PROSPECTUS & APPLICATION
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
JANUARY 1, 1998
This prospectus describes Templeton Capital Accumulator Fund, Inc. (the
"Fund"). Shares of the Fund, which will be sold at Net Asset Value, may be
initially acquired by investors only by means of an investment in Templeton
Capital Accumulation Plans (the "Plans" or "Plan"). The charges for the first
year of a Plan can amount to 50% of the amounts paid during that year under the
Plan. Details of the Plans, including the creation and sales charges, may be
found in the attached prospectus for the Plans. Each prospectus contains
information you should know before investing in the Fund. Please keep them for
future reference.
The Fund has a Statement of Additional Information ("SAI"), dated January 1,
1998, which may be amended from time to time. It includes more information about
the Fund's procedures and policies. It has been filed with the SEC and is
incorporated by reference into this prospectus. For a free copy or a larger
print version of this prospectus, call 1-800/DIAL BEN.
Shares of the Fund 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. Shares of the Fund involve investment risks, including the
possible loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is not an offering of the securities herein described in any
state, jurisdiction or country in which the offering is not authorized. No sales
representative, dealer, or other person is authorized to give any information or
make any representations other than those contained in this prospectus. Further
information may be obtained from Distributors.
<PAGE>
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
January 1, 1998
When reading this prospectus, you will see certain terms beginning with
capital letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary............................... P-3
Financial Highlights.......................... P-4
How Does the Fund Invest Its Assets?.......... P-5
What Are the Fund's Potential Risks?.......... P-7
Who Manages the Fund?......................... P-9
How Does the Fund Measure Performance?........ P-10
How Taxation Affects the Fund and Its
Shareholders................................. P-10
How Is the Fund Organized?.................... P-13
ABOUT YOUR ACCOUNT
How Do I Buy Shares?.......................... P-13
May I Exchange Shares for Shares of Another
Fund?....................................... P-13
How Do I Sell Shares?......................... P-14
What Distributions Might I Receive From the
Fund?....................................... P-15
Transaction Procedures and Special
Requirements............................... P-16
Services to Help You Manage Your Account...... P-19
What If I Have Questions About My Account?.... P-20
GLOSSARY
Useful Terms and Definitions.................. P-21
100 Fountain Parkway
P.O. Box 33030
St. Petersburg
FL 33733-8030
1-800/DIAL BEN
<PAGE>
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses for the fiscal year ended
August 31, 1997. Your actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases................ None
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees.......................................... 0.75%
Other Expenses........................................... 0.38%
Total Fund Operating Expenses............................ 1.13%
C. EXAMPLE
Assume the Fund's annual return is 5% and its operating
expenses are as described above. For each $1,000
investment, you would pay the following projected expenses
if you sold your shares after the number of years shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------
$ 12 $ 36 $ 62 $ 137
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
the Net Asset Value or dividends and are not directly charged to your account.
The expense summary reflects only the expenses of the Fund. A sales and
creation charge will be deducted from a Templeton Capital Accumulation Plan to
compensate the sponsor of the Plans for creating your Plan and for selling
expenses and commissions to Securities Dealers. This charge is deducted from
each investment and will vary according to the monthly investment payment units
of each Plan. For example, on a $100 a month Plan, $50 is deducted from each of
the first 12 investment units made. After that, the charge drops to $6.07 on
each subsequent monthly unit. For further details concerning creation and sales
charges that will be deducted from a Plan, see the accompanying prospectus for
Templeton Capital Accumulation Plans.
<PAGE>
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by McGladrey & Pullen, LLP, the Fund's independent auditors. Their audit
report covering each of the most recent five years appears in the financial
statements in the Fund's Annual Report to Shareholders for the fiscal year ended
August 31, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE(2) YEAR ENDED AUGUST 31
------------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR) 1997 1996 1995 1994 1993 1992 1991(1)
- ------------------------------------------- ------------ ----------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 9.08 $ 7.97 $ 8.10 $ 6.87 $ 5.48 $ 5.21 $ 5.00
- ------------------------------------------- ------------ ----------- ----------- ----------- ---------- ----------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................... .18 .19 .14 .09 .10 .08 .07
Net realized and unrealized gains....... 2.03 1.10 .12 1.30 1.44 .28 .14
---------- ---------- --------- --------- --------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS........ 2.21 1.29 .26 1.39 1.54 .36 .21
---------- ---------- --------- --------- --------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income.... (.18) (.15) (.10) (.07) (.10) (.09) --
Distributions from net realized gains... (.14) (.03) (.29) (.09) (.05) -- --
----------- ----------- ---------- ---------- ---------- -------- -------
TOTAL DISTRIBUTIONS..................... (.32) (.18) (.39) (.16) (.15) (.09) --
- ------------------------------------------- ------------ ----------- ----------- ----------- ---------- ----------- ------------
Net asset value, end of year............ $ 10.97 $ 9.08 $ 7.97 $ 8.10 $ 6.87 $ 5.48 $ 5.21
- ------------------------------------------- ------------ ----------- ----------- ----------- ---------- ----------- ------------
TOTAL RETURN(3)......................... 25.06% 16.50% 3.40% 20.64% 29.11% 7.01% 4.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000)........... $ 172,683 $ 108,019 $ 65,538 $ 38,323 $ 18,365 $ 8,690 $ 3,635
RATIOS TO AVERAGE NET ASSETS
Expenses................................ 1.13% 1.16% 1.34% 1.58% 1.91% 1.84% 3.99%(4)
Expenses, net of reimbursement.......... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(4)
Net investment income................... 2.00% 2.56% 2.37% 1.58% 1.99% 2.06% 3.80%(4)
Portfolio turnover rate................. 7.43% 11.08% 12.91% 15.25% 14.97% 16.42% --
Average commission rate paid(5)......... $ .0110 $ .0210 -- -- -- -- --
- ------------------------------------------- ------------ ----------- ----------- ----------- ---------- ----------- ------------
</TABLE>
(1) For the period from March 1, 1991 (commencement of operations) to August 31,
1991.
