FRANKLIN BALANCE SHEET INVESTMENT FUND
ISLAND BLVD., P.O. BOX 7777
PROSPECTUS MARCH 1, 1995 AS AMENDED JULY 5, 1995
777 MARINERS
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin Balance Sheet Investment Fund (the "Fund") is a non-
diversified, open-end management investment company with the
investment objective of seeking high total return. The Fund will
seek capital appreciation primarily through investment in
securities that the Fund's investment manager believes are
undervalued in the marketplace. The Fund will also seek income
when deemed consistent with its objective. The Fund currently
seeks to achieve its objective by investing in the types of
securities which the investment manager believes represent
intrinsic values not reflected in the current market price of
such securities and/or present opportunities for high income. The
Fund will also invest a portion of its total assets in the
securities of closed-end management investment companies.
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. The Fund is designed for long-term
investors and not as a trading vehicle, and is not intended to
present a complete investment program. An investment in the Fund
involves certain speculative considerations; see "Risk
Factors/Special Considerations." There can be no assurance that
the Fund will achieve its investment objective. 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.
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.
A Statement of Additional Information ("SAI") concerning the
Fund, dated March 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.
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.
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..........................
Financial Highlights
Summary
Investment Objective and
Policies of the Fund
Risk Factors/Special Considerations
Management of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
<TABLE>
<CAPTION>
EXPENSE TABLE
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 the Fund (before fee waivers and expense reductions)
for the fiscal year ended October 31, 1994.
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on
Purchases
as a percentage of offering 1.50%
price)
Deferred Sales Charge NONE*
Exchange Fee (per transaction) $5.00**
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C>
Management Fees 0.63%***
12b-1 Fees 0.44%+
Other Expenses 0.27%
Total Fund Operating Expenses 1.34%***
*Investments of $1 million or more are not subject to 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 following such
investments. 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.
***Represents the amount that would have been payable to the
investment manager, absent a fee reduction by the investment
manager. The investment manager however, agreed in advance to
waive its management fees and assumed responsibility for making
payments to offset operating expenses otherwise payable by the
Fund for the period November 1, 1993 to March 31, 1994, at which
time the arrangement was discontinued by the investment manager.
With this reduction, management fees and total operating
expenses, including management fees, for the fiscal year ended
October 31, 1994, represented 0.47% and 1.19%, respectively, of
the average net assets 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.
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, 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.
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<C> <C> <C> <C>
$28 $57 $87 $174
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES,
BEFORE FEE WAIVERS AND EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR 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%.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
Set forth below is a table containing the financial highlights
for a share of the Fund from the effective date of its
registration statement, as indicated below, through the fiscal
years ended October 31, 1994. The information has been audited by
Coopers & Lybrand, L.L.P., independent auditors, whose audit
report appears in the financial statements in the Fund's SAI. See
the discussion "Reports to Shareholders" under "General
Information."
<CAPTION>
Year Ended
October 31,
1994 1993 1992 1991 April 2,
1990*
to
October
31, 1990
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value at beginning $22.97 $17.37 $15.54 $11.48 $15.00
of period
Net investment income .23 .39 .53 .52 .29
Net realized and unrealized .51 6.26 1.83 4.10 (3.63)
gain (loss) on securities
Total from investment .74 6.65 2.36 4.62 (3.34)
operations
Less distributions:
Dividends from net (.26) (.43) (.53) (.56) (.18)
investment income
Distributions from capital (.77) (.62) .- .- .-
gains
Total distributions (1.03) (1.05) (.53) (.56) (.18)
Net asset value at end of $22.68 $22.97 $17.37 $15.54 $11.48
period
TOTAL RETURN* 3.42% 37.78% 15.51% 40.96% (22.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period $134,255 $22,317 $5,149 $3,572 $1,405
(in 000's)
Ratio of expenses to average 1.19% .-% .-% .-% .-%
net assets++
Ratio of expenses to 1.34% 1.85% 2.60% 3.16% 3.54%+
average net assets
(excluding waiver and
payment of expenses by
investment manager)
Ratio of net income to .99% 1.89% 3.16% 3.79% 2.31%+
average net assets
Portfolio turnover rate 24.96% 31.36% 30.86% 31.94% 5.34%
*Total return measures the change in value of an investment over
the periods indicated, it does not include the maximum initial
front-end sales charge and assumes reinvestment of dividends and
capital gains distributions, if any, at net asset value.
**Effective date of registration.
+Annualized.
++During the periods indicated, Franklin Advisers, Inc., the
investment manager, agreed in advance to waive all or a portion
of management fees and to make payment of expenses otherwise
payable by the Fund.
</TABLE>
SUMMARY
Franklin Balance Sheet Investment Fund (the "Fund") is a non-
diversified, open-end management investment company, commonly
known as a mutual fund, organized as a Massachusetts business
trust on September 11, 1989, and has registered with the SEC
under the Investment Company Act of 1940 (the "1940 Act").
Franklin Advisers, Inc. ("Manager" or "Advisers") serves as the
Fund's investment manager. See "Management of the Fund."
The Board of Trustees may determine, at a future date, to offer
shares of the Fund in one or more "classes" to permit the Fund to
take advantage of alternative methods of selling Fund shares.
"Classes" of shares represent proportionate interests in the same
portfolio of investment securities but with different rights and
privileges, as determined by the trustees. Certain funds in the
Franklin Templeton Funds, as that term is defined under "How to
Buy Shares of the Fund," currently offer their shares in two
classes, designated "Class I" and "Class II." Because the Fund's
sales charge structure and plan of distribution are similar to
those of Class I shares, shares of the Fund may be considered
Class I shares for redemption and exchange purposes.
