TFS-P
SUPPLEMENT TO THE PROSPECTUS
DATED MARCH 1, 1995
(each as previously supplemented February 1, 1995 and as may be
further amended and supplemented)
Age High Income Fund Fund
Dated October 1, 1994
Franklin Balance Sheet Investment Fund
Dated March 1, 1995
Franklin California Tax-Free Income Fund, Inc.
Dated August 1, 1994
Franklin California Insured Tax-Free Income Fund
Dated November 1, 1994
Franklin California Intermediate-Term Tax-Free Income Fund, Dated
November 1, 1994
Franklin Custodian Funds, Inc.
(FCF - Growth, Utilities, DynaTech, Income And U.S. Government
Securities Series)
and the separate prospectuses for Income Series and U.S.
Government Securities Series
All Dated February 1, 1995
Franklin Equity Fund
Dated November 1, 1994, as Amended January 19, 1995
Franklin Federal Tax-Free Income Fund
Dated September 1, 1994
Franklin Gold Fund
Dated December 1, 1994
Franklin Pacific Growth Fund
Dated March 1, 1995
Franklin International Equity Fund
Dated March 1, 1995
Franklin Global Government Income Fund
Dated March 1, 1995
Franklin Short-Intermediate U.S. Government Securities Fund,
Dated March 1, 1995
Franklin Convertible Securities Fund
Dated March 1, 1995
Franklin Adjustable U.S. Government Securities Fund
Dated March 1, 1995
Franklin Equity Income Fund
Dated March 1, 1995
Franklin Adjustable Rate Securities Fund
Dated March 1, 1995
Franklin Corporate Qualified Dividends Fund
Dated February 1, 1995
Franklin Rising Dividends Fund
Dated February 1, 1995
Franklin Investment Grade Income Fund
Dated February 1, 1995
Franklin Municipal Securities Trust
(Hawaii, Washington, Tennessee and Arkansas Municipal Bond Funds)
Dated October 1, 1994
Franklin California High Yield Municipal Fund
Dated October 1, 1994
Franklin New York Tax-Free Income Fund, Inc.
Dated October 1, 1994
Franklin New York Insured Tax-Free Income Fund
Dated May 1, 1994
Franklin New York Intermediate-Term Tax Free Income Fund
Dated May 1, 1994
Franklin Partners Funds
(FPF - Franklin Tax-Advantaged International Bond, U.S.
Government Securities and High Yield Securities Funds)
Dated May 1, 1994, as Amended October 21, 1994
Franklin Premier Return Fund
Dated May 1, 1994, As Amended September 8, 1994
Franklin Real Estate Securities Fund
Dated September 1, 1994
Franklin Strategic Mortgage Portfolio
Dated February 1, 1995
Franklin California Growth Fund
Dated September 1, 1994, as Amended November 11, 1994
Franklin Strategic Income Fund
Dated December 30, 1994
Franklin Global Utilities Fund
Dated September 1, 1994
Franklin Small Cap Growth Fund
Dated September 1, 1994
Franklin Federal Intermediate Tax-Free Income Fund
Dated July 1, 1994, as amended September 30, 1994
Franklin Tax Free Trust
(TF1 - Insured, Massachusetts Insured, Michigan Insured,
Minnesota Insured, Ohio Insured, Arizona Insured and Florida
Insured Tax-Free Income Funds)
Dated July 1, 1994,
(TF2 - Alabama, Florida, Georgia, Kentucky, Louisiana, Maryland,
Missouri, North Carolina, Texas and Virginia Tax-Free Income
Funds)
Dated July 1, 1994, As Amended October 4, 1994
(TF3 - Arizona, Colorado, Connecticut, Indiana, New Jersey, Ohio,
Oregon, Pennsylvania, Puerto Rico and High Yield Tax-Free Income
Funds)
Dated July 1, 1994, As Amended October 4, 1994
Franklin Templeton German Government Bond Fund
Dated March 1, 1995
Franklin Templeton International Currency Funds
(Global, High and High Income Currency Funds)
Dated March 1, 1995
During the period March 1, 1995 through April 30, 1995, the
securities firm of TFS Securities, Inc., ("TFS") will receive the
full front-end sales commission with respect to purchases
originated by TFS, from Franklin Templeton Distributors, Inc.,
the principal underwriter for the above funds.