(2) Per share amounts for all periods prior to August 31, 1996 have been
restated to reflect a 2-for-1 stock split effective March 27, 1996.
(3) Not annualized for periods of less than one year. Does not reflect the
Plan's sales and creation charges.
(4) Annualized.
(5) Relates to purchases and sales of equity securities. Prior to fiscal year
end 1996, disclosure of average commission rate was not required.
<PAGE>
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital growth, which it seeks
to achieve through a flexible policy of investing in stocks and debt obligations
of companies and governments of any nation. Any income realized will be
incidental. The objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. Of course, there is no assurance that the
Fund's objective will be achieved.
The Fund principally invests in common stocks, but may also invest in
preferred stock and debt obligations (defined as bonds (including convertible
bonds and bonds selling at a discount), notes, debentures, commercial paper,
time deposits and bankers' acceptances), which may be rated or unrated, and
which may include structured investments, as described in the SAI under "How
Does the Fund Invest Its Assets?--Structured Investments." The Fund may invest
in stocks and debt obligations of companies and debt obligations of governments
of any nation.
The Board has adopted an operating policy, which may be changed without
shareholder approval, that no more than 5% of the Fund's assets will be invested
in debt securities rated less than Baa by Moody's or BBB by S&P. Debt securities
which are rated Baa by Moody's are considered medium grade obligations, I.E.,
they are neither highly protected nor poorly secured. Such bonds lack
outstanding investment characteristics and have speculative characteristics as
well, according to Moody's. Debt securities rated BBB by S&P are regarded as
having adequate capacity to pay interest and repay principal. According to S&P,
while these debt securities normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal. The Fund will not
invest in debt securities rated less than Caa by Moody's or CCC by S&P.
Whenever, in the judgment of Investment Counsel, market or economic
conditions warrant, the Fund may, for temporary defensive purposes, invest
without limit in money market securities, denominated in U.S. dollars or in the
currency of any foreign country, issued by entities organized in the U.S. or any
foreign country, consisting of: short-term (less than 12 months to maturity) and
medium-term (not greater than five years to maturity) obligations issued or
guaranteed by the U.S. government or the government of a foreign country, their
agencies or instrumentalities; finance company and corporate commercial paper,
and other short-term corporate obligations, in each case rated Prime-1 by
Moody's or A or better by S&P or, if unrated, of comparable quality as
determined by Investment Counsel; and repurchase agreements with U.S. banks and
broker-dealers with respect to Canadian or U.S. government securities. In
addition, for temporary defensive purposes, the Fund may invest up to 25% of its
total assets in obligations (including certificates of deposit, time deposits
and bankers' acceptances) of U.S. and foreign banks; provided that the Fund will
limit its investment in time deposits for which there is a penalty for early
withdrawal to 10% of its total assets. In the event that the Fund adopts a
temporary defensive position, the investment practices described above may not
be consistent with the Fund's stated investment objective.
The Fund may invest no more than 5% of its total assets in securities issued
by any one company or government, exclusive of U.S. government securities.
Although the Fund may invest up to 25% of its assets in a single industry, it
has no present intention of doing so. In furtherance of its objective of capital
growth, the Fund may invest up to 5% of its assets in warrants (excluding
warrants acquired in units or attached to securities). The Fund may not invest
more than 15% of its total assets in securities of all types of foreign issuers
which are not listed on a recognized U.S. or foreign securities exchange, and
may not invest more than 10% of its total assets in securities which are
illiquid, including 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), and over-the-counter options purchased by the
Fund. Assets used as cover for over-the-counter options written by the Fund will
be considered illiquid. The Fund's investment objective and the policies
described in this paragraph, as well as certain investment restrictions
described in the SAI, cannot be changed without shareholder approval. All other
investment policies may be modified by the Board.
The Fund may lend its portfolio securities, as well as enter into
transactions in options on securities indices and foreign currencies, forward
foreign currency exchange contracts, and futures contracts and related options.
When deemed appropriate by Investment Counsel, the Fund may invest cash balances
in repurchase agreements and other money market investments to maintain
liquidity in an amount to meet expenses or for day-to-day operating purposes.
These investment techniques are described below and under the heading "How Does
the Fund Invest Its Assets?" in the SAI.
The Fund invests for long-term growth of capital and does not intend to
emphasize short-term trading profits. Accordingly, the Fund expects to have an
annual portfolio turnover rate not exceeding 50%.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
The Fund is authorized to use the various securities and investment
techniques described below. Although these strategies are regularly used by some
investment companies and other institutional investors in various markets, some
of these strategies cannot at the present time be used to a significant extent
by the Fund in some of the markets in which the Fund will invest and may not be
available for extensive use in the future.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets to generate income. Such loans must be secured by collateral
(consisting of any combination of cash, U.S. government securities or
irrevocable letters of credit) in an amount at least equal (on a daily
marked-to-market basis) to the current market value of the securities loaned.