The investment objective of the Fund is to seek high total
return, of which capital appreciation and income are components.
This investment objective is a fundamental policy of the Fund and
may not be changed without shareholder approval. Capital
appreciation will be sought primarily through investment in
securities that the Fund's Manager believes are undervalued in
the marketplace. Accordingly, the focus on balance sheet items
will be an important element in the Manager's investment
analysis. Income will also be sought when consistent with the
Fund's objective. As with any other investment, there is no
assurance that the Fund's objective will be achieved.
The Fund currently invests in equity and debt securities which,
in the opinion of the Manager, represent intrinsic values not
reflected in the current market price of such securities and/or
present opportunities for high income. Shares of the Fund may be
purchased (minimum initial investment of $2,500 and $100
thereafter or for investments by retirement plans, $1,000 and
$100, respectively) at the current public offering price, which
is equal to the net asset value per share plus a sales charge not
exceeding 1.5% of the offering price. (See "How to Buy Shares of
the Fund" and "Valuation of Fund Shares.")
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund may invest an unlimited amount of its total assets in
the securities of any companies which, in the opinion of the
Manager, represent an opportunity for (i) significant capital
appreciation due to intrinsic values not reflected in the current
market price of such securities and/or (ii) high income. The
securities of such companies, which include common and preferred
stocks and secured or unsecured bonds, commercial paper or notes,
will typically be purchased at prices below the book value of the
company; however, the Manager also will take into account a
variety of other factors in order to determine whether to
purchase, and once purchased, whether to hold or sell such
securities. In addition to book value, the Manager may consider
the following factors among others: valuable franchises or other
intangibles; ownership of valuable trademarks or trade names;
control of distribution networks or of market share for
particular products; ownership of real estate the value of which
is understated; underutilized liquidity and other factors that
would identify the issuer as a potential takeover target or
turnaround candidate.
The Fund generally favors common stocks, although it has no limit
on the percentage of its assets which may be invested in
preferred stock and debt obligations of such issuers. The
percentage of the Fund's assets invested for capital appreciation
or high income or both will vary at any time in accordance with
the Manager's appraisal of what securities will best meet the
Fund's objective of high total return.
The Fund will also invest a portion of its total assets in the
securities of registered closed-end management investment
companies ("closed-end funds"), which are traded on a national
securities exchange or in the over-the-counter markets and which
the Manager believes are undervalued in the marketplace.
Consistent with its objective of capital appreciation, the Fund
may also purchase securities issued by unit investment trusts
("UITs"), when in the Manager's view such securities are trading
at a discount from net asset value. The Fund's investment in the
securities of closed-end funds and UITs will be subject to
certain restrictions and conditions imposed by the 1940 Act. (See
"1940 Act Provisions" in the SAI.) The Fund may, consistent with
its investment objective, invest in any securities of any closed-
end fund without regard to whether the investment objectives and
policies of such closed-end fund are similar to or consistent
with those of the Fund.
The Manager will consider the following, among other factors, in
evaluating closed-end funds: (i) the historical market discounts,
(ii) portfolio characteristics, (iii) repurchase, tender offer,
and dividend reinvestment programs, (iv) provisions for
converting into an open-end fund, and (v) quality of management.
The securities of closed-end funds in which the Fund invests are
traded on a national securities exchange or in the over-the-
counter markets. The Fund invests in the securities of closed-end
funds which, at the time of investment by the Fund, are either
trading at a discount to net asset value or which, in the opinion
of the Manager, present an opportunity for capital appreciation
or high income irrespective of whether such securities are
trading at a discount or at a premium to net asset value. There
can be no assurance that the market value of the securities of
the closed-end funds in which the Fund invests will increase,
particularly with respect to securities trading at a premium to
net asset value. For further information regarding the conditions
under which the securities of a closed-end fund may trade at a
discount to net asset value, see "Characteristics of the Closed-
End Funds in Which the Fund Will Invest" in the SAI.
In anticipation of and during temporary defensive periods or when
investments of the type in which the Fund intends to invest are
not available at prices that the Manager believes are attractive,
the Fund may invest up to 100% of its total assets in: (1)
securities of the U.S. government and certain of its agencies and
instrumentalities, which mature in one year or less from the date
of purchase, including U.S. Treasury bills, notes and bonds, and
securities of the Government National Mortgage Association, the
Federal Housing Administration and other agency or
instrumentality issues or guarantees which are supported by the
full faith and credit of the United States; (2) obligations
issued or guaranteed by other U.S. government agencies or
instrumentalities, some of which are supported by the right of
the issuer to borrow from the U.S. government (e.g., obligations
of the Federal Home Loan Banks) and some of which are backed by
the credit of the issuer itself (e.g., obligations of the Student
Loan Marketing Association); (3) bank obligations, including
negotiable or non-negotiable certificates of deposit (subject to
the 10% aggregate limit on the Fund's investment in illiquid
securities), letters of credit and bankers' acceptances, or
instruments secured by such obligations, issued by banks and
savings institutions which are subject to regulation by the U.S.
government, its agencies or instrumentalities and which have
assets of over one billion dollars, unless such obligations are
guaranteed by a parent bank which has total assets in excess of
five billion dollars; (4) commercial paper considered by the
Manager to be of high quality, which must be rated within the two
highest grades by Standard & Poor's Corporation ("S&P") or
Moody's Investors Service ("Moody's") or, if not rated, issued by
a company having an outstanding debt issue rated at least AA by
S&P or Aa by Moody's; and (5) corporate obligations including,
but not limited to, corporate notes, bonds and debentures
considered by the Manager to be high grade or which are rated
within the two highest rating categories by S&P and Moody's. (See
"Appendix" in the SAI for a discussion of ratings.)
