Prospectus
Templeton
Institutional
Funds, Inc.
INVESTMENT STRATEGY
GLOBAL GROWTH
Foreign Equity Series - Service Shares
MAY 1, 2000
[Insert Franklin Templeton Butterball logo]
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
7 Performance
8 Fees and Expenses
9 Management
10 Distributions and Taxes
12 Financial Highlights
YOUR ACCOUNT
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INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
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13 Qualified Investors
15 Buying Shares
17 Investor Services
18 Selling Shares
20 Account Policies
22 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
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GOAL The fund's investment goal is long-term capital growth.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the fund invests at
least 65% of total assets in at least three different nations. The fund normally
will invest primarily in the equity securities of companies located outside the
U.S., including emerging markets.
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The fund invests primarily in an internationally diversified portfolio of
equity securities.
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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, from time to time, may have significant
investments in one or more countries or in particular sectors such as technology
(including computer hardware and software, electronics, and telecommunications)
and financial institutions.
Depending upon current market conditions, the fund generally may invest a
portion 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.
When choosing equity investments for the fund, the manager applies a
"bottom-up", value-oriented, long-term approach, focusing on the market price of
a company's securities relative to the manager's evaluation of the company's
long-term earnings, asset value and cash flow potential. The manager also
considers a company's price/earnings ratio, profit margins and liquidation
value.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the fund's
assets in a temporary defensive manner or hold a substantial portion of the
fund's portfolio in cash. Temporary defensive investments generally may include
money market securities, short-term and medium-term U.S. and foreign government
securities, bank obligations and repurchase agreements. The manager also may
invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity. In these circumstances, the
fund may be unable to achieve its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
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STOCKS While this may not be the case in foreign markets, in the U.S., stocks
historically have outperformed other asset classes over the long term (over the
short term they tend to go up and down more dramatically). 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.
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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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FOREIGN SECURITIES Investing in foreign securities, including securities of
foreign governments and depositary receipts, typically involves more risks than
investing in U.S. securities. Certain of these risks also may apply to
securities of U.S. companies with significant foreign operations. These risks
can increase the potential for losses in the fund and affect its share price.
CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in foreign
currencies. As a result, their values may be affected by changes in exchange
rates between foreign currencies and the U.S. dollar, as well as between
currencies of countries other than the U.S. For example, if the value of the
U.S. dollar goes up compared to a foreign currency, an investment traded in that
foreign currency will go down in value because it will be worth less U.S.
dollars. The impact of the euro, a relatively new currency adopted by certain
European countries to replace their national currencies, is unclear at this
time.
POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile than
those in the U.S. Investments in these countries may be subject to the risks of
internal and external conflicts, currency devaluations, foreign ownership
limitations and tax increases. It is possible that a government may take over
the assets or operations of a company or impose restrictions on the exchange or
export of currency or other assets. Some countries also may have different legal
systems that may make it difficult for the fund to vote proxies, exercise
shareholder rights, and pursue legal remedies with respect to its foreign
investments.
TRADING PRACTICES. Brokerage commissions and other fees generally are higher for
foreign securities. Government supervision and regulation of foreign stock
exchanges, currency markets, trading systems and brokers may be less than in the
U.S. The procedures and rules governing foreign transactions and custody
(holding of the fund's assets) also may involve delays in payment, delivery or
recovery of money or investments.
AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and practices
as U.S. companies. Thus, there may be less information publicly available about
foreign companies than about most U.S. companies.
LIMITED MARKETS. Certain foreign securities may be less liquid (harder to sell)
and more volatile than many U.S. securities. This means the fund may at times be
unable to sell foreign securities at favorable prices. In choosing investments,
the fund's manager strongly believes in onsite visits to issuers of prospective
investments to assess critical factors such as management strength and local
conditions.