The Fund may terminate the loans at any time and obtain the return of the
securities loaned within five business days. The Fund will continue to receive
any interest or dividends paid on the loaned securities and will continue to
retain any voting rights with respect to the securities.
DEBT SECURITIES. The Fund may invest in the debt securities of companies and
governments of any nation. Certain debt securities can provide the potential for
capital appreciation based on various factors such as changes in interest rates,
economic and market conditions, improvement in an issuer's ability to repay
principal and pay interest, and ratings upgrades. Additionally, convertible
bonds offer the potential for capital appreciation through the conversion
feature, which enables the holder of the bond to benefit from increases in the
market price of the securities into which they are convertible.
OPTIONS ON INDICES. The Fund may write (I.E., sell) covered put and call
options and purchase put and call options on securities indices that are traded
on U.S. and foreign exchanges or in the over-the-counter markets. An option on a
securities index permits the purchaser of the option, in return for the premium
paid, the right to receive from the seller cash equal to the difference between
the closing price of the index and the exercise price of the option. The Fund
may write a call or put option only if the option is "covered." This means that
so long as the Fund is obligated as the writer of an option, it will maintain
with its custodian cash or cash equivalents equal to the contract value (in the
case of call options) or exercise price (in the case of put options). The Fund
will not purchase put or call options if the aggregate premium paid for such
options would exceed 5% of its total assets at the time of purchase.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES. The Fund may enter into forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. The Fund may enter into a
forward contract, for example, when it enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security. The Fund will not enter into forward
contracts if, as a result, the Fund will have more than 20% of its total assets
committed to the consummation of such contracts. The Fund may also purchase and
write put and call options on foreign currencies for the purpose of protecting
against declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired.
FUTURES CONTRACTS. For hedging purposes only, the Fund may purchase and sell
stock index futures contracts, foreign currency futures contracts and options on
any of the foregoing. An index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of the
index at the beginning and at the end of the contract period. A futures contract
on a foreign currency is an agreement to buy or sell a specified amount of a
currency for a set price on a future date. When the Fund enters into a futures
contract, if must make an initial deposit, known as "initial margin," as a
partial guarantee of its performance under the contract. As the value of the
index or currency fluctuates, either party to the contract is required to make
additional margin payments, known as "variation margin," to cover any additional
obligation it may have under the contract. In addition, when the Fund enters
into a futures contract, it will segregate assets or "cover" its position in
accordance with the 1940 Act. See "How Does the Fund Invest Its Assets?--Futures
Contracts" in the SAI. The Fund may not commit more than 5% of its total assets
to initial margin deposits on futures contracts and related options.
REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash
management purposes, when the Fund acquires a security from a U.S. bank or a
registered broker-dealer, it may simultaneously enter into a repurchase
agreement, wherein the seller agrees to repurchase the security at a specified
time and price. The repurchase price is in excess of the purchase price by an
amount which reflects an agreed-upon rate of return, which is not tied to the
coupon rate on the underlying security. Under the 1940 Act, repurchase
agreements are considered to be loans collateralized by the underlying security
and therefore will be fully collateralized. However, if the seller should
default on its obligation to repurchase the underlying security, the Fund may
experience delay or difficulty in its ability to dispose of the underlying
security and might incur a loss if the value of the security declines, as well
as disposition costs in liquidating the security.
DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs") (collectively, "depositary receipts"). ADRs are
depositary receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a U.S. corporation.
Generally, depositary receipts in registered form are designed for use in the
U.S. securities market and depositary receipts in bearer form are designed for
use in securities markets outside the U.S. Depositary receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of depositary receipts.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the depositary receipts. Depositary receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of the
Fund's investment policies, the Fund's investments in depositary receipts will
be deemed to be investments in the underlying securities.
WHAT ARE THE FUND'S POTENTIAL RISKS?
You should understand that all investments involve risk and there can be no
guarantee against loss resulting from an investment in the Fund, nor can there
be any assurance that the Fund's investment objective will be attained. As with
any investment in securities, the value of, and income from, an investment in
the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions and market factors. In
addition to the factors which affect the value of individual securities, a
shareholder may anticipate that the value of the shares of the Fund will
fluctuate with movements in the broader equity and bond markets. A decline in
the stock market of any country in which the Fund is invested may also be
reflected in declines in the price of shares of the Fund. Changes in currency
valuations will also affect the price of shares of the Fund. History reflects
both decreases and increases in stock markets and currency valuations, and these
may occur unpredictably in the future. The value of debt securities held by the
Fund generally will vary inversely with changes in prevailing interest rates.
Additionally, investment decisions made by Investment Counsel will not always be
profitable or prove to have been correct. The Fund is not intended as a complete
investment program.
The Fund has the unlimited right to purchase securities in any foreign
country, developed or underdeveloped. Investors should consider carefully the
substantial risks involved in investing in foreign securities, which are in
addition to the usual risks inherent in domestic investments. Such risks include
the possibility of expropriation, nationalization or confiscatory taxation,
taxation of income earned in foreign nations or other taxes imposed with respect
to investments in foreign nations, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), foreign
investment controls on daily stock market movements, default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investment in securities of issuers in those
nations. Some countries may withhold portions of interest and dividends at the
source. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
U.S. Foreign companies are not generally subject to uniform accounting or
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. Further, the Fund may
encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies and obtain judgments in foreign courts.