FRANKLIN BALANCE SHEET INVESTMENT
FUND Island Blvd., P.O. Box 7777
PROSPECTUS March 1, 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
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
Maximum Sales Charge Imposed on
Purchases
as a percentage of offering
1.50% price)
Deferred Sales Charge
NONE*
Exchange Fee (per transaction)
$5.00**
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
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 imposed on certain redemptions within 12
months of the calendar month following such investments.
See "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."
**$5.00 fee only imposed on Timing Accounts as described
under "Exchange Privilege." All other exchanges are without
charge.
***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 initial 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. As
noted in the preceding table, the Fund charges no redemption
fees:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$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 regulations require the example to assume
an annual return of 5%, but the Fund's actual return may be
more or less than 5%.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Set forth below is a table containing the financial highlights for a share of
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 "Report to Shareholders" under "General Information."
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------- APRIL 2, 1990**
1994 1993 1992 1991 TO OCTOBER 31, 1990
------ ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value at beginning of period.................. $22.97 $17.37 $15.54 $11.48 $15.00
------- ------ ------ ------ ------
Net investment income................................... .23 .39 .53 .52 .29
Net realized and unrealized gain
(loss) on securities ................................. .51 6.26 1.83 4.10 (3.63)
-------- ------ ------ ------ ------
Total from investment operations........................ .74 6.65 2.36 4.62 (3.34)
-------- ------ ------ ------ ------
Less distributions:
Dividends from net investment income.................... (.26) (.43) (.53) (.56) (.18)
Distributions from capital gains........................ (.77) (.62) -- -- --
-------- ------ ------ ------ ------
Total distributions..................................... (1.03) (1.05) (.53) (.56) (.18)
------- ------ ------ ------ ------
Net asset value at end of period........................ $22.68 $22.97 $17.37 $15.54 $11.48
======== ====== ====== ====== ======
TOTAL RETURN*........................................... 3.42% 37.78% 15.51% 40.96% (22.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in 000's).................. $134,255 $22,317 $5,149 $3,572 $1,405
Ratio of expenses to average net assets++............... 1.19% --% --% --% --%
Ratio of expenses to average net assets
(excluding waiver and payment of
expenses by investment manager)....................... 1.34% 1.85% 2.60% 3.16% 3.54%+
Ratio of net income to average net assets............... .99% 1.89% 3.16% 3.79% 2.31%+
Portfolio turnover rate................................. 24.96% 31.36% 30.86% 31.94% 5.34%
</TABLE>
*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.
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 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 closedend 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-
thecounter 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
ClosedEnd 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-tomarket 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
fixedincome 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 33 U.S. registered investment companies ( 111 separate
series) with aggregate assets of over $73 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 shortterm 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, the 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 requested otherwise, in writing or on the Shareholder
Application, 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 sales charge)
on the dividend reinvestment date. 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. Dividend and capital gain distributions are
eligible for investment in another fund in the Franklin
Group of Funds or the Templeton Funds at net asset value.
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 dividendsreceived 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 the net asset value per share plus a 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.
On orders for 100,000 shares or more, the offering price
will be calculated to four decimal places. On orders for
less than 100,000 shares, the offering price will be
calculated to two decimal places using standard rounding
criteria. A description of the method of calculating net
asset value per share is included under the caption
"Valuation of Fund Shares."
Set forth below is a table of total sales charges or
underwriting commissions and dealer concessions:
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*
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, from 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 $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.
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
an investment of $1 million or more within 12 months of the
calendar month following such investments ("contingency
period"). See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
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. mutual funds in the Templeton
Group of Funds except Templeton American Trust, Inc.,
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.
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
company 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. 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.