EMERGING MARKETS. The risks of foreign investments typically are greater in less
developed countries, sometimes referred to as emerging markets. For example,
political and economic structures in these countries may be less established and
may change rapidly. These countries also are more likely to experience high
levels of inflation, deflation or currency devaluation, which can harm their
economies and securities markets and increase volatility. In fact, short-term
volatility in these markets, and declines of 50% or more, are not uncommon.
LIQUIDITY The fund may not invest more than 10% of its 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). Reduced liquidity affecting an individual security or an entire
market may have an adverse impact on market price and the fund's ability to sell
particular securities when necessary to meet the fund's liquidity needs or in
response to a specific economic event.
COUNTRY, SECTOR OR INDUSTRY FOCUS To the extent the fund invests a significant
portion of its assets in one or more countries, sectors or industries at any
time, the fund will face a greater risk of loss due to factors affecting a
single country, sector or industry than if the fund always maintained wide
diversity among the countries, sectors and industries in which it invests. For
example, technology companies involve risks due to factors such as the rapid
pace of product change, technological developments and new competition. Their
stocks historically have been volatile in price, especially over the short term,
often without regard to the merits of individual companies. Banks and financial
institutions are subject to potentially restrictive governmental controls and
regulations that may limit or adversely affect profitability and shares price.
In addition, securities in that sector may be very sensitive to interest rate
changes throughout the world.
More detailed information about the fund, its policies and risks 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 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
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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 9 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/
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21.39% -1.33% 34.03% 0.24% 12.97% 21.58% 11.43% 10.16% 27.34%
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91 92 93 94 95 96 97 98 99
YEAR
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BEST
QUARTER:
Q4 '99
16.80%
WORST
QUARTER:
Q3 '99
- -1.98%
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AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (10/18/90)
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Foreign Equity Series - Service Shares 27.34% 16.51% 14.07%
MSCI - EAFE Index/3/ 27.30% 13.15% 10.45%
1. As of March 31, 2000, the fund's year-to-date return was -1.59%.
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 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
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
Maximum deferred sales charge (load) None
Exchange fee/1/ $5.00
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
SERVICE SHARES
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Management fees 0.70%
Distribution and service (12b-1) fees 0.35%
Other expenses 0.14%
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Total annual fund operating expenses 1.19%
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1. This fee is only for market timers (see page 21).
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You sell your shares at the end of the periods shown.
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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$121 $378 $654 $1,346
[Insert graphic of briefcase] MANAGEMENT
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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 $229 billion in assets.
The fund's lead portfolio manager is:
GARY P. MOTYL CFA, DIRECTOR AND 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, EXECUTIVE 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. Rudolph 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.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
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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.
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BACKUP WITHHOLDING
By law, fund must withhold 31% of your taxable distributions and proceeds if you
do not provide your correct social security or taxpayer identification number or
certify that you are not subject to backup withholdings, or if the IRS instructs
the fund to do so.
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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.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
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This table presents the fund's financial performance since its inception. This
information has been audited by PricewaterhouseCoopers LLP.
YEAR ENDED
DECEMBER 31, 1999/1/
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PER SHARE DATA ($)
Net asset value, beginning of year 19.53
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Net investment income .25
Net realized and unrealized gains 2.73
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Total from investment operations 2.98
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Distributions from net investment income (.37)
Distributions from net realized gains (.61)
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Total distributions (.99)
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Net asset value, end of year 21.53
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Total return (%)/2/ 15.49
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 22
Ratios to average net assets: (%)
Expenses .84%/3/
Net investment income 1.91%/3/
Portfolio turnover rate (%) 10.56%
1. For the period May 3, 1999 (effective date) to December 31, 1999. Based on
average weighted shares outstanding.
2. Total return is not annualized.
3. Annualized
YOUR ACCOUNT
[Insert graphic of pencil marking an X] QUALIFIED INVESTORS
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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.
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The Franklin Templeton Funds include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Insurance Variable Products
Trust and Templeton Capital Accumulator Fund, Inc.
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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 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.
