PROSPECTUS & APPLICATION
FRANKLIN CALIFORNIA
GROWTH FUND
SEPTEMBER 1, 1997 AS AMENDED JUNE 2, 1998
FRANKLIN STRATEGIC SERIES
Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how the fund invests
and the services available to shareholders.
To learn more about the fund and its policies, you may request a copy of the
fund's Statement of Additional Information ("SAI"), dated September 1, 1997,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.
For a free copy of the SAI or a larger print version of this prospectus,
contact your investment representative or call 1-800/DIAL BEN.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN CALIFORNIA GROWTH FUND
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO
SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary ......................................................2
Financial Highlights .................................................4
How Does the Fund Invest Its Assets? .................................5
What Are the Risks of Investing in the Fund? ........................11
Who Manages the Fund? ...............................................14
How Does the Fund Measure Performance? ..............................16
How Taxation Affects the Fund and Its Shareholders ..................17
How Is the Trust Organized? .........................................18
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ................................................19
May I Exchange Shares for Shares of Another Fund?....................27
How Do I Sell Shares? ...............................................29
What Distributions Might I Receive From the Fund? ...................33
Transaction Procedures and Special Requirements .....................34
Services to Help You Manage Your Account ............................38
What If I Have Questions About My Account? ..........................41
GLOSSARY
Useful Terms and Definitions .........................................41
FRANKLIN
CALIFORNIA
GROWTH FUND
SEPTEMBER 1, 1997
AS AMENDED JUNE 2, 1998
When reading this prospectus, you will see certain terms beginning with
capital letters. This means the term is explained in our glossary section
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
fund. It is based on the historical expenses of each class for the fiscal
year ended April 30, 1997. The Class II expenses are annualized. The fund's
actual expenses may vary.
CLASS I CLASS II
A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge
(as a percentage of Offering Price) .................. 4.50% 1.99%
Paid at time of purchase ............................. 4.50%++ 1.00%+++
Paid at redemption++++ ............................... None 0.99%
0 ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees ...................................... 0.56% 0.56%
Rule 12b-1 Fees ...................................... 0.22%* 1.00%*
Other Expenses ....................................... 0.30% 0.30%
------------------
Total Fund Operating Expenses ........................ 1.08% 1.86%
==================
C. EXAMPLE
Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in the fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------
Class I $56** $78 $102 $171
Class II $48 $77 $118 $234
For the same Class II investment, you would pay projected expenses of $38 if
you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++There is no front-end sales charge if you invest $1 million or more in
Class I shares.
+++Although Class II has a lower front-end sales charge than Class I, its
Rule 12b-1 fees are higher. Over time you may pay more for Class II shares.
Please see "How Do I Buy Shares? - Choosing a Share Class."
++++A Contingent Deferred Sales Charge may apply to any Class II purchase if
you sell the shares within 18 months and to Class I purchases of $1 million
or more if you sell the shares within one year. A Contingent Deferred Sales
Charge may also apply to purchases by certain retirement plans that qualify
to buy Class I shares without a front-end sales charge. The charge is 1% of
the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The number in the table shows the charge as a percentage
of Offering Price. While the percentage is different depending on whether the
charge is shown based on the Net Asset Value or the Offering Price, the
dollar amount you would pay is the same. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.
*These fees may not exceed 0.25% for Class I and 1.00% for Class II. 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 charge permitted under the NASD's rules.
**Assumes a Contingent Deferred Sales Charge will not apply.
FINANCIAL HIGHLIGHTS
This table summarizes the fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the fund's independent auditors. Their
audit report covering each of the most recent five years appears in the
financial statements in the Trust's Annual Report to Shareholders for the
fiscal year ended April 30, 1997. The Annual Report to Shareholders also
includes more information about the fund's performance. For a free copy,
please call Fund Information.
<TABLE>
<CAPTION>
CLASS I SHARES:
YEAR ENDED APRIL 30, 1997 1996 1995 1994 1993 19921
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value at Beginning of Period $18.26 $14.03 $12.05 $10.21 $9.87 $10.04
--------------------------------------------------
Net Investment Income .13 .20 .16 .14 .12 .07
Net Realized & Unrealized Gain (Loss) on Securities 1.510 6.032 3.043 2.425 .340 (.168)
-------------------------------------------------
Total From Investment Operations 1.640 6.232 3.203 2.565 .460 (.098)
=================================================
Distributions From Net Investment Income (.122) (.227) (.124) (.145) (.120) (.072)
Distributions From Realized Capital Gains (.428) (1.775) (1.099) (.580) -- --
--------------------------------------------------
Total Distributions (.550) (2.002) (1.223) (.725) (.120) (.072)
--------------------------------------------------
Net Asset Value at End of Period 19.35 18.26***14.03 12.05 10.21 9.87
=================================================
Total Return* 8.94% 47.42% 29.09% 25.55% 4.72% (1.77)%**
RATIOS/SUPPLEMENTAL DATA
Net Assets at End of Period (in 000's) $282,898 $81,175 $13,844 $4,646 $3,412 $3,091
Ratio of Expenses to Average Net Assets++ 1.08% .71% .25% .09% -- --
Ratio of Net Investment Income to Average Net Assets .84% 1.42% 1.63% 1.16% 1.23% 1.27%**
Portfolio Turnover Rate 44.81% 61.82% 79.52% 135.12% 38.28% 13.73%
Average Commission Rate+ .0544 .0536 -- -- -- --
</TABLE>
Class II Shares:
YEAR ENDED APRIL 30, 19972
Per Share Operating Performance
Net Asset Value at Beginning of Period ....................... $18.05
Net Investment Income ........................................ .05
Net Realized & Unrealized Gain on Securities ................. 1.646
Total From Investment Operations ............................. 1.696
Distributions From Net Investment Income ..................... (.048)
Distributions From Realized Capital Gains .................... (.428)
Total Distributions .......................................... (.476)
Net Asset Value at End of Period ............................. 19.27
Total Return* ................................................ 9.32%
Ratios/Supplemental Data
Net Assets at End of Period (in 000's) ....................... $24,556
Ratio of Expenses to Average Net Assets ...................... 1.86%**
Ratio of Net Investment Income to Average Net Assets ......... .05%**
Portfolio Turnover Rate ...................................... 44.81%
Average Commission Rate+ ..................................... .0544
1For the period October 18, 1991 (effective date) to April 30, 1992.
