FRANKLIN
GLOBAL HEALTH
CARE FUND
Franklin Strategic Series
PROSPECTUS September 1, 1995
as amended April 18, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin Global Health Care Fund (the "Fund") is a non-diversified series of
Franklin Strategic Series (the "Trust"), an open-end management investment
company. The Fund's investment objective is capital appreciation; it seeks to
accomplish its objective by investing primarily in the equity securities of
health care companies located throughout the world.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information (the "SAI") concerning the Fund, dated
September 1, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE 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 THE UNDERWRITER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents Page
Expense Table.......................... 2
Financial Highlights................... 4
About the Fund......................... 4
Investment Objective and
Policies of the Fund.................. 5
Management of the Fund................. 11
Distributions to Shareholders.......... 12
Taxation of the Fund
and Its Shareholders.................. 13
How to Buy Shares of the Fund.......... 14
Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments.... 20
Other Programs and Privileges
Available to Fund Shareholders........ 21
Exchange Privilege..................... 23
How to Sell Shares of the Fund......... 24
Telephone Transactions................. 28
Valuation of Fund Shares............... 29
How to Get Information
Regarding an Investment in the Fund.... 30
Performance............................ 31
General Information.................... 32
Account Registrations.................. 33
Important Notice Regarding
Taxpayer IRS Certifications........... 34
Portfolio Operations................... 34
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund, before fee waivers and expense reductions, for
the fiscal year ended April 30, 1995.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)........................... 4.50%
Deferred Sales Charge.......................................... NONE*
*Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month following such investments. See "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees................................................ 0.63%**
12b-1 Fees..................................................... 0.19%***
Other Expenses:
Reports to Shareholders................................... 0.19%
Registration fees......................................... 0.13%
Other..................................................... 0.23%
------
Total Other Expenses........................................... 0.55%
------
TOTAL FUND OPERATING EXPENSES.................................. 1.37%
======
**Represents the amount that would have been payable to the investment manager,
absent a fee reduction by the investment manager. The investment manager,
however, agreed in advance to waive its management fees and to make certain
payments to reduce expenses. With this reduction, the Fund paid no management
fees and total operating expenses represented 0.25% of the average net assets of
the Fund. This arrangement may be terminated by the investment manager at any
time.
***Consistent with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.
One year* Three years Five years Ten years
$58 $86 $117 $202
*Assumes that the 1% contingent deferred sales charge will not apply
This example is based on the aggregate annual operating expenses, before fee
waivers or expense reductions, shown above and should not be considered a
representation of past or future expenses, which may be more or less than those
shown. The operating expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. In addition, federal
securities regulations require the example to assume an annual return of 5%, but
the Fund's actual return may be more or less than 5%.
Financial Highlights
Set forth below is a table containing financial highlights for a share of the
Fund from February 14, 1992 (the effective date of registration) through April
30, 1992 and for the three fiscal years ended April 30, 1995. The information
for each of the periods ended April 30, 1995, has been audited by Coopers &
Lybrand L.L.P., independent auditors, whose audit report appears in the
financial statements in the Trust's Annual Report to Shareholders dated April
30, 1995. See the discussion "Report to Shareholders" under "General
Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------- --------------------------
Distri- Distri- Ratio of Ratio of Net
Net Asset Net Net Realized butions butions Net Asset Net Assets Expenses Investment
Year Value at Invest- & Unrealized Total From From Net From Total Value at at End to Average Income to Portfolio
Ended Beginning ment Gain(Loss) Investment Investment Capital Distri- End of Total of Year Net Average Turnover
April30 of Year Income on Securities Operations Income Gains butions Year Return* (in 000's) Assets*** Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19921 $10.00 $0.02 $(1.180) $(1.160) $ -- $ -- $ -- $ 8.84 (55.14)%** $1,368 -- % 1.68%** 41.01%
1993 8.84 0.09 0.037 0.127 (0.087) -- -- 8.88 1.41 3,422 -- 1.13 62.74
1994 8.88 0.07 1.856 1.926 (0.078) (0.298) (0.376) 10.43 21.93 5,795 0.10 0.68 110.82
1995 10.43 0.08 1.560 1.640 (0.061) (0.559) (0.662) 11.45 16.33 12,906 0.25 0.80 93.79
</TABLE>
1For the period February 14, 1992 (effective date of registration) to April 30,
1992.
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized except as noted. It does not include the maximum
front-end sales charge and assumes reinvestment of dividends and capital gains
at net asset value.
**Annualized
***During the periods indicated, the investment manager agreed in advance to
waive its management fees and to make other payments to reduce expenses of the
Fund. Had such action not been taken, the ratios of expenses to average net
assets would have been 1.62% (annualized), 2.16%, 1.74% and 1.37%.
ABOUT THE FUND
The Fund is a non-diversified series of the Trust, an open-end management
investment Company, commonly called a "mutual fund." The Trust was organized in
Delaware as a Delaware business trust in January 1991 and registered with the
SEC under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Fund is managed by Franklin Advisers, Inc. (the "Manager" or "Advisers").
Because the Fund is non-diversified, it may have a larger portion of its assets
invested in a single issuer than a diversified fund. Consequently, changes in
the financial condition of a single issuer may have a greater effect on the
Fund's share value than such changes would have on the performance of other
mutual funds, particularly those which invest in a broad range of issuers and
industries.
The Board of Trustees of the Trust (the "Board") may determine, at a future
date, to offer shares of the Fund in one or more "classes" to permit the Fund to
take advantage of alternative methods of selling Fund shares. "Classes" of
shares represent proportionate interests in the same portfolio of investment
securities but with different rights, privileges and attributes, as determined
by the trustees. Certain funds in the Franklin Templeton Funds, as that term is
defined under "How to Buy Shares of the Fund," currently offer their shares in
two classes, designated "Class I" and "Class II." Because the Fund's sales
charge structure and plan of distribution are similar to those of Class I
shares, shares of the Fund may be considered Class I shares for redemption,
exchange and other purposes.
Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a front-end sales
charge not exceeding 4.5% of the offering price. See "How to Buy Shares of the
Fund."
INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND
The Fund's investment objective is to seek capital appreciation by investing
primarily in the equity securities of health care companies located throughout
the world. The investment objective is a fundamental policy of the Fund and may
not be changed without shareholder approval. The Fund will seek to invest in
companies which have, in the opinion of the Manager, the potential for above
average growth in revenues and/or earnings. There is, of course, no assurance
that the Fund's objective will be achieved.
A "health care" company is defined as one which has at least 50% of its earnings
or revenues derived from health care activities, or at least 50% of its assets
devoted to such activities, based upon the company's most recently reported
fiscal year. Health care activities consist of research, development, production
or distribution of products and services in industries such as: pharmaceutical,
biotechnology, health care facilities, medical supplies, medical technology and
personal health care products.
The Fund will invest at least 70% of its total assets in the equity securities
of health care companies. Equity securities consist of common stocks, preferred
stocks, convertible preferred stocks, securities convertible into common stocks,
rights and warrants. A warrant is a security that gives the holder the right,
but not the obligation, to subscribe for newly created securities of the issuer
or a related company at a fixed price either at a certain date or during a set
period. A convertible security is a security that may be converted either at a
stated price or rate within a specified period of time into a specified number
of shares of common stock. In investing in convertible securities, the Fund
seeks to participate in the capital appreciation of the common stock into which
the securities are convertible through the conversion feature. The Fund will mix
its investments globally by investing 70% of its assets in issues of not less
than three different countries, however the Fund will not invest more than 40%
of the Fund's total net assets in any one country (other than the United States
["U.S."]). The Manager believes that by investing globally, the Fund can
minimize currency, political and economic risks associated with investing in a
single country. Global investing does entail certain risks, however, which are
discussed in "Special Considerations and Risk Factors." The Fund expects from
time to time that a significant portion of its investments will be in securities
of domestic issuers. The Fund may also invest up to 30% of its assets in
domestic and foreign debt securities of any type of issuer (such as foreign and
domestic corporations and foreign and domestic governments and their political
subdivisions), consisting of bonds, notes and debentures as well as debt
securities convertible into equity. The Fund may seek capital appreciation
through changes in relative foreign currency exchange rates or improvement in
the creditworthiness of the issuer related to investments in debt securities.
The receipt of income from such debt securities is incidental to the Fund's
investment objective of growth of capital. The Fund will invest in debt
securities rated B or above by Moody's Investors Service ("Moody's") or Standard
& Poor's Corporation ("S&P"), two nationally recognized statistical ratings
organizations ("NRSROs"), or in bonds which have not been rated by a NRSRO but
are, in the Manager's opinion, comparable to securities rated B or above by the
NRSRO. Securities rated B are considered to be below investment grade and
regarded, on balance, as predominantly speculative with respect to the capacity
to pay interest and repay principal in accordance with the terms of the
obligation. It is the Fund's current intention to invest less than 5% in debt
securities considered to be below investment grade. The SAI contains a
discussion of the ratings. The Fund may also seek to protect capital through the
use of forward currency exchange contracts, options and futures contracts.
Many major developments in health care come from companies based abroad, thus in
the opinion of the Manager, a portfolio of only U.S. based health care stocks is
not sufficiently diversified to participate in global developments and
discoveries in the field of health care. The Manager believes that health care
is becoming an increasingly globalized industry and that many important
investment opportunities lie abroad. Therefore, the Manager believes that a
portfolio of global securities may provide a greater potential for investment
participation in present and future opportunities that may present themselves in
the health care related industries. The Manager also believes that the U.S.
health care industry may be subject to increasing regulation and government
control, thus a global portfolio may reduce the risk of a single government's
actions on the portfolio. The Fund concentrates its investments in a limited
group of related industries and is not intended to be a complete investment
program.
As a global fund, the Fund may invest in securities issued in any currency and
may hold foreign currency. Securities of issuers within a given country may be
denominated in the currency of another country, or in multinational currency
units such as the European Currency Unit. Investments will not be made in
securities of foreign issuers issued without stock certificates or comparable
evidence of ownership. Securities which are acquired by the Fund outside the
U.S. and which are publicly traded in the U.S. or on a foreign securities
exchange or in a foreign securities market are not considered by the Fund to be
an illiquid asset so long as the Fund acquires and holds the security with the
intention of reselling the security in the foreign trading market; the Fund
reasonably believes it can readily dispose of the security for cash at
approximately the amount at which the Fund has valued the security in the U.S.
or foreign market; and current market quotations are readily available.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 20% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with the
Fund's custodian collateral with an initial market value of at least 102% of the
initial market value of the securities loaned, including any accrued interest,
with the value of the collateral and loaned securities marked-to-market daily to
maintain collateral coverage of at least 100%. Such collateral shall consist of
cash, securities issued by the U.S. government, its agencies or
instrumentalities, or irrevocable letters of credit. The lending of securities
is a common practice in the securities industry. The Fund engages in security
loan arrangements with the primary objective of increasing the Fund's income
either through investing the cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.
Borrowing. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of its assets, except that the Fund may enter into reverse
repurchase agreements or borrow from banks up to 10% of its total asset value to
meet redemption requests and for other temporary or emergency purposes. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund. The Board has authorized the Fund to
invest in restricted securities (securities not registered with the SEC, which
might otherwise be considered illiquid) where such investment is consistent with
the Fund's investment objective and has authorized such securities to be
considered to be liquid (and thus not subject to the foregoing 10% limitation),
to the extent the Manager determines on a daily basis that there is a liquid
institutional or other market for such securities. Notwithstanding the Manager's
determination in this regard, the Board will remain responsible for such
determinations and will consider appropriate action, consistent with the Fund's
objective and policies, if a security should become illiquid subsequent to its
purchase. In this regard, if qualified institutional buyers are no longer
interested in purchasing restricted securities previously designated as liquid
or if the market for these securities contracts, these securities will be
redesignated as illiquid and subject to the 10% limitation. See "The Fund's
Investment Objective and Restrictions - Short-term Investments," in the SAI.