OPTIONS STRATEGIES
When seeking high current income to achieve its investment
objective of high total return, the Fund may write covered call
options on any of the securities it actually owns which are
listed for trading on a national securities exchange, and it may
also purchase listed call and put options for portfolio hedging
purposes.
Call options are short-term contracts (generally having a
duration of nine months or less) which give the purchaser of the
option the right to buy, and obligate the writer to sell, the
underlying security at the exercise price at any time during the
option period, regardless of the market price of the underlying
security. The purchaser of an option pays a cash premium, which
typically reflects, among other things, the relationship of the
exercise price to the market price and the volatility of the
underlying security, the remaining term of the option, supply and
demand factors, and interest rates.
Call options written by the Fund give the holder the right to buy
the underlying security from the Fund at a stated exercise price
upon exercising the option at any time prior to its expiration. A
call option written by the Fund is "covered" if the Fund owns or
has an absolute right (such as by conversion) to the underlying
security covered by the call. A call option is also covered if
the Fund holds a call on the same security and in the same
principal amount as the call written and the exercise price of
the call held (a) is equal to or less than the exercise price of
the call written or (b) is greater than the exercise price of the
call written if the difference is maintained by the Fund in cash,
government securities or other high grade debt obligations in a
segregated account with its custodian.
When the Fund writes or sells covered call options, it will
receive a cash premium which can be used in whatever way is
believed by the Manager to be most beneficial to the Fund. The
risks associated with covered option writing are that in the
event of a price rise on the underlying security which would
likely trigger the exercise of the call option, the Fund will not
participate in the increase in price beyond the exercise price.
It will generally be the Fund's policy, in order to avoid the
exercise of a call option written by it, to cancel its obligation
under the call option by entering into a "closing purchase
transaction," if available, unless it is determined to be in the
Fund's interest to deliver the underlying securities from its
portfolio. A closing purchase transaction consists of the Fund
purchasing an option having the same terms as the option written
by the Fund, and has the effect of canceling the Fund's position
as a writer of such an option. The premium which the Fund will
pay in executing a closing purchase transaction may be higher or
lower than the premium it received when writing the option,
depending in large part upon the relative price of the underlying
security at the time of each transaction.
One risk involved in both the purchase and sale of options is
that the Fund may not be able to effect a closing purchase
transaction at a time when it wishes to do so or at an
advantageous price. There is no assurance that a liquid market
will exist for a given contract or option at any particular time.
To mitigate this risk, the Fund will ordinarily purchase and
write options only if a secondary market for the option exists on
a national securities exchange or in the over-the-counter market.
Another risk is that during the option period, if the Fund has
written a covered call option, it will have given up the
opportunity to profit from a price increase in the underlying
securities above the exercise price in return for the premium on
the option (although, of course, the premium can be used to
offset any losses or add to the Fund's income) but, as long as
its obligation as a writer of such an option continues, the Fund
will have retained the risk of loss should the price of the
underlying security decline. In addition, the Fund has no control
over the time when it may be required to fulfill its obligation
as a writer of the option; once the Fund has received an exercise
notice, it cannot effect a closing transaction in order to
terminate its obligation under the option and must deliver the
underlying securities at the exercise price. The aggregate
premiums paid on all such options which are held at any time will
not exceed 20% of the Fund's total net assets.
The Fund may also purchase put options on common stock that it
owns or may acquire through the conversion or exchange of other
securities to protect against a decline in the market value of
the underlying security or to protect the unrealized gain in an
appreciated security in its portfolio without actually selling
the security. A put option gives the holder the right to sell the
underlying security at the option exercise price at any time
during the option period. The Fund may pay for a put either
separately or by paying a higher price for securities which are
purchased subject to a put, thus increasing the cost of the
securities and reducing the yield otherwise available from the
same securities.
In the case of put options, any gain realized by the Fund will be
reduced by the amount of the premium and transaction costs it
paid and may be offset by a decline in the value of its portfolio
securities. If the value of the underlying stock exceeds the
exercise price (or never declines below the exercise price), the
Fund may suffer a loss equal to the amount of the premium it paid
plus transaction costs. The Fund may also close out its option
positions before they expire by entering into a closing purchase
transaction as discussed above and subject to the same risks.
The Fund's investment in options and certain securities
transactions involving actual or deemed short sales may be
limited by the requirements of the Internal Revenue Code (the
"Code") for qualification as a regulated investment company and
are subject to special tax rules that may affect the amount,
timing, and character of distributions to shareholders. These
securities require the application of complex and special tax
rules and elections, more information about which is included in
the SAI.
OTHER CONSIDERATIONS
While the Fund intends to operate as a non-diversified, open-end
management investment company for purposes of the 1940 Act, it
intends to qualify as a regulated investment company under the
Code. As a non-diversified investment company under the 1940 Act,
the Fund may invest more than 5% and up to 25% of its assets in
the securities of any one issuer at the time of purchase.