2For the period September 3, 1996 (effective date) to April 30, 1997.
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end
sales charge or Contingent Deferred Sales Charge and assumes reinvestment of
dividends and capital gains at Net Asset Value.
**Annualized.
***The Net Asset Value differs from the Net Asset Value used to process
shareholder activity as of the reporting date, which does not include market
adjustment for portfolio trades made on that date. These adjustments are
generally accounted for on the day following the trade date.
+Represents the average broker commission rate per share paid by the fund in
connection with the execution of the fund's portfolio transactions in equity
securities.
++During the periods indicated, Advisers agreed in advance to waive a portion
of its management fees and made payments of other expenses incurred by the
fund. Had such action not been taken, the ratios of operating expenses to
average net assets would have been as follows:
RATIO OF EXPENSES
CLASS I SHARES TO AVERAGE NET ASSETS
19921 1.61%**
1993 1.99
1994 1.89
1995 1.27
1996 1.09
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the fund is to seek capital appreciation. This goal is
fundamental, which means that it may not be changed without shareholder
approval.
WHAT KINDS OF SECURITIES DOES THE FUND BUY?
Under normal market conditions, the fund invests at least 65% of its assets
in the securities of companies headquartered or conducting a majority of
their operations in the state of California. The fund may invest in common
stock, preferred stock, warrants for the purchase of common stock, debt
securities convertible or exchangeable for common or preferred stock, and
fixed-income securities issued by these companies. The securities in which
the fund invests are traded primarily on the NYSE or the American Stock
Exchange or in over-the-counter markets.
In attempting to achieve its objective, the fund expects to invest a
significant portion of its assets in small to mid-size capitalization
companies with market capitalizations of up to $2.5 billion at the time of
the fund's investment. The fund may also invest in relatively well known,
larger capitalization companies in mature industries which Advisers believes
have the potential for capital appreciation.
Although the fund's assets are invested primarily in securities of
California-linked companies, the fund may invest up to 35% of its assets in
the securities of companies headquartered or conducting a majority of their
operations outside the state of California. The fund may invest in common
stock, preferred stock, warrants for the purchase of common stock, debt
securities convertible or exchangeable for common or preferred stock, and
fixed-income securities issued by these companies. In this way, the fund
seeks to benefit from its research into companies and industries within or
beyond the fund's primary region.
The fund may also invest up to 35% of its total assets in debt securities,
including bonds, notes and debentures, if Advisers believes the investment
presents a favorable investment opportunity consistent with the fund's
objective. The fund may invest up to 5% of its assets in fixed-income
securities, including convertible debt and preferred stocks, bonds, notes and
debentures rated below investment grade, but no lower than B by Moody's or
S&P, or that are not rated but determined by Advisers to be of comparable
quality. The remainder of the fund's fixed-income securities (up to 30% of
total assets) will be limited to investment grade obligations that are rated
no lower than BBB by S&P or Baa by Moody's or, if unrated, that are
determined by Advisers to be of comparable quality. The fund may seek capital
appreciation by investing in debt securities which Advisers believes have the
potential for capital appreciation as a result of improvement in the
creditworthiness of the issuer. The prices of these securities generally
increase when interest rates decline while the prices generally decrease when
interest rates rise. The receipt of income from such debt securities will be
incidental to the fund's investment objective.
Fixed-income securities within the top three rating categories (AAA, AA and A
by S&P or Aaa, Aa or A by Moody's) are generally known as high-grade
securities and are regarded as having a strong capacity to pay interest or
dividends, as the case may be. Medium-grade securities (securities rated BBB
by S&P or Baa by Moody's) are regarded as having an adequate capacity to pay
interest or dividends but with greater vulnerability to adverse economic
conditions and some speculative characteristics. Lower rated (below
investment grade) securities, those rated BB or lower by S&P or Ba or lower
by Moody's, are considered by S&P and Moody's, on balance, to be
predominantly speculative with respect to capacity to pay in accordance with
the terms of the obligation and will generally involve more credit risk than
securities in the higher rating categories. These lower rated fixed-income
securities are subject to credit and other risks that are greater than those
of higher rated securities while typically offering relatively higher yields.
Please see the SAI for more information about the risks of investing in lower
rated securities and a description of these ratings.
CONVERTIBLE SECURITIES. The fund may invest in convertible securities. A
convertible security is generally a debt obligation or preferred stock that
may be converted within a specified period of time into a certain amount of
common stock of the same or a different issuer. A convertible security
provides a fixed-income stream and the opportunity, through its conversion
feature, to participate in the capital appreciation resulting from a market
price advance in its underlying common stock. As with a straight fixed-income
security, a convertible security tends to increase in market value when
interest rates decline and decrease in value when interest rates rise. The
value of a convertible security also tends to increase as the market value of
the underlying stock rises, and it tends to decrease as the market value of
the underlying stock declines. Because its value can be influenced by both
interest rate and market movements, a convertible security is not as
sensitive to interest rates as a similar fixed-income security, nor is it as
sensitive to changes in share price as its underlying stock.