Brokerage commissions, custodial services and other costs relating to
investment in foreign countries are generally more expensive than in the U.S.
Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
In many foreign countries, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the U.S. There is an increased risk, therefore, of
uninsured loss due to lost, stolen or counterfeit stock certificates. In
addition, the foreign securities markets of many of the countries in which the
Fund may invest may also be smaller, less liquid, and subject to greater price
volatility than those in the U.S. As an operating policy, the Fund may invest no
more than 5% of its assets in Eastern European countries, which involves special
risks that are described under "What Are the Fund's Potential Risks?" in the
SAI.
Prior governmental approval of non-domestic investments may be required
under certain circumstances in some developing countries, and the extent of
foreign investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies have also
been and may continue to be adversely affected by economic conditions in the
countries with which they trade.
As a non-fundamental policy, the Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody. For more information on these risks and other
risks associated with Russian securities, please see "What Are the Fund's
Potential Risks?" in the SAI.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market or other developments in Hong Kong, China or other countries
that could affect the value of Fund investments.
The Fund usually effects currency exchange transactions on a spot (I.E.,
cash) basis at the spot rate prevailing in the foreign exchange market. However,
some price spread on currency exchange (to cover service charges) will be
incurred when the Fund converts assets from one currency to another.
The Fund is authorized to invest in medium quality or high risk, lower
quality debt securities that are rated between BBB and CCC by S&P, and between
Baa and Caa by Moody's or, if unrated, are of equivalent investment quality as
determined by Investment Counsel. As an operating policy, which may be changed
by the Board without shareholder approval, the Fund will not invest more than 5%
of its total assets in debt securities rated less than BBB by S&P or Baa by
Moody's. The Board may consider a change in this operating policy if, in its
judgment, economic conditions change such that a higher level of investment in
high risk, lower quality debt securities would be consistent with the interests
of the Fund and its shareholders. High risk, lower quality debt securities,
commonly known as junk bonds, are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation and may be in default.
Unrated debt securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers. Regardless of
rating levels, all debt securities considered for purchase (whether rated or
unrated) will be carefully analyzed by Investment Counsel to ensure, to the
extent possible, that the planned investment is sound. The Fund may, from time
to time, purchase defaulted debt securities if, in the opinion of Investment
Counsel, the issuer may resume interest payments in the near future. As a
fundamental policy, the Fund will not invest more than 10% of its total assets
in defaulted debt securities, which may be illiquid.
Successful use of futures contracts and related options is subject to
special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the foreign currency on which the futures or options contract is
based and movements in the currency in the Fund's portfolio. Successful use of
futures or options contracts is further dependent on Investment Counsel's
ability to correctly predict movements in a stock index or foreign currency
market and no assurance can be given that its judgment will be correct.
The receipt by the Fund of new money solely through the medium of continuing
payments under systematic investment plans may tend to produce a more even rate
of influx than is the case of funds whose shares are sold directly. This may
furnish a base for a gradual and planned accumulation of positions in individual
portfolio securities when such a program is deemed to be appropriate.
There can be no assurance that the investment objective of the Fund will be
achieved. There are further risk considerations, including possible losses
through the holding of securities in domestic and foreign custodian banks and
depositories, described in the SAI.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
INVESTMENT MANAGER. Investment Counsel manages the Fund's assets and makes
its investment decisions. Investment Counsel also performs similar services for
other funds. It is wholly owned by Resources, a publicly owned company engaged
in the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together, Investment Counsel and its affiliates manage over $223 billion in
assets. The Templeton organization has been investing globally since 1940.
Investment Counsel and its affiliates have offices in Argentina, Australia,
Bahamas, Canada, France, Germany, Hong Kong, India, Italy, Japan, Korea,
Luxembourg, Poland, Russia, Singapore, South Africa, Taiwan, United Kingdom,
U.S., and Vietnam. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the Fund's Code of Ethics.
PORTFOLIO MANAGEMENT. The Fund's lead portfolio manager since 1993 is Gary P.
Motyl. Mr. Motyl is an executive vice president of Investment Counsel. He holds
a BS degree in finance from Lehigh University and an MBA in finance from Pace
University. Mr. Motyl is a Chartered Financial Analyst. Prior to joining the
Templeton organization in 1981, Mr. Motyl worked from 1974 to 1979 as a security
analyst with Standard & Poor's Corporation and as a research analyst and
portfolio manager from 1979 to 1981 with Landmark First National Bank. While at
Landmark, Mr. Motyl had responsibility for equity research and managed several
pension and profit-sharing plans. His research responsibilities with Templeton
include the global automobile industry, U.S. utilities and country coverage of
Germany.
Mark R. Beveridge and Gary R. Clemons have secondary portfolio management
responsibilities for the Fund. Mr. Beveridge is a senior vice president of
Investment Counsel. He holds a BBA in finance from the University of Miami. He
is a Chartered Financial Analyst and a Chartered Investment Counselor, and a
member of the South Florida Society of Financial Analysts and the International
Society of Financial Analysts. Before joining the Templeton organization in 1985
as a securities analyst, Mr. Beveridge was a principal with a financial
accounting software firm based in Miami, Florida. He is currently a portfolio
manager and research analyst with responsibility for non-life insurance and
industrial components industries. He also has country coverage of Argentina. Mr.
Clemons is a senior vice president of Investment Counsel. He holds a BS from the
University of Nevada--Reno and an MBA from the University of Wisconsin--Madison.
