PROSPECTUS & APPLICATION
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
JANUARY 1, 1999
This prospectus describes Templeton Capital Accumulator Fund, Inc. (the
"fund"). Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how the fund invests
and the services available to shareholders.
You may not purchase fund shares directly. You may acquire fund shares
only by investing in Templeton Capital Accumulation Plans (the "Plans" or
"Plan"). The sales charges for the first year of a Plan can amount to as much
as 50% of the amounts you invest that year under the Plan. The Plans are not
suitable for short-term investment. Details of the Plans, including all
charges, are in the attached prospectus for the Plans. Please read the Plan
prospectus before investing and keep it for future reference.
To learn more about the fund and its policies, you may request a copy of
the fund's Statement of Additional Information ("SAI"), dated January 1, 1999,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.
For a free copy of the SAI or a larger print version of this prospectus,
contact your investment representative or call 1-800/DIAL BEN/registered
trademark/.
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency of the
U.S. government. Mutual fund shares involve investment risks, including the
possible loss of principal.
LIKE ALL MUTUAL FUNDS, 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.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES DESCRIBED HEREIN IN
ANY STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO
SECURITIES DEALER, SALESMAN, 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.
P-1
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
January 1, 1999
When reading this prospectus, you will see certain terms beginning with
capital letters. This means the term is explained in the Glossary.
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 Risks of Investing in the Fund? .............. P-7
Who Manages the Fund? ..................................... P-9
How Does the Fund Measure Performance? .................... P-10
Distributions and Taxes ................................... P-11
How Is the Fund Organized? ................................ P-11
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ...................................... P-12
May I Exchange Shares for Shares of Another Fund? ......... P-12
How Do I Sell Shares? ..................................... P-14
What Distributions Might I Receive From the Fund? ......... P-15
Transaction Procedures and Special Requirements ........... P-15
Services to Help You Manage Your Account .................. P-19
What If I Have Questions About My Account? ................ P-21
GLOSSARY
Useful Terms and Definitions .............................. P-22
100 Fountain Parkway
P.O. Box 33030
St. Petersburg
FL 33733-8030
1-800/DIAL BEN/registered trademark/
P-2
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, 1998. The fund's actual expenses may vary.
<TABLE>
<S> <C> <C>
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 ....................................................... 0.34%
Total Fund Operating Expenses ........................................ 1.09%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
C. EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
Assume the fund's annual return is 5% and its
operating expenses are as described above, and you
sell your shares after the number of years shown.
These are the projected expenses for each $1,000
that you invest in the fund. $11 $35 $60 $133
</TABLE>
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 own 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 shows only the expenses of the fund. THE PLANS CHARGE
YOU A SEPARATE SALES CHARGE TO COMPENSATE DISTRIBUTORS FOR CREATING THE PLANS
AND TO PAY SELLING EXPENSES AND COMMISSIONS TO SECURITIES DEALERS. We deduct
this charge from each monthly investment that you make. The charge will vary
according to the size of your monthly investment. For example, on a $100 per
month Plan, $50 is deducted from each of the first 12 monthly investments.
After that, the charge drops to $6.07 on each subsequent monthly investment.
For details concerning sales charges, see the accompanying Plan prospectus.
