income tax on the Fund resulting from such investment. To the extent that the
Fund makes such an investment and it generates PFIC income, the Fund may be
subject to a non-deductible tax at the Fund level.
The Fund will ordinarily purchase foreign securities which are traded in the
United States or purchase American Depositary Receipts ("ADRs"), which are
certificates issued by U.S. banks representing the right to receive securities
of a foreign issuer deposited with that bank or a correspondent bank. The Fund
may purchase the securities of foreign issuers directly in foreign markets. The
Fund may also purchase the securities of issuers in developing nations, but has
no present intention of doing so.
Investments in foreign securities involve additional risks, not generally
associated with domestic investments. These risks may include the possibility of
expropriation, nationalization, extraordinary taxation, adverse currency
fluctuations, political or social instability and/or future unfavorable
diplomatic developments which could affect investment in securities of issuers
in foreign nations. In addition, there may be less publicly available
information about issuers and foreign companies may not be subject to auditing,
accounting and financial reporting standards comparable to those applicable to
U.S. companies. For more information on investing in securities of foreign
issuers generally, please see the SAI.
Some of the Fund's Other Investment Policies
Options and Financial Futures. The Fund may write covered put and call options
and purchase put and call options on securities and securities indices which
trade on securities exchanges and in the over-the-counter market. The Fund may
purchase and sell financial futures and options on financial futures with
respect to securities, securities indices and currencies. Additionally, the Fund
may purchase and sell financial futures and options to "close out" futures and
options it may have purchased. The Fund will not enter into any futures contract
or related options (except for closing transactions) if, immediately thereafter,
the sum of the amount of its initial deposits and premiums on open futures
contracts and related options would exceed 5% of the Fund's total assets (taken
at current value). The Fund will not engage in any stock options or stock index
options (except for closing transactions) if, immediately thereafter, the option
premiums paid regarding its open option positions exceed 5% of the value of the
Fund's total assets (taken at current value). Transactions in options and
financial futures and options related thereto are generally considered
"derivative securities." The Fund will not engage in any such transactions for
speculation but only as a hedge against changes resulting from market conditions
in the values of its securities or securities, which it intends to purchase and,
to the extent consistent therewith, to accommodate cash flows. Notwithstanding
the Fund's ability to enter into such transactions for hedging purposes, it is
not obligated to hedge its investment positions, but may do so when deemed
prudent and consistent with the Fund's objectives and policies.
The Fund's option and futures investments involve certain risks. A liquid
secondary market for any particular option or future may not be available when
an option or futures position is sought to be closed and the inability to close
a position may have an adverse impact on the Fund's ability to effectively hedge
securities. In addition, there may be an imperfect correlation between movements
in the securities on which the options or futures contract is based and
movements in the securities in the Fund's portfolio. Successful use of options
and futures contracts are further dependent on the investment manager's ability
to correctly predict movements in the securities markets and no assurance can be
given that its judgment will be correct. The Fund will enter into an option or
futures position only if there appears to be a liquid secondary market for such
option or futures.
The Fund understands the current position of the staff of the SEC to be that
purchased OTC options are illiquid securities and that the assets used to cover
the sale of an OTC option are considered illiquid. The Fund and Advisers
disagree with this position. Nevertheless, pending a change in the staff's
position, the Fund will treat OTC options and "cover" assets as subject to the
Fund's limitation on illiquid securities. (See "Investment Objectives and
Policies of the Fund - Illiquid Investments" in this Prospectus.)
To the extent that the Fund does invest in options and futures, it may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company and such
investments may reduce the portion of the Fund's dividends which is eligible for
the corporate dividends-received deduction. These transactions are also subject
to special tax rules that may affect the amount, timing and character of certain
distributions to shareholders, more information about which is included in the
section entitled "Additional Information Regarding Taxation" in the SAI. For
more information about options and futures and the risks associated with such
investments, please see the SAI.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
of Directors (the "Board") and subject to the following conditions, the Fund may
lend its portfolio securities to qualified securities dealers or other
institutional investors, provided that such loans do not exceed 10% of the value
of the Fund's total assets at the time of the most recent loan. The borrower
must deposit with the Fund's custodian bank collateral with an initial market
value of at least 102% of the initial market value of the securities loaned,
including any accrued interest, with the value of the collateral and loaned
securities marked-to-market daily to maintain collateral coverage of at least
100%. Such collateral shall consist of cash, securities issued by the U.S.
government, its agencies or instrumentalities, or irrevocable letters of credit.
The lending of securities is a common practice in the securities industry. The
Fund engages in security loan arrangements with the primary objective of
increasing the Fund's income either through investing the cash collateral in
short-term interest bearing obligations or by receiving a loan premium from the
borrower. Under the securities loan agreement, the Fund continues to be entitled
to all dividends or interest on any loaned securities. As with any extension of
credit, there are risks of delay in recovery and loss of rights in the
collateral should the borrower of the security fail financially.
Borrowing. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of its assets, except that borrowings for temporary or emergency
purposes may be made in an amount up to 5% of the Fund's total asset value.
Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund.
Repurchase Agreements. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Fund's investment manager. A repurchase agreement is deemed to be a loan by
the Fund under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian approved by the
Fund's Board and will be held pursuant to a written agreement.
REITs. The Fund may invest in companies which qualify as real estate investment
trusts ("REITs") for federal income tax purposes, when the manager believes that
such investments would help to achieve the Fund's investment objectives. In
order to qualify as a REIT, a company must invest primarily in real
estate-related assets, obtain its income primarily from real estate-related
investments, and distribute virtually all of its taxable income to shareholders,
all as more specifically defined in the Code. The risks involved in REIT
investments include risks common to all real estate investing, such as declines
in the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, changes in zoning laws, casualty or condemnation losses,
variations in rental income, changes in neighborhood values, the appeal of
properties to tenants and increases in interest rates. REITs are also subject to
heavy cash flow dependency, defaults by borrowers, self-liquidation and the
possibility of failing to qualify for tax-free pass-through of income under the
Code and to maintain exemption from the 1940 Act. The Fund does not intend to
invest more than 10% of its total assets in REITs.
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limits its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see the SAI.
How Shareholders Participate
in the Results of the Fund's Activities
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.
To the extent the Fund's investments consist of common stocks, a decline in the
market, expressed for example by a drop in the Dow Jones Industrials or the
Standard & Poor's 500 average or any other equity based index, may also be
reflected in declines in the Fund's share price. History reflects both increases
and decreases in the prevailing rate of interest and in the valuation of the
market, and these may reoccur unpredictably in the future. To the extent the
Fund's investments consist of debt securities, changes in interest rates will
affect the value of the Fund's portfolio and thus its share price. Increased
rates of interest which frequently accompany higher inflation and/or a growing
economy are likely to have a negative effect on the value of Fund shares.