He joined Investment Counsel in 1993. Prior to that time he was a research
analyst at Templeton Quantitative Advisors, Inc. in New York, where he was also
responsible for management of a small capitalization fund. As a portfolio
manager and research analyst with Templeton, Mr. Clemons has responsibility for
the telecommunications industry and country coverage of Columbia, Norway, Peru
and Sweden.
MANAGEMENT FEES. For the fiscal year ended August 31, 1997, management fees,
before any advance waiver, totaled 0.75% of the Fund's average daily net assets.
Total operating expenses, before any advance waiver, were 1.13% of the average
daily net assets of the Fund. Under an agreement by Investment Counsel to waive
its fees, the Fund paid management fees totaling 0.62% and the Fund paid total
operating expenses of 1.00%. Effective January 1, 1998 the fee waiver was
terminated.
PORTFOLIO TRANSACTIONS. Investment Counsel tries to obtain the best
execution on all transactions. If Investment Counsel believes more than one
broker or dealer can provide the best execution, it may consider research and
related services and the sale of Plans (and therefore, indirectly, the sale of
Fund shares), as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How Does the Fund Buy
Securities For Its Portfolio?" in the SAI for more information.
ADMINISTRATIVE SERVICES. Since October 1, 1996, FT Services has provided
certain administrative services and facilities for the Fund. Prior to that date,
Templeton Global Investors, Inc. provided the same services to the Fund. During
the fiscal year ended August 31, 1997, administration fees totaled 0.15% of the
average daily net assets of the Fund. Please see "Investment Management and
Other Services" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the Fund advertises its performance. A commonly used
measure of performance is total return. Performance figures may not include
sales and creation charges associated with the purchase of the Fund through the
Plans; of course, total return quotations would be lower if sales and creation
charges were taken into account.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
The Fund's investment results will vary. Performance figures are always
based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How Does the Fund Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT
OF 1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE.
BECAUSE MANY OF THESE CHANGES ARE COMPLEX, THEY ARE DISCUSSED IN THE SAI.
TAXATION OF THE FUND'S INVESTMENTS. The Fund invests your money in the
stocks, bonds and other securities that are described in the section "How Does
the Fund Invest Its Assets?" Special tax rules may apply in determining the
income and gains that the Fund earns on its investments. These rules may, in
turn, affect the amount of distributions that the Fund pays to you. These
special tax rules are discussed in the SAI.
TAXATION OF THE FUND. As a regulated investment company, the Fund generally
pays no federal income tax on the income and gains that it distributes to you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains
from the Fund's investments in foreign stocks and bonds. These taxes will reduce
the amount of the Fund's distributions to you. The Fund may also invest in the
securities of foreign companies that are "passive foreign investment companies"
("PFICs"). These investments in PFICs may cause the Fund to pay income taxes and
interest charges. If possible, the Fund will not invest in PFICs, or will adopt
other strategies to avoid these taxes and charges.
HOW DOES THE FUND EARN INCOME AND GAINS?
The Fund earns dividends and interest (the Fund's "income") on its investments.
When the Fund sells a security for a price that is higher than it paid, it has a
gain. When the Fund sells a security for a price that is lower than it paid, it
has a loss. If the Fund has held the security for more than one year, the gain
or loss will be a long-term capital gain or loss. If the Fund has held the
security for one year or less, the gain or loss will be a short-term capital
gain or loss. The Fund's gains and losses are netted together, and, if the Fund
has a net gain (the Fund's "gains"), that gain will generally be distributed to
you.
TAXATION OF SHAREHOLDERS
DISTRIBUTIONS. Distributions from the Fund, whether you receive them in cash
or in additional shares, are generally subject to income tax. The Fund will send
you a statement in January of the current year that reflects the amount of
ordinary dividends, capital gain distributions and non-taxable distributions you
received from the Fund in the prior year. The amounts on this statement will
include distributions declared in December of the prior year, and paid to you in
January of the current year. These distributions are taxable as if you had
received them on December 31 of the prior year. The IRS requires you to report
these amounts on your income tax return for the prior year. You should also note
that planholders generally are considered to be the shareholders of the Fund for
federal tax purposes.
WHAT IS A DISTRIBUTION?
As a shareholder, you will receive your share of the Fund's income and gains on
its investments in stocks, bonds and other securities. The Fund's income and
short term capital gains are paid to you as ordinary dividends. The Fund's
long-term capital gains are paid to you as capital gain distributions. If the
Fund pays you an amount in excess of its income and gains, this excess will
generally be treated as a non- taxable distribution. These amounts, taken
together, are what we call the Fund's distributions to you.
The Fund's statement for the prior year will tell you how much of your
capital gain distribution represents 28% rate gain, or 25% rate gain, if
applicable. The remainder of the capital gain distribution, after subtracting
out these amounts, represents 20% rate gain.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your
qualified retirement plan, such as a Section 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report Fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends received
from the Fund.
REDEMPTIONS AND EXCHANGES. If you redeem your shares or if you exchange your
shares in the Fund for shares in another Franklin Templeton Fund, you will
generally have a gain or loss that the IRS requires you to report on your income
tax return. If you exchange Fund shares held for 90 days or less and pay no
sales charge or a reduced sales charge for the new shares, all or a portion of
the sales charge you paid on the purchase of the shares you exchanged is not
included in their cost for purposes of computing gain or loss on the exchange.