However, for purposes of the Code, as of the last day of any
fiscal quarter, the Fund may not have more than 25% of its total
assets invested in any one issuer, and, with respect to 50% of
its total assets, the Fund may not have more than 5% of its total
assets invested in any one issuer, nor may it own more than 10%
of the outstanding voting securities of any one issuer. These
limitations do not apply to investments in securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities or to securities of investment companies that
qualify as regulated investment companies under the Code.
The Fund is subject to a number of other investment restrictions
which may only be changed by the affirmative vote of a majority
of the Fund's outstanding shares. Further information on
investment restrictions is included in the SAI.
SOME OF THE FUND'S OTHER INVESTMENT POLICIES
For the purpose of earning additional income, the Fund may also
engage to a limited extent in the following investment practices
each of which may involve certain special risks. The SAI contains
more detailed information about these practices, including
limitations designed to reduce these risks.
LENDING OF PORTFOLIO SECURITIES. Consistent with procedures
approved by the Board of Trustees]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 25% 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 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 102%.
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 may engage
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 will continue 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.
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.
BORROWING. As a matter of fundamental policy, the Fund does not
borrow money or mortgage or pledge any of its assets, except that
it may borrow up to 15% of its total assets (including the amount
borrowed) from banks in order to meet redemption requests that
might otherwise require the untimely disposition of portfolio
securities or for other temporary or emergency purposes and may
pledge its assets in connection therewith. The Fund will not
purchase any securities while any such borrowings exceed 5% of
its total assets.
SHORT-SELLING. The Fund may make short sales, which are
transactions in which the Fund sells a security it does not own
in anticipation of a decline in the market value of that
security. To complete such a transaction, the Fund must borrow
the security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing it at
the market price at the time of replacement. The price at such
time may be more or less than the price at which the security was
sold by the Fund. Until the security is replaced, the Fund is
required to pay to the lender any dividends or interest which
accrue during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would increase
the cost of the security sold. The proceeds of the short sale
will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out.
The Fund will incur a loss as a result of the short sale if the
price of the security increases between the date of the short
sale and the date on which the Fund replaces the borrowed
security. The Fund will realize a gain if the security declines
in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of
any premium, dividends or interest the Fund may be required to
pay in connection with a short sale.
No securities will be sold short if, after effect is given to any
such short sale, the total market value of all securities sold
short would exceed 25% of the value of the Fund's net assets. In
addition, short sales of the securities of any single issuer,
which must be listed on a national exchange, may not exceed 5% of
the Fund's net assets or 5% of any class of such issuer's
securities.
The Fund will place in a segregated account with its custodian
bank an amount of cash or U.S. government securities equal to the
difference between (a) the market value of the securities sold
short at the time they were sold short and (b) any cash or U.S.
government securities required to be deposited as collateral with
the broker in connection with the short sale (not including the
proceeds from the short sale). This segregated account will be
marked-to-market daily, provided that at no time will the amount
deposited in it plus the amount deposited with the broker as
collateral be less than the market value of the securities at the
time they were sold short.
In addition to the short sales discussed above, the Fund also may
make short sales "against the box," i.e., when a security
identical to one owned by the Fund is borrowed and sold short.
The Fund at no time will have more than 15% of the value of its
net assets in deposits on short sales against the box.
Any of the Fund's fundamental policies may be changed only by the
affirmative vote of a majority of the Fund's outstanding shares.
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.
In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder
may anticipate that the value of Fund shares will fluctuate with
movements in the broader equity and bond markets, as well. 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.
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.
RISK FACTORS/SPECIAL CONSIDERATIONS
SUMMARY
An investment in shares of the Fund involves certain speculative
considerations. An investment in shares of the Fund may involve a
higher degree of risk than an investment in shares of more
traditional open-end, diversified investment companies because
the Fund may invest up to 100% of its assets in the securities of
issuers (including closed-end funds) with less than three years
continuous operation. The securities of certain closed-end funds
in which the Fund will invest may lack a liquid secondary market;
for further information see "Characteristics of the Closed-End
Funds in Which the Fund Will Invest" in the SAI.
As a non-diversified investment company, for purposes of the 1940
Act, the Fund may concentrate its investments in the securities
of a smaller number of issuers than if it were a diversified
company under the 1940 Act. An investment in the Fund therefore
will entail greater risk than an investment in a diversified
investment company because a higher percentage of investments
among fewer issuers may result in greater fluctuation in the
total market value of the Fund's portfolio, and economic,
political or regulatory developments may have a greater impact on
the value of the Fund's portfolio than would be the case if the
portfolio were diversified among more issuers. However, the Fund
intends to comply with the diversification and other requirements
applicable to regulated investment companies under the Code. (See
"Other Considerations.") All securities in which the Fund may
invest are inherently subject to market risk, and the market
value of the Fund's investments will fluctuate.
The Fund, by investing in securities of closed-end funds,
indirectly pays a portion of the operating expenses, management
expenses and brokerage costs of such companies. Thus,
shareholders will indirectly pay higher total management and
operating expenses and other costs than they would otherwise
incur if they directly owned the securities of such closed-end
funds. The Fund's shareholders will also incur some duplicative
costs such as advisory, administrative and brokerage fees. The
Fund's investment strategy may result (i) in duplicative
holdings, if two or more of the closed-end funds in whose
securities the Fund invests own the same portfolio security
and/or (ii) in situations whereby one closed-end fund in whose
securities the Fund invests buys a portfolio security that
another closed-end fund in whose securities the Fund invests is
selling. However, the Fund offers the opportunity for a
professionally managed portfolio of the securities of different
closed-end funds and/or other companies that the Manager believes
are undervalued in the marketplace.