Management of the Fund
- --------------------------------------------------------------------------------
The Board has the primary responsibility for the overall management of the Fund
and for electing the officers of the Fund who are responsible for administering
its day-to-day operations.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should arise.
In developing the multiclass structure the Fund has retained the authority to
establish additional classes of shares. It is the Fund's present intention to
offer only two classes of shares, but new classes may be offered in the future.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 34 U.S. registered investment
companies (116 separate series) with aggregate assets of over $77 billion.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
trustees of the Trust are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Fund's Code of Ethics. Please see
"General Information" in the SAI for further information on securities
transactions and a summary of the Fund's Code of Ethics.
During the fiscal year ended June 30, 1995, fees totaling 0.54% of the average
monthly net assets of Class I shares were paid to Advisers.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager seeks to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "The
Fund's Policies Regarding Brokers Used on Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended June 30, 1995, expenses borne by Class I shares of
the Fund, including fees paid to Advisers and to Investor Services, totaled
0.95% of the average monthly net assets of such class.
Plans of Distribution
A separate plan of distribution has been approved and adopted for each class
("Class I Plan" and "Class II Plan," respectively, or "Plan(s)") pursuant to
Rule 12b-1 under the 1940 Act. The Rule 12b-1 fee paid by each class is based
solely on the distribution and, with respect to the Class II Plan, servicing
fees attributable to that particular class. Under either plan the portion of
fees remaining after payment to securities dealers or others for distribution or
servicing may be paid to Distributors for routine ongoing promotion and
distribution expenses incurred with respect to such class. Such expenses may
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares.
The maximum amount which the Fund may reimburse to Distributors or others under
the Class I Plan for such distribution is 0.25% per annum of Class I's average
daily net assets, payable on a quarterly basis. All expenses of distribution in
excess of 0.25% per annum will be borne by Distributors, or others who have
incurred them, without reimbursement from the Fund.
Under the Class II Plan, the Fund pays to Distributors distribution and related
expenses up to 0.75% per annum of Class II's average daily net assets, payable
quarterly. Such fees may be used in order to compensate Distributors or others
for providing distribution and related services and bearing certain expenses of
the class. All expenses of distribution, marketing and related services over
that amount will be borne by Distributors or others who have incurred them,
without reimbursement by the Fund. In addition, the Class II Plan provides for
an additional payment by the Fund of up to 0.25% per annum of Class II's average
daily net assets as a servicing fee, payable quarterly. This fee will be used to
pay securities dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records; assisting with
purchase and redemption requests; receiving and answering correspondence;
monitoring dividend payments from the Fund on behalf of customers, or similar
activities related to furnishing personal services and/or maintaining
shareholder accounts.
Distributors, or its affiliates, may pay, from its or their own resources, a
commission of up to 1% of the amount invested to securities dealers who initiate
and are responsible for shareholders' purchases of Class II shares. During the
first year following the purchase of Class II shares, Distributors will retain a
portion of Class II's Rule 12b-1 fees equal to 0.50% per annum of Class II's
average daily net assets to partially recoup fees Distributors pays to
securities dealers in connection with the initial purchase of shares of Class
II.
Both Plans also cover any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund. For more
information, including a discussion of the Board's policies with regard to the
amount of each Plan's fees, please see the SAI.
Distributions to Shareholders
- --------------------------------------------------------------------------------
There are two types of distributions which the Fund may make to its
shareholders:
1. Income dividends. The Fund receives income in the form of dividends, interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed net capital gains from the prior fiscal year. The Fund may
make more than one distribution derived from net short-term and net long-term
capital gains in any year or adjust the timing of these distributions for
operational or other reasons.
Distributions To Each Class of Shares
According to the requirements of the Code, dividends and capital gains will be
calculated and distributed in the same manner for Class I and Class II shares.
The per share amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.
Distribution Date
Although subject to change by the Board, without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends
semi-annually for shareholders of record on the last business day of May and
November, payable on or about the 15th day of the following month. The amount of
income dividend payments by the Fund is dependent upon the amount of net income
received by the Fund from its portfolio holdings, is not guaranteed and is
subject to the discretion of the Board. Fund shares are quoted ex-dividend on
the first business day following the record date. The Fund does not pay
"interest" or guarantee any fixed rate of return on an investment in its shares.
In order to be entitled to a dividend, an investor must have acquired Fund
shares prior to the close of business on the record date. An investor
considering purchasing Fund shares shortly before the record date of a
distribution should be aware that because the value of the Fund's shares is
based directly on the amount of its net assets, rather than on the principle of
supply and demand, any distribution of income or capital gain will result in a
decrease in the value of the Fund's shares equal to the amount of the
distribution. While a taxable dividend or capital gain distribution received
shortly after purchasing shares represents, in effect, a return of a portion of
the shareholder's investment, it may be taxable as dividend income or capital
gain.
Distribution Options
An investor may choose to receive their distributions from the Fund in any of
these ways:
1. Purchase additional shares of the Fund - Shareholders may purchase additional
shares of the same class of the Fund (without a sales charge or imposition of a
contingent deferred sales charge) by reinvesting capital gain distributions, or
both dividend and capital gain distributions. Class II shareholders, may also
reinvest their distributions in Class I shares of the Fund. This is a convenient
way to accumulate additional shares and maintain or increase a shareholders
earnings base.
2. Purchase shares of other Franklin Templeton Funds - Shareholders may direct
their distributions to purchase the same class of shares of another Franklin
Templeton Fund (without a sales charge or imposition of a contingent deferred
sales charge). Class II shareholders, may also direct their distributions to
purchase Class I shares of another Franklin Templeton Fund. Many shareholders
find this a convenient way to diversify their investments.
3. Receive distributions in cash - Shareholders may choose to receive dividends,
or both dividend and capital gain distributions in cash. Shareholders may have
the money sent directly to them, to another person, or to a checking account. If
the money is to be sent to a checking account, please see "Electronic Fund
Transfers" under "Other Programs and Privileges Available to Fund Shareholders."
To select one of these options, shareholders should complete sections 6 and 7 of
the Shareholder Application included with this Prospectus or tell their
investment representative which option they prefer. If no option is selected,
dividend and capital gain distributions will be automatically reinvested in the
same class of the Fund. An investor may change the distribution option selected
at any time by notifying the Fund by mail or by telephone. Please allow at least
seven days prior to the record date for the Fund to process the new option.