If you hold your shares for six months or less, any loss you have will be
treated as a long-term capital loss to the extent of any capital gain
distributions received by you from the Fund. All or a portion of any loss on the
redemption or exchange of your shares will be disallowed by the IRS if you
purchase other shares in the Fund within 30 days before or after your redemption
or exchange.
WHAT IS A REDEMPTION?
A redemption is a sale by you to the Fund of some or all of your shares in the
Fund. The price per share you receive when you redeem Fund shares may be more or
less than the price at which you purchased those shares. An exchange of shares
in the Fund for shares of another Franklin Templeton Fund is treated as a
redemption of Fund shares and then a purchase of shares of the other fund. When
you redeem or exchange your shares, you will generally have a gain or loss,
depending upon whether the basis in your shares is more or less than your cost
or other basis in the shares. Call Fund Information at 1-800-342-5236 for a free
Shareholder Tax Information Handbook if you need more information in calculating
the gain or loss on the redemption or exchange of your shares.
FOREIGN TAXES. If more than 50% of the value of the Fund's assets consist of
foreign securities, the Fund may elect to pass-through to you the amount of
foreign taxes it paid. If the Fund makes this election, your year-end statement
will show more taxable income than was actually distributed to you. However, you
will be entitled to either deduct your share of such taxes in computing your
taxable income or claim a foreign tax credit for such taxes against your U.S.
federal income tax. Your year-end statement, showing the amount of deduction or
credit available to you, will be distributed to you in January along with other
shareholder information records including your Fund Form 1099-DIV.
WHAT IS A FOREIGN TAX CREDIT?
A foreign tax credit is a tax credit for the amount of taxes imposed by a
foreign country on earnings of the Fund. When a foreign company in which the
Fund invests pays a dividend to the Fund, the dividend will generally be subject
to a withholding tax. The taxes withheld in foreign countries create credits
that you may use to offset your U.S. federal income tax.
The 1997 Act includes a provision that allows you to claim these credits
directly on your income tax return (Form 1040) and eliminates the previous
requirement that you complete a detailed supporting form. To qualify, you must
have $600 or less in joint return foreign taxes ($300 or less on a single
return), all of which are reported to you on IRS Form 1099-DIV. THIS SIMPLIFIED
PROCEDURE APPLIES ONLY FOR CALENDAR YEARS 1998 AND BEYOND, AND IS NOT AVAILABLE
IN 1997.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your Fund
shares. Fund shares held by the estate of a non-U.S. investor may be subject to
U.S. estate tax. You may wish to contact your tax advisor to determine the U.S.
and non-U.S. tax consequences of your investment in the Fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you
receive from the Fund as well as gains arising from redemptions or exchanges of
your Fund shares will generally be subject to state and local income tax. The
holding of Fund shares may also be subject to state and local intangibles taxes.
You may wish to contact your tax advisor to determine the state and local tax
consequences of your investment in the Fund.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that
you provide your taxpayer identification number ("TIN"), certify that it is
correct, and certify that you are not subject to backup withholding under IRS
rules. If you fail to provide a correct TIN or the proper tax certifications,
the Fund is required to withhold 31% of all the distributions (including
ordinary dividends and capital gain distributions), and redemption proceeds paid
to you. The Fund is also required to begin backup withholding on your account if
the IRS instructs the Fund to do so. The Fund reserves the right not to open
your account, or, alternatively, to redeem your shares at the current net asset
value, less any taxes withheld, if you fail to provide a correct TIN, fail to
provide the proper tax certifications, or the IRS instructs the Fund to begin
backup withholding on your account.
WHAT IS A BACKUP WITHHOLDING?
Backup withholding occurs when the Fund is required to withhold and pay over to
the IRS 31% of your distributions and redemption proceeds. You can avoid backup
withholding by providing the Fund with your TIN, and by completing the tax
certifications on your account application that you were asked to sign when you
opened your account. However, if the IRS instructs the Fund to begin backup
withholding, it is required to do so even if you provided the Fund with your TIN
and these tax certifications, and backup withholding will remain in place until
the Fund is instructed by the IRS that it is no longer required.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY.PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" IN THE SAI. THE
TAX TREATMENT OF DISTRIBUTIONS OF ORDINARY DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS, FOREIGN TAXES PAID AND INCOME TAXES WITHHELD IS ALSO DISCUSSED IN
A FREE SHAREHOLDER TAX INFORMATION HANDBOOK, AVAILABLE FROM FUND INFORMATION AT
1-800-342-5236.
HOW IS THE FUND ORGANIZED?
The Fund is a diversified, open-end management investment company, commonly
called a mutual fund. It was organized as a Maryland corporation on October 26,
1990, and is registered with the SEC. The Fund sells its shares only through
Templeton Capital Accumulation Plans, a unit investment trust. Each share of the
Fund has one vote. All shares have equal voting, participation and liquidation
rights. Shares of the Fund are considered Class I shares for redemption,
exchange and other purposes. In the future, the Fund may offer additional
classes of shares.
The Fund has noncumulative voting rights. This gives holders of more than
50% of the shares voting the ability to elect all of the members of the Board.
If this happens, holders of the remaining shares voting will not be able to
elect anyone to the Board.