American Depositary Receipts. The Fund may hold securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"). ADRs are receipts typically
issued by an American bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. ADRs in registered form
are designed for use in U.S. securities markets. For purposes of the Fund's
investment policies, investments in ADRs will be deemed to be investments in the
equity securities representing securities of foreign issuers into which they may
be converted.
Short-Term Investments. The Fund may invest its cash, including cash resulting
from purchases of Fund shares and sales of portfolio securities, temporarily in
short-term debt instruments, including high grade commercial paper, repurchase
agreements and other money market equivalents and the shares of money market
funds with the same investment advisor as the Fund, which invest primarily in
short-term debt securities. Such temporary investments will only be made with
cash held to maintain liquidity or pending investment. In addition, for
temporary defensive purposes in the event of, or when Advisers anticipates a
general decline in the market prices of stocks in which the Fund invests, the
Fund may invest an unlimited amount of its assets in short-term debt
instruments.
Forward Currency Exchange Contracts. The Fund may enter into forward currency
exchange contracts ("Forward Contracts") to attempt to minimize the risk to the
Fund from adverse changes in the relationship between currencies or to enhance
income. 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 also 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 that security.
Additionally, for example, when the Fund believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
Forward Contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency; or when the Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a Forward
Contract to buy that foreign currency for a fixed dollar amount.
To limit potential risks in connection with the purchase of currency under
Forward Contracts, cash, cash equivalents or readily marketable high grade debt
securities equal to the amount of the purchase will be held aside or segregated
with/at the Fund's custodian bank to be used to pay for the commitment, or the
Fund will cover any commitments under these contracts to sell currency by owning
the underlying currency (or an absolute right to acquire such currency.) The
segregated account will be marked-to-market on a daily basis.
Forward Contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies or between foreign
currencies. Unanticipated changes in currency exchange rates also may result in
poorer overall performance for the Fund than if it had not entered into such
contracts.
Options on Foreign Currencies. The Fund may purchase and write put and call
options on foreign currencies (traded on U.S. and foreign exchanges or
over-the-counter) for hedging purposes to protect against declines in the U.S.
dollar value of foreign portfolio securities or other assets to be acquired. As
in the case of other kinds of options, however, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs. For further discussion of the use, risks
and costs of options on foreign currencies, see the SAI.
Repurchase Agreements. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked to market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with government
securities dealers recognized by the Federal Reserve Board or with member banks
of the Federal Reserve System. Under the 1940 Act, a repurchase agreement is
deemed to be the loan of money by the Fund to the seller, collateralized by the
underlying security. The U.S. government security subject to resale (the
collateral) will be held pursuant to a written agreement and the Fund's
custodian will take title to, or actual delivery of, the security.
The Fund may also enter into reverse repurchase agreements. Such agreements
involve the sale of securities held by the Fund pursuant to an agreement to
repurchase the securities on an agreed-upon price, date and interest payment.
When effecting reverse repurchase transactions, cash or high grade liquid debt
securities of a dollar amount equal in value to the Fund's obligation under the
agreement, including accrued interest, will be maintained in a segregated
account with the Fund's custodian bank, and the securities subject to the
reverse repurchase agreement will be marked-to-market each day. Although reverse
repurchase agreements are borrowings under Section 2(a)(23) of the 1940 Act, the
Fund does not treat these arrangements as borrowings under its fundamental
investment restriction against borrowing (set forth in the SAI) so long as the
segregated account is properly maintained.
The investment policies of the Fund, except as otherwise specifically indicated
herein or in the SAI, are not fundamental policies of the Fund and may be
changed without the approval of a majority of the Fund's outstanding shares.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Prospective investors should take into account their individual investment
objectives as well as other investments when considering the purchase of shares
of the Fund.
Investment in the Fund's shares requires consideration of certain factors that
are not normally involved in investment solely in U.S. securities. Among other
things, the financial and economic policies of a foreign country may not be as
stable as in the U.S. Furthermore, foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to U.S. corporate issuers. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and issuers.
Some foreign securities markets have substantially less volume than the New York
Stock Exchange (the "Exchange") and some foreign government securities may be
less liquid and more volatile than U.S. government securities. Transaction costs
on foreign securities exchanges may be higher than in the U.S. and foreign
securities settlements may, in some instances, be subject to delays and related
administrative uncertainties. Furthermore, foreign securities may be subject to
withholding taxes, thus reducing net investment income available for
distribution to shareholders.
The operating expense ratio of the Fund can be expected to be higher than that
of an investment company investing exclusively in U.S. securities because of the
additional expenses of the Fund, such as custodial costs, valuation costs and
communication costs, although they are expected to be similar to expenses of
other investment companies investing in a mix of U.S. securities and securities
of one or more foreign countries.
Investments of the Fund may be denominated in foreign currencies. Changes in the
relative values of these foreign currencies and the U.S. dollar, therefore, will
affect the value of investments in the Fund. However, the Fund may utilize
forward currency contracts to attempt to minimize these changes. The Fund may
purchase foreign currency futures contracts and options provided that not more
than 5% of the Fund's assets are then invested as initial or variation margin
deposits on such contracts or options. The Fund may acquire and sell such
contracts in order to hedge against changes in the level of future currency
rates. Such contracts involve an agreement to purchase or sell a specific
currency at a future date at a price set in the contract. By entering into such
contracts, the Fund is able to protect against a loss resulting from an adverse
change in the relationship between the U.S. dollar and a foreign currency
occurring between the trade and settlement dates of the Fund securities
transaction, but such contracts also tend to limit the potential gains that
might result from a positive change in such currency relationships.