P-3
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 statement in the fund's Annual Report to Shareholders for the fiscal
year ended August 31, 1998. The Annual Report to Shareholders also includes
more information about the fund's performance. For a free copy, please call
1-800/DIAL BEN/registered trademark/.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
PER SHARE OPERATING PERFORMANCE(2) ----------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR) 1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ............... $ 10.97 $ 9.08 $ 7.97
- -------------------------------------------------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............................ .18 .18 .19
-------- -------- --------
Net realized and unrealized gains (losses) ....... ( 1.00) 2.03 1.10
-------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS ................. ( .82) 2.21 1.29
-------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment income ............. ( .18) ( .18) ( .15)
Distributions from net realized gains ............ ( .28) ( .14) ( .03)
-------- -------- --------
TOTAL DISTRIBUTIONS .............................. ( .46) ( .32) ( .18)
- -------------------------------------------------- -------- -------- --------
NET ASSET VALUE, END OF YEAR ..................... $ 9.69 $ 10.97 $ 9.08
- -------------------------------------------------- -------- -------- --------
TOTAL RETURN(3) .................................... ( 7.87)% 25.06% 16.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) .................... $ 191,913 $172,683 $108,019
RATIOS TO AVERAGE NET ASSETS
Expenses, excluding waiver and payments
by affiliates .................................. 1.09% 1.13% 1.16%
Expenses ......................................... 1.00% 1.00% 1.00%
Net investment income ............................ 1.77% 2.00% 2.56%
Portfolio turnover rate .......................... 11.92% 7.43% 11.08%
AVERAGE COMMISSION RATE PAID(5) ................. .0106 $ .0110 $ .0210
- -------------------------------------------------- --------- -------- --------
<CAPTION>
YEAR ENDED AUGUST 31
PER SHARE OPERATING PERFORMANCE2 -----------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR) 1995 1994 1993 1992 19911
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ............... $ 8.10 $ 6.87 $ 5.48 $ 5.21 $ 5.00
- --------------------------------------------------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............................ .14 .09 .10 .08 .07
------- ------- ------- ------- -------
Net realized and unrealized gains (losses) ....... .12 1.30 1.44 .28 .14
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS ................. .26 1.39 1.54 .36 .21
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income ............. ( .10) ( .07) ( .10) ( .09) --
Distributions from net realized gains ............ ( .29) ( .09) ( .05) -- --
------- ------- ------- -------- --------
TOTAL DISTRIBUTIONS .............................. ( .39) ( .16) ( .15) ( .09) --
- --------------------------------------------------- ------- ------- ------- -------- --------
Net Asset Value, end of year ..................... $ 7.97 $ 8.10 $ 6.87 $ 5.48 $ 5.21
- --------------------------------------------------- ------- ------- ------- -------- --------
TOTAL RETURN3 .................................... 3.40% 20.64% 29.11% 7.01% 4.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) .................... $65,538 $38,323 $18,365 $ 8,690 $ 3,635
RATIOS TO AVERAGE NET ASSETS
Expenses, excluding waiver and payments
by affiliates .................................. 1.34% 1.58% 1.91% 1.84% 3.99%(4)
Expenses ......................................... 1.00% 1.00% 1.00% 1.00% 1.00%(4)
Net investment income ............................ 2.37% 1.58% 1.99% 2.06% 3.80%(4)
Portfolio turnover rate .......................... 12.91% 15.25% 14.97% 16.42% --
AVERAGE COMMISSION RATE PAID(5)................... -- -- -- -- --
- --------------------------------------------------- ------- ------- ------- -------- --------
<FN>
(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 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.
</FN>
</TABLE>
P-4
PAGE
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is long-term capital growth. This goal is
fundamental, which means that it may not be changed without shareholder
approval.
WHAT IS THE FUND'S INVESTMENT STRATEGY?
The fund tries to achieve its investment goal through a flexible policy of
investing in equity securities and debt obligations of companies and
governments of any nation.
WHAT KINDS OF SECURITIES DOES THE FUND BUY?
EQUITY SECURITIES generally entitle the holder to participate in a
company's general operating results. Equity securities include common stock,
preferred stock, convertible securities, warrants or rights. The fund's primary
investments are in common stock.
In selecting equity securities, Investment Counsel does a
company-by-company analysis, rather than focusing on a specific industry or
economic sector. Investment Counsel concentrates primarily on the market price
of a company's securities relative to its view regarding the company's
long-term earnings potential. A company's historical value measures, including
price/earnings ratios, profit margins and liquidation value, also will be
considered.
DEBT SECURITIES represent an obligation of the issuer to repay a loan of
money to it, and generally provides for the payment of interest. These include
bonds, notes and debentures, commercial paper, time deposits, bankers'
acceptances, and structured investments. Debt securities are described more
fully in the SAI.