ADDITIONAL RISK FACTORS/SPECIAL CONSIDERATIONS
RELATING TO FIXED-INCOME SECURITIES
The Fund may invest up to 25% of its total assets (as measured at
the time of such investment) in other securities, including fixed-
income and convertible securities of an issuer in default with
respect to such securities, that the Manager believes represent
intrinsic values not reflected in the current market prices of
such securities. These securities may be non-rated debt and/or
debt rated D, the lowest rating category by S&P and Moody's. Debt
rated D is in default, and payment of interest and/or repayment
of principal is in arrears. Although the Fund reserves the right
to invest up to 25% of its assets in such securities, its current
investment strategy is to limit such investments to less than 5%
of the Fund's total net assets. Such debt obligations are rated
below investment grade and are regarded as extremely speculative
investments with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. Such
securities are also generally considered to be subject to greater
risk than securities with higher ratings with regard to a general
deterioration of prevailing economic conditions. See the SAI for
further information concerning the risks of lower rated
securities, including the rating categories of S&P and Moody's.
MANAGEMENT OF THE FUND
The Board of Trustees 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.
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 ( 113 separate series) with aggregate assets
of over $74 billion.
Pursuant to the 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.
For the period from November 1, 1993 through March 31, 1994,
Advisers voluntarily agreed in advance to not impose any
management fees. This arrangement was discontinued as of April 1,
1994. With this reduction, management fees and total operating
expenses, including management fees, for the fiscal year ended
October 31, 1994 were .47% and 1.19%, respectively. Without the
reduction, the Fund would have paid management fees of .63% of
its average daily net assets and total operating expenses,
including management fees, of 1.34% of its average daily net
assets.
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 tries 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.
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,
its fiscal year ending date, and any undistributed net capital
gains from the prior fiscal year. These distributions, when made,
will generally be fully taxable to the Fund's shareholders. The
Fund may make more than one distribution derived from net short-
term and net long-term capital gain in any year or adjust the
timing of these distributions for operational or other reasons.
DISTRIBUTION DATE
Although subject to change by the Fund's Board of Trustees,
without prior notice to or approval by shareholders, the Fund's
current policy is to declare income dividends quarterly, payable
in March, June, September and December, for shareholders of
record on the 14th day of the month or prior business day,
payable on or about the last business day of that 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 Fund's Board of Trustees. 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 its 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 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.
DIVIDEND REINVESTMENT
Unless otherwise requested income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a sales charge) on the
dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset
value in the Fund or Class I shares of other Franklin Templeton
Funds. Shareholders have the right to change their election with
respect to the receipt of distributions by notifying the Fund,
but any such change will be effective only as to distributions
for which the record date is seven or more business days after
the Fund has been notified. See the SAI for more information.
Many of the Fund's shareholders receive their distributions in
the form of additional shares. This is a convenient way to
accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so acquired
remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected distributions
to another fund in the Franklin Group of Funds (Registered
Trademark) or the Templeton Funds, to another person, or directly
to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Dividends which may be paid
in the interim period will be sent to the address of record.
Additional information regarding automated fund transfers may be
obtained from Franklin's Shareholder Services Department. See
"Purchases at Net Asset Value" under "How to Buy Shares of the
Fund."
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 relating to the Fund and its
shareholders is included in the section entitled "Additional
Information Regarding Taxation" 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.
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 a loss. Any loss
incurred on sale or exchange of the Fund's 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.
99.49% of the income dividends paid by the Fund for the fiscal
year ended October 31, 1994 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.
Corporate shareholders should note that dividends paid by the
Fund from sources other than the qualifying dividends it receives
will not qualify for the dividends-received deduction. For
example, any interest income and net short-term capital gain (in
excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and
distributed by the Fund as a dividend will not qualify for the
dividends-received deduction.
Corporate shareholders should also note that availability of the
corporate dividends-received deduction is subject to certain
restrictions. For example, the deduction is eliminated unless the
Fund shares have been held (or deemed held) for at least 46 days
in a substantially unhedged manner. The dividends-received
deduction may also be reduced to the extent interest paid or
accrued by a corporate shareholder is directly attributable to
its investment in Fund shares. The entire dividend, including the
portion which is treated as a deduction, is includable in the tax
base on which the federal alternative minimum tax is computed and
may also result in a reduction in the shareholder's tax basis in
its Fund shares, under certain circumstances, if the shares have
been held for less than two years. Corporate shareholders whose
investment in the Fund is "debt financed" for these tax purposes
should consult with their tax advisors concerning the
availability of the dividends-received deduction.
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 on distributions received by them from the Fund and the
application of foreign tax laws to these distributions.
Shareholders should consult their tax advisors with respect to
the applicability of state and local intangible property or
income taxes to their shares in the Fund and to 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
principal underwriter of the Fund's shares. The use of the term
"securities dealer" shall include other financial institutions
which, pursuant to an agreement with Distributors (directly or
through affiliates), 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 $2,500 and subsequent investments must be $100 or
more. These minimums may be waived when the shares are purchased
through plans established by the Franklin Templeton Group. For
investments by retirement plans, the investments are $1,000 and
$100, respectively. The Fund and Distributors reserve the right
to refuse any order for the purchase of shares.