Taxation of the Fund and Its Shareholders
- --------------------------------------------------------------------------------
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters is
included in the SAI.
The Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income or
excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.
Of the income dividends paid by the Fund for the fiscal year ended June 30,
1995, 100% qualified for the corporate dividends-received deduction, subject to
certain holding period and debt financing restrictions imposed under the Code on
the corporation claiming the deduction.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
paid by the Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on the sale or
exchange of Fund shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Fund and distributions and redemption proceeds received from
the Fund.
How to Buy Shares of the Fund
- --------------------------------------------------------------------------------
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors. The use of the term "securities dealer"
shall include other financial institutions which, either directly or through
affiliates have an agreement with Distributors to handle customer orders and
accounts with the Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity. The minimum initial investment
is $100 and subsequent investments must be $25 or more. These minimums may be
waived when the shares are purchased through retirement plans established by the
Franklin Templeton Group. The Fund and Distributors reserve the right to refuse
any order for the purchase of shares.
Differences Between Class I and Class II. Class I and Class II differ in the
amount of their front-end sales charges and Rule 12b-1 fees as well as the
circumstances under which the contingent deferred sales charge applies.
Generally Class I shares have higher front-end sales charges than Class II
shares and lower Rule 12b-1 fees. The voting rights of each class will be the
same on matters affecting the Fund as a whole, but each class will vote
separately on matters affecting only shareholders of that class. (See "General
Information - Organization and Voting Rights.")
Class I. All Fund shares outstanding before the implementation of the multiclass
structure have been redesignated as Class I shares, and will retain their
previous rights and privileges. Class I shares are generally subject to a
variable sales charge upon purchase and may be purchased at a reduced front-end
sales charge or at net asset value if certain conditions are met. In most
circumstances, contingent deferred sales charges will not be assessed against
redemptions of Class I shares. Class I shares are subject to Rule 12b-1 fees of
up to a maximum 0.25% per annum of the average daily net assets of the class.
See "Management of the Fund" and "How to Sell Shares of the Fund."
Class II. Class II shares are subject to a front-end sales charge of 1% of the
amount invested and a contingent deferred sales charge of 1% if shares are
redeemed within 18 months of the calendar month of purchase. In addition, Class
II shares are subject to Rule 12b-1 fees of up to a maximum of 1% per annum of
the average daily net assets of Class II shares, 0.50% of which will be retained
by Distributors during the first year of investment.
Purchases of Class II shares are limited to purchases below $1 million. Any
purchase of $1 million or more will automatically be invested in Class I shares,
since that is more beneficial to the investor. Such purchases, however, may be
subject to a contingent deferred sales charge. Investors who intend to make
investments exceeding $1 million, however, should consider purchasing Class I
shares through a Letter of Intent instead of purchasing Class II shares.
Deciding Which Class To Purchase. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which class
of shares to purchase. Generally, an investor who expects to invest less than
$100,000 in the Franklin Templeton Funds and who expects to make substantial
redemptions within approximately six years or less of investment should consider
purchasing Class II shares. However, the higher annual Rule 12b-1 fees on the
Class II shares will result in higher operating expenses (which will accumulate
over time to outweigh the difference in front-end sales charges) and lower
income dividends for Class II shares. For this reason, Class I shares may be
more attractive to long-term investors even if no sales charge reductions are
available to them.
Investors who qualify to purchase Class I shares at reduced sales charges should
seriously consider purchasing Class I shares, especially if they intend to hold
their shares approximately six years or more. Investors who qualify to purchase
Class I shares at reduced sales charges but who intend to hold their shares less
than approximately six years should evaluate whether it is more economical to
purchase Class I shares through a Letter of Intent or under Rights of
Accumulation or other means, rather than purchasing Class II shares. Investors
investing $1 million or more in a single payment and other investors who qualify
to purchase Class I shares at net asset value may not purchase Class II shares.
See "Purchases at Net Asset Value" and "Description of Special Net Asset Value
Purchases" below for a discussion of when shares may be purchased at net asset
value.
Each class represents the same interest in the investment portfolio of the Fund
and has the same rights, except that each class has a different front-end sales
charge, bears the separate expenses of its Rule 12b-1 distribution plan, and has
exclusive voting rights with respect to such plan. The two classes also have
separate exchange privileges.
Each class also has a separate schedule for compensating securities dealers for
selling Fund shares. Investors should take all of the factors regarding an
investment in each class into account before deciding which class of shares to
purchase. There are no conversion features attached to either class of shares.
Purchase Price of Fund Shares
When placing purchase orders, investors should clearly indicate which class of
shares they intend to purchase. A purchase order that fails to specify a class
will automatically be invested in Class I shares.
Shares of both classes of the Fund are offered at their respective public
offering prices, which are determined by adding the net asset value per share
plus a front-end sales charge, next computed (1) after the shareholder's
securities dealer receives the order which is promptly transmitted to the Fund,
or (2) after receipt of an order by mail from the shareholder directly in proper
form (which generally means a completed Shareholder Application accompanied by a
negotiable check).
Class I. The sales charge for Class I shares is a variable percentage of the
offering price depending upon the amount of the sale. The offering price will be
calculated to two decimal places using standard rounding criteria. A description
of the method of calculating net asset value per share is included under the
caption "Valuation of Fund Shares."
Set forth below is a table showing front-end sales charges and dealer
concessions for Class I shares.
<TABLE>
<CAPTION>
Total Sales Charge
As a Percentage Dealer Concession
Size of Transaction As a Percentage of Net Amount as a Percentage
at Offering Price of Offering Price Invested of Offering Price*
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more none none (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. At the discretion of Distributors,
all sales charges may at times be allowed to the securities dealer. A securities
dealer who receives 90% or more of the sales commission may be deemed to be an
underwriter under the Securities Act of 1933, as amended.
**Distributors will pay the following commissions will be paid by Distributors,
out of its own resources, to securities dealers who initiate and are responsible
for purchases of $1 million or more: 1.00% on sales of $1 million but less than
$2 million, plus 0.80% on sales of $2 million but less than $3 million, plus
0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales of
$50 million but less than $100 million, plus 0.15% on sales of $100 million or
more. Dealer concession breakpoints are reset every 12 months for purposes of
additional purchases.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of investments of $1 million or more within the contingency period.
See "How to Sell Shares of the Fund Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on the
purchase of Class I shares is determined by adding the amount of the
shareholder's current purchase plus the cost or current value (whichever is
higher) of a shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds(R) and the Templeton Group of Funds. Included for
these aggregation purposes are (a) the mutual funds in the Franklin Group of
Funds except Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Funds"), schedule of sales charges and/or may not be subject and
(b) the U.S. registered mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds." Sales charge reductions based upon aggregate holdings of Franklin
Templeton Funds may be effective only after notification to Distributors that
the investment qualifies for a discount.