While the Fund may invest in foreign securities, it is generally not its
intention to invest in foreign equity securities of an issuer which meet the
definition in the Internal Revenue Code of 1986, as amended ("the Code") of a
Passive Foreign Investment Company (PFIC). However, to the extent that the Fund
makes such an investment, the Fund may be subject to both an income tax and an
additional tax in the form of an interest charge with respect to such
investment. To the extent possible, the Fund will avoid such taxes by not
investing in PFIC securities or by adopting other tax strategies for any PFIC
securities it does purchase. These rules are further discussed in the SAI.
The Fund is a non-diversified Fund under the federal securities laws. As a
non-diversified Fund, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. However, the Fund intends to comply with the diversification and
other requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to "regulated investment companies" so that it will not be
subject to U.S. federal income tax on income and capital gains. Accordingly, the
Fund will not purchase securities if, as a result, more than 25% of its total
assets would be invested in the securities of a single issuer or, with respect
to 50% of its total assets, more than 5% of such assets would be invested in the
securities of a single issuer. Because the Fund is non-diversified and
concentrates its investments in a limited group of related industries, the value
of the Fund's shares may fluctuate more widely, and the Fund may present greater
risk than other investments.
Unlike more widely diversified mutual funds, the Fund is subject to industry
risk, the possibility that a particular group of related stocks will decline in
price. The activities of health care companies may be funded or subsidized by
federal and state governments. Consequently, discontinuance of government
subsidies could adversely affect the profitability of such companies. Stocks
held by the Fund will be affected by government policies on health care
reimbursements, regulatory approval for new drugs and medical instruments, and
similar matters. Health care companies may face lawsuits related to product
liability issues. Also, many products and services provided by health care
companies are subject to rapid obsolescence. The value of an investment in the
Fund may fluctuate significantly over relatively short periods of time.
HOW SHAREHOLDERS PARTICIPATE
IN THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.
A decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the Fund's share price. Changes in currency
valuations will also affect the price of Fund shares. History reflects both
decreases and increases in worldwide stock markets and currency valuations, and
these may reoccur unpredictably in the future.
MANAGEMENT OF THE FUND
The Board has the primary responsibility for the overall management of the Fund
and for electing the officers of the Trust who are responsible for administering
its day-to-day operations.
Franklin Advisers, Inc., serves as the Fund's investment manager. Advisers is a
wholly-owned subsidiary of Franklin Resources, Inc. ("Resources"), a publicly
owned holding company, the principal shareholders of which are Charles B.
Johnson and Rupert H. Johnson, Jr., who own approximately 20% and 16%,
respectively, of Resources' outstanding shares. Resources is engaged in various
aspects of the financial services industry through its various subsidiaries (the
"Franklin Templeton Group"). Advisers acts as investment manager or
administrator to 34 U.S. registered investment companies (112 separate series)
with aggregate assets of over $76 billion.
Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.
During the fiscal year ended April 30, 1995, fees totaling 0.63% of the average
daily net assets of the Fund would have been accrued by Advisers. Total
operating expenses, including management fees, would have represented 1.37% of
the average daily net assets of the Fund. Advisers agreed in advance to waive
its management fees and make other payments to reduce the expenses of the Fund.
Pursuant to the action by Advisers, the Fund paid no management fees and total
operating expenses represented 0.25% of the average daily net assets of the
Fund. This action by Advisers may be terminated by Advisers at any time upon
notice to the Board.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "The
Fund's Policies Regarding Brokers Used on Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
PLAN OF DISTRIBUTION
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may reimburse Distributors or
others for all expenses incurred by Distributors or others in the promotion and
distribution of the Fund's shares. Such expenses may include, but are not
limited to the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates. The maximum amount which the Fund may
pay to Distributors or others for such distribution expenses is 0.25% per annum
of the average daily net assets of the Fund, payable on a quarterly basis. All
expenses of distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Fund. The Plan also covers any payments to or by the Fund, Advisers,
Distributors, or other parties on behalf of the Fund, Advisers or Distributors,
to the extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund. For more information, please
see the SAI.
Distributions to Shareholders
There are two types of distributions which the Fund may make to its
shareholders:
1. Income dividends. The Fund receives income in the form of dividends, interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed net capital gains from the prior fiscal year. The Fund may
make more than one distribution derived from net short-term and net long-term
capital gain in any year or adjust the timing of these distributions for
operational or other reasons.
DISTRIBUTION DATE
Although subject to change by the Board, without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends
semiannually in June and December for shareholders of record generally on the
first business day preceding the 15th of the month, payable on or about the last
business day of such months. The amount of income dividend payments by the Fund
is dependent upon the amount of net income received by the Fund from its
portfolio holdings, is not guaranteed and is subject to the discretion of the
Board of Trustees. Fund shares are quoted ex-dividend on the first business day
following the record date. The Fund does not pay "interest" or guarantee any
fixed rate of return on an investment in its shares.
In order to be entitled to a dividend, an investor must have acquired Fund
shares prior to the close of business on the record date. An investor
considering purchasing Fund shares shortly before the record date of a
distribution should be aware that because the value of the Fund's shares is
based directly on the amount of its net assets, rather than on the principle of
supply and demand, any distribution of income or capital gain will result in a
decrease in the value of the Fund's shares equal to the amount of the
distribution. While a dividend or capital gain distribution received shortly
after purchasing shares represents, in effect, a return of a portion of the
shareholder's investment, it may be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date ("ex-dividend date"). Except as
otherwise noted herein, dividend and capital gain distributions are only
eligible for reinvestment at net asset value in the Fund or Class I shares of
other Franklin Templeton Funds. Shareholders in Class II funds may, if they
choose, direct that their dividends and capital gains distributions be paid to a
Class I Franklin Templeton money market fund. Shareholders have the right to
change their election with respect to the receipt of distributions by notifying
the Fund, but any such change will be effective only as to distributions for
which the record date is seven or more business days after the Fund has been
notified. See the SAI for more information.
Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application, included
with this Prospectus, a shareholder may direct the selected distributions to
another fund in the Franklin Templeton Funds, to another person, or directly to
a checking account. If the bank at which the account is maintained is a member
of the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing. Dividends which may be
paid in the interim will be sent to the address of record. Additional
information regarding automated fund transfers may be obtained from Franklin's
Shareholder Services Department. See "Purchases at Net Asset Value" under "How
to Buy Shares of the Fund."