The Fund may impose a $10 charge for each returned item, against
any shareholder account which, in connection with the purchase of
Fund shares, submits a check or a draft which is returned
unpaid to the Fund.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price,
which is 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). The sales charge 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."
<TABLE>
Set forth below is a table of total front-end sales charges or
underwriting commissions and dealer concessions:
<CAPTION>
TOTAL SALES
CHARGE
AS A AS A
SIZE OF PERCENTAGE PERCENTAGE DEALER CONCESSION
TRANSACTION OF OFFERING OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE PRICE INVESTED OF OFFERING PRICE*
<S> <C> <C> <C>
Less than $500,000 1.50% 1.52% 1.50%
$500,000 but less
than $1,000,000 1.00% 1.01% 1.00%
$1,000,000 or more
None None (see below)**
*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by 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.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
to be an underwriter as that term is defined in the Securities
Act of 1933, as amended.
</TABLE>
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 Fund 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 (Registered Trademark) 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"),
(b) other investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) 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 (a), (b) and (c) above ("Franklin Templeton
Investments") may be effective only after notification to
Distributors that the investment qualifies for a discount.
Other Payments to Securities Dealers. 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 definitions under "Description of Special
Net Asset Value Purchases" and as set forth in the SAI.
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 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.
Distribution Plan. The Fund has adopted a Plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan"), whereby it reimburses
Distributors or others in an amount equal to 0.25% per annum of
the average daily net assets of the Fund for expenses incurred by
such parties for the promotion and distribution of the shares of
the Fund, including, but not limited to, the printing of
prospectuses, statements of additional information and reports
used for sales purposes, expenses (including personnel of
Distributors) of preparation of 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. Such payments
are made monthly. In addition, pursuant to the Plan, the Fund may
pay Distributors or others a service fee to reimburse such
parties for personal services provided to shareholders of the
Fund and/or the maintenance of shareholder accounts. The total
amount of service fees paid by the Fund shall not exceed 0.25%
per year of the average daily net assets of the Fund. Such
payments are made pursuant to distribution and/or service
agreements entered into between such service providers and
Distributors or the Fund directly. The maximum amount which the
Fund may pay for the promotion and distribution of shares,
including service fees, is 0.50% per year of the average daily
net assets of the Fund. Payments in excess of reimbursable
expenses under the Plan in any year must be refunded. Further,
expenses of Distributors other than for service fees in excess of
0.25% per year of the Fund's average net assets that otherwise
qualify for payment may not be carried forward into successive
annual periods.
The Plan also covers payments by certain parties 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
Plan are included in the maximum operating expenses which may be
borne by the Fund.
Certain officers and trustees of the Fund are also affiliated
with Distributors. A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES
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 investment in any of the Franklin
Templeton Investments may be combined with those of the
investor's spouse and children under the age of 21. In addition,
the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of
the account. The value of Class II shares owned by the investor
may also be included for this purpose.
In addition, an investment in the Fund 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
Investments 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 shares of the Fund 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.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. 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 (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE
LISTED UNDER "DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES")
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 shares of the Fund, 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 disposal by the
investor until the Letter of Intent has been completed or the
higher sales charge paid. 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 a reduced sales charge to
be paid on Class I shares pursuant to the Letter of Intent and
Rights of Accumulation programs.
GROUP PURCHASES
An individual who is a member of a qualified group may also
purchase 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 group, plus the amount of the current
purchase. For example, if members of the group had previously
invested and still held $480,000 of Fund shares and now were
investing $25,000, the sales charge would be 1.00%. 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
Shares of the Fund 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 payments made by such
parties after cessation of employment; (2) companies exchanging
shares with or selling assets pursuant to a merger, acquisition
or exchange offer; (3) insurance company separate accounts for
pension plan contracts; (4) accounts managed by the Franklin
Templeton Group; (5) shareholders of Templeton Institutional
Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended, in shares of the Fund;
(6) certain unit investment trusts and unit holders of such
trusts reinvesting their distributions from the trusts in the
Fund; (7) registered securities dealers and their affiliates, for
their investment account only, and (8) registered personnel and
employees of securities dealers and by their spouses and family
members, in accordance with the internal policies and procedures
of the employing securities dealer.
Shares of the Fund may be purchased at net asset value by persons
who have redeemed, within the previous 360 days, their shares of
the Fund or another of the Class I 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. 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 redeemed
in connection with an exchange into another of the Franklin
Templeton Funds (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 360 days after the redemption. The 360 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 the SAI.
Shares of the Fund or another of the Franklin Templeton Funds
Class I shares 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 the Fund within 360 days of the payment date of
such distribution. 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 in Cash" under
"Distributions to Shareholders."
Shares of the Fund 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 upon redemption and which
has investment objectives similar to those of the Fund.
Shares of the Fund 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 advisers
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).
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
anyone who has taken a distribution from an existing retirement
plan already invested in 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 360 days after the plan distribution.
Shares of the Fund may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is
a legally permissible investment and which is prohibited by
applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any
registered management investment company ("an eligible
governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN
LEGAL 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. If an
investment by an eligible governmental authority at net asset
value is made through a securities dealer who has executed a
dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to
such securities dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales
Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may also 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 Investments 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" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
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 this 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.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
trustees or other fiduciaries purchasing securities for certain
retirement plans of organizations with collective retirement plan
assets of $10 million or more, without regard to where such
assets are currently invested.
Refer to the SAI for further information regarding net asset
value purchases.