A convertible security is usually issued either by an operating company or by
an investment bank. When issued by an operating company, a convertible
security tends to be senior to common stock, but subordinate to other types
of fixed-income securities issued by that company. When a convertible
security issued by an operating company is "converted," the operating company
often issues new stock to the holder of the convertible security but, if the
parity price of the convertible security is less than the call price, the
operating company may pay out cash instead of common stock. If the
convertible security is issued by an investment bank, the security is an
obligation of and is convertible through the issuing investment bank.
The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security
will have recourse only to the issuer. In addition, a convertible security
may be subject to redemption by the issuer, but only after a specified date
and under circumstances established at the time the security is issued.
While the fund uses the same criteria to rate a convertible debt security
that it uses to rate a more conventional debt security, a convertible
preferred stock is treated like a preferred stock for the fund's financial
reporting, credit rating, and investment limitation purposes. A preferred
stock is subordinated to all debt obligations in the event of insolvency, and
an issuer's failure to make a dividend payment is generally not an event of
default entitling the preferred shareholder to take action. A preferred stock
generally has no maturity date, so that its market value is dependent on the
issuer's business prospects for an indefinite period of time. In addition,
distributions from preferred stock are dividends, rather than interest
payments, and are usually treated as such for corporate tax purposes.
OPTIONS AND FINANCIAL FUTURES. The fund may write (sell) covered put and call
options and buy put and call options on securities and securities indices
that trade on securities exchanges and in the over-the-counter market. The
fund may buy and sell financial futures and options on financial futures with
respect to securities indices. Additionally, the fund may buy and sell
financial futures and options to "close out" financial futures and options it
has previously entered into. The fund will not enter into any financial
futures contract or related options (except for closing transactions) if,
immediately thereafter, the sum of the amount of its initial deposits and
premiums on open contracts and options would exceed 5% of the fund's total
assets (taken at current value). The fund will not engage in any stock
options or stock index options if the option premiums paid regarding its open
option positions exceed 5% of the value of the fund's total assets. The fund
will not engage in transactions in options or financial futures contracts or
related options for speculation but only as a hedge against changes resulting
from market conditions in the values of its securities or securities which it
intends to buy and, to the extent consistent therewith, to accommodate cash
flows. Notwithstanding the fund's ability to enter into these transactions
for hedging purposes, it is not obligated to hedge its investment positions,
but may do so when deemed prudent and consistent with the fund's objective
and policies.
The fund understands the current position of the staff of the SEC to be that
purchased OTC options are illiquid securities. The fund and Advisers disagree
with this position. Nevertheless, pending a change in the staff's position,
the fund will treat OTC options as subject to its limitation on illiquid
securities. Please see "Illiquid Investments" below.
The fund's transactions in options and financial futures contracts may be
limited by the requirements of the fund for qualification as a regulated
investment company. The fund's investments in options and financial futures
contracts and certain security transactions (including loans of portfolio
securities) may also reduce the portion of the fund's dividends which
otherwise would be eligible for the corporate dividends-received deduction.
These securities require the application of complex and special tax rules and
elections, more information about which is included in the SAI.
Options, futures and options on futures are generally considered "derivative
securities."
SMALL COMPANIES. To the extent that the fund may invest in smaller
capitalization companies or other companies, the fund may place greater
emphasis upon investments in relatively new or unseasoned companies that are
in their early stages of development, or in new and emerging industries where
the opportunity for rapid growth is expected to be above average. Securities
of unseasoned companies present greater risks than securities of larger, more
established companies. Please see "What Are the Risks of Investing in the
Fund? - Small Companies." Any investments in these types of companies,
however, will be limited in the case of issuers that have less than three
years continuous operation, including the operations of any predecessor
companies, to no more than 5% of the fund's total assets.
FOREIGN SECURITIES. The fund may, to the extent consistent with its
investment objective, buy foreign securities traded in the U.S. or American
Depositary Receipts ("ADRs") and may buy securities of foreign issuers
directly in foreign markets.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
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, if such loans do not exceed 10% 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 bank 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%. This
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 may engage 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 borrow up to
10% of its total assets 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.
SECURITIES INDUSTRY RELATED INVESTMENTS. To the extent consistent with its
investment objective and certain limitations under the federal securities
laws, the fund may invest its assets in securities issued by companies
engaged in securities related businesses, including companies that are
securities brokers, dealers, underwriters or investment advisors. These
companies are considered part of the financial services industry sector.
Under the federal securities laws, the fund may not acquire a security or any
interest in a securities related business to the extent the acquisition would
exceed certain limitations. The fund does not believe that these limitations
will impede the attainment of its investment objective.
SHORT-TERM INVESTMENTS. The fund may invest its cash, including cash
resulting from purchases and sales of fund shares, in short-term debt
instruments, including U.S. government securities, high grade commercial
paper, repurchase agreements and other money market equivalents and, subject
to an order of exemption from the SEC, the shares of affiliated money market
funds that invest primarily in short-term debt securities. Temporary
investments may be made either for liquidity purposes, to meet redemption
requirements or as a temporary defensive measure.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys U.S.
government securities from a bank or broker-dealer at one price and agrees to
sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the fund by a
custodian bank approved by the Board. The bank or broker-dealer must transfer
to the custodian securities with an initial market value of at least 102% of
the repurchase price to help secure the obligation to repurchase the
securities at a later date. The securities are then marked-to-market daily to
maintain coverage of at least 100%. If the bank or broker-dealer does not
repurchase the securities as agreed, the fund may experience a loss or delay
in the liquidation of the securities underlying the repurchase agreement and
may also incur liquidation costs. The fund, however, intends to enter into
repurchase agreements only with banks or broker-dealers that are considered
creditworthy by Advisers.
