PROSPECTUS
FRANKLIN MICROCAP VALUE FUND
INVESTMENT STRATEGY
GROWTH & INCOME O VALUE
MARCH 1, 1999
AS AMENDED APRIL 23, 1999
[Insert Franklin Templeton Ben Head]
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
THE FUND
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INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
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2 Goal and Strategies
4 Main Risks
9 Performance
10 Fees and Expenses
11 Management
13 Distributions and Taxes
14 Financial Highlights
YOUR ACCOUNT
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INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
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15 Sales Charges
20 Buying Shares
21 Investor Services
24 Selling Shares
26 Account Policies
29 Questions
FOR MORE INFORMATION
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WHERE TO LEARN MORE ABOUT THE FUND
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Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's principal investment goal is high total return, of which
capital appreciation and income are components.
PRINCIPAL INVESTMENTS The fund will normally invest primarily in equity
securities of companies with market capitalization under $100 million that
the fund's manager believes are undervalued in the marketplace relative to
underlying asset values and possess the potential for significant capital
appreciation. Equity securities generally entitle the holder to participate
in a company's general operating results. These include common stocks,
preferred stocks and convertible securities.
A company may be undervalued as a result of overreaction by investors to
unfavorable news about a company, an industry or the stock market in general,
or as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting a
company. The types of companies the fund may invest in include those that are
attempting to recover from business setbacks or adverse events (turnarounds),
cyclical downturns, or, in certain cases, bankruptcy.
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The fund normally invests at least 65% of total assets in securities of
companies with market capitalization under $100 million that the fund's
manager believes are undervalued in the marketplace relative to underlying
asset values and possess the potential for significant capital appreciation.
The fund may invest up to 35% of its assets in securities of companies with
similar characteristics but that have market capitalization over $100 million.
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In choosing investments, the manager conducts an in-depth analysis of a
company's balance sheet. The equity securities of a company bought by the
fund will typically be purchased at prices below the book value of the
company. In addition to book value, the manager may consider a variety of
other factors in choosing an investment, such as ownership of valuable
franchises, trademarks or trade names, control of distribution networks and
market share for particular products, and other factors that may identify the
issuer as a potential turnaround candidate or takeover target.
The fund may invest up to 25% of total assets in foreign securities.
Depending upon current market conditions, the fund may invest a portion of
its assets in debt securities. Debt securities represent an obligation of the
issuer to repay a loan of money to it, and generally provide for the payment
of interest. These include bonds, notes and debentures.
The fund is designed for long-term investors and not as a trading vehicle. It
is not intended as a complete investment program. You should consider how
well the fund fits your individual investment goals as well as your other
investments before you buy.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economies of countries
where the fund invests are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist. Under these
circumstances, the fund may be unable to pursue its investment goal, because
it may not invest or may invest substantially less in securities of companies
that the manager believes are undervalued in the marketplace relative to
underlying asset values.
[Insert graphic of chart with line going up and down] MAIN RISKS
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Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
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STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole. Value stock prices
are considered "cheap" relative to the company's perceived value. They may
not increase in value, as anticipated by the manager, if other investors fail
to recognize the company's value and bid up the price or in markets favoring
faster-growing companies.
SMALLER COMPANIES Historically, smaller company securities have been more
volatile in price than larger company securities, especially over the
short-term. Among the reasons for the greater price volatility are the less
certain growth prospects of smaller companies, the lower degree of liquidity
in the markets for such securities, and the greater sensitivity of smaller
companies to changing economic conditions.
In addition, small companies may lack depth of management, they may be unable
to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not
yet established and may never become established.
Therefore, while smaller companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risks and should be considered speculative.
VALUE INVESTING The fund's policy of investing in securities that may be out
of favor, including turnarounds, cyclical companies, companies emerging from
bankruptcy, companies reporting poor earnings, and companies whose share
prices have declined sharply or that are not widely followed by other
investors, differs from the approach followed by many other mutual funds.
There is always the possibility that the manager may be incorrect in its
assessment of a particular industry or company or that the manager may not
buy these securities at their lowest possible prices or sell them at their
highest.
Cyclical stocks in which the fund may invest tend to increase in value more
quickly during economic upturns than non-cyclical stocks, but they also tend
to lose value more quickly in economic downturns. Companies emerging from
bankruptcy may have difficulty retaining customers and suppliers. These
companies may have relatively weak balance sheets and during economic
downturns they may not have sufficient cash flow to pay their debt
obligations and may have difficulty finding additional financing needed for
their operations.
DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the securities of one issuer than a diversified
fund. The fund may be more sensitive to economic, business, political or
other changes affecting similar issuers or securities, which may result in
greater fluctuation in the value of the fund's shares. The fund, however,
intends to meet certain tax diversification requirements.
FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. may involve risks that can increase the potential for losses in the
fund. Investments in depositary receipts also involve some or all of the
following risks.
COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency and other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging markets are subject to all
of the risks of foreign investing generally, and have additional heightened
risks due to a lack of established legal, political, business and social
frameworks to support securities markets. Foreign securities markets,
including emerging markets, may have substantially lower trading volumes than
U.S. markets, resulting in less liquidity and more volatility than in the
U.S. While short-term volatility in these markets can be disconcerting,
declines of more than 50% are not unusual.
COMPANY. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to foreign investments in foreign courts than with respect to U.S.
companies in U.S. courts.
CURRENCY. To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency. Currency markets generally are not as regulated as securities
markets.
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries
with currencies replaced by the euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody and
accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which the fund may hold in its
portfolio, and their impact on fund performance. To the extent the fund holds
non-U.S. dollar (euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the
U.S. dollar.
INTEREST RATE When interest rates go up, debt security prices fall. When
interest rates fall, debt security prices go up. The opposite is also true:
debt security prices go up when interest rates fall. In general, securities
with longer maturities are more sensitive to these price changes.
CREDIT There is the possibility that an issuer will be unable to make
interest payments and repay principal. Changes in an issuer's financial
strength or in a security's credit rating may affect a security's value and,
thus, impact fund performance.
YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may be more susceptible to Year 2000
risks and may not be required to make the same level of disclosure about Year
2000 readiness as is required in the U.S. The manager, of course, cannot
audit each company and its major suppliers to verify their Year 2000
readiness.
If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities will also be
adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the fund's performance.
Please see page 11 for more information.
More detailed information about the fund, its policies (including temporary
investments), risks and bond ratings can be found in the fund's Statement of
Additional Information (SAI).
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Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency of the
U.S. government. Mutual fund shares involve investment risks, including the
possible loss of principal.
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[Insert graphic of bull and bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past three calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
ANNUAL TOTAL RETURNS1
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96 97 98
27.11% 27.71% -6.76%
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BEST
QUARTER:
Q3 '97
17.05%
WORST
QUARTER:
Q3 '98
- -18.41%
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AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
SINCE
INCEPTION
1 YEAR 3 YEARS (12/12/95)
Franklin MicroCap Value Fund2 -12.12% 12.57% 12.87%
Wilshire Small Companies Value Index3 -4.87% 13.30% 13.41%
1. Figures do not reflect sales charges. If they did, returns would be lower.
As of March 31, 1999, the fund's year-to-date return was -7.46%.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The unmanaged Wilshire Small
Companies Value Index excludes companies with high price/earnings ratios, low
yields, or high price/book ratios. The index is selected from the Wilshire
2500 universe, includes companies that have market capitalizations of at
least $70 million, and contains approximately 200 securities. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) as a
percentage of offering price 5.75%
Load imposed on purchases 5.75%
Maximum Deferred Sales Charge (load) None1
Exchange Fee None
Please see "Sales Charges" on page 15 for an explanation of how and when
these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
Management fees 0.75%
Distribution and service (12b-1) fees2 0.25%
Other expenses 0.20%
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Total annual fund operating expenses3 1.20%
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1. Except for investments of $1 million or more (see page 15) and purchases
by certain retirement plans without an initial sales charge.
2. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.
3. The fund's total annual fund operating expenses differ from the ratio of
expenses to average net assets shown on page 14 due to a timing difference
between the end of the 12b-1 plan year and the fund's fiscal year end.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
The example assumes you invest $10,000 for the periods shown and then sell
all of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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$6901 $934 $1,197 $1,946
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisory Services, LLC (Advisory Services), One Parker Plaza, Ninth
Floor, Fort Lee, New Jersey 07024, is the fund's investment manager.
Together, Advisory Services and its affiliates manage over $211 billion
in assets.
The team responsible for the fund's management is:
BRUCE C. BAUGHMAN, SENIOR VICE PRESIDENT OF ADVISORY SERVICES
Mr. Baughman has been a manager on the fund since 1990. He joined the
Franklin Templeton Group in 1988.