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled,
"Additional Information Regarding Taxation" in the SAI.
The Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income or
excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
received by the shareholder on December 31 of the calendar year in which they
are declared.
For corporate shareholders, 20.12% of the income dividends paid by the Fund for
the fiscal year ended April 30, 1995, qualified for the corporate
dividends-received deduction, subject to certain holding period and debt
financing restrictions imposed under the Code on the corporation claiming the
deduction. These restrictions are discussed in the SAI.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange of
the Fund's shares, held for six months or less, will be treated as a long-term
capital loss to the extent of capital gain dividends received with respect to
such shares.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the total assets of the Fund at the
end of its fiscal year are invested in securities of foreign corporations, the
Fund may elect to pass-through to its shareholders the pro rata share of foreign
taxes paid by the Fund. If this election is made, shareholders will be (i)
required to include in their gross income their pro rata share of foreign source
income (including any foreign taxes paid by the fund), and (ii) entitled to
either deduct their share of such foreign taxes in computing their taxable
income or to claim a credit for such taxes against their U.S. income tax,
subject to certain limitations under the Code. Shareholders will be informed by
the Fund at the end of each calendar year regarding the availability of any
credits and the amount of foreign source income (including any foreign taxes
paid by the Fund) to be included on their income tax returns.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise them of the tax status for federal income tax purposes
of such dividends and distributions.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Fund and distributions and redemption proceeds received from
the Fund.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for the purchase of
shares. The Fund currently does not permit investment by market timing or
allocation services ("Timing Accounts"), which generally include accounts
administered so as to redeem or purchase shares based upon certain predetermined
market indicators.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price, which is determined
by adding the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives the order which
is promptly transmitted to the Fund, or (2) after receipt of an order by mail
from the shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The sales charge is
a variable percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places using standard
rounding criteria. A description of the method of calculating net asset value
per share is included under the caption "Valuation of Fund Shares."
Set forth below is a table of total front-end sales charges or underwriting
commissions and dealer concessions:
<TABLE>
<CAPTION>
Total Sales Charge
------------------------------
As a Percentage Dealer Concession
Size of Transaction As a Percentage of Net Amount As a Percentage
of Offering Price Invested of Offering Price*,***
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more none none (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 1.00% on sales of $1 million but less than $2 million,
plus 0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.
***At the discretion of Distributors, all front-end sales charges may at times
be allowed to the securities dealer. If 90% or more of the sales commission is
allowed, such securities dealer may be deemed to be an underwriter as that term
is defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of investments of $1 million or more within the contingency period.
See "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the funds in the Franklin
Group of Funds(R), and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the open-end mutual funds in the Franklin Group of
Funds except Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Funds"), (b) other investment products underwritten by
Distributors or its affiliates (although certain investments may not have the
same schedule of sales charges and/or may not be subject to reduction) and (c)
the open-end U.S. registered mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate holdings of (a), (b) and
(c) above ("Franklin Templeton Investments" may be effective only after
notification to Distributors that the investment qualifies for a discount.
Other Payments to Securities Dealers. Distributors, or one of its affiliates,
may make payments, out of its own resources, of up to 1% of the amount purchased
to securities dealers who initiate and are responsible for purchases made at net
asset value by certain designated retirement plans (excluding IRA and IRA
rollovers), certain non-designated plans, certain trust companies and trust
departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more. These payments may not
be made to securities dealers or others in connection with the sale of Fund
shares if the payments might be used to offset administration or recordkeeping
costs for retirement plans or circumstances suggest that plan sponsors or
administrators might use or otherwise allow the use of Rule 12b-1 fees to offset
such costs. See definitions under "Description of Special Net Asset Value
Purchases" and as set forth in the SAI.
Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with sales
of shares of Franklin Templeton Funds. Compensation may include financial
assistance to securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and/or shareholder services and programs regarding one or more
of the Franklin Templeton Funds and other dealer-sponsored programs or events.
In some instances, this compensation may be made available only to certain
securities dealers whose representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton Funds. Compensation may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
additional compensation is paid for by the Fund or its shareholders.
Certain officers and trustees of the Fund are also affiliated with Distributors.
A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, the
investor or the securities dealer should notify Distributors at the time of each
purchase of shares which qualifies for the reduction. In determining whether a
purchase qualifies for a discount, an investment in any of the Franklin
Templeton Investments may be combined with those of the investor's spouse,
children under the age of 21, and grandchildren under the age of 21. The value
of Class II shares owned by the investor may also be included for this purpose.
In addition, an investment in the Fund may qualify for a reduction in the sales
charge under the following programs:
1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in the Franklin Templeton Investments may be combined with
the amount of the current purchase in determining the sales charge to be paid.
2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of the Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which, if made at one time, would qualify for
a reduced sales charge and grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. Purchases under the Letter
will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.
An investor (except for certain employee benefit plans which are listed under
"Description of Special Net Asset Value Purchases") acknowledges and agrees to
the following provisions by completing the Letter of Intent section of the
Shareholder Application: Five percent (5%) of the amount of the total intended
purchase will be reserved in shares of the Fund, registered in the investor's
name, to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will be included in the
total shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Purchases" in the SAI.
Although the sales charges on Class II shares cannot be reduced through these
programs, the value of Class II shares owned by the investor may be included in
determining a reduced sales charge to be paid on Class I shares pursuant to the
Letter of Intent and Rights of Accumulation programs.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase shares of
the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of shares previously
purchased and still owned by the members of the group, plus the amount of the
current purchase. For example, if members of the group had previously invested
and still held $80,000 of Fund shares and now were investing $25,000, the sales
charge would be 3.75%. Information concerning the current sales charge
applicable to a group may be obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to Distributors, and seek to arrange for
payroll deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies the Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the offering price per share determined on the day that both the
check and payroll deduction data are received in required form by the Fund.