The fund may buy both rated and unrated debt securities. Independent
rating organizations rate debt securities based upon their assessment of the
financial soundness of the issuer. Generally, a lower rating indicates higher
risk. At present, the fund does not intend to invest more than 5% percent of
its assets in debt securities rated lower than Baa by Moody's or lower than BBB
by S&P or to invest in any debt securities rated lower than Caa by Moody's or
less than CCC by S&P. Please see the SAI for more details on the risks
associated with lower-rated securities.
DEPOSITARY RECEIPTS. The fund may invest in American, European and Global
Depositary Receipts. Depositary Receipts 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 corporation.
GENERAL. The fund may invest no more than 5% of its total assets in
securities of any one company or government. The fund may invest an unlimited
amount in 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. The
fund may invest up to 5% of its assets in warrants (excluding warrants acquired
in units or attached to securities). The fund may invest up to 15% of its total
assets in foreign securities that are not listed on a recognized U.S. or
foreign securities exchange. Please refer to the SAI for more information on
the types of securities in which the fund invests.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
TEMPORARY INVESTMENTS. When Investment Counsel believes that the
securities trading markets or the economy are experiencing excessive volatility
or a prolonged general decline, it may invest the fund's portfolio in a
temporary defensive manner. Under these circumstances, the fund may invest up
to 100% of its assets in money market securities, denominated in the currency
of any nation. These may include:
P-5
PAGE
/bullet/ short-term (maturity of less than 12 months) and medium-term
(maturity up to 5 years) obligations issued or guaranteed by the U.S. or a
foreign government, their agencies or instrumentalities;
/bullet/ finance company and corporate commercial paper, and other
short-term corporate obligations, rated Prime-1 by Moody's or A or better by
S&P or, if unrated, determined to be of comparable quality or must be issued by
a company which, at the date of investment, has an outstanding debt issue rated
AAA or AA by S&P or Aaa or Aa by Moody's;
/bullet/ repurchase agreements with U.S. banks and broker-dealers with
respect to Canadian or U.S. government securities;
/bullet/ 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 these obligations to 25% of its total assets and will
limit its investment in time deposits for which there is a penalty for early
withdrawal to 10% of its total assets.
If the fund adopts a temporary defensive position, the investment
practices described above may not be consistent with the fund's stated
investment goal.
REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash
management purposes, the fund may enter into repurchase agreements with U.S.
banks and registered broker dealers. Under a repurchase agreement, the fund
agrees to buy a security from one of these entities then to sell the security
back after a short period of time (generally, less than seven days) at a higher
price. The bank or broker dealer must transfer to the fund's custodian
securities equal to 102% of the dollar amount invested by the fund in each
repurchase agreement.
OPTIONS ON SECURITIES INDICES. The fund may buy and sell options on
securities indices. An option on a securities index is a contract that allows
the buyer of the option the right to receive cash from the seller, in an amount
equal to the difference between the index's closing price and the option's
exercise price. The fund may not commit more than 5% of its total assets to
premiums to buy options on securities indices.
FOREIGN CURRENCY EXCHANGE CONTRACTS. To help protect its portfolio against
adverse changes in currency exchange rates, the fund may enter into forward
foreign currency contracts. These contracts are agreements to buy or sell a
specific currency at a set price on a future date (generally within one year).
The fund may not commit more than 20% of its total assets to these contracts.
The fund also may buy and sell put and call options on foreign currencies.
FUTURES CONTRACTS. Changes in interest rates, securities prices or foreign
currency valuations may affect the value of the fund's investments. To reduce
its exposure to these factors, the fund may buy and sell stock index futures
contracts, foreign currency futures contracts and options on any of these
contracts. A stock 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 end of the contract period. A futures contract on a
foreign currency is an agreement to buy or sell a specific amount of a currency
for a set price on a future date. The fund may not commit more than 5% of its
total assets to initial margin deposits on futures contracts and related
options.