WILLIAM J. LIPPMAN, PRESIDENT OF ADVISORY SERVICES
Mr. Lippman has been a manager on the fund since inception and has more than
30 years' experience in the securities industry. He joined the Franklin
Templeton Group in 1988.
GERARD P. SULLIVAN, SENIOR VICE PRESIDENT OF ADVISORY SERVICES
Mr. Sullivan has been a manager on the fund since 1998. Previously, he was a
portfolio manager for SunAmerica Asset Management and Texas Commerce
Investment Management & Co.
MARGARET MCGEE, VICE PRESIDENT OF ADVISORY SERVICES
Ms. McGee has been a manager on the fund since 1988. She joined the Franklin
Templeton Group in 1988.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended October 31, 1998, the fund
paid 0.75% of its average monthly net assets to the manager.
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a leap year
may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others. The fund could experience difficulties in effecting transactions if
any of its foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.
The fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least quarterly representing its net investment income. Capital gains, if
any, may be distributed annually. The amount of these distributions will vary
and there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the fund's distributions will vary. Please keep in mind that
if you invest in the fund shortly before the record date of a distribution,
any distribution will lower the value of the fund's shares by the amount of
the distribution and you will receive some of your investment back in the
form of a taxable distribution. If you would like information on upcoming
record dates for the fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional fund shares or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.
BACKUP WITHHOLDING
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By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, or if the IRS instructs the fund to do so.
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Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or loss.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale. The individual tax rate on any
gain from the sale or exchange of your shares depends on how long you have
held your shares.
Fund distributions and gains from the sale or exchange of your shares
generally will be subject to state and local income tax. Non-U.S. investors
may be subject to U.S. withholding and estate tax. You should consult your
tax advisor about the federal, state, local or foreign tax consequences of
your investment in the fund.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past three
years. This information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED OCTOBER 31,
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1998 1997 19961
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PER SHARE DATA ($)
Net asset value, beginning of year 24.29 18.44 15.00
Net investment income (loss) (.02) (.01) .14
Net realized and unrealized gains (losses)(2.51) 6.33 3.41
Total from investment operations (2.53) 6.32 3.55
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Dividends from net investment income (.01) (.07) (.11)
Distributions from net realized gains (1.48) (.40) -
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Total distributions (1.49) (.47) (.11)
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Net asset value, end of year 20.27 24.29 18.44
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Total return (%)2 (10.95) 35.05 23.72
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 175,635 191,638 119,664
Ratios to average net assets: (%)
Expenses 1.21 1.22 1.243
Net investment income (loss) (.11) (.05) 1.283
Portfolio turnover rate (%) 31.91 21.33 14.15
1. For the period December 12, 1995 (effective date) to October 31, 1996.
2. Total return does not include sales charges, and is not annualized.
3. Annualized.
YOUR ACCOUNT
[Insert graphic of percentage sign] SALES CHARGES
THE SALES CHARGE
MAKES UP THIS % OF WHICH EQUALS THIS % OF
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE YOUR NET INVESTMENT
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either
as a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 16), you can buy shares without an initial sales charge.
However, there is a 1% contingent deferred sales charge (CDSC) on any shares
you sell within 12 months of purchase.
The CDSC is based on the current value of the shares being sold or their net
asset value when purchased, whichever is less. There is no CDSC on shares you
acquire by reinvesting your dividends or capital gains distributions.
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The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
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To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton Fund (please see
page 22 for exchange information).
DISTRIBUTION AND SERVICE (12B-1) FEES The fund has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution fees of up to 0.25% per year to those who sell and distribute
the fund's shares and provide other services to shareholders. Because these
fees are paid out of the fund's assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
SALES CHARGE REDUCTIONS AND WAIVERS If you qualify for any of the sales
charge reductions or waivers below, please let us know at the time you make
your investment to help ensure you receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases
in the Franklin Templeton Funds to take advantage of the lower sales charges
for large purchases of fund shares.
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The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Valuemark Funds, Templeton Capital
Accumulator Fund, Inc., and Templeton Variable Products Series Fund.
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o Cumulative Quantity Discount - lets you combine all of your shares in the
Franklin Templeton Funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.
o Letter of Intent (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR
ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.
Certain Franklin Templeton Funds offer multiple share classes not offered by
this fund. For purposes of this privilege, the fund's shares are considered
Class A shares.
