PROSPECTUS
TEMPLETON
INSTITUTIONAL
FUNDS, INC.
Investment Strategy
GLOBAL GROWTH Foreign Equity Series
Service Shares
May 1, 1999
[LOGO] TEMPLETON
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PAGE
Contents
THE FUND
[BEGIN CALLOUT]
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Information about the 2 Goal and Strategies
fund you should know 4 Main Risks
before investing 8 Performance
[END CALLOUT] 9 Fees and Expenses
10 Management
12 Distributions and Taxes
YOUR ACCOUNT
[BEGIN CALLOUT]
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Information about 14 Qualified Investors
qualified investors, 16 Buying Shares
account transactions 18 Investor Services
and services 19 Selling Shares
[END CALLOUT] 21 Account Policies
23 Questions
FOR MORE INFORMATION
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[BEGIN CALLOUT]
Where to learn more Back Cover
about the fund
[END CALLOUT]
PAGE
THE FUND
[INSERT GRAPHIC OF BULLEYE AND ARROWS] GOAL AND STRATEGIES
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GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the equity securities of companies located outside the U.S.,
including emerging markets. The fund normally will invest at least 65% of total
assets in at least three different nations.
[BEGIN CALLOUT]
The fund invests primarily in an internationally diversified portfolio of equity
securities.
[END CALLOUT]
Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks. The
fund may invest a portion of its assets in smaller companies. For this fund,
smaller company stocks are generally those with market capitalizations of less
than $1 billion. The fund also invests in American, European and Global
Depositary Receipts, which are certificates typically issued by a bank or trust
company that give their holders the right to receive securities issued by a
foreign or domestic company. The fund may enter into forward foreign currency
contracts and may buy and sell (write) put and call options on foreign
currencies. For hedging purposes, the fund may buy and sell financial futures
contracts, stock index futures contracts and foreign currency futures contracts
and options on these futures contracts.
Depending upon current market conditions, the fund generally may invest up to
35% of its total assets in debt securities of companies and governments located
anywhere in the world. Debt securities represent an obligation of the issuer to
repay a loan of money to it, and generally provide for the payment of interest.
These include bonds, notes and debentures.
The Templeton investment philosophy is "bottom-up", value-oriented, and
long-term. In choosing equity investments, the fund's manager will focus on the
market price of a company's securities relative to its evaluation of the
company's long-term earnings, asset value and cash flow potential. A company's
historical value measures, including price/earnings ratio, profit margins and
liquidation value, will also be considered.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other adverse conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goal, because it may not invest or may invest substantially less in
international stocks.
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS
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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 markets as a whole. Value stock prices are
considered "cheap" relative to the company's perceived value. They may not
increase in value, as anticipated by the manager, if other investors fail to
recognize the company's value and bid up the price or in markets favoring
faster-growing companies.
[BEGIN CALLOUT]
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.
[END CALLOUT]
FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in Depositary Receipts also involve some or all of the following
risks.
COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. These movements will affect the fund's share price and
fund performance.
The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.
The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of established legal, political, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
While short-term volatility in these markets can be disconcerting, declines in
excess of 50% are not unusual.
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.
[BEGIN CALLOUT]
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.
[END CALLOUT]
PAGE
CURRENCY Many of the fund's investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what the
fund owns and the fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of 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.
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.
Because this change to a single currency is new and untested, 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.
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.
ILLIQUID SECURITIES The fund may not invest more than 10% of its total assets in
securities which are not publicly traded or which cannot be readily resold
because of legal or contractual restrictions, or which are not otherwise readily
marketable (including repurchase agreements having more than seven days
remaining to maturity).
INTEREST RATE When interest rates rise, debt security prices fall. When interest
rates fall, debt security prices go up. Generally, interest rates rise during
times of inflation or a growing economy, and fall during an economic slowdown or
recession. Securities with longer maturities usually are more sensitive to
interest rate changes than securities with shorter maturities.
CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.
DERIVATIVE SECURITIES Forward foreign currency contracts, futures contracts and
options on these contracts are considered derivative investments, since their
value depends on the value of the underlying asset to be purchased or sold. The
fund's investment in derivatives may involve a small investment relative to the
amount of risk assumed. To the extent the fund enters into these transactions,
their success will depend on the manager's ability to predict market movements.
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 also will 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
10 for more information.
More detailed information about the fund, its policies (including temporary
investments) and risks can be found in the fund's Statement of Additional
Information (SAI).
PERFORMANCE
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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 8 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.