Purchases at Net Asset Value
Shares of the Fund may be purchased without the imposition of a front-end sales
charge ("net asset value") or a contingent deferred sales charge by (1)
officers, trustees, directors and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members, including investments made by such parties after
cessation of employment; (2) companies exchanging shares or selling assets
pursuant to a merger, acquisition or exchange offer; (3) insurance company
separate accounts for pension plan contracts; (4) accounts managed by the
Franklin Templeton Group; (5) shareholders of Templeton Institutional Funds,
Inc. reinvesting redemption proceeds from that fund under an employee benefit
plan qualified under Section 401 of the Code, in shares of the Fund; (6) certain
unit investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (7) registered securities dealers and
their affiliates, for their investment account only; and (8) registered
personnel and employees of securities dealers and by their spouses and family
members, in accordance with the internal policies and procedures of the
employing securities dealer.
Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 365 days, their shares of the Fund or another of
the Class I Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end sales charge must be
paid at the time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed and subsequently
repurchased, a new contingency period will begin. Shares redeemed in connection
with an exchange into Class I shares of another of the Franklin Templeton Funds
(see "Exchange Privilege") are not considered "redeemed" for this privilege. In
order to exercise this privilege, a written order for the purchase of shares of
the Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 365 days after the redemption. The 365 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.
Shares of the Fund or another of the Franklin Templeton Funds Class I shares may
be purchased at net asset value and without a contingent deferred sales charge
by persons who have received dividends and capital gains distributions in cash
from investments in the Fund within 365 days of the payment date of such
distribution. Class II shareholders may also invest such distributions at net
asset value in a Class I Franklin Templeton Fund. To exercise this privilege, a
written request to reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services at
1-800/632-2301. See "Distributions in Cash" under "Distributions to
Shareholders."
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds and which was subject to a front-end sales charge
or a contingent deferred sales charge and which has investment objectives
similar to those of the Fund.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers who have
entered into a supplemental agreement with Distributors, or by registered
investment advisors affiliated with such broker-dealers, on behalf of their
clients who are participating in a comprehensive fee program (sometimes known as
a wrap fee program).
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds, including former participants of the Franklin Templeton Profit
Sharing 401(k) plan, to the extent of such distribution. In order to exercise
this privilege a written order for the purchase of shares of the Fund must be
received by Franklin Templeton Trust Company (the "Trust Company"), the Fund or
Investor Services, within 365 days after the plan distribution.
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a securities dealer who has executed a dealer
agreement with Distributors, Distributors or one of its affiliates may make a
payment, out of their own resources, to such securities dealer in an amount not
to exceed 0.25% of the amount invested. Contact the Franklin Templeton
Institutional Services Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans including profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by Distributors. Currently those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent 13-month period in the Fund or in any of
the Franklin Templeton Investments totals at least $1,000,000. Employee benefit
plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales related expenses.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in this Fund or any of the
Franklin Templeton Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust company,
with payment by federal funds received by the close of business on the next
business day following such order.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of organizations
with collective retirement plan assets of $1 million or more, without regard to
where such assets are currently invested.
IF AN INVESTOR QUALIFIES TO BUY SHARES AT NET ASSET VALUE AS DISCUSSED IN THIS
SECTION, PLEASE SPECIFY IN WRITING THE PRIVILEGE THAT APPLIES TO THE INVESTOR'S
PURCHASE AND INCLUDE THAT WRITTEN STATEMENT WITH THE PURCHASE ORDER. WE WILL NOT
BE RESPONSIBLE FOR PURCHASES THAT ARE NOT MADE AT NET ASSET VALUE IF THIS
WRITTEN STATEMENT IS NOT INCLUDED WITH THE INVESTOR'S ORDER.
Refer to the SAI for further information regarding net asset value purchases.
GENERAL
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.
PURCHASING SHARES OF THE FUND
IN CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS
Shares of the Fund may be used for individual or employer-sponsored retirement
plans involving tax-deferred investments. The Fund may be used as an investment
vehicle for an existing retirement plan, or the Trust Company may provide the
plan documents and serve as custodian or trustee. A plan document must be
adopted in order for a retirement plan to be in existence.
The Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for retirement plans. Brochures for the Trust Company plans contain
important information regarding eligibility, contribution and deferral limits
and distribution requirements. Please note that an application other than the
one contained in this Prospectus must be used to establish a retirement plan
account with the Trust Company. To obtain a retirement plan brochure or
application, call 1-800/DIAL BEN (1-800/342-5236).
Please see "How to Sell Shares of the Fund" for specific information regarding
redemptions from retirement plan accounts. Specific forms are required to be
completed for distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition,
retirement plan investors should consider consulting their investment
representatives or advisers concerning investment decisions within their plans.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested by the shareholder or by the securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder semi-annually to
reflect the dividends reinvested during that period and after each other
transaction which affects the shareholder's account. This statement will also
show the total number of shares owned by the shareholder, including the number
of shares in "plan balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan Application
included with this Prospectus contains the requirements applicable to this
program. In addition, shareholders may obtain more information concerning this
program from their securities dealers or from Distributors.
The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net asset value of the
shares held by the shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal transaction, although
this is merely the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. Retirement plans subject to mandatory
distribution requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis. If the
shareholder establishes a plan, any capital gain distributions and income
dividends paid by the Fund will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made from the
liquidation of shares at net asset value on the day of the transaction (which is
generally the first business day of the month in which the payment is scheduled)
with payment generally received by the shareholder three to five days after the
date of liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to another of the
Franklin Templeton Funds, to another person, or directly to a checking account.