Other Payments to Securities Dealers. Either distributors or one of its
affiliates may make payments, out of its own resources, of up to 1% of the
amount purchased to securities dealers who initiate and are responsible for
purchases made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers), certain non-designated plans, certain trust
companies and trust departments of banks, and certain retirement plans of
organizations with collective retirement plan assets of $10 million or more. See
"Description of Special Net Asset Value Purchases" and the SAI.
Class II. Unlike Class I shares, the front-end sales charges and dealer
concessions for Class II shares do not vary depending on the amount of purchase,
as indicated in the table below.
Total Sales Charge
As a Percentage Dealer Concession
Size of Transaction As a Percentage of Net Amount As a Percentage
at Offering Price of Offering Price Invested of Offering Price
Under $1,000,000+ 1.00% 1.01% 1.00%
*Either Distributors, or one of its affiliates, may make additional payments to
securities dealers, out of its own resources, of up to 1% of the amount
invested. During the first year following a purchase of Class II shares,
Distributors will keep a portion of the Rule 12b-1 fees attributable to those
shares to partially recoup fees Distributors pays to securities dealers.
+Purchases of Class II shares are limited to purchases below $1 million. See
"Deciding Which Class to Buy."
Class II shares redeemed within 18 months of their purchase will be assessed a
contingent deferred sales charge of 1% on the lesser of the then-current net
asset value or the net asset value of such shares at the time of purchase,
unless such charge is waived as described under "How to Sell Shares of the Fund
- - Contingent Deferred Sales Charge."
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with sales
of shares of the Franklin Templeton Funds. Compensation may include financial
assistance to securities dealers and payments made in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising, sales campaigns and/or shareholder services and programs
regarding one or more of the Franklin Templeton Funds and other dealer-sponsored
programs or events. In some instances, this compensation may be made available
only to certain securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin Templeton Funds.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Securities dealers may not
use sales of the Fund's shares to qualify for this compensation to the extent
such may be prohibited by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by the Fund or its
shareholders.
Additional terms concerning the offering of the Fund's shares are included in
the SAI.
Certain officers and directors of the Fund are also affiliated with
Distributors. A detailed description is included in the SAI.
Quantity Discounts in Sales Charges -
Class I Shares Only
Class I shares may be purchased under a variety of plans which provide for a
reduced sales charge. To be certain to obtain the reduction of the sales charge,
the investor or the securities dealer should notify Distributors at the time of
each purchase of shares which qualifies for the reduction. In determining
whether a purchase qualifies for a discount, an in-vestment in any of the
Franklin Templeton Funds may be combined with those of the investor's spouse,
children under the age of 21, and grandchildren under the age of 21. The value
of Class II shares owned by the investor may also be included for this purpose.
In addition, an investment in Class I shares may qualify for a reduction in the
sales charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in the Franklin Templeton Funds may be combined with the
amount of the current purchase in determining the sales charge to be paid.
2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of Class I shares by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which, if made at one time, would qualify for
a reduced sales charge and grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. The investor or the
investor's securities dealer must inform Investor Services or Distributors that
this Letter is in effect each time a purchase is made.
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application: Five percent (5%)
of the amount of the total intended purchase will be reserved in Class I shares
registered in the investor's name, to assure that the full applicable sales
charge will be paid if the intended purchase is not completed. The reserved
shares will be included in the total shares owned as reflected on periodic
statements; income and capital gain distributions on the reserved shares will be
paid as directed by the investor. The reserved shares will not be available for
liquidation by the investor until the Letter of Intent has been completed or the
higher sales charge paid. This policy regarding the reservation of shares does
not apply to certain benefit plans described under "Description of Special Net
Asset Value Purchases." For more information, see "Additional Information
Regarding Purchases" in the SAI.
Although the sales charges on Class II shares cannot be reduced through these
programs, the value of Class II shares owned by the investor may be included in
determining the reduced sales charge to be paid on Class I shares pursuant to
the Letter of Intent and Rights of Accumulation programs.
Group Purchases of Class I Shares
An individual who is a member of a qualified group may also purchase Class I
shares of the Fund at the reduced sales charge applicable to the group as a
whole. The sales charge is based upon the aggregate dollar value of shares
previously purchased and still owned by the members of the group, plus the
amount of the current purchase. For example, if members of the group had
previously invested and still held $80,000 of Fund shares and now were investing
$25,000, the sales charge would be 3.75%. Information concerning the current
sales charge applicable to a group may be obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to Distributors, and seek to arrange for
payroll deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies the Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the offering price per share determined on the day that both the
check and payroll deduction data are received in required form by the Fund.
Purchases at Net Asset Value
Class I shares may be purchased without the imposition of a front-end sales
charge ("net asset value") or a contingent deferred sales charge by (1)
officers, trustees, directors, and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members, including subsequent investments made by such
parties after cessation of employment; (2) companies exchanging shares or
selling assets pursuant to a merger, acquisition or exchange offer; (3) accounts
managed by the Franklin Templeton Group; (4) certain unit investment trusts and
unit holders of such trusts reinvesting their distributions from the trusts in
the Fund; (5) registered securities dealers and their affiliates, for their
investment account only; (6) current employees of securities dealers and their
affiliates and by their family members, in accordance with the internal policies
and procedures of the employing securities dealer and affiliate; (7) insurance
company separate accounts for pension plan contracts; and (8) shareholders of
Templeton Institutional Funds, Inc. reinvesting redemption proceeds from that
fund under an employee benefit plan qualified under Section 401 of the Code, in
shares of the Fund.
For either Class I or Class II, the same class of shares of the Fund may be
purchased at net asset value by persons who have redeemed, within the previous
365 days, their shares of the Fund or another of the Franklin Templeton Funds
which were purchased with a front-end sales charge or assessed a contingent
deferred sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the time of purchase
of the new shares. Under this privilege, an investor may reinvest an amount not
exceeding the redemption proceeds. While credit will be given for any contingent
deferred sales charge paid on the shares redeemed and subsequently repurchased,
a new contingency period will begin. Shares that were no longer subject to a
contingent deferred sales charge will be reinvested at net asset value and will
not be subject to a new contingent deferred sales charge. Shares of the Fund
redeemed in connection with an exchange into another fund (see "Exchange
Privilege") are not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of shares of the Fund
must be received by the Fund or the Fund's Shareholder Services Agent within 365
days after the redemption. The 365 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and under
"Additional Information Regarding Taxation" in the SAI.