SERVICE SHARES ANNUAL TOTAL RETURNS/1, 2/
[INSERT BAR GRAPH]
20.66% -2.60% 33.54% -0.17% 12.54% 21.12% 11.02% 9.77%
91 92 93 94 95 96 97 98
YEAR
[BEGIN CALLOUT]
BestQuarter:
Q1 `98 15.48%
Worst Quarter:
Q3 '98 -15.96%
[END CALLOUT]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Years (10/18/90)
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<S> <C> <C> <C>
Foreign Equity Series - Service Shares 9.77% 10.65% 11.97%
MSCI - EAFE Index/3/ 20.33% 9.50% 9.57%
</TABLE>
1. As of March 31, 1999, the fund's year-to-date return was 1.81%.
2. Before May 1, 1999, only a single class of fund shares was offered without
Rule 12b-1 expenses. Returns shown are a restatement of the original class to
include the Rule 12b-1 fees applicable to Service Shares as though in effect
from the fund's inception.
3. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI Europe Australia
Far East (EAFE) Index tracks the performance of approximately 1,000 securities
in 20 countries. 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
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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)
Service Shares
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Maximum sales charge (load) imposed on purchases None
Exchange fee /1/ $5.00
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)/2/
Service Shares
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Management fees 0.70%
Distribution and service (12b-1) fees 0.35%
Other expenses 0.13%
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Total annual fund operating expenses 1.18%
========
1. This fee is only for market timers (see page 21).
2. The fund began offering Service Shares on May 1, 1999. Annual operating
expenses are based on the expenses for the fund's Primary Shares for the fiscal
year ended December 31, 1998. For the fiscal year ended December 31, 1998, the
manager and administrator had agreed in advance to reduce their respective fees
in order to limit the combined management fees and other expenses of the fund to
an annual rate of 1.00% of average net assets. If these fee reductions are
insufficient to so limit the fund's expenses, the administrator has agreed to
assume as its own expense certain expenses otherwise payable by the fund. These
voluntary agreements did not result in any fee reductions for the fund for the
fiscal year ended December 31, 1998. After May 1, 2000, the manager and
administrator may end this arrangement at any time.
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
$120 $375 $649 $1,432
[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT
Templeton Investment Counsel, Inc. (Investment Counsel), 500 East Broward Blvd.,
Ft. Lauderdale, Florida 33394-3091, is the fund's investment manager. Together,
Investment Counsel and its affiliates manage over $216 billion in assets.
The fund's lead portfolio manager is:
GARY P. MOTYL CFA, DIRECTOR AND EXECUTIVE VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Motyl has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1981.
The following individuals have secondary portfolio management responsibilities:
MARK R. BEVERIDGE CFA, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Beveridge has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1985.
GARY CLEMONS, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Clemons has been a manager of the fund since 1994. He joined the Franklin
Templeton Group in 1990.
SIMON RUDOLPH, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Ruldolph has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1997.
GUANG YANG, VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Yang has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1995.
The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. The fee is equal to a annual rate of 0.70% of its average
daily net assets.
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 annually representing substantially all of its net investment income and
any net realized capital gains. 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 date for the fund's distributions will vary. Please keep in mind that if
you invest in the fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call Institutional Services at 1-800/321-8563.
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.
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.
[BEGIN CALLOUT]
BACKUP WITHHOLDING
By law, 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.
[END CALLOUT]
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. Any foreign taxes paid by the
fund that invests more than 50% of its assets in foreign securities may be
passed through to you as a foreign tax credit. Non-U.S. investors may be subject
to U.S. withholding and estate tax. You should consult your tax advisor about
the federal, state, local or foreign tax consequences of your investment in the
fund.
YOUR ACCOUNT
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[INSERT GRAPHIC OF PENCIL MARKING AN "X"] QUALIFIED INVESTORS
[BEGIN CALLOUT]
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.
[END CALLOUT]
The following investors may qualify to buy shares of the funds.
o Defined contribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section
401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 1,000 employees, or (ii) with
retirement plan assets of $10 million or more. Minimum investments: No
initial or additional minimums. Minimum investments for plans with less
than 1,000 employees or $10 million in plan assets: $1 million initial
investment or an investment of $1 million over the subsequent 13-month
period in the fund or any of the Franklin Templeton Funds and no additional
minimum.
o Trust companies and bank trust departments initially investing in the
Franklin Templeton Funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. Minimum investments: $1 million initial investment
or an investment of $1 million over the subsequent 13-month period in the
fund or any of the Franklin Templeton Funds and no additional minimum.
o Defined benefit plans, governments, municipalities, and tax-exempt entities
that meet the requirements for qualification under section 501 of the
Internal Revenue Code. Minimum investments: $1 million initial investment.