If the bank at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments which may be paid in the interim
will be sent to the address of record. Liquidation of shares may reduce or
possibly exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. As with other redemptions, a liquidation to
make a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. Also, redemptions of shares may be subject
to a contingent deferred sales charge if the shares are redeemed within 12
months of the calendar month following the original purchase date. The
shareholder should ordinarily not make additional investments of less than
$5,000 or three times the annual withdrawals under the plan during the time such
a plan is in effect. The applicable contingent deferred sales charge is waived
for share redemptions of up to 1% monthly of an account's net asset value (12%
annually, 6% semiannually, 3% quarterly). For example, if an account maintained
an annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge; any amount over that
$120,000 would be assessed a 1% (or applicable) contingent deferred sales
charge. A Systematic Withdrawal Plan may be terminated on written notice by the
shareholder or the Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving written notice to
Investor Services at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Systematic Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
the Franklin Templeton Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for shares of other Franklin Templeton Funds Class I shares which are
eligible for sale in the shareholder's state of residence and in conformity with
such fund's stated eligibility requirements and investment minimums. Before
making an exchange, investors should review the prospectus of the fund they wish
to exchange from and the fund they wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
minimum holding periods or applicable sales charges. No exchanges between
different classes of shares are allowed and, therefore, shares of the Fund may
not be exchanged for Class II shares of other Franklin Templeton Funds.
Shareholders may choose to redeem shares of the Fund and purchase Class II
shares of other Franklin Templeton Funds but such purchase will be subject to
that Fund's Class II front-end and contingent deferred sales charges for the
contingency period of 18 months. Although there are no exchanges between
different classes of shares, Class II shareholders of a Franklin Templeton Fund
may elect to direct their dividends and capital gain distributions to the Fund
at net asset value.
Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
Franklin Templeton Funds Class I shares. The Telephone Exchange Privilege is
available only for uncertificated shares or those which have previously been
deposited in the shareholder's account. The Fund and Investor Services will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Please refer to "Telephone Transactions - Verification
Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "Exchanges by Telephone"
above. Such a dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling an
exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
If the account has shares subject to a contingent deferred sales charge, the
shares will be exchanged into the new account on a "first-in, first-out" basis.
The contingency period will be tolled (or stopped) for the period such shares
are exchanged into and held in a Franklin or Templeton money market fund. See
also "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."
Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid originated from a fund on which the investor paid
or was subject to a front-end or contingent deferred sales charge. Exchanges of
shares of the Fund which were purchased with a lower sales charge to a fund
which has a higher sales charge will be charged the difference, unless the
shares were held in the Fund for at least six months prior to executing the
exchange. When an investor requests the exchange of the total value of the Fund
account, declared but unpaid income dividends and capital gain distributions
will be transferred to the fund being exchanged into and will be invested at net
asset value. Because the exchange is considered a redemption and purchase of
shares, the shareholder may realize a gain or loss for federal income tax
purposes. Backup withholding and information reporting may also apply.
Information regarding the possible tax consequences of such an exchange is
included in the tax section in this Prospectus and in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately. Subsequently,
this money will be withdrawn from such short-term money market instruments and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
The Fund currently will not accept investments from Timing Accounts.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may accomplish
exchanges directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to Investor Services at
the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share (less the
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated, i.e., at the
scheduled closing of the Exchange which is generally 1:00 p.m. Pacific time,
each day that the Exchange is open for business will receive the price
calculated on the following business day. Shareholders are requested to provide
a telephone number(s) where they may be reached during business hours, or in the
evening if preferred. Investor Services' ability to contact a shareholder
promptly when necessary will speed the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Accounts
exception noted under "Telephone Transactions - Restricted Accounts."
Information may also be obtained by writing to the Fund or Investor Services at
the address shown on the cover or by calling 1-800/632-2301. The Fund and
Investor Services will employ reasonable procedures to confirm that instructions
given by telephone are genuine. Shareholders, however, bear the risk of loss in
certain cases as described under "Telephone Transactions - Verification
Procedures."
For shareholder accounts with the completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled closing of
the Exchange (generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within seven days,
made payable to all the registered owners on the account, and will be sent only
to the address of record. Redemption requests by telephone will not be accepted
within 30 days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set forth in this
Prospectus. Institutional accounts (certain corporations, bank trust
departments, government entities, and qualified retirement plans which qualify
to purchase shares at net asset value pursuant to the terms of this Prospectus)
which wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available from the
Franklin Templeton Institutional Services Department by telephoning
1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to the Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. The documents
described under "Redemptions by Mail" above, as well as a signed letter of
instruction, are required regardless of whether the shareholder redeems shares
directly or submits such shares to a securities dealer for repurchase. After
receipt of a repurchase order from the dealer, the Fund will still require a
signed letter of instruction and all other documents set forth above. A
shareholder's letter should reference the Fund, the account number, the fact
that the repurchase was ordered by a dealer and the dealer's name. Details of
the dealer-ordered trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of the redemption. The
seven-day period within which the proceeds of the shareholder's redemption will
be sent will begin when the Fund receives all documents required to complete
("settle") the repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the dealer's repurchase
order and the date the redemption is processed upon receipt of all documents
necessary to settle the repurchase. Thus, it is in a shareholder's best interest
to have the required documentation completed and forwarded to the Fund as soon
as possible. The shareholder's dealer may charge a fee for handling the order.
The SAI contains more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, investments of $1
million or more redeemed within the contingency period of 12 months of the
calendar month following their purchase will be assessed a contingent deferred
sales charge, unless one of the exceptions described below applies. The charge
is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the net asset value at the time of
purchase of such shares, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation of those shares held less than the
contingency period; (ii) shares purchased with reinvested dividends and capital
gain distributions; and (iii) other shares held longer than the contingency
period; and (iv) followed by any shares held less than the contingency period,
on a "first in, first out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived for: exchanges; any account fees;
distributions to participants or their beneficiaries in Trust Company individual
retirement plan accounts due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions through a
Systematic Withdrawal Plan set up for shares prior to February 1, 1995, and for
Systematic Withdrawal Plans set up thereafter, redemptions of up to 1% monthly
of an account's net asset value (3% quarterly, 6% semiannually or 12% annually);
redemptions initiated by the Fund due to a shareholder's account falling below
the minimum specified account size; and redemptions following the death of the
shareholder or the beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Requests for redemptions for a specified dollar amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of a
specific number of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, a shareholder or securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 591/2, unless the distribution meets one of the exceptions
set forth in the Code.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to execute various telephone transactions,
including: (i) effect a change in address, (ii) change a dividend option (see
"Restricted Accounts" below), (iii) transfer Fund shares in one account to
another identically registered account in the Fund, (iv) request the issuance of
certificates (to be sent to the address of record only), (v) exchange Fund
shares as described in this Prospectus by telephone. In addition, shareholders
who complete and file the Agreement as described under "How to Sell Shares of
the Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where the Fund or
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment. While the telephone exchange privilege is extended to
Franklin/Templeton IRA and 403(b) retirement accounts certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF FUND SHARES
The net asset value per share of the Fund is determined as of the scheduled
closing of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum sales charge of the Fund).