SECURITIES LENDING. The fund may lend its portfolio securities to banks
and broker-dealers. Such loans may not exceed 331/3% of the value of the fund's
total assets (including the value of the collateral) measured at the time of
the most recent loan. For each loan, the fund must receive collateral with a
value at least equal to 100% of the current market value of the loaned
securities. The fund may terminate the loans at any time and obtain the return
of the securities loaned within five business days. The fund will receive any
interest or dividends paid on the loaned securities and will keep the voting
rights on the loaned securities.
P-6
PAGE
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. The fund invests for long-term
growth of capital and does not intend to emphasize short-term trading profits.
It is anticipated, therefore, that the fund's annual portfolio turnover rate
generally will be below 50%; although this rate may be higher or lower, in
relation to market conditions. A portfolio turnover rate of less than 50% means
that in a one-year period, less than one-half of the fund's portfolio has
changed.
ILLIQUID INVESTMENTS. The fund will not invest more than 10% of its net
assets in illiquid securities. Illiquid securities generally are securities
that cannot be sold within seven days in the normal course of business at
approximately the amount at which the fund has valued them.
OTHER POLICIES AND RESTRICTIONS. The fund has a number of additional
investment policies and restrictions that govern its activities. Those that are
identified as "fundamental" only may be changed with shareholder approval. The
others may be changed by the Board alone. For a list of these restrictions and
more information about the fund's investment policies, including those
described above, please see "How Does the Fund Invest Its Assets?" and
"Investment Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and
in the SAI apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the investment
no longer meets one or more of the fund's policies or restrictions.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
GENERAL RISK. There is no assurance that the fund's investment goal will
be met. The fund will seek to spread investment risk by diversifying its
investments but the possibility of losses remains. Generally, if the securities
owned by the fund increase in value, the value of the shares of the fund, which
you own, will increase. Similarly, if the securities owned by the fund decrease
in value, the value of your shares also will decline. In this way, you
participate in any change in the value of the securities owned by the fund.
FOREIGN SECURITIES RISK. The fund may invest up to 100% of its total
assets in any foreign country, developed or undeveloped. The value of foreign
(and U.S.) securities are affected by general economic conditions and
individual company and industry earnings prospects. Foreign securities involve
additional risks that can increase the potential for losses in the fund. These
risks can be significantly greater for investments in emerging or developing
markets. Investments in Depositary Receipts also involve some or all of the
risks described below.
The political, economic and social structures of some countries in which
the fund invests may be less stable and more volatile than those in the U.S.
The risks of investing in these countries include the possibility of exchange
controls, expropriation, restrictions on removal of currency or other assets,
nationalization of assets, and punitive taxes.
There may be less publicly available information about a foreign company
or government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than in the U.S. Transaction costs on foreign
securities markets are generally higher than in the U.S. The settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to foreign investments in foreign courts than with respect to domestic
issuers in U.S. courts.
P-7
PAGE
Some of the countries in which the fund may invest, such as Russia and
certain Asian, Latin American and Eastern European countries, are considered
developing or emerging markets. Investments in these markets are subject to all
of the risks of foreign investing generally, and have additional and heightened
risks due to a lack of legal, business and social frameworks to support
securities markets.
DEVELOPING OR EMERGING MARKETS RISK. These risks include political and
social uncertainty (for example, regional conflicts and risk of war), currency
exchange rate volatility, pervasiveness of corruption and crime, delays in
settling portfolio transactions, and risk of loss arising out of the system of
share registration and custody. All of these factors make emerging market
securities' prices generally more volatile than those of developed markets.
The fund may invest up to 100% of its total assets in emerging markets,
including up to 5% of its total assets in Russian securities. For more
information on the risks associated with emerging markets securities, please
see the SAI.