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 either 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 120 days,
their shares of the Fund or another of the Franklin
Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on
redemption. 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 of the Fund redeemed
in connection with an exchange into another fund (see
"Exchange Privilege") are not considered "redeemed" for this
privilege. In order to exercise this privilege, a written
order for the purchase of shares of the Fund must be
received by the Fund or the Fund's Shareholder Services
Agent within 120 days after the redemption. The 120 days,
however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate
of Deposit ("CD") until the CD (including any rollover)
matures. 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.
Dividends and capital gains received in cash by the
shareholder may also be used to purchase shares of the Fund
or another of the Franklin Templeton Funds at net asset
value and without the imposition of a contingent deferred
sales charge within 120 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 an unaffiliated mutual fund which charged the
investor a contingent deferred sales charge upon redemption
and which has investment objectives similar to those of the
Fund.
Shares of the Fund may 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 120 days
after the plan distribution. A prospectus outlining the
investment objectives and policies of a fund in which the
shareholder wishes to invest may be obtained by calling toll
free at 1-800/DIAL BEN (1-800/342-5236).
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.
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 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 toll free 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 Shareholder 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.
Withdrawals 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. The shareholder should ordinarily not
make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time
such a plan is in effect. A 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's
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 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. 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. 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
by telephone or by other means of electronic transmission
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
A contingent deferred sales charge will not be imposed on
exchanges. If, however, the exchanged shares were subject
to a contingent deferred sales charge in the original fund
purchased, and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will
be imposed. 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. 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 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 reserves the right to refuse the purchase side of
exchange requests 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 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 Franklin's
Institutional Services Department by telephoning 1-
800/321-8563.
SELLING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders by telephone or other
means of electronic transmission 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 dealerordered 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, a contingent
deferred sales charge of 1% applies to redemptions of
those investments within the contingency period of 12
months of the calendar month following their purchase.
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 charge
applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the
following order: (i) shares representing amounts
attributable to capital appreciation of those shares held
less than 12 months; (ii) shares purchased with
reinvested dividends and capital gain distributions; and
(iii) other shares held longer than 12 months; and
followed by any shares held less than 12 months, on a
"first in, first out" basis.
The contingent deferred sales charge is waived for:
exchanges; any account fees; distributions to
participants in Trust Company
retirement plan accounts due to death, disability or
attainment of age 59 1/2; tax-free returns of excess
contributions to employee benefit plans; distributions
from employee benefit plans, including those due to plan
termination or plan transfer; redemptions through a
Systematic Withdrawal Plan 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. In addition, shares of
participants in Trust Company retirement plan accounts
will, in the event of death, disability or attainment of
age 59 1/2, no longer be subject to the contingent
deferred sales charge.
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, unless otherwise specified.
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 ACCOUNTS
Retirement account liquidations require the completion of
certain additional forms to ensure compliance with IRS
regulations. To liquidate a retirement 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, and
(iv) 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. 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 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 closedend 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, shareholders may obtain current
price, yield or performance information specific to a
fund in the Franklin Group of Funds(Registered Trademark)
by calling the automated Franklin TeleFACTS system (day
or night) at 1-800/2471753. Information about the Fund
may be accessed by entering Fund
Code 50 followed by the # sign, when requested to do so by
the automated operator. The TeleFACTS system is also
available for processing exchanges. See "Exchange
Privilege".
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:
DEPARTMENT NAME TELEPHONE NO. HOURS OF
OPERATION
(PACIFIC TIME)
(Monday through
Friday)
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.
In order to
ensure that the
highest quality
of service is
being provided,
telephone calls
placed to or by
representatives
in Franklin's
service
departments may
be accessed,
recorded and
monitored. These
calls can be
determined by
the presence of
a regular
beeping tone.
PERFORMANCE
Advertisements,
sales literature
and
communications
to shareholders
may contain
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 front-
end 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
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."
VOTING RIGHTS
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 may
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, or
which are
anticipated to
be made
available in the
near future,
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
dayto-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.