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BUYING SHARES
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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<S> <C> <C>
[Insert graphic of hands shaking] Contact your investment Contact your investment
representative representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
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[Insert graphic of envelope] Make your check, Federal Reserve Make your check, Federal Reserve
draft or negotiable bank draft draft or negotiable bank draft
BY MAIL payable to the fund. payable to the fund. Include your
account number.
Mail the check, Federal Reserve
draft or negotiable bank draft and Fill out the deposit slip from your
your signed Institutional Account account statement. If you do not
Application to Institutional have a slip, include a note with
Services. 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 three lightning Call to receive a wire control Call to receive a wire control
bolts] number and wire instructions. number and wire instructions.
BY WIRE Wire the funds and mail your signed To make a same day wire investment,
1-800/321-8563 Institutional Account Application to please call us by 1:00 p.m. Pacific
(or 1-650/312-3600 collect) Institutional Services. Please time and make sure your wire arrives
include the wire control number or by 3:00 p.m.
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
by 3:00 p.m.
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[Insert graphic of two arrows Call Institutional Services at the Call Institutional Services at the
pointing in opposite directions] number below, or send signed written number below, or send signed written
instructions. (Please see page 38 instructions. (Please see page 38
BY EXCHANGE for information on exchanges.) for information on exchanges.)
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FRANKLIN TEMPLETON INSTITUTIONAL SERVICES 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 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 purchase order may be rejected by
Distributors or by Templeton Institutional Funds, Inc. (Company).
Shares of the fund may be purchased with 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 for an in-kind purchase, 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 absent SEC approval.
[Insert graphic of person with handset] 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. 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 (without any sales charge).
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
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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.
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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 certificate] SELLING SHARES
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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:
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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
59 1/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020 for
details.
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SELLING SHARES
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TO SELL SOME OR ALL OF YOUR SHARES
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<S> <C>
[Insert graphic of hands shaking] Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
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[Insert graphic of envelope] Send written instructions and endorsed share
certificates (if you hold share certificates)
to Institutional Services. Corporate,
partnership or trust accounts may need to
BY MAIL 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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[Insert graphic of phone] As long as your transaction is for $100,000
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
1-800/321-8563 your shares by phone.
(Only available if you have A check will be mailed to the name(s) and
completed and sent the address on the account. Written instructions,
Institutional Telephone with a signature guarantee, are required to
Privileges Agreement) send the check toanother 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
lightning bolts] proceeds sent to a bank account. See the
policies above for selling shares by mail or
phone.
BY ELECTRONIC FUNDS Before requesting to have redemption proceeds
TRANSFER (ACH) sent to a bank account, 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, a voided check or
savings account deposit slip, and a
signature guarantee if the ownership of the
bank and fund accounts is different.
If we receive your request in proper form by
1:00 p.m. Pacific, proceeds sent by ACH
generally will be available within two to
three business days.
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[Insert graphic of two arrows Obtain a current prospectus for the fund you
pointing in opposite directions] are considering.
Call Institutional Services at the number below,
BY EXCHANGE 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.
- ----------------------------------- ------------------------------------------------
</TABLE>
FRANKLIN TEMPLETON INSTITUTIONAL SERVICES 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 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 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 quarterly account statements that show
your account transactions during the quarter. You also will receive written
notification after each transaction affecting your account (except for
distributions and transactions made through automatic investment or withdrawal
programs, which will be reported on your quarterly statement). 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 purchases or 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 a redemption or exchange
out of the fund within two weeks of an earlier redemption or exchange request,
or (ii) purchased or redeemed shares (directly or by exchange) out of the fund
more than twice in a calendar quarter, or (iii) purchased or 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
P.O. Box 7777, San Mateo, CA 94403-7777. You also can 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)
- -------------------------------------------------------------------------------
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 Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor 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.
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)
INSTITUTIONAL SERVICES 1-800/321/8563
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You also can obtain information about each fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this
information, after paying a duplicating fee, by writing to the to the SEC's
Public Reference Section, Washington, D.C. 20549-0102 or by electronic request
at the following E-mail address: [email protected].
Investment Company Act file #811-6135 Z954 P 05/00