ILLIQUID INVESTMENTS. The fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the fund has valued them.
Illiquid securities include illiquid equity securities, securities with legal
or contractual restriction on resale, repurchase agreements of more than
seven days duration, illiquid real estate investment trusts, securities of
issuers with less than three years continuous operation and other securities
that are not readily marketable. The Board has authorized the fund to invest
in restricted securities (which might otherwise be considered illiquid) where
the investment is consistent with the fund's investment objective and has
authorized such securities to be considered liquid (and thus not subject to
the foregoing 10% limitation), to the extent Advisers determines on a daily
basis that there is a liquid institutional or other market for the
securities. The Board will review Advisers' determinations of liquidity, will
retain ultimate responsibility for such determinations and will consider
appropriate action, consistent with the fund's objective and policies, if a
security should become illiquid after its purchase. See "How does the Fund
Invest its Assets? - Illiquid Investments" in the SAI.
DIVERSIFICATION. The fund is non-diversified under the federal securities
laws. As a non-diversified fund, there is no restriction under the federal
securities laws on the percentage of the fund's assets that may be invested
in the securities of any one issuer. The fund, however, intends to comply
with the diversification and other requirements of the Code applicable to
regulated investment companies such as the fund, so that it will not be
subject to U.S. federal income tax on income and capital gain distributions
to shareholders. Accordingly, the fund will not buy securities if, as a
result, more than 25% of its total assets would be invested in the securities
of any one issuer and, with respect to 50% of its total assets, more than 5%
would be invested in the securities of any one issuer or more than 10% would
be invested in the outstanding voting securities of any one issuer. To the
extent the fund is not fully diversified, it may be more susceptible than a
more fully diversified fund to adverse economic, political or regulatory
developments affecting a single issuer.
OTHER POLICIES AND RESTRICTIONS. The fund has a number of additional
investment policies and restrictions that govern its activities. Those that
are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board alone. For a list of these
restrictions and more information about the fund's investment policies,
including those described above, please see "How does the Fund Invest its
Assets?" and "Investment Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in
the SAI apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security
no longer meets one or more of the fund's policies or restrictions.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
There is no assurance that the fund will meet its investment goal.
The value of your shares will increase as the value of the securities owned
by the fund increases and will decrease as the value of the fund's
investments decrease. In this way, you participate in any change in the value
of the securities owned by the fund. In addition to the factors that affect
the value of any particular security that the fund owns, the value of fund
shares may also change with movements in the stock and bond markets as a
whole.
RISK FACTORS IN CALIFORNIA. The following information about certain
California risk factors is given to you in view of the fund's policy of
investing primarily in companies headquartered or conducting a majority of
their operations in California. Although the financial prospects of a number
of the companies in which the fund invests, at any given time, may depend on
the strength of the California economy, the fund tends to invest a
significant portion of its assets in companies whose financial prospects are
dependent on the global economy, thereby reducing the effect on the fund of
fluctuations in economic conditions in California. This information is only a
brief discussion, does not purport to be a complete description, and is based
primarily upon information derived from independent credit reports and
historically reliable sources. It has not been independently verified by the
fund.
Like many other states, California was significantly affected by the national
recession of the early 1990s, especially in the southern portion of the
state. Between 1990 and 1993, the state's employment dropped 2.8% on an
annualized basis and real per capita income declined by 4%. Almost half of
the state's job losses resulted from military cutbacks and close to 40% were
caused by a downturn in the construction industry. Downsizing in the state's
aerospace industry, excess office space capacity, and slow growth in
California's significant export market also contributed to the state's
recession.
Since mid-1993, California's economic recovery has been fueled by growth in
the export, entertainment, tourism and computer services sectors. In 1996,
the state's employment reached pre-recession levels. The employment base is
diverse with manufacturing accounting for 14% of employment, trade 22.8%,
services 29% and government 16.4% at the end of 1995. Despite its strong
employment growth, California's unemployment rate is expected to remain above
the national average and wages, although still above national levels, have
declined with the loss of high-paying aerospace jobs. Gross state product is
expected to grow at an inflation-adjusted rate of 4.5% in 1997 and 4% in
1998. Personal income levels are expected to rise 6.8% in 1997 and 6% in
1998. Exports of California-produced goods are expected to reach $108 billion
in 1997 and $120 billion in 1998.
The fund's policy of investing primarily in the securities of California
companies does involve certain additional risks, including the risk that
economic, business, political, regulatory or other developments or changes
affecting one portfolio security or industry may have a greater impact on the
fund's portfolio than would be the case if the fund were diversified among
more issuers.
OPTIONS AND FUTURES. The fund's options and futures investments involve
certain risks. Such risks include the risks that the effectiveness of an
options and futures strategy depends on the degree to which price movements
in the underlying index or securities correlate with price movements in the
relevant portion of the fund's portfolio. The fund bears the risk that the
prices of its portfolio securities will not move in the same amount as the
option or future it has purchased, or that there may be a negative
correlation that would result in a loss on both the securities and the option
or future.
Positions in exchange traded options and financial futures may be closed out
only on an exchange that provides a secondary market. There may not always be
a liquid secondary market for a futures or option contract at a time when the
fund seeks to "close out" its position. If the fund were unable to "close
out" a futures position, and if prices moved adversely, the fund would have
to continue to make daily cash payments to maintain its required margin and,
if the fund had insufficient cash, it might have to sell portfolio securities
at a disadvantageous time. In addition, the fund might be required to deliver
the securities underlying the futures or options contracts it holds.