For either Class I or Class II, the same class of shares of the Fund may be
purchased at net asset value and without a contingent deferred sales charge by
persons who have received dividends and capital gains distributions in cash from
investments in that class of shares of the Fund or of another of the Franklin
Templeton Funds or a real estate investment trust ("REIT") sponsored or advised
by Franklin Properties, Inc. within 365 days of the payment date of such
distribution. Class II shareholders may also direct such distributions for
investment at net asset value in a Class I Franklin Templeton Fund. To exercise
this privilege, a written request to reinvest the distribution must accompany
the purchase order. Additional information may be obtained from Shareholder
Services at 1-800/632-2301. See "Distributions Options" under "Distributions to
Shareholders."
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by investors who have, within the past 60
days, redeemed an investment in a mutual fund which is not part of the Franklin
Templeton Funds and which was subject to a front-end sales charge or a
contingent deferred sales charge and which has investment objectives similar to
those of the Fund.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by broker-dealers who have entered into a
supplemental agreement with Distributors, or by registered investment advisors
affiliated with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as a wrap fee
program).
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by anyone who has taken a distribution from
an existing retirement plan already invested in the Franklin Templeton Funds,
including former participants of the Franklin Templeton Profit Sharing 401(k)
plan, to the extent of such distribution. In order to exercise this privilege a
written order for the purchase of shares of the Fund must be received by
Franklin Templeton Trust Company (the "Trust Company"), the Fund or Investor
Services within 365 days after the plan distribution.
Class I shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. In connection with investments by eligible governmental
authorities at net asset value made through a securities dealer who has executed
a dealer agreement with Distributors, either Distributors or one of its
affiliates may make a payment, out of its own resources, to such securities
dealer in an amount not to exceed 0.25% of the amount invested. Contact the
Franklin Templeton Institutional Services Department for additional information.
Description of Special Net Asset Value Purchases
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by certain designated retirement plans,
including profit sharing, pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with respect to number of
employees or amount of purchase, which may be established by Distributors.
Currently, those criteria require that the employer establishing the plan have
200 or more employees or that the amount invested or to be invested during the
subsequent 13-month period in the Fund or in any of the Franklin Templeton Funds
totals at least $1,000,000. Employee benefit plans not designated above or
qualified under Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements, as well as the uniform
criteria for qualified groups previously described under "Group Purchases of
Class I Shares " which enable Distributors to realize economies of scale in its
sales efforts and sales related expenses.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by trust companies and bank trust departments
for funds over which they exercise exclusive discretionary investment authority
and which are held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements with respect to
amount of purchase, which may be established by Distributors. Currently, those
criteria require that the amount invested or to be invested during the
subsequent 13-month period in the Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by trustees or other fiduciaries purchasing
securities for certain retirement plans of organizations with collective
retirement plan assets of $10 million or more, without regard to where such
assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases of
Class I shares.
General
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.
Purchasing Shares of the Fund in
Connection with Retirement Plans
Involving Tax-Deferred Investments
- --------------------------------------------------------------------------------
Shares of the Fund may be used for individual or employer-sponsored retirement
plans involving tax-deferred investments. The Fund may be used as an investment
vehicle for an existing retirement plan, or the Trust Company may provide the
plan documents and serve as custodian or trustee. A plan document must be
adopted in order for a retirement plan to be in existence.
The Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for retirement plans. Brochures for the Trust Company plans contain
important information regarding eligibility, contribution and deferral limits
and distribution requirements. Please note that an application other than the
one contained in this Prospectus must be used to establish a retirement plan
account with the Trust Company. To obtain a retirement plan brochure or
application, call 1-800/DIAL BEN (1-800/342-5236).
Please see "How to Sell Shares of the Fund" for specific information regarding
redemptions from retirement plan accounts. Specific forms are required to be
completed for distributions from the Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition,
retirement plan investors should consider consulting their investment
representatives or advisers concerning investment decisions within their plans.
Other Programs and Privileges
Available to Fund Shareholders
- --------------------------------------------------------------------------------
Certain of the programs and privileges described in this section may not be
available directly from the Fund to shareholders whose shares are held, of
record, by a financial institution or in a "street name" account, or networked
account through the National Securities Clearing Corporation ("NSCC") (see the
section captioned "Account Registrations" in this Prospectus).
Share Certificates
Shares from an initial or a subsequent investment, including the reinvestment of
dividends and capital gain distributions, are generally credited to an account
in the name of an investor on the books of the Fund, without the issuance of a
share certificate. Maintaining shares in uncertificated form (also known as
"plan balance") minimizes the risk of loss or theft of a share certificate. A
lost, stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is generally borne by
the shareholder, can be 2% or more of the value of the lost, stolen or destroyed
certificate. A certificate will be issued if requested by the shareholder or by
the securities dealer.
Confirmations
A confirmation statement will be sent to each shareholder semi-annually to
reflect the dividends reinvested during that period and after each other
transaction which affects the shareholder's account. This statement will also
show the total number of shares owned by the shareholder, including the number
of shares in "plan balance" for the account of the shareholder.
Automatic Investment Plan
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, investors can arrange to have money transferred automatically
from their checking account to the Fund each month to purchase additional
shares. Investors interested in this program should refer to the Automatic
Investment Plan Application at the back of this Prospectus for the requirements
of the program or they should contact their investment representative. Of
course, the market value of the Fund's shares may fluctuate and a systematic
investment plan such as this will not assure a profit or protect against a loss.
The program may be terminated at any time by notifying Investor Services by mail
or by phone.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan allows an investor to receive regular payments
from their account on a monthly, quarterly, semiannual or annual basis. To
establish a Systematic Withdrawal Plan, the value of the shareholders account
must be at least $5,000 and the minimum payment amount for each withdrawal must
be at least $50. Please keep in mind that $50 is merely the minimum amount and
is not a recommended amount. For retirement plans subject to mandatory
distribution requirements, the $50 minimum will not apply.
Shareholders who would like to establish a Systematic Withdrawal Plan should
complete the Systematic Withdrawal Plan section of the Shareholder Application
included with this Prospectus and indicate how they would like to receive their
payments. Shareholders may choose to receive their payments in any of the
following ways:
1. Purchase shares of other Franklin Templeton Funds - Shareholders may direct
their payments to purchase the same class of shares of another Franklin
Templeton Fund.