The Fund does not intend to hold annual shareholder meetings. It may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may also be called by the Board in its discretion or for the purpose of
considering the removal of a Board member if requested in writing to do so by
shareholders holding at least 10% of the outstanding shares. In certain
circumstances, we are required to help you communicate with other shareholders
about the removal of a Board member.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
The Fund offers its shares through an investment in the Plans. Details of
the Plans, including the terms of the offering, may be found in the attached
prospectus for the Plans. Except in cases where planholders have received Fund
shares in connection with the liquidation of a Plan or partial withdrawal from a
Plan (into a non-contributory voluntary account), it is not generally
contemplated that any person, other than TFTC as custodian for the Plans, will
directly hold any shares of the Fund.
No Securities Dealer, salesman, or other person has been authorized to give
any information or to make any representations, other than those contained in
this prospectus and in the SAI, in connection with the offer contained in this
prospectus, and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Fund, Investment
Counsel, or Distributors.
Except for the fact that the Fund's shares are available only through the
Plans, the Fund does not represent an investment concept which is new or
different from other investment companies for which Investment Counsel or its
affiliates acts as an investment manager. The Fund's investment objective of
long-term capital growth is similar to the objective of certain other Franklin
Templeton Funds. The methods employed by each of these other funds in attaining
the objective vary from each other and from the Fund. The investment results
attained by these other Franklin Templeton Funds have varied from each other in
the past and are likely to continue to vary from each other and from the Fund in
the future. You could, however, purchase shares of the other Franklin Templeton
Funds, which, in the early years of the Plan, would be at a lesser sales charge.
Investors wishing information on any of these funds may contact Shareholder
Services at 1-800/632-2301.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you liquidate a Plan or exercise the
partial withdrawal privilege under a Plan, you can move your investment to an
existing or new account in another Franklin Templeton Fund (an "exchange").
Because it is technically a sale and a purchase of shares, an exchange is a
taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums. In general, no sales charge applies, and in the case of an
exchange into a Franklin Templeton Fund that offers two classes of shares, a
shareholder would receive Class I shares, which generally bear lower Rule 12b-1
distribution fees that Class II shares of the same fund.
Method Steps to Follow
- ---------------------- ----------------------------------------------------
BY MAIL 1. Send TFTC signed written instructions
2. Include any outstanding share certificates
for the shares you want to exchange
- ---------------------- ----------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange
by phone to apply to your account, please
let us know.
- ---------------------- -----------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ---------------------- -----------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class, except as noted below.
o The accounts must be identically registered. You may, however, exchange
shares from a Fund account requiring two or more signatures into an
identically registered money fund account requiring only one signature
for all transactions. Please notify us in writing if you do not want
this option to be available on your account. Additional procedures may
apply.
Please see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares
as described above. Restrictions may apply to other types of retirement
plans. Please contact Retirement Plan Services for information on
exchanges within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
HOW DO I SELL SHARES?
If you liquidate your Plan or exercise the partia withdrawal privilege
under a Plan, you may sell (redeem) the shares received at any time.
Method Steps to Follow
- ---------------------- ---------------------------------------------------
BY MAIL 1. Send TFTC signed written instructions. If you
would like your redemption proceeds wired to
a bank account, your instructions should
include:
o The name, address and telephone number
of the bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or
credit union, the name of the corresponding
bank and the account number
2. Include any outstanding share certificates for
the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may
need to send additional documents. Accounts
under court jurisdiction may have additional
requirements.
- ---------------------- --------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instruction should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is up to $50,000 or less.
o If there are no share certificates issued for
the shares you want to sell or you have already
returned them to the Fund.
o Unless you are selling shares in a Trust Company
retirement plan account.
o Unless the address on your account was changed
by phone within in the last 15 days.
- If you do not want the ability to redeem by
phone to apply to your account, please
let us know.
- ---------------------- --------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ---------------------- --------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.
The wiring redemption proceeds is a special that we make available whenever
possible for redemption requests of $1,000 or more. If we receive your request
in proper form before 4:00 p.m. Eastern time, your wire payment will be sent the
next business day. For requests received in proper form after 4:00 p.m. Eastern
time, the payment will be sent the second business day. By offering this service
to you, the Fund is not bound to meet any redemption request in less than the
seven day period prescribed by law. Neither the Fund nor its agents shall be
liable to you or any other person if, for any reason, a redemption requests by
wire is not processed as described in this section.
If you sell shares you recently purchased in the Plan with a check or draft,
we may delay sending you the proceeds for up to 15 days or more to allow the
check or draft to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment
for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call Retirement Plan Services.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
Dividend and capital gain distributions (if any) are usually paid in October
and (if necessary) in December representing all or substantially all of the
Fund's net investment income and any net realized capital gains.
Income dividends and capital gain distributions paid by the Fund, pursuant
to the terms of the Plans, are automatically reinvested on the payment date in
whole or fractional shares of the Fund at net asset value as of the ex-dividend
date. If you elect, you may receive such distributions in cash so long as the
account is not a Trust Company retirement plan account. The processing date for
the reinvestment of dividends may vary from time to time, and does not affect
the amount or value of the shares acquired.
Dividend payments are not guaranteed, are subject to the Board's discretion
and may vary with each payment. The Fund does not pay "interest" or guarantee
any fixed rate of return on an investment in its shares.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You may obtain shares in the Fund only through purchasing shares in a Plan.
The Offering Price of the Plan shares is based on the Fund's Net Asset Value per
share, and includes the maximum sales charge. We calculate it to two decimal
places using standard rounding criteria. You sell shares at net Asset Value.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund. Your redemption proceeds will not
earn interest between the time we receive the order from your dealer and the
time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the
Net Asset Value per share as of the scheduled close of the NYSE, generally 4:00
p.m. Eastern time. You can find the prior day's closing Net Asset Value and
Offering Price in many newspapers.