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 Franklin Templeton Trust Company (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 Franklin Templeton 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 for an initial investment, as well as subsequent
investments, 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 in writing by the shareholder or by
the securities dealer..
CONFIRMATIONS
A confirmation statement will be sent to each shareholder
quarterly 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
Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account, if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the
requirements applicable to this program. In addition,
shareholders may obtain more information concerning this program
from their securities dealers or from Distributors.
The market value of the Fund's shares is subject to fluctuation.
Before undertaking any plan for systematic investment, the
investor should keep in mind that such a program does not assure
a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. Retirement plans subject to mandatory distribution
requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis.
If the shareholder establishes a plan, any capital gain
distributions and income dividends paid by the Fund will be
reinvested for the shareholder's account in additional shares at
net asset value. Payments will then be made from the liquidation
of shares at net asset value on the day of the transaction (which
is generally the first business day of the month in which the
payment is scheduled) with payment generally received by the
shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to
another of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the account
is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments which may be paid
in the interim will be sent to the address of record. Liquidation
of shares may reduce or possibly exhaust the shares in the
shareholder's account, to the extent withdrawals exceed shares
earned through dividends and distributions, particularly in the
event of a market decline. If the withdrawal amount exceeds the
total plan balance, the account will be closed and the remaining
balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a sale
for federal income tax purposes. Because the amount withdrawn
under the plan may be more than the shareholder's actual yield or
income, part of the payment may be a return of the shareholder's
investment.
The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of shares may be subject to a
contingent deferred sales charge if the shares are redeemed
within 12 months of the calendar month of the original purchase
date. The shareholder should ordinarily not make additional
investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in
effect. The applicable contingent deferred sales charge is waived
for share redemptions of up to 1% monthly of an account's net
asset value (12% annually, 6% semiannually, 3% quarterly). For
example, if an 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% (or applicable) contingent
deferred sales charge. A Systematic Withdrawal Plan may be
terminated on written notice by the shareholder or the Fund, and
it will terminate automatically if all shares are liquidated or
withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder.
Shareholders may change the amount (but not below the specified
minimum) and schedule of withdrawal payments, or suspend one such
payment by giving written notice to Investor Services at least
seven business days prior to the end of the month preceding a
scheduled payment. Share certificates may not be issued while a
Systematic Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact 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 or policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, the Fund shares may be exchanged
for shares of other Franklin Templeton Funds Class I shares 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. 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, minimum holding
periods or applicable sales charges. No exchanges between
different classes of shares are allowed and, therefore, shares of
the Fund may not be exchanged for Class II shares of other
Franklin Templeton Funds. Shareholders may choose to redeem
shares of the Fund and purchase Class II shares of other Franklin
Templeton Funds but such purchase will be subject to that Fund's
Class II front-end and contingent deferred sales charges for the
contingency period of 18 months.
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 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 in
one of the other available Franklin Templeton Funds Class I
shares. 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 eleFACTS 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
The contingency period will be tolled (or stopped) for the period
such shares are exchanged into and held in a Franklin or
Templeton money market fund. If the account has shares subject to
a contingent deferred sales charge, the 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."
Exchanges are made on the basis of the net asset values of the
funds involved, except as set forth below. Exchanges of shares of
the Fund which were purchased without a sales charge will be
charged a sales charge in accordance with the terms of the
prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on
which the investor paid a sales charge. Exchanges of shares of
the Fund which were purchased with a lower sales charge to a fund
which has a higher sales charge will be charged the difference,
unless the shares were held in the Fund for at least twelve
months prior to executing the exchange (six months with respect
to shares purchased prior to September 30, 1994, by persons who
were shareholders of the Fund as of July 30, 1994.). When an
investor requests the exchange of the total value of the Fund
account: declared but unpaid dividend 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.
There are differences among the Franklin Templeton Funds. Before
making an exchange, a shareholder should obtain and review a
current prospectus of the fund into which the shareholder wishes
to transfer.
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.
RETIREMENT ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may
accomplish exchanges 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 purchase or redeem 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) make an exchange
request out of the Fund within two weeks of an earlier exchange
request out of the Fund, or (ii) make more than two exchanges out
of the Fund per calendar quarter, or (iii) exchange 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 purchase 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 in "How to Buy
Shares of the Fund," reserve the right to refuse any order for
the purchase of shares.
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 shares based upon the net asset value per share
(less the 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 (at 1:15 p.m. Pacific
time) each day that the New York Stock Exchange (the "Exchange")
is open for business will receive the price calculated on the
following business day. 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 shareholder's 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 shareholders 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 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) which 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 a dealer or similar 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. These
documents, as described in the preceding section, are required
even if the shareholder's securities dealer has placed the
repurchase order. After receipt of a repurchase order from the
dealer, the Fund will still require a signed letter of
instruction and all other documents set forth above. A
shareholder's letter should reference the Fund, 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 on
investments of $1 million or more redeemed within the contingency
period of 12 months of the calendar month following their
purchase 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 total cost of such shares, and is retained
by Distributors.
In determining if 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; and followed by any
shares held less than the contingency period, 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 is waived for: exchanges;
any account fees; distributions to participants or their
beneficiaries in Trust Company individual retirement plan
accounts due to death, disability or attainment of age 59 1/2;
tax-free returns of excess contributions from employee benefit
plans; distributions from employee benefit plans, including those
due to termination or plan transfer; redemptions through a
Systematic Withdrawal Plan set up 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); and redemptions initiated by
the Fund due to a shareholder's account falling below the minimum
specified account size ; and redemptions following the death of
the shareholder or the beneficial owner.