MARKET, CURRENCY, AND INTEREST RATE RISK. General market movements in any
country where the fund has investments are likely to affect the value of the
securities that the fund owns in that country and the fund's share price may
also be affected. The fund's investments may be denominated in foreign
currencies so that changes in foreign currency exchange rates will also affect
the value of what the fund owns, and thus the price of its shares. To the
extent the fund invests in debt securities, changes in interest rates in any
country where the fund is invested will affect the value of the fund's
portfolio and, consequently, its share price. Rising interest rates, which
often occur during times of inflation or a growing economy, are likely to cause
the value of a debt security to decrease, and may decrease the value of fund
shares. Of course, individual and worldwide stock markets, interest rates and
currency valuations have both increased and decreased, sometimes very
dramatically, in the past. These changes are likely to occur again in the
future at unpredictable times.
CREDIT AND ISSUER RISK. The fund's investments in debt securities involve
credit risk. This is the risk that the issuer of a debt security will be unable
to make principal and interest payments in a timely manner and the debt
security will go into default. 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.
DERIVATIVE SECURITIES RISK. Derivative investments are those whose values
are dependent upon the performance of one or more other securities, investments
or indices; in contrast to common stock, for example, whose value is more
dependent upon the operations of the issuer. Option transactions, foreign
currency exchange transactions and futures contracts are considered derivative
investments. To the extent the fund enters into these transactions, their
success will depend upon Investment Counsel's ability to predict pertinent
market movements. These investments are subject to the risk that the other
party to the transaction may fail to perform, resulting in losses to the fund.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. If the fund holds investments in
countries with currencies replaced by the euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same reason,
it is not possible to predict the impact of the euro on the business or
financial condition of European issuers which the fund may hold in its
portfolio, and their impact on the value of fund shares. To the extent the fund
holds non-U.S. dollar (euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the
U.S. Dollar.
P-8
PAGE
YEAR 2000. When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by
issuers about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit each issue and its major suppliers to verify their Year
2000 readiness.
If an issuer in which the fund is invested is adversely affected by Year
2000 problems, it is likely that the price of its securities will also be
adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the price of fund shares.
Please see "Year 2000 Problem" under "Who Manages the Fund?" for more
information.
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 $216 billion in
assets. The Templeton organization has been investing globally since 1940. The
manager and its affiliates have officers in Argentina, Australia, Bahamas,
Bermuda, Brazil, the British Virgin Islands, Canada, China, Cyprus, France,
German, Hong Kong, India, Italy, Japan, Korea, Luxembourg, Mauritius, the
Netherlands, Poland, Russia, Singapore, South Africa, Spain, Sweden,
Switzerland, Taiwan, United Kingdom and the U.S. 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
Templeton 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 B.B.A. 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
P-9
PAGE
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 Colombia and Peru.
MANAGEMENT FEES. During the fiscal year ended August 31, 1998, management
fees, before any advance waiver, totaled 0.75% of the fund's average daily net
assets. Total expenses, before any advance waiver, including fees paid to
Investment Counsel, were 1.09%. Under an agreement by Investment Counsel to
waive its fees, the fund paid management fees totaling 0.66% and the fund paid
total operating expenses of 1.00%. Effective September 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. FT Services provides certain administrative
services and facilities for the fund. During the fiscal year ended August 31,
1998, administration fees totaling 0.15% of the average daily net assets of the
fund were paid to FT Services. These fees are included in the amount of total
expenses shown above. Please see "Investment Management and Other Services" in
the SAI for more information.
YEAR 2000 PROBLEM. The fund's business operations depend upon a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the date,
and unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a non-standard leap
year may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely
affected if the computer systems used by Investment Counsel, its service
providers and other third parties it does business with are not Year 2000
ready. For example, the fund's portfolio and operational areas could be
impacted, including securities trade processing, interest and dividend
payments, securities pricing, shareholder account services, reporting, custody
functions and others. The fund could experience difficulties in effecting
transactions if any of its foreign subcustodians, or if foreign broker/dealers
or foreign markets are not ready for Year 2000.