o An investor who executes a Letter of Intent (Letter) which expresses
the investor's intention to invest at least $5 million within a 13-month
period in the Franklin Templeton Funds, including at least $1 million in
the funds. See the Institutional Application. Minimum investments: $1
million. If the investor does not invest at least $5 million in shares of
the funds or other Franklin Templeton Funds within the 13-month period, the
shares actually purchased will be involuntarily redeemed and the proceeds
sent to the investor at the address of record. Any redemptions made by the
shareholder during the 13-month period will be subtracted from the amount
of purchases for purposes of determining whether the terms of the Letter
have been completed.
o Any investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group. Minimum
investments: $5 million initial investment. For minimum investment
purposes, the group's investments are added together. The group may combine
all of its shares in the Franklin Templeton Funds for purposes of
determining whether it meets the $5 million minimum, as long as $1 million
is invested or to be invested in the funds. There are certain other
requirements and the group must have a purpose other than buying fund
shares.
o Other investors. Minimum investments: $5 million initial.
Shares of the fund may be purchased at net asset value without a sales charge
through any broker that has a dealer agreement with Franklin Templeton
Distributors Inc. (Distributors), the principal underwriter of the shares of the
funds, or directly from Distributors, upon receipt by Distributors of an
Institutional Account Application Form and payment. Distributors may establish
minimum requirements with respect to amount of purchase.
Certain Franklin Templeton Funds offer multiple share classes not offered by the
fund. Please note that for selling or exchanging your shares, or for other
purposes, the fund's shares are considered Class A shares.
DISTRIBUTION AND SERVICE (12B-1) FEES Service Shares has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay distribution
fees of up to 0.35% per year to those who sell and distribute Service Shares and
provide other services to shareholders. Because these fees are paid out of
Service Shares' 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.
[INSERT GRAPHIC OF A PAPER WITH LINES AND SOMEONE WRITING] BUYING SHARES
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ACCOUNT APPLICATION If you are opening a new account, please complete and sign
an Institutional Account Application Form.
BUYING SHARES
<TABLE>
<CAPTION>
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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<S> <C> <C>
[INSERT GRAPHC OF HANDS
SHAKING]
Through your investment Contact your investment Contact your investment
representative representative representative
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[INSERT GRAPHIC OF ENVELOPE]
BY MAIL Make your check, Federal Make your check,
Reserve draft or negotiable Federal Reserve draft
bank draft payable to the or negotiable bank
fund. draft payable to the
fund. Include your
account number.
Mail the check, Federal Fill out the deposit
Reserve draft or negotiable slip from your account
bank draft and your signed statement. If you do
Institutional Account not have a slip,
Application Form to include a note
Institutional Services. with your name, the
fund name, and your
account number.
Mail the check, Federal
Reserve draft or
negotiable bank draft and
deposit slip or note to
Institutional Services.
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[INSERT GRAPHIC OF PHONE]
BY PHONE Call to receive a wire Call to receive a
1-800/321-8563 or control number and wire control number
1-650/312-3600 wire instructions. and wire instructions.
On the next business day, To make a same day
wire the funds to Bank of wire investment, please
America, ABA Routing call us by 1:00 p.m.
No. 121000358, for credit pacific time and
to account no. 1493304779, make sure your wire
and mail your signed arrives by 3:00 p.m.
Institutional Account
Application Form to
Institutional Services. Please
include the wire control
number or your new
account number on the
application.
To make a same day wire
investment, please call us by
1:00 p.m. pacific time and
make sure your wire arrives
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[INSERT GRAPHIC OF TWO ARROWS
POINTING IN OPPOSITE DIRECTIONS]
BY EXCHANGE Call Institutional Services Call Institutional Services
at the number below, or send at the number below, or
signed written instructions. send signed written
(Please see page 17 for instructions. (Please
information on exchanges.) see page 17 for information
on exchanges.)
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</TABLE>
FRANKLIN TEMPLETON INSTITUTIONAL SERVICES
777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/321-8563
(MONDAY THROUGH FRIDAY 6:00 A.M. TO 5:00 P.M., PACIFIC TIME)
Orders mailed to Franklin Templeton Distributors, Inc. (Distributors) by dealers
or individual investors do not require advance notice. Checks or negotiable bank
drafts must be in U.S. currency drawn on a commercial bank in the U.S. and, if
over $100,000, may not be deemed to have been received until the proceeds have
been collected, unless the check is certified or issued by such bank. Any
subscription may be rejected by Distributors or by Templeton Institutional
Funds, Inc. (Company).
Shares of the fund may be purchased with "in-kind" securities, if approved in
advance by the Company. Securities used to purchase fund shares must be
appropriate investments for that fund, consistent with its investment objective,
policies and limitations, as determined by the Company, and must have readily
available market quotations. The securities will be valued in accordance with
the Company's policy for calculating net asset value, determined as of the close
of the day on which the securities are received by the Company in salable form.