Over-the-counter ("OTC") options may not be closed out on an exchange and the
fund may be able to realize the value of an OTC option it has purchased only
by exercising it or entering into a closing sale transaction with the dealer
that issued it. There can be no assurance that a liquid secondary market will
exist for any particular option or financial futures contract at any specific
time. Thus, it may not be possible to close an option or financial futures
position. The fund will enter into an option or financial futures position
only if there appears to be a liquid secondary market for options or
financial futures.
In addition, adverse market movements could cause the fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a financial futures contract that it has
purchased. There is also the risk of loss by the fund of margin deposits in
the event of bankruptcy of a broker with whom the fund has an open position
in a financial futures contract or option. Please see the SAI for more
information on the fund's investments in options and financial futures,
including the risks associated with these investments.
SMALL COMPANIES. The fund may invest in companies that have relatively small
revenues, limited product lines, and a small share of the market for their
products or services. Small companies may lack depth of management, they may
be unable to generate internally funds necessary for growth or potential
development or to generate such funds through external financing on favorable
terms, and they may be developing or marketing new products or services for
which markets are not yet established and may never become established. Due
to these and other factors, small companies may suffer significant losses, as
well as realize substantial growth.
Historically, small capitalization stocks have been more volatile than larger
capitalization stocks and are therefore more speculative than investments in
larger companies. Among the reasons for the greater price volatility are the
less certain growth prospects of smaller firms, the lower degree of liquidity
in the markets for such stocks, and the greater sensitivity of small
companies to changing economic conditions. Besides exhibiting greater
volatility, small company stocks may, to a degree, fluctuate independently of
larger company stocks. Small company stocks may decline in price as large
company stocks rise, or rise in price as large company stocks decline. You
should therefore expect that the value of the fund's shares may be more
volatile than the shares of a fund that invests in larger capitalization
stocks.
Technology Companies, Currency Risk and Foreign Securities. Consistent with
its investment objective, the fund expects to have a portion of its assets
invested in securities of companies involved in computing technologies or
computing technology-related companies. Typically, the fund's investments in
this sector reflect companies whose products or services are marketed on a
global, rather than a predominantly domestic or regional basis. The
technology sector as a whole has historically been volatile and issues from
this sector tend to be subject to abrupt or erratic price movements. The fund
seeks to reduce such risks through extensive research, and emphasis on more
globally-competitive companies. To the extent the fund holds securities of
companies whose products or services are distributed globally, securities
issued by such companies, and companies such as the fund that hold such
securities, may be subject to fluctuations in value due to the effect of
changes in the relative values of currencies on such company's business. The
history of these markets reflect both decreases and increases in worldwide
currency valuations, and these may reoccur unpredictably in the future. In
addition, the fund may invest in foreign securities, which involves special
risks, including currency fluctuations and economic and political
uncertainties. See "What are the Fund's Potential Risks? - Foreign
Securities" in the SAI.
INTEREST RATE AND MARKET RISK. To the extent the fund invests in debt
securities, changes in interest rates will affect the value of the fund's
portfolio and its share price. Rising interest rates, which often occur
during times of inflation or a growing economy, are likely to have a negative
effect on the value of the fund's shares. To the extent the fund invests in
common stocks, a general market decline, shown for example by a drop in the
Dow Jones Industrials or other equity based index, may cause the value of
what the fund owns, and thus the fund's share price, to decline. The value of
stock markets and interest rates throughout the world have increased and
decreased in the past. These changes are unpredictable.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the fund and elects its
officers. The officers are responsible for the fund's day-to-day operations.
The Board also monitors the fund to ensure no material conflicts exist among
the fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Advisers manages the fund's assets and makes its
investment decisions. Advisers also performs similar services for other
funds. It is wholly owned by Resources, a publicly owned company engaged in
the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
Together, Advisers and its affiliates manage over $232 billion in assets.
Please see "Investment Management and Other Services" and "Miscellaneous
Information" in the SAI for information on securities transactions and a
summary of the fund's Code of Ethics.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
fund's portfolio is: Conrad B. Herrmann since 1993 and John P. Scandalios
since 1997.
Conrad B. Herrmann, CFA
Vice President of Advisers
Mr. Herrmann is a Chartered Financial Analyst and holds a Master of Business
Administration degree from Harvard University. He earned a Bachelor of Arts
degree from Brown University. Mr. Herrmann has been with the Franklin
Templeton Group since 1989 and is a member of several securities
industry-related associations.
John P. Scandalios
Senior Securities Analyst
Mr. Scandalios holds a Masters degree and a Bachelor of Arts degree in
Business Administration from the University of California at Los Angeles. He
has been in the securities industry since 1990 and with the Franklin
Templeton Group since 1996. Prior thereto, he was with Chase Manhattan Bank.
Frank Felicelli, CFA
Vice President of Advisers
Mr. Felicelli has been generally involved with investment strategy of the
fund's portfolio since its inception. Mr. Felicelli is a Chartered Financial
Analyst and has a Master of Business Administration degree from Golden Gate
University. He earned a Bachelor of Arts degree in Economics from the
University of Illinois. He has been with the Franklin Templeton Group since
1986. He is a member of several securities industry-related associations.
MANAGEMENT FEES. During the fiscal year ended April 30, 1997, management fees
totaling 0.56% of the average daily net assets of the fund were paid to
Advisers. Total expenses, including fees paid to Advisers, were 1.08% for
Class I and 1.86% for Class II.
PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the
sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, when selecting a broker or dealer. Please see "How
does the Fund Buy Securities for its Portfolio?" in the SAI for more
information.
ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services
provides certain administrative services and facilities for the fund. Please
see "Investment Management and Other Services" in the SAI for more
information.
THE RULE 12B-1 PLANS
Class I and Class II have separate distribution plans or "Rule 12b-1 Plans"
under which they may pay or reimburse Distributors or others for the expenses
of activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.
Payments by the fund under the Class I plan may not exceed 0.25% per year of
Class I's average daily net assets. All distribution expenses over this
amount will be borne by those who have incurred them. During the first year
after certain Class I purchases made without a sales charge, Securities
Dealers may not be eligible to receive the Rule 12b-1 fees associated with
the purchase.
Under the Class II plan, the fund may pay Distributors up to 0.75% per year
of Class II's average daily net assets to pay Distributors or others for
providing distribution and related services and bearing certain Class II
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. During the first year after a purchase of Class II
shares, Securities Dealers may not be eligible to receive this portion of the
Rule 12b-1 fees associated with the purchase.
The fund may also pay a servicing fee of up to 0.25% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish
and maintain customer accounts and records, helping with requests to buy and
sell shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and
account maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Fund's Underwriter" in the SAI.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the fund advertises its performance. A
commonly used measure of performance is total return. Performance figures are
usually calculated using the maximum sales charges, but certain figures may
not include sales charges.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
The investment results of each class will vary. Performance figures are
always based on past performance and do not guarantee future results. For a
more detailed description of how the fund calculates its performance figures,
please see "How does the Fund Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The fund is treated as a separate entity for federal income tax purposes. The
fund has elected and intends to continue to qualify 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 generally not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends which you receive 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 you have 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 you have owned fund shares and regardless of whether such
distributions are received in cash or in additional shares.
For corporate shareholders, 30.26% of the ordinary income distributions
(including short-term capital gain distributions) paid by the fund for the
fiscal year ended April 30, 1997, 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.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to
you until the following January, will be treated for tax purposes as if you
received them on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of fund shares are taxable events on which you may
realize a gain or loss. Any loss incurred on the sale or exchange of fund
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 will inform you of the source of its dividends and distributions at
the time they are paid and will, promptly after the close of each calendar
year, advise you of the tax status for federal income tax purposes of such
dividends and distributions.
Each shareholder who is not a U.S. person for U.S. federal income tax
purposes should consult with their financial or tax advisor regarding the
applicability of U.S. withholding or other taxes on distributions received
from the fund and the application of foreign tax laws to these distributions.
You should also consult your tax advisor with respect to the applicability of
any state and local intangible property or income taxes to your shares of the
fund and distributions and redemption proceeds received from the fund.
HOW IS THE TRUST ORGANIZED?
The fund is a non-diversified series of Franklin Strategic Series (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Delaware business trust on January 25, 1991, and
is registered with the SEC. Before July 12, 1993, the fund was named the
Franklin California 250 Growth Fund. On that date, the fund's investment
objective and various investment policies were changed. Consistent with these
changes, the fund's name was changed to the Franklin California Growth Fund.
The fund offers two classes of shares: Franklin California Growth Fund -
Class I and Franklin California Growth Fund - Class II. All shares
outstanding before the offering of Class II shares are considered Class I
shares. Additional series and classes of shares may be offered in the future.
Shares of each class represent proportionate interests in the assets of the
fund and have the same voting and other rights and preferences as any other
class of the fund for matters that affect the fund as a whole. For matters
that only affect one class, however, only shareholders of that class may
vote. Each class will vote separately on matters affecting only that class,
or expressly required to be voted on separately by state or federal law.
Shares of each class of a series have the same voting and other rights and
preferences as the other classes and series of the Trust for matters that
affect the Trust as a whole.
The Trust has noncumulative voting rights. This gives holders of more than
50% of the shares voting the ability to elect all of the members of the
Board. If this happens, holders of the remaining shares voting will not be
able to elect anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares.
In certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, please follow the steps below. This will help avoid any
delays in processing your request. PLEASE KEEP IN MIND THAT THE FUND DOES NOT
CURRENTLY ALLOW INVESTMENTS BY MARKET TIMERS.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The fund's minimum
investments are:
o To open your account: .................... $100*
o To add to your account: .................. $ 25*
*We may waive these minimums for retirement plans. We also reserve the
right to refuse any order to buy shares.
3. Carefully complete and sign the enclosed shareholder application,
including the optional shareholder privileges section. By applying for
privileges now, you can avoid the delay and inconvenience of having to send
an additional application to add privileges later. PLEASE ALSO INDICATE WHICH
CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT SPECIFY A CLASS, WE WILL
AUTOMATICALLY INVEST YOUR PURCHASE IN CLASS I SHARES. It is important that we
receive a signed application since we will not be able to process any
redemptions from your account until we receive your signed application.
4. Make your investment using the table below.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund with your
check made payable to the fund.
For additional investments:
Send a check made payable to the fund. Please
include your account number on the check.
- --------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive
a wire control number and wire instructions.
You need a new wire control number every time
you wire money into your account. If you do
not have a currently effective wire control
number, we will return the money to the bank,
and we will not credit the purchase to your
account.
2. For an initial investment you must also return
your signed shareholder application to the fund.
IMPORTANT DEADLINES: If we receive your call
before 1:00 p.m. Pacific time and the bank
receives the wired funds and reports the receipt
of wired funds to the fund by 3:00 p.m. Pacific
time, we will credit the purchase to your account
that day. If we receive your call after 1:00 p.m.
or the bank receives the wire after 3:00 p.m., we
will credit the purchase to your account the
following business day.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. The class that may be best
for you depends on a number of factors, including the amount and length of
time you expect to invest. Generally, Class I shares may be more attractive
for long-term investors or investors who qualify to buy Class I shares at a
reduced sales charge. Your financial representative can help you decide.