Investment Counsel and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to address
their Year 2000 problems. Of course, the fund's ability to reduce the effects
of the Year 2000 problem is also very much dependent upon the efforts of third
parties over which the fund and Investment Counsel may have no control.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the fund advertises its performance. A commonly used
measure of performance is total return. Total return is the change in value of
an investment over a given period. It assumes any dividends and capital gains
are reinvested. Total return and other performance figures may not include
sales charges associated with the purchase of the fund through the Plans. Of
course, these performance figures would be lower if Plan sales charges were
taken into account.
P-10
PAGE
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.
DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS. The fund intends to pay a dividend
at least annually representing substantially all of its net investment income
and any net realized capital gains. The amount of this distribution 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 1-800/DIAL BEN.
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 shares of the fund or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital gains
no matter how long you have owned your shares.
- --------------------------------------------------------------------------------
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the IRS instructs the fund to do so.
- --------------------------------------------------------------------------------
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or
loss. For tax purposes, an exchange of your shares of the fund for shares of a
different Franklin Templeton Fund is the same as a sale. The 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 will
generally be subject to state and local income tax. Any foreign taxes paid by
the fund on its investments 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.
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 the 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 A (formerly called 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.
P-11
PAGE
The fund does not intend to hold annual shareholder meetings. It may hold
special meetings, however, for matters requiring shareholder approval. A
meeting may be called by the Board to consider the removal of a Board member if
requested in writing by shareholders holding at least 10% of the outstanding
shares. In certain circumstances, the fund is required to help you communicate
with other shareholders about the removal of a Board member as required by law.
A special meeting may also be called by the Board in its discretion.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
You may purchase shares of the fund only by investing in the Plans.
Details of the Plans, including the terms of the offering, are in the attached
Plan prospectus. Except where Planholders have received fund shares in a Plan
liquidation or partial withdrawal from a Plan we do not expect that any person,
other than the Plan custodian, will directly hold any fund shares.
No Securities Dealer, salesman, or other person is 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 itself does not represent an investment concept that is new or
different from other investment companies for which Investment Counsel or its
affiliates acts as an investment manager. The fund's investment goal of
long-term capital growth is similar to the goal of certain other Franklin
Templeton Funds.
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 other Franklin Templeton Funds. If you
liquidate a Plan or withdraw Plan shares, you can move your investment to an
existing or new account in another Franklin Templeton Fund (an "exchange").
Please refer to the attached Plan prospectus, including "How Do I Terminate My
Plan" for further information on termination of a Plan. 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 goal 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. No exchanges into the fund from other Franklin Templeton
Funds will be accepted.
P-12
PAGE
<TABLE>
<S> <C>
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/registered trademark/
/arrow/ 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
- -----------------------------------------------------------------------------------------------
</TABLE>
Please refer to "Transaction Procedures and Special Requirements" for
other important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
In general, no sales charge applies, and in the case of an exchange into a
Franklin Templeton Fund that offers two or more classes of shares, you would
receive Class A shares, which generally bear lower Rule 12b-1 distribution fees
than other classes of shares of the same fund.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
/bullet/ You must meet the applicable minimum investment amount of the
Franklin Templeton Fund you are exchanging into, or exchange 100%
of your fund shares.
/bullet/ 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."
/bullet/ 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.
/bullet/ The Franklin Templeton Fund you are exchanging into must be
eligible for sale in your state.
/bullet/ We may modify or discontinue our exchange policy if we give you 60
days' written notice.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if i) we believe the fund
would be harmed or unable to invest effectively, or ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
P-13
PAGE
HOW DO I SELL SHARES?
If you liquidate your Plan or withdraw Plan shares, you may redeem (sell)
the fund shares that you receive 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:
/bullet/ The name, address and telephone number of the bank where
you want the proceeds sent
/bullet/ Your bank account number
/bullet/ The Federal Reserve ABA routing number
/bullet/ 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.
- -------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- -------------------------------------------------------------------------------
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:
/bullet/ If the request is equal to or less than 90% of
your Plan account value and $50,000 or less.