A prospective shareholder will receive shares of the fund next computed after
such receipt. To obtain the approval of the Company, call Institutional
Services. Investors who are affiliated persons of the Company (as defined in the
Investment Company Act of 1940) may not purchase shares in this manner in the
absence of SEC approval.
[INSERT GRAPHIC OF PERSON WITH A HEADSET] INVESTOR SERVICES
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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 may initiate many transactions and make certain other
changes to your account by phone. Please refer to the sections of this
prospectus that discuss the transaction you would like to make or call
Institutional Services.
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.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class (without any sales charge).
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
[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]
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
21).
[INSERT GRAPHIC OF A CERTIFICATE] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. If you have completed and returned
the Institutional Telephone Privileges Agreement, amounts over $100,000 may also
be redeemed. 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
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TO SELL SOME OR ALL OF YOUR SHARES
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[INSERT GRAPHIC OF HANDS SHAKING]
THROUGH YOUR INVESTMENT Contact your investment representative
REPRESENTATIVE
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[INSERT GRAPHIC OF ENVELOPE]
BY MAIL
Send written instructions and endorsed share
certificates (if you hold share certificates) to
Institutional Services. Corporate, partnership or
trust accounts may need to send additional documents.
Specify the fund, the account number and the
dollar value or number of shares you wish to sell.
Be sure to include all necessary signatures and
any additional documents, as well as signature
guarantees if required.
A check will be mailed to the name(s) and address
on the account, or otherwise according to your
written instructions.
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As long as your transaction is for $100,000 or
less, you do not hold share certificates and you have
BY PHONE not changed your address by phone within the
1-800/321-8563 (Only available if you last 15 days, you can sell your shares by phone.
have completed and sent the
Institutional Telephone Privileges
Agreement) 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.
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[INSERT GRAPHIC OF THREE You can call or write to have redemption proceeds
LIGHTNING BOLTS] of $1,000 or more wired to a bank or escrow
account. See the policies above for selling
shares by mail or phone.
BY WIRE Before requesting a bank wire, please make sure
we have your wiring instructions (bank
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.
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[INSERT GRAPHIC OF TWO ARROWS Obtain a current prospectus for the fund you are
POINTING IN OPPOSITE DIRECTIONS] considering.
BY EXCHANGE Call Institutional Services at the number below, or
send signed written instructions. See the policies
above for selling shares by mail or phone.
If you hold share certificates, you will need to
return them to the fund before your exchange can
be processed.
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FRANKLIN TEMPLETON INSTITUTIONAL SERVICES
777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/321-8563
(MONDAY THROUGH FRIDAY 6:00 A.M. TO 5:00 P.M., PACIFIC TIME)
[INSERT GRAPHIC OF PAPAER 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 NAV for Service Shares is calculated by
dividing its net assets by the number of its shares outstanding.
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $1,000
because you sell some of your shares, we may mail you a notice asking you to
bring the account back up to $1,000. If you choose not to do so within 30 days,
we may close your account and mail the proceeds to the address of record.
STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You 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 may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the Fund's transfer agent. 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, including any purchase under the
exchange privilege.
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.
[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.
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HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
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Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
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.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
</TABLE>
PAGE
FRANKLIN TEMPLETON FUNDS
LITERATURE REQUEST Call 1-800/DIAL BEN(R) (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, sales charges
and expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund
GLOBAL INCOME
Franklin Global Government Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Templeton Americas Government Securities Fund
GROWTH
Franklin Biotechnology Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet Investment Fund/1/
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund/1/
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government Securities Fund
Franklin Federal Money Fund/2/
Franklin Money Fund/2/
TAX-FREE INCOME
Federal Intermediate-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund/2/
STATE-SPECIFIC TAX-FREE INCOME
Alabama
Arizona/3/
California/3/
Colorado
Connecticut
Florida/3/
Georgia
Kentucky
Louisiana
Maryland
Massachusetts/4/
Michigan/4/
Minnesota/4/
Missouri
New Jersey
New York/3/
North Carolina
Ohio/4/
Oregon
Pennsylvania
Tennessee/5/
Texas
Virginia
VARIABLE ANNUITIES/6/
Franklin Valuemark(R)
Franklin Templeton Valuemark Income Plus (an immediate annuity)
1. These funds are now closed to new accounts, with the exception of
retirement plan accounts.
2. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
3. Two or more fund options available: long-term portfolio; portfolio of insured
securities; high yield portfolio (CA); intermediate-term and money market
portfolios (CA and NY).
4. Portfolio of insured municipal securities.
5. The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
6. Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.
04/99
PAGE
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/"semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETOn(R)
INSTITUTIONAL SERVICES 1-800/321/8563
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,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-6135 Z954 P 05/99