If you paid a CDSC when you sold your Class A shares, we will credit your
account with the amount of the CDSC paid but a new CDSC will apply. For Class
B shares reinvested in Class A, a new CDSC will not apply, although your
account will not be credited with the amount of any CDSC paid when you sold
your Class B shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS Shares of the fund may be
purchased without an initial sales charge or CDSC by investors who reinvest
within 365 days:
o certain payments received under an annuity contract that offers a Franklin
Templeton insurance fund option
o dividend or capital gain distributions from a real estate investment trust
sponsored or advised by Franklin Properties, Inc.
o If you paid a CDSC when you sold your shares, we will credit your account
with the amount of the CDSC paid but a new CDSC will apply.
WAIVERS FOR CERTAIN INVESTORS Shares of the fund also may be purchased
without an initial sales charge or CDSC by various individuals and
institutions, including:
o certain trust companies and bank trust departments investing $1 million or
more in assets over which they have full or shared investment discretion
o government entities that are prohibited from paying mutual fund sales
charges
o certain unit investment trusts and their holders reinvesting trust
distributions
o group annuity separate accounts offered to retirement plans
o employees and other associated persons or entities of Franklin Templeton or
of certain dealers
o Chilean retirement plans that meet the requirements for retirement plans
described below
ADDITIONAL SALES CHARGE WAIVERS MAY APPLY.
IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE WAIVER,
CALL YOUR INVESTMENT REPRESENTATIVE OR CALL SHAREHOLDER SERVICES
AT 1-800/632-2301 FOR MORE INFORMATION.
CDSC WAIVERS The CDSC generally will be waived:
o to pay account fees
o to make payments through systematic withdrawal plans, up to 1% monthly, 3%
quarterly, 6% semiannually or 12% annually depending on the frequency of
your plan
o for redemptions by Franklin Templeton Trust Company employee benefit plans
or employee benefit plans serviced by ValuSelect(R)
o for IRA distributions due to death or disability or upon periodic
distributions based on life expectancy
o to return excess contributions (and earnings, if applicable) from
retirement plan accounts
o for redemptions following the death of the shareholder or beneficial owner
o for participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans
RETIREMENT PLANS Certain retirement plans may buy shares of the fund without
an initial sales charge. To qualify, the plan must be sponsored by an
employer:
o with at least 100 employees, or
o with retirement plan assets of $1 million or more, or
o that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13-month period
A CDSC may apply. Retirement plans other than SIMPLEs, SEPs, or plans that
qualify under section 401 of the Internal Revenue Code also must qualify
under our group investment program to buy shares without an initial sales
charge.
FOR MORE INFORMATION, CALL YOUR INVESTMENT REPRESENTATIVE OR
RETIREMENT PLAN SERVICES AT 1-800/527-2020.
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors
to invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying fund shares at a discount.
[Insert graphic of paper with lines and someone writing] BUYING SHARES
The fund is closed to new investors, except retirement plan accounts. If you
were a shareholder of record as of July 5, 1996, you may continue to add to
your account with as little as $100 or buy additional shares through the
reinvestment of dividend or capital gain distributions. We may waive the
investment minimum for retirement plans.
Certain Franklin Templeton Funds offer multiple share classes not offered by
this fund. Please note that for selling or exchanging your shares, or for
other purposes, the fund's shares are considered Class A shares. Before
January 1, 1999, the fund's shares were considered Class I shares.
BUYING SHARES
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ADDING TO AN ACCOUNT
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[Insert graphic of hands Contact your investment representative
shaking]
Through your investment
representative
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[Insert graphic of envelope] Make your check payable to Franklin
MicroCap Value Fund. Include your
By Mail account number on the check.
Fill out the deposit slip from your
account statement. If you do not have
a slip, include a note with your
name, the fund name, and your account
number.
Mail the check and deposit slip or
note to Investor Services.
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[Insert graphic of three Call to receive a wire control number
lightning bolts] and wire instructions.
By Wire To make a same day wire investment,
1-800/632-2301 please call us by 1:00 p.m. pacific
(or 1-650/312-2000 collect) time and make sure your wire arrives
by 3:00 p.m.
- ----------------------------------------------------------------------
[Insert graphic of two arrows Call Shareholder Services at the
pointing in opposite number below or our automated
directions] TeleFACTS system, or send signed
written instructions.