/bullet/ If there are no share certificates issued for
the shares you want to sell or you have already
returned them to the fund.
/bullet/ Unless you are selling shares in a Trust
Company retirement plan account
/bullet/ Unless the address on your account was changed
by phone within in the last 15 days.
/bullet/ 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 7 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 cannot receive or pay out cash in the
form of currency.
The wiring of redemption proceeds is a special service 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
P-14
PAGE
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 7-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 request 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 until your check or draft has
cleared, which may take 7 business days or more. A certified or cashier's check
may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone
payment for more than 7 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 at least
annually representing 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. 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. If you
elect, you may receive distributions in cash so long as the account is not a
Trust Company retirement plan account. If you have the money sent to another
person or to a checking or savings account, you may need a signature guarantee.
If you send the money to a checking or savings account, please see "Electronic
Fund Transfers" under "Services to Help you Manage Your Account."
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 purchase fund shares only by 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
P-15
PAGE
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, normally 1:00
p.m. Pacific time. You can find the prior day's closing Net Asset Value 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.
If you liquidate your Plan or withdraw shares from your Plan Account, you
may hold fund shares directly. The following procedures and requirements apply
to all fund shares held directly.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any
delay in processing your transaction, they should include:
/bullet/ Your name,
/bullet/ The fund's name,
/bullet/ A description of the request,
/bullet/ For exchanges, the name of the Franklin Templeton Fund you are
exchanging into,
/bullet/ Your account number,
/bullet/ The dollar amount or number of shares, and
/bullet/ 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.
P-16
PAGE
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, or
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 a 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.
P-17
PAGE
To obtain any required forms or more information about distribution or
transfer procedures, please call 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
P-18
PAGE
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 $250, or less than
$50 for employee accounts and custodian accounts for minors. 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 distributions) 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 $1,000, or $100 for employee accounts and custodian accounts for
minors. These minimums do not apply to IRAs and other retirement plan accounts
or to accounts managed by the Franklin Templeton Group.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
SYSTEMATIC WITHDRAWAL PROGRAM
Our Systematic Withdrawal Program 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.
You may choose to direct your payments to buy shares of another Franklin
Templeton Fund or have the money sent directly to you, to another person, or to
a checking or savings account. Once your plan is established, any distributions
paid by the fund will be automatically reinvested in your account. If you
choose to have the money sent to a checking or savings account, please see
"Electronic Fund Transfers" below.
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
Program, it is a taxable transaction.
You may discontinue a Systematic Withdrawal Program, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us in
writing at least 7 business days before the end of the month preceding a
scheduled payment. Please see "How Do I Buy, Sell and Exchange
Shares?--Systematic Withdrawal Program" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions or payments
under a Systematic Withdrawal Program sent directly to a checking or savings
account. If the account is with a bank that is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If you choose this option, please allow at least 15 days for initial
processing. We will send any payments made during that time to the address of
record on your account.
P-19
PAGE
TELEFACTS/registered trademark/
From a touch-tone phone, you may call our TeleFACTS system (day or night)
at 1-800/247-1753 to:
/bullet/ obtain information about your account;
/bullet/ obtain price and performance information about the fund or any
other Franklin Templeton Fund;
/bullet/ exchange shares between identically registered Franklin accounts;
and
/bullet/ request duplicate statements and deposit slips for Franklin
accounts.
You will need the fund's code number to use TeleFACTS/registered
trademark/. The code number is 450.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
/bullet/ 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.
/bullet/ Financial reports of the fund will be sent every 6 months. To
reduce fund expenses, we attempt to identify related shareholders
within a household and send only one copy of a report. Call
1-800/DIAL BEN/registered trademark/ 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.
P-20
PAGE
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 500 East Broward Boulevard, Fort Lauderdale,
Florida 33394-3091. You may also contact us by phone at one of the numbers
listed below.
HOURS OF OPERATION
PACIFIC TIME
DEPARTMENT TELEPHONE (MONDAY THROUGH FRIDAY)
- ------------------------- --------------- --------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
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.