To calculate Net Asset Value per share, the Fund's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding. The Fund's assets are valued as
described under "How are Fund Shares Valued?" in the SAI.
PROPER FORM
An order to buy shares is in proper form when we receive your signed
shareholder application and check. Written requests to sell or exchange shares
are in proper form when we receive signed written instructions, with a signature
guarantee if necessary.
We must also receive any outstanding share certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any
delay in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the
evening if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential
claims based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You
should be able to obtain a signature guarantee from a bank, broker, credit
union, savings association, clearing agency or securities exchange or
association. A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and 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 Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that your instructions are genuine. We may also record calls. If our
lines are busy or you are otherwise unable to reach us by phone, you may wish to
ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.
For your protection, we may delay transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to
sell shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b) retirement
accounts by phone, certain restrictions may be imposed on other retirement
plans.
To obtain any required forms or more information about distribution or
transfer procedures, please call our Retirement Plan Services.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless ALL
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a
minor under your state's Uniform Gifts/Transfers to Minors Act. Other than this
form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please
send us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account. Since shares in the Fund can only be acquired by transferring shares
from a Plan, a transfer letter of instructions is required in addition to the
following documents:
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ----------------- -----------------------------------------------------------
CORPORATION Corporate Resolution
- ----------------- -----------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- ----------------- -----------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- ----------------- -----------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the Fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive(except for the reinvestment of
distribution) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete
the systematic withdrawal plan section of the shareholder Plan application
included with this prospectus and indicate how you would like to receive your
payments. You may choose to direct your payments to buy Class I shares of
another Franklin Templeton Fund or have the money sent directly to you, to
another person, or to a checking account. Once you plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us in
writing at least seven business days before the end of the month preceding a
scheduled payment. Please see "How Do I Buy, Sell and Exchange
Shares?--Systematic Withdrawal Plan" in the SAI for more information.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton
Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements and deposit slips for Franklin accounts.
You will need the Fund's code number to use TeleFACTS(R). The code number is
450.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including transfers from your Plan account and dividend
reinvestments. PLEASE VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU
RECEIVE THEM.
o Financial reports of the Fund will be sent every six months. To reduce
Fund expenses, we attempt to identify related shareholders within a
household and send only one copy of a report. Call Fund Information if
you would like an additional free copy of the Fund's financial reports.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your
shares are held by a financial institution, in a street name account, or
networked through the NSCC, the Fund may not be able to offer these services
directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor
Services, 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, Florida
33733-8030. The Fund and Distributors are also located at this address.
Investment Counsel is located at Broward Financial Centre, Fort Lauderdale,
Florida 33394-3091. You may also contact us by phone at one of the numbers
listed below.
<TABLE>
<CAPTION>
HOURS OF OPERATION
(EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ----------------------- ---------------- -----------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m.
(Saturday)
Retirement Plan 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Services
TDD (hearing impaired 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with
high quality service. You will hear a regular beeping tone if your call is being
recorded.
<PAGE>
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT--Investment Company Act of 1940, as amended
BOARD--The Board of Directors of the Fund
CD--Certificate of deposit
CLASS I AND CLASS II--Certain funds in the Franklin Templeton Funds offer
multiple classes of shares. The different classes have proportionate interests
in the same portfolio of investment securities. They differ, however, primarily
in their sales charge structures and Rule 12b-1 plans. The Fund's shares are
considered Class I shares for redemption, exchange and other purposes.
CODE--Internal Revenue Code of 1986, as amended
DISTRIBUTORS--Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
FRANKLIN TEMPLETON FUNDS--The U.S. registered mutual funds in the Franklin Group
of Funds(R) and the Templeton Group of Funds except for Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund
and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP--Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS--All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES--Franklin Templeton Services, Inc., the Fund's administrator
INVESTMENT COUNSEL--Templeton Investment Counsel, Inc., the Fund's investment
manager
INVESTOR SERVICES--Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS--Internal Revenue Service
MOODY'S--Moody's Investors Service, Inc.
NET ASSET VALUE (NAV)--The value of a mutual fund is determined by deducting the
fund's liabilities from the total assets of the portfolio. The net asset value
per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC--National Securities Clearing Corporation
NYSE--New York Stock Exchange
OFFERING PRICE--The public offering price is the Net Asset Value per share.
Shares of the Fund may be initially acquired through an investment in Templeton
Capital Accumulation Plans. The charges for the first year of a Plan can amount
to 50% of the amounts paid during that year under the Plan.
RESOURCES--Franklin Resources, Inc.
SAI--Statement of Additional Information
S&P--Standard & Poor's Corporation
SEC--U.S. Securities and Exchange Commission
SECURITIES DEALER--A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R)--FRANKLIN TEMPLETON'S AUTOMATED CUSTOMER SERVICING SYSTEM
TFTC--Templeton Funds Trust Company, the custodian for the Plans as described in
the Plan prospectus
TRUST COMPANY--Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S.--United States
WE/OUR/US--Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - CALL 1-800/DIAL BEN (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, charges and
expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure 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
Franklin Templeton German
Government Bond Fund
Franklin Templeton
Global Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income
Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High
Income 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
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment
Grade Income Fund
Franklin Short-Intermediate U.S.
Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
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
FRANKLIN STATE-SPECIFIC FUNDS SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
VARIABLE ANNUITIES+
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
<PAGE>
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
+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.