By Exchange
TeleFACTS(R) (Please see page 22 for information
1-800/247-1753 on exchanges.)
(around-the-clock access)
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with handset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. To sign up, complete the
appropriate section of your account application.
AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in
shares of the fund by transferring money from your paycheck to the fund by
electronic funds transfer. If you are interested, indicate on your
application that you would like to receive an Automatic Payroll Deduction
Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
fund in an existing account in the same share class of the fund or another
Franklin Templeton Fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please
call 1-800/527-2020 for information.
[End callout]
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the fund.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Plan Services at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton Fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%.
NO EXCHANGES INTO THE FUND FROM OTHER FRANKLIN TEMPLETON FUNDS WILL BE
ACCEPTED.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 27).
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.
[Insert graphic of certificate] SELLING SHARES
You can sell your shares at any time. Please keep in mind that if you sell
all the shares in your account, your account will be closed and you will not
be able to buy additional fund shares or to reopen your account. This policy
does not apply to retirement plans.
SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of record,
or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
SELLING SHARES
- ----------------------------------------------------------------------
To sell some or all of your shares
- ----------------------------------------------------------------------
[Insert graphic of Contact your investment representative
hands shaking]
Through your
investment
representative
- ----------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] certificates (if you hold share certificates)
to Investor Services. Corporate, partnership
By Mail or trust accounts may need to send additional
documents.
Specify the fund, the account number and the
dollar value or number of shares you wish to
sell. Be sure to include all necessary
signatures and any additional documents, as
well as signature guarantees if required.
A check will be mailed to the name(s) and
address on the account, or otherwise
according to your written instructions.
- ----------------------------------------------------------------------
[Insert graphic of As long as your transaction is for $100,000
phone] or less, you do not hold share certificates
and you have not changed your address by
By Phone phone within the last 15 days, you can sell
1-800/632-2301 your shares by phone.
A check will be mailed to the name(s) and
address on the account. Written instructions,
with a signature guarantee, are required to
send the check to another address or to make
it payable to another person.
- ----------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption
three lightning bolts] proceeds of $1,000 or more wired to a bank or
escrow account. See the policies above for
By Wire selling shares by mail or phone.
Before requesting a bank wire, please make
sure we have your bank account information on
file. If we do not have this information, you
will need to send written instructions with
your bank's name and address, your bank
account number, the ABA routing number, and a
signature guarantee.
Requests received in proper form by 1:00 p.m.
pacific time will be wired the next business
day.
- ----------------------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the fund you
two arrows pointing are considering.
in opposite
directions] Call Shareholder Services at the number below
or our automated TeleFACTS system, or send
By Exchange signed written instructions. See the policies
TeleFACTS(R) above for selling shares by mail or phone.
1-800/247-1753
(around-the-clock If you hold share certificates, you will need
access) to return them to the fund before your
exchange can be processed.
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES 777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. pacific time). The fund's NAV is calculated by
dividing its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $1,250
because you sell some of your shares, we may mail you a notice asking you to
bring the account back up to $2,500 or its applicable minimum investment
amount. If you choose not to do so within 30 days, we may close your account
and mail the proceeds to the address of record. You will not be charged a
CDSC if your account is closed for this reason.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You also will receive the fund's
financial reports every six months. To reduce fund expenses, we try to
identify related shareholders in a household and send only one copy of the
financial reports. If you need additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive confirmations, account statements and
other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The fund does not allow investments by market timers. You will
be considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (ii) exchanged
shares out of the fund more than twice in a calendar quarter, or (iii)
exchanged shares equal to at least $5 million, or more than 1% of the fund's
net assets, or (iv) otherwise seem to follow a timing pattern. Shares under
common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares.
o At any time, the fund may change its investment minimums or waive or lower
its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check or wire would be harmful to existing
shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive
sales commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
COMMISSION (%) -
Investment under $50,000 5.00
$50,000 but under $100,000 3.75
$100,000 but under $250,000 2.80
$250,000 but under $500,000 2.00
$500,000 but under $1 million 1.60
$1 million or more up to 1.001
12B-1 FEE TO DEALER 0.25
A dealer commission of up to 1% may be paid on NAV purchases by certain
retirement plans1 and up to 0.25% on NAV purchases by certain trust companies
and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You
can also call us at one of the following numbers. For your protection and to
help ensure we provide you with quality service, all calls may be monitored
or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