All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on
the last day of that month and each subsequent month.
Requests for redemptions for a SPECIFIED DOLLAR amount will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for
redemption of a SPECIFIC NUMBER of shares will result in the
applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
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 planaccount 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 59 1/2, unless the distribution
meets one of the exceptions set forth in the Code.
OTHER
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
Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option (see "Restricted Accounts" below),
(iii) transfer Fund shares in one account to another identically
registered account in the Fund, (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
by 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.
Changes to dividend options and requests for certificates must
also be made in writing.
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 for Franklin accounts or 1-800/354-9191 (press "2"
when prompted to do so) for Templeton accounts.
GENERAL
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their 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
The net asset value per share of the Fund is determined as of
1:15 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 the
Fund).
The net asset value per share of the Fund is determined in the
following manner: The aggregate of all liabilities, including
without limitation the current market value of any outstanding
options written by the Fund, accrued expenses and taxes and any
necessary reserves is deducted from the aggregate gross value of
all assets, and the difference is divided by the number of shares
of the Fund outstanding at the time. For the purpose of
determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is
recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on
the NASDAQ National Market System for which market quotations are
readily available are valued at the last quoted sale price of the
day or, if there is no such reported sale, within the range of
the most recent quoted bid and ask prices. Over-the-counter
portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and
ask prices as obtained from one or more dealers that make markets
in the securities. Portfolio securities which are traded both in
the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying
actively traded call options are valued at their market price as
determined above. The current market value of any option held by
the Fund is its last sales price on the relevant exchange prior
to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the
options are valued within the range of the current closing bid
and ask prices if such valuation is believed to fairly reflect
the contract's market value. In the case of securities of closed-
end funds, the last quoted sales price, or the mean between the
quoted bid and ask prices, may be lower or higher than the net
asset value of such securities. Other securities for which market
quotations are readily available are valued at the current market
price which may be obtained from a pricing service based on a
variety of factors, including recent trades, institutional size
trading in similar types of securities (considering yield, risk
and maturity) and/or developments related to specific issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Trustees. With the
approval of trustees, the Fund may utilize a pricing service,
bank or securities dealer to perform any of the above described
functions.
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 (Registered Trademark) 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.
Fund information may be accessed by entering Fund Code 150
followed by the # sign. 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.
<TABLE>
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
<CAPTION>
DEPARTMENT NAME TELEPHONE NO. HOURS OF OPERATION
(PACIFIC TIME)
(MONDAY THROUGH
FRIDAY)
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00
p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00
p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00
p.m., 8:30 a.m. to
5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00
p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00
impaired) p.m.
</TABLE>
In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin or Templeton'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 various measures of the Fund's
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 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 reflects the income per share earned by the Fund's
portfolio investments; it is calculated by dividing the Fund's
net investment income per share during a recent 30-day period by
the maximum public offering price on the last day of that period
and annualizing the result.
Yield 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 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 the Fund
during the past 12 months by a current maximum offering price.
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 Fund income
and will assume the payment of the maximum sales charge on the
purchase 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 the
Fund, 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 the
Fund's yield, distribution rate or total return may be in any
future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends October 31. Annual Reports containing
audited financial statements of the Trust, including the
auditors' report, and Semi-Annual Reports containing unaudited
financial statements are automatically sent to shareholders.
Copies may be obtained by investors or shareholders, without
charge, upon request to the Trust 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 was organized as a Massachusetts business trust on
September 11, 1989. The Fund is authorized to issue an unlimited
number of shares of beneficial interest, with a par value of $.01
per share in various series. All shares have one vote and, when
issued, are fully paid, non-assessable and redeemable. Currently,
the Fund issues only one series of shares. Additional series may
be added in the future by the Board of Trustees.
Shares have no preemptive or subscription rights, and are fully
transferable. There are no conversion rights; however, holders of
shares of the Fund may reinvest all or any portion of the
proceeds from the redemption or repurchase of such shares into
shares of any other fund in the Franklin Group as described in
"Exchange Privilege."
All shares have equal voting, dividend and liquidation rights.
The shares have noncumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so.
The Fund is not required, nor does it intend, to hold annual
meetings; it may, however, hold special shareholder meetings 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 Trustees
or by shareholders holding at least ten percent of the shares
entitled to vote at the meeting. Shareholders will receive
assistance in communicating with other shareholders in connection
with the election or removal of trustees such as that provided in
Section 16(c) of the 1940 Act.
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 $1,250
($500 for an IRA account), 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.
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 check(s).
"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.
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. In the future it may
be possible to effect such transfers 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 the Shareholder Services
Agent, 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 Internal Revenue Service ("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 TIN 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 have been primarily responsible for the day-
to-day management of the Fund's portfolio since its inception:
William Lippman
Portfolio Manager of Advisers
Mr. Lippman holds a bachelor of business administration degree
from City College New York and a master's degree in business
administration from the Graduate School of Business
Administration of New York University. He has been with Advisers
since 1988.
Bruce C. Baughman
Portfolio Manager of Advisers
Mr. Baughman holds a bachelor of arts degree from Stanford
University and a master of science degree in accounting from New
York University. He has been with Advisers since 1988.
Margaret McGee
Portfolio Manager of Advisers
Ms. McGee holds a bachelor of arts degree from William Paterson
College. She has been with Advisers since 1988.