2. Receive payments in cash - Shareholders may choose to receive their payments
in cash. Shareholders may have the money sent directly to them, to another
person, or to a checking account. Shareholders who choose to have the money sent
to a checking account should see "Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once the plan is established, any distributions paid by the
Fund will be automatically reinvested in the shareholders account. Payments
under the plan will be made from the redemption of an equivalent amount of
shares in the shareholders account, generally on the first business day of the
month in which a payment is scheduled. Shareholders will generally receive their
payments within three to five days after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in an 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 the shareholders account, the account will be closed
and the remaining balance in the account will be sent to the shareholder.
Redemptions under a Systematic Withdrawal Plan are considered a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than the shareholders actual yield or income, part of the payment may be a
return of investment.
Shareholders should ordinarily not make additional investments in the Fund of
less than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How To Sell Shares of the Fund."
Shareholders may terminate a Systematic Withdrawal Plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying Investor
Services in writing at least seven business days prior to the end of the month
preceding a scheduled payment. The Fund may also terminate a Systematic
Withdrawal Plan by notifying the shareholder in writing and will automatically
terminate a Systematic Withdrawal Plan if all shares in a shareholders account
are withdrawn or if the Fund receives notification of the shareholder's death or
incapacity.
Electronic Fund Transfers
Shareholders may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer.
Shareholders who choose this option should allow at least fifteen days for
initial processing. Any payments made during that time will be sent to the
address of record on the account.
Institutional Accounts
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
the Franklin Templeton Institutional Services Department at 1-800/321-8563.
Exchange Privilege
- --------------------------------------------------------------------------------
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objectives or outlook for the securities markets changes, the Fund shares may be
exchanged for the same class of shares of other Franklin Templeton Funds which
are eligible for sale in the shareholder's state of residence and in conformity
with such fund's stated eligibility requirements and investment minimums. Some
funds, however, may not offer Class II shares. Class I shares may be exchanged
for Class I shares of any of the other Franklin Templeton Funds. Class II shares
may be exchanged for Class II shares of any of the other Franklin Templeton
Funds. No exchanges between different classes of shares will be allowed. A
contingent deferred sales charge will not be imposed on exchanges. If, however,
the exchanged shares were subject to a contingent deferred sales charge in the
original fund purchased and shares are subsequently redeemed within the
contingency period of the class, a contingent deferred sales charge will be
imposed. Before making an exchange, investors should review the prospectus of
the fund they wish to exchange from and the fund they wish to exchange into for
all specific requirements or limitations on exercising the exchange privilege,
for example, limitation on a fund's sale of its shares, minimum holding periods
for exchanges at net asset value, or applicable sales charges.
No exchanges between different classes of shares will be allowed. Shareholders
may choose to redeem shares of the Fund and purchase Class II shares of another
Franklin Templeton Fund but such purchase will be subject to that fund's Class
II front-end and contingent deferred sales charges. Although there are no
exchanges between different classes of shares, Class II shareholders of a
Franklin Templeton Fund may elect to direct their dividends and capital gain
distributions to Class I at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Exchanges may be made in any of the following ways:
Exchanges By Mail
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
Exchanges By Telephone
Shareholders, or their investment representative of record, if any, may exchange
shares of the Fund by telephone by calling Investor Services at 1-800/632-2301
or the automated Franklin TeleFACTS(R) system (day or night) at 1-800/247-1753.
If the shareholder does not wish this privilege extended to a particular
account, the Fund or Investor Services should be notified.
The telephone exchange privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account of the same class of shares in
one of the other available Franklin Templeton Funds. The telephone exchange
privilege is available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The Fund and Investor
Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
Exchanges Through Securities Dealers
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "Exchanges By Telephone"
above. Such a dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling an
exchange.
Additional Information Regarding Exchanges
Exchanges of the same class of shares are made on the basis of the net asset
values of the class involved, except as set forth below. Exchanges of shares of
a class which were purchased without a sales charge will be charged a sales
charge in accordance with the terms of the prospectus of the fund and the class
of shares being purchased, unless the original investment in the Franklin
Templeton Funds was made pursuant to the privilege permitting purchases at net
asset value, as discussed under "How To Buy Shares of the Fund." Exchanges of
Class I shares of the Fund which were purchased with a lower sales charge into a
fund which has a higher sales charge will be charged the difference in sales
charges, unless the shares were held in the Fund for at least six months prior
to executing the exchange.
When an investor requests the exchange of the total value of the Fund account,
declared but unpaid income dividends and capital gain distributions will be
transferred to the fund being exchanged into and will be invested at net asset
value. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate 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 should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
Exchanges of Class I Shares
The contingency period during which a contingent deferred sales charge may be
assessed for Class I shares will be tolled (or stopped) for the period such
shares are exchanged into and held in a Franklin or Templeton Class I money
market fund. If a Class I account has shares subject to a contingent deferred
sales charge, Class I shares will be exchanged into the new account on a
"first-in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge" for a discussion of investments subject to a
contingent deferred sales charge and the applicable contingency period.
Exchanges of Class II Shares
When an account is composed of Class II shares subject to the contingent
deferred sales charge, and Class II shares that are not, the shares will be
transferred proportionately into the new fund. Shares received from reinvestment
of dividends and capital gains are referred to as "free shares," shares which
were originally subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called "matured shares,"
and shares still subject to the contingent deferred sales charge are referred to
as "CDSC liable shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For instance, if a
shareholder has $1,000 in free shares, $2,000 in matured shares, and $3,000 in
CDSC liable shares, and the shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free shares, $1,000 from matured shares, and $1,500 from
CDSC liable shares. Similarly, if CDSC liable shares have been purchased at
different periods, a proportionate amount will be taken from shares held for
each period. If, for example, a shareholder holds $1,000 in shares bought 3
months ago, $1,000 bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into the new fund, $500 from each of these shares
will be deemed exchanged into the new fund.
To the extent shares are exchanged proportionately, as opposed to another
method, such as first-in first-out, or free shares followed by CDSC liable
shares, the exchanged shares may, in some instances, be CDSC liable even though
a redemption of such shares, as discussed elsewhere herein, may no longer be
subject to a CDSC. The proportional method is believed by management to more
closely meet and reflect the expectations of Class II shareholders in the event
shares are redeemed during the contingency period. For federal income tax
purposes, the cost basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen by the Fund.
The only money market fund exchange option available to Class II shareholders is
the Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin
Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II
accounts, nor may Class II shareholders purchase shares of Money Fund II
directly. Class II shares exchanged for shares of Money Fund II will continue to
age for purposes of calculating the contingent deferred sales charge, because
they continue to be subject to Rule 12b-1 fees. The contingent deferred sales
charge will be assessed if CDSC liable shares are redeemed. Class I shares may
be exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these other money market funds as described in their
respective prospectuses.