The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, is deducted from the aggregate gross value of
all assets, and the difference is divided by the number of shares of the Fund
outstanding at the time.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. The value of a foreign security is
determined as of the close of trading on the foreign exchange on which it is
traded or as of the scheduled closing of trading on the Exchange, if that is
earlier, and that value is then converted into its U.S. dollar equivalent at the
foreign exchange rate in effect at noon, New York time, on the day the value of
the foreign security is determined. If no sale is reported at that time, the
mean between the current bid and ask price is used. Occasionally, events which
affect the values of foreign securities and foreign exchange rates may occur
between the times at which values and rates are determined and the close of the
Exchange and will, therefore, not be reflected in the computation of the Fund's
net asset value. If events materially affecting the value of these foreign
securities occur during such periods, then these securities will be valued in
accordance with procedures established by the Board.
Over-the-counter portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The current market
value of any option held by the Fund is its last sales price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value. Other securities for
which market quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. With the approval of trustees, the Fund may
utilize a pricing service, bank or securities dealer to perform any of the above
described functions.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, shareholders may
obtain Class I and Class II account information, current price and, if
available, yield or other performance information specific to the Fund or any
Franklin Templeton Fund. In addition, Franklin Class I shareholders may process
an exchange, within the same class, into an identically registered Franklin
account and request duplicate confirmation or year-end statements, money fund
checks, if applicable, and deposit slips.
Fund information may be accessed by entering Fund Code 199 followed by the sign.
The system's automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
Hours of Operation (Pacific time)
Department Name Telephone No. (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.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 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.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin or Templeton's
service departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
several measures of the Fund's performance, including various expressions of
total return, current yield, and current distribution rate. They may
occasionally cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods or based on
investments at various sales charge levels or at net asset value. For such
purposes total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Yield which is calculated according to a formula prescribed by the SEC (see the
SAI) is not indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to shareholders
are reflected in the current distribution rate, which may be quoted to
shareholders. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past 12 months by a
current maximum offering price. Under certain circumstances, such as when there
has been a change in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the dividends paid
during the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing, and short-term capital gain, and is calculated over a different
period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the class' total return, current yield or distribution rate may be in any future
period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends April 30. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to one household as well
as to reduce Fund expenses, Investor Services, when legally permissible, will
attempt to identify related shareholders within a household, and send only one
copy of the report. Additional copies may be obtained by investors or
shareholders, without charge, upon request to the Trust at the telephone number
or address set forth on the cover of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and the SAI.
ORGANIZATION AND VOTING RIGHTS
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, with a par value of $.01 per share in various series and classes. Each
series, in effect, represents a separate mutual fund with its own investment
objective and policies. All shares have one vote, and, when issued, are fully
paid, non-assessable, and redeemable. The Trust issues shares in eight series:
the Fund, the Franklin California Growth Fund, the Franklin Natural Resources
Fund, the Franklin Small Cap Growth Fund, the Franklin Global Utilities Fund,
the Franklin Strategic Income Fund, the Franklin Institutional MidCap Growth
Fund and the Franklin MidCap Growth Fund. Additional series or classes may be
added in the future by the Board. All shares of the Fund have equal voting,
dividend and liquidation rights. The Trust's shareholders will vote together to
elect trustees and on other matters affecting the entire Trust, but will vote
separately on matters affecting separate series. The shares have non-cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of trustees can elect 100% of the trustees if they choose to do
so. The Fund does not intend to hold annual shareholders meetings. The Fund may,
however, hold a special meeting for such purposes as changing fundamental
investment restrictions, approving a new management agreement or any other
matters which are required to be acted on by shareholders under the 1940 Act. A
meeting may also be called by a majority of the Board or by shareholders holding
at least ten percent of the shares entitled to vote at the meeting. Shareholders
may receive assistance in communicating with other shareholders in connection
with the election or removal of trustees such as that provided in Section 16(c)
of the 1940 Act.
Shares have no preemptive or subscription rights, and are fully transferable.
There are no conversion rights; however, holders of shares of any fund in the
Franklin Group may reinvest all or any portion of the proceeds from the
redemption or repurchase of such shares into the same class of shares of other
Franklin Templeton Funds as described under "Exchange Privilege."
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the SAI.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealer must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Fund that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio: Mr. Rupert H. Johnson, Jr. and Mr. Kurt von Emster since
the Fund's inception in 1992 and Mr. Evan McCulloch since April 1995.
Rupert H. Johnson, Jr., President of Advisers - Mr. Johnson is a graduate of
Washington and Lee University. He joined Franklin in 1965 after serving as an
officer in the U.S. Marine Corps. He has worked in the securities industry since
1965. He previously served on the executive committee and as a member of the
board of governors of the Investment Company Institute.
Kurt von Emster, Portfolio Manager of Advisers - Mr. von Emster holds a B.A. in
Business and Economics from U.C. Santa Barbara. He joined Franklin in 1989 as a
management trainee and worked as a health care analyst before accepting his
current position.
Evan S. McCulloch, Portfolio Manager of Advisers - Mr. McCulloch holds a B.A. in
Economics from U.C. Berkeley. He joined Franklin in 1992 as a management
trainee.