P-21
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 A, CLASS B AND CLASS C--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. Shares of the
fund are considered Class A 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 and sponsor of Templeton Capital Accumulation Plans. 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/registered trademark/ and the Templeton Group of Funds except
for Franklin Valuemark Funds, Templeton Capital Accumulator Fund, Inc. 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/registered trademark/ 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
P-22
PAGE
OFFERING PRICE--The public offering price is based on the fund's Net Asset
Value per share. Shares of the fund may be initially acquired through an
investment in Templeton Capital Accumulation Plans. The sales 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/registered trademark/--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.
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.
P-23
PAGE
NOTES
PAGE
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - CALL 1-800/DIAL BEN/registered trademark/ (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.
<TABLE>
<CAPTION>
<S> <C> <C>
FRANKLIN FUNDS SEEKING
GLOBAL GROWTH GROWTH AND INCOME TAX-FREE INCOME
Franklin Global Health Care Fund Franklin Asset Allocation Fund Federal Intermediate-Term
Mutual Discovery Fund Franklin Balance Sheet Tax-Free Income Fund
Templeton Developing Markets Investment Fund* Federal Tax-Free Income Fund
Trust Franklin Convertible Securities High Yield Tax-Free Income Fund
Templeton Foreign Fund Fund Insured Tax-Free Income Fund
Templeton Foreign Smaller Franklin Equity Income Fund Puerto Rico Tax-Free Income Fund
Companies Fund Franklin Income Fund Tax-Exempt Money Fund
Templeton Global Franklin MicroCap Value Fund*
Infrastructure Fund Franklin Natural Resources Fund FRANKLIN STATE-SPECIFIC
Templeton Global Franklin Real Estate Securities FUNDS SEEKING TAX-FREE
Opportunities Trust Fund INCOME
Templeton Global Real Estate Fund Franklin Rising Dividends Fund Alabama
Templeton Global Smaller Franklin Strategic Income Fund Arizona*
Companies Fund Franklin Utilities Fund Arkansas**
Templeton Greater European Fund Franklin Value Fund California*
Templeton Growth Fund Mutual Beacon Fund Colorado
Templeton Latin America Fund Mutual Financial Services Fund Connecticut
Templeton Pacific Growth Fund Mutual Qualified Fund Florida*
Templeton World Fund Mutual Shares Fund Georgia
Hawaii**
GLOBAL GROWTH AND INCOME FUND ALLOCATOR SERIES Indiana
Franklin Global Utilities Fund Franklin Templeton Kentucky
Mutual European Fund Conservative Target Fund Louisiana
Templeton Global Bond Fund Franklin Templeton Maryland
Templeton Growth and Income Moderate Target Fund Massachusetts***
Fund Franklin Templeton Michigan*
Growth Target Fund Minnesota***
GLOBAL INCOME Missouri
Franklin Global Government INCOME New Jersey
Income Fund Franklin Adjustable Rate New York*
Franklin Templeton Securities Fund North Carolina
Global Currency Fund Franklin Adjustable U.S. Ohio***
Franklin Templeton Hard Government Securities Fund Oregon
Currency Fund Franklin's AGE High Income Fund Pennsylvania
Templeton Americas Franklin Bond Fund Tennessee**
Government Securities Fund Franklin Floating Rate Trust Texas
Franklin Investment Virginia
GROWTH Grade Income Fund Washington**
Franklin Biotechnology Franklin Short-Intermediate U.S.
Discovery Fund Government Securities Fund VARIABLE ANNUITIES/dagger/
Franklin Blue Chip Fund Franklin U.S. Government Franklin Valuemark/registered trademark/
Franklin California Growth Fund Securities Fund Franklin Templeton
Franklin DynaTech Fund Franklin Money Fund Valuemark Income Plus
Franklin Equity Fund Franklin Federal Money Fund (an immediate annuity)
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
<FN>
* 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.
/dagger/ 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.
</FN>
</TABLE>