Retirement Plan Accounts
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange shares
directly. Certain restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."
Timing Accounts
Accounts which are administered by allocation or market timing services to
exchange shares based on predetermined market indicators ("Timing Accounts")
will be charged a $5.00 administrative service fee per each such exchange. All
other exchanges are without charge.
Restrictions on Exchanges
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's exchanges may be restricted or refused if the Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges that coincide with a "market
timing" strategy may be disruptive to the Fund and therefore may be refused.
The Fund and Distributors also, as indicated under "How to Buy Shares of the
Fund," reserve the right to refuse any order for the purchase of shares.
Transfers
Transfers between identically registered accounts in the same fund and class are
treated as non-monetary and non-taxable events and are not subject to a
contingent deferred sales charge. The transferred shares will continue to age
from the date of original purchase. Shares of each class will be transferred on
the same basis as described above for exchanges.
Conversion Rights
It is not presently anticipated that Class II shares will be convertible to
Class I shares. A shareholder may, however, sell the Class II shares and use the
proceeds to purchase Class I shares, subject to all applicable sales charges.
How to Sell Shares of the Fund
- --------------------------------------------------------------------------------
A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:
Redemptions By Mail
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the class of shares redeemed based upon the net asset value
per share (less a contingent deferred sales charge, if applicable) next computed
after the written request in proper form is received by Investor Services.
Redemption requests received after the time at which the net asset value is
calculated will receive the price calculated on the following business day. The
net asset value per share of each class is determined as of the scheduled close
of the New York Stock Exchange (the "Exchange"), (generally 1:00 p.m. Pacific
time) each day that the Exchange is open trading. Shareholders are requested to
provide a telephone number(s) where they may be reached during business hours,
or in the evening if preferred. Investor Services' ability to contact a
shareholder promptly when necessary will speed the processing of the redemption.
To be considered in proper form, signature(s) must be guaranteed if the
redemption request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions, including,
for example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an agent,
not the actual registered owner, (e) the Fund determines that joint owners who
are married to each other are separated or may be the subject of divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.
Redemptions By Telephone
Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
Information may also be obtained by writing to the Fund or Investor Services at
the address shown on the cover or by calling 1-800/632-2301. The Fund and
Investor Services will employ reasonable procedures to confirm that instructions
given by telephone are genuine. Shareholders, however, bear the risk of loss in
certain cases as described under "Telephone Transactions - Verification
Procedures."
For shareholder accounts with the completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled close of
the Exchange (generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within seven days,
made payable to all the registered owners on the account, and will be sent only
to the address of record. Redemption requests by telephone will not be accepted
within 30 days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set forth in this
Prospectus. Institutional accounts (certain corporations, bank trust
departments, government entities, and qualified retirement plans which qualify
to purchase shares at net asset value pursuant to the terms of this Prospectus)
that wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available from the
Franklin Templeton Institutional Services Department by telephoning
1-800/321-8563.
Redeeming Shares Through Securities Dealers
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to the Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. The documents
described under "Redemptions By Mail" above, as well as a signed letter of
instruction, are required regardless of whether the shareholder redeems shares
directly or submits such shares to a securities dealer for repurchase. A
shareholder's letter should reference the Fund and the class, the account
number, the fact that the repurchase was ordered by a dealer and the dealer's
name. Details of the dealer-ordered trade, such as trade date, confirmation
number, and the amount of shares or dollars, will help speed processing of the
redemption. The seven-day period within which the proceeds of the shareholder's
redemption will be sent will begin when the Fund receives all documents required
to complete ("settle") the repurchase in proper form. The redemption proceeds
will not earn dividends or interest during the time between receipt of the
dealer's repurchase order and the date the redemption is processed upon receipt
of all documents necessary to settle the repurchase. Thus, it is in a
shareholder's best interest to have the required documentation completed and
forwarded to the Fund as soon as possible. The shareholder's dealer may charge a
fee for handling the order. The SAI contains more information on the redemption
of shares.
Contingent Deferred Sales Charge
In order to recover commissions paid to securities dealers, all or a portion of
Class I investments of $1 million or more and any Class II investments redeemed
within the contingency period (12 months for Class I and 18 months for Class II)
will be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the lesser of the value
of the shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such shares,
and is retained by Distributors. The contingent deferred sales charge is waived
in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation of those shares held less than the
contingency period; (ii) shares purchased with reinvested dividends and capital
gain distributions; and (iii) other shares held longer than the contingency
period. Shares subject to a contingent deferred sales charge will then be
redeemed on a "first-in, first-out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds or
an adjustment to the cost basis of the shares redeemed.
The contingent deferred sales charge on each class of shares is waived, as
applicable, for: exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually). For example, if a Class I account maintained
an annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge. Likewise, if a
Class II account maintained an annual balance of $10,000, only $1,200 could be
withdrawn through a once-yearly Systematic Withdrawal Plan free of charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Requests for redemptions of a specified dollar amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of a
specific number of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
Additional Information Regarding Redemptions
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
Retirement Plan Accounts
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, a shareholder or securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 591/2, unless the distribution meets one of the exceptions
set forth in the Code.
Other Information
Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
Telephone Transactions
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Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions, including the following, by calling
Investor Services at 1-800/632-2301:
(i) effect a change in address, (ii) change a dividend option (see "Restricted
Accounts" below), (iii) transfer Fund shares in one account to another
identically registered account in the Fund, (iv) request the issuance of
certificates (to be sent to the address of record only) and (v) exchange Fund
shares as described in this Prospectus by telephone. In addition, shareholders
who complete and file an Agreement as described under "How to Sell Shares of the
Fund - Redemptions By Telephone" will be able to redeem shares of the Fund.
Verification Procedures
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where the Fund or
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.
Restricted Accounts
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment. While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain restrictions may apply to
other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
Valuation of Fund Shares
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The net asset value per share of each class of the Fund is determined as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum front-end sales charge of each class of shares of the
Fund).
The net asset value per share for each class of the Fund is determined in the
following manner: The aggregate of all liabilities is deducted from the
aggregate gross value of all assets, and the difference is divided by the number
of shares of the respective class outstanding at the time. Assets in the Fund's
portfolio are valued as described in the SAI.
Each of the Fund's classes will bear, pro rata, all of the common expenses of
the Fund except that each class will bear the Rule 12b-1 fees payable under its
respective distribution plan. The net asset value of all outstanding shares of
each class of the Fund will be computed on a pro rata basis based on the
proportionate participation in the Fund represented by the value of shares of
such classes. Due to the specific distribution expenses and other costs that
will be allocable to each class, the dividends paid to each class of the Fund
may vary.