CLASS I CLASS II
- --------------------------------------------------------------------------------
o Higher front-end sales charges than o Lower front-end sales charges than
Class II shares. There are several Class I shares
ways to reduce these charges, as
described below. There is no
front-end sales charge for
purchases of $1 million or more.*
o Contingent Deferred Sales Charge on o Contingent Deferred Sales Charge
purchases of $1 million or more on purchases sold within 18 months
sold within one year
o Lower annual expenses than Class II o Higher annual expenses than Class
shares I shares
* If you are investing $1 million or more, it is generally more beneficial
for you to buy Class I shares because there is no front-end sales charge and
the annual expenses are lower. Therefore, ANY PURCHASE OF $1 MILLION OR MORE
IS AUTOMATICALLY INVESTED IN CLASS I SHARES. You may accumulate more than $1
million in Class II shares through purchases over time. If you plan to do
this, however, you should determine if it would be better for you to buy
Class I shares through a Letter of Intent.
PURCHASE PRICE OF FUND SHARES
For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is
1% and, unlike Class I, does not vary based on the size of your purchase.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
CLASS I
Under $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 None
CLASS II
Under $1,000,000* .................. 1.00% 1.01% 1.00%
*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of
$1 million or more and any Class II purchase. Please see "How Do I Sell
Shares? - Contingent Deferred Sales Charge." Please also see "Other Payments
to Securities Dealers" below for a discussion of payments Distributors may
make out of its own resources to Securities Dealers for certain purchases.
Purchases of Class II shares are limited to purchases below $1 million.
Please see "Choosing a Share Class."
SALES CHARGE REDUCTIONS AND WAIVERS
IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't include
this statement, we cannot guarantee that you will receive the sales charge
reduction or waiver.
CUMULATIVE QUANTITY DISCOUNTS - Class I Only. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your existing shares in
the Franklin Templeton Funds, as well as those of your spouse, children under
the age of 21 and grandchildren under the age of 21. If you are the sole
owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT - Class I Only. You may buy Class I shares at a reduced
sales charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION,
YOU ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase
in Class I shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on
the reserved shares as you direct. Our policy of reserving shares does not
apply to certain retirement plans.
If you would like more information about the Letter of Intent privilege,
please see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in
the SAI or call Shareholder Services.
GROUP PURCHASES - CLASS I ONLY. If you are a member of a qualified group, you
may buy Class I shares at a reduced sales charge that applies to the group as
a whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions. 403(b) plans that only allow salary deferral
contributions and that purchased Class I shares of the fund at a reduced
sales charge under the group purchase privilege before February 1, 1998,
however, may continue to do so.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of fund shares, you may buy shares of the fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the
sales charge waivers listed below apply to purchases of Class I shares only,
except for items 1 and 2 which also apply to Class II purchases.
Certain distributions, payments or redemption proceeds that you receive may
be used to buy shares of the fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same class of shares.
Certain exceptions apply, however, to Class II shareholders who chose to
reinvest their distributions in Class I shares of the fund before November
17, 1997, and to Advisor Class or Class Z shareholders of a Franklin
Templeton Fund who may reinvest their distributions in Class I shares of the
fund.
2. Redemption proceeds from the sale of shares of any Franklin Templeton Fund
if you originally paid a sales charge on the shares and you reinvest the
money in the same class of shares. This waiver does not apply to
exchanges.
If you paid a Contingent Deferred Sales Charge when you redeemed your
shares from a Franklin Templeton Fund, a Contingent Deferred Sales Charge
will apply to your purchase of fund shares and a new Contingency Period
will begin. We will, however, credit your fund account with additional
shares based on the Contingent Deferred Sales Charge you paid and the
amount of redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Bank CD,
you may reinvest them as described above. The proceeds must be reinvested
within 365 days from the date the CD matures, including any rollover.
3. Dividend or capital gain distributions from a real estate investment trust
(REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.
5. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
6. Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you redeemed your
Class A shares from a Templeton Global Strategy Fund, a Contingent
Deferred Sales Charge will apply to your purchase of fund shares and a
new Contingency Period will begin. We will, however, credit your fund
account with additional shares based on the contingent deferred sales
charge you paid and the amount of the redemption proceeds that you
reinvest.
If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are
redeemed from the money fund.
Various individuals and institutions also may buy Class I shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:
1. Trust companies and bank trust departments agreeing to invest in
Franklin Templeton Funds over a 13 month period at least $1 million of
assets held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust departments
or other plan fiduciaries or participants, in the case of certain
retirement plans, have full or shared investment discretion. We will
accept orders for these accounts 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 the order.
2. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the fund is
permissible and suitable for you and the effect, if any, of payments by
the fund on arbitrage rebate calculations.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs
4. Registered Securities Dealers and their affiliates, for their investment
accounts only
5. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
6. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies
7. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
8. Accounts managed by the Franklin Templeton Group
9. Certain unit investment trusts and their holders reinvesting
distributions from the trusts
10. Group annuity separate accounts offered to retirement plans
11. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below
RETIREMENT PLANS. Retirement plans that (i) are sponsored by an employer with
at least 100 employees, or (ii) have plan assets of $1 million or more, or
(iii) agree to invest at least $500,000 in the Franklin Templeton Funds over
a 13 month period may buy Class I shares without a front-end sales charge.