How to Get Information Regarding an Investment in the Fund
- --------------------------------------------------------------------------------
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:
By calling the Franklin TeleFACTS(R) system at
1-800/247-1753, shareholders may obtain Class I and Class II account
information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
Franklin Class I shareholders may process an exchange, within the same class,
into an identically registered Franklin account and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.
Franklin Class I and Class II share codes for the Fund, which will be needed to
access system information, are 103 and 234, respectively. The system's automated
operator will prompt the caller with easy to follow step-by-step instructions
from the main menu. Other features may be added in the future.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin or Templeton
departments, telephone numbers and hours of operation to call. The same numbers
may be used when calling from a rotary phone:
Hours of Operation (Pacific time)
Department Name Telephone No. (Monday through Friday)
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Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
Performance
- --------------------------------------------------------------------------------
Advertisements, sales literature and communications to shareholders may contain
several measures of a class' performance, including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for each class for other
periods, or based on investments at various sales charge levels or at net asset
value. For such purposes, total return equals the total of all income and
capital gain paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed as
a percentage of the purchase price.
Current yield for each class reflects the income per share earned by the Fund's
portfolio investments; it is calculated for each class by dividing that class'
net investment income per share during a recent 30-day period by the maximum
public offering price for that class of shares on the last day of that period
and annualizing the result.
Yield for each class, which is calculated according to a formula prescribed by
the SEC (see the SAI), is not indicative of the dividends or distributions which
were or will be paid to the Fund's shareholders. Dividends or distributions paid
to shareholders of a class are reflected in the current distribution rate, which
may be quoted to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by a class during the past
12 months by a current maximum offering price for that class of shares. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout, or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid during the period such policies were
in effect rather than using the dividends during the past 12 months. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing, and short-term capital
gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against a class' income and will assume the payment of the
maximum sales charge on the purchase of that class of shares. When there has
been a change in the sales charge structure, the historical performance figures
will be restated to reflect the new rate. The investment results of each class,
like all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what a class' total return, current yield or distribution rate may be
in any future period.
General Information
- --------------------------------------------------------------------------------
As of May 1, 1995, the full name of each class is as follows: Franklin Equity
Fund, Franklin Equity Fund Series, Franklin Equity Fund - Class I, and Franklin
Equity Fund, Franklin Equity Fund Series, Franklin Equity Fund - Class II.
Reports to Shareholders
The Fund's fiscal year ends June 30. Annual Reports containing audited financial
statements of the Fund, including the auditors' report, and Semi-Annual Reports
containing unaudited financial statements are automatically sent to
shareholders. To reduce the volume of mail sent to each household as well as to
reduce Fund expenses, Investor Services will attempt to identify related
shareholders within a household, and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and the SAI.
Organization and Voting Rights
The Fund's authorized capital stock consists of 5,000,000,000 shares of common
stock with no par value, divided into two classes. 3,000,000,000 shares of
capital stock have been allocated to Class I and 2,000,000,000 shares of capital
stock have been allocated to Class II. All shares have one vote and, when
issued, are fully paid and nonassessable. All shares have equal voting,
participation and liquidation rights, but have no subscription, preemptive or
conversion rights. The Fund reserves the right to issue additional classes of
shares.
Shares of the Fund have cumulative voting rights, which means that, in all
elections of directors, each shareholder has the right to cast a number of votes
equal to the number of shares owned multiplied by the number of directors to be
elected at such election and each shareholder may cast the whole number of votes
for one candidate or distribute such votes among two or more candidates.
The Fund does not intend to hold annual shareholders' meetings. The Fund may,
however, hold a special meeting for such purposes as changing fundamental
investment restrictions, approving a new management agreement or any other
matters which are required to be acted on by shareholders under the 1940 Act. A
meeting may also be called by a majority of the Board of Directors or by
shareholders holding at least ten percent of the shares entitled to vote at the
meeting. Shareholders may receive assistance in communicating with other
shareholders in connection with the election or removal of directors such as
that provided in Section 16(c) of the 1940 Act.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as the other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect a certain class of the Fund's shares, however, only shareholders of that
class will be entitled to vote. Therefore each class of shares will vote
separately on matters (1) affecting only that class, (2) expressly required to
be voted on separately by class by state corporation law, or (3) required to be
voted on separately by class by the 1940 Act, or the rules adopted thereunder.
For instance, if a change to the Rule 12b-1 plan relating to Class I shares
requires shareholder approval, only shareholders of Class I may vote on the
change to the Rule 12b-1 plan affecting that class. Similarly, if a change to
the Rule 12b-1 plan relating to Class II shares requires approval, only
shareholders of Class II may vote on changes to such plan. On the other hand, if
there is a proposed change to the investment objectives of the Fund, the
proposal would affect all shareholders, regardless of which class of shares they
hold and, therefore, each share has the same voting rights.
Redemptions by the Fund
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the SAI.
Account Registrations
- --------------------------------------------------------------------------------
An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer.
Account transfers may be effected electronically through the services of the
NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and Investor
Services, and to have authorized them to execute the instructions without
further inquiry. At the present time, such services which are available include
the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
Important Notice Regarding
Taxpayer IRS Certifications
- --------------------------------------------------------------------------------
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Fund that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
Portfolio Operations
- --------------------------------------------------------------------------------
The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio: Conrad B. Herrmann since 1993; Canyon A. Chan since 1993
and Catherine Roberts Bowman since 1995.
Conrad B. Herrmann, CFA
Portfolio Manager
Franklin Advisers, Inc.
Mr. Herrmann is a Chartered Financial Analyst and holds a Master of Business
Administration degree from Harvard University. He earned his Bachelor of Arts
degree from Brown University. He joined Advisers in 1989. He is a board member
of the Security Analysts of San Francisco and a member of the Association for
Investment Management and Research (AIMR).
Canyon A. Chan, CFA
Portfolio Manager
Franklin Advisers, Inc.
Mr. Chan is a Chartered Financial Analyst and holds a bachelor of arts degree in
quantitative economics from Stanford University. Mr. Chan has been with Advisers
since 1991, and is a member of the Security Analysts of San Francisco and the
Association for Investment Management and Research (AIMR).
Catherine Roberts Bowman
Portfolio Manager
Franklin Advisors
Ms. Roberts Bowman holds a Master of Business Administration degree from the
J.L. Kellogg Graduate School of Management at Northwestern University. She
received her Bachelor of Arts degree from Princeton University. She joined
Franklin in 1990.