Retirement plans that are not Qualified Retirement Plans, SIMPLEs or SEPs
must also meet the requirements described under "Group Purchases - Class I
Only" above to be able to buy Class I shares without a front-end sales
charge. We may enter into a special arrangement with a Securities Dealer,
based on criteria established by the fund, to add together certain small
Qualified Retirement Plan accounts for the purpose of meeting these
requirements.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the retirement plan is transferred out of
the Franklin Templeton Funds or terminated within 365 days of the retirement
plan account's initial purchase in the Franklin Templeton Funds. Please see
"How Do I Sell Shares? - Contingent Deferred Sales Charge" for details.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the fund.
Plan documents are required for all retirement plans. Trust Company can
provide the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need
an application other than the one included in this prospectus. For a
retirement plan brochure or application, call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing
a retirement plan. Your investment representative or advisor can help you
make investment decisions within your plan.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate
and are responsible for Class II purchases and certain Class I purchases made
without a sales charge. The payments are subject to the sole discretion of
Distributors, and are paid by Distributors or one of its affiliates and not
by the fund or its shareholders.
1. Class II purchases - up to 1% of the purchase price.
2. Class I purchases of $1 million or more - up to 1% of the amount
invested.
3. Class I purchases made without a front-end sales charge by certain
retirement plans described under "Sales Charge Reductions and Waivers -
Retirement Plans" above - up to 1% of the amount invested.
4. Class I purchases by trust companies and bank trust departments,
Eligible Governmental Authorities, and broker-dealers or others on
behalf of clients participating in comprehensive fee programs - up to
0.25% of the amount invested.
5. Class I purchases by Chilean retirement plans - up to 1% of the amount
invested.
A Securities Dealer may receive only one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1, 2 or 5 above or a payment of up
to 1% for investments described in paragraph 3 will be eligible to receive
the Rule 12b-1 fee associated with the purchase starting in the thirteenth
calendar month after the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES,
PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the
fund should determine, or have a broker-dealer determine, the applicable laws
and regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction.
If you own Class I shares, you may exchange into any of our money funds
except Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is
the only money fund exchange option available to Class II shareholders.
Unlike our other money funds, shares of Money Fund II may not be purchased
directly and no drafts (checks) may be written on Money Fund II accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have
different investment minimums. Some Franklin Templeton Funds do not offer
Class II shares.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates for
the shares you want to exchange
- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
If you do not want the ability to exchange by phone
to apply to your account, please let us know.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable
sales charge of the new fund. If you have never paid a sales charge on your
shares because, for example, they have always been held in a money fund, you
will pay the fund's applicable sales charge no matter how long you have held
your shares. These charges may not apply if you qualify to buy shares without
a sales charge.
Contingent Deferred Sales Charge. We will not impose a Contingent Deferred
Sales Charge when you exchange shares. Any shares subject to a Contingent
Deferred Sales Charge at the time of exchange, however, will remain so in the
new fund.
For accounts with shares subject to a Contingent Deferred Sales Charge, we
will first exchange any shares in your account that are not subject to the
charge. If there are not enough of these to meet your exchange request, we
will exchange shares subject to the charge in the order they were purchased.
If you exchange Class I shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. If you exchange your Class II shares for shares of Money
Fund II, however, the time your shares are held in that fund will count
towards the completion of any Contingency Period.
For more information about the Contingent Deferred Sales Charge, please see
"How Do I Sell Shares?"
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the SAME CLASS, except as noted below.
o The accounts must be identically registered. You may, however, exchange
shares from a fund account requiring two or more signatures into an
identically registered money fund account requiring only one signature for
all transactions. Please notify us in writing if you do not want this
option to be available on your account. Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares
as described above. Restrictions may apply to other types of retirement
plans. Please contact Retirement Plan Services for information on
exchanges within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Currently, the fund does not allow investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the fund, such as "Advisor Class" or "Class Z" shares. Because the
fund does not currently offer an Advisor Class, you may exchange Advisor
Class shares of any Franklin Templeton Fund for Class I shares of the fund at
Net Asset Value. If you do so and you later decide you would like to exchange
into a fund that offers an Advisor Class, you may exchange your Class I
shares for Advisor Class shares of that fund. Certain shareholders of Class Z
shares of Franklin Mutual Series Fund Inc. may also exchange their Class Z
shares for Class I shares of the fund at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
BY MAIL 1. Send us signed written instructions. If you
would like your redemption proceeds wired to a
bank account, your instructions should include:
o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and
the account number
2. Include any outstanding share certificates for
the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may
need to send additional documents. Accounts
under court jurisdiction may have other
requirements.
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $50,000 or less.
Institutional accounts may exceed $50,000 by
completing a separate agreement. Call
Institutional Services to receive a copy.
o If there are no share certificates issued for
the shares you want to sell or you have already
returned them to the fund
o Unless you are selling shares in a Trust
Company retirement plan account
o Unless the address on your account was changed
by phone within the last 15 days
If you do not want the ability to redeem by
phone to apply to your account, please let us
know.
THROUGH YOUR DEALER Call your investment representative
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the fund is not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the fund nor its agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may
take seven business days or more. A certified or cashier's check may clear in
less time.
Under unusual circumstances, we may suspend redemptions or postpone payment
for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under
age 591/2, unless the distribution meets an exception stated in the Code. To
obtain the necessary forms, please call Retirement Plan Services.
CONTINGENT DEFERRED SALES CHARGE
For Class I purchases, if you did not pay a front-end sales charge because
you invested $1 million or more or agreed to invest $1 million or more under
a Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell
all or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class I investments you make
without a sales charge may also be subject to a Contingent Deferred Sales
Charge if they are sold within the Contingency Period. For any Class II
purchase, a Contingent Deferred Sales Charge may apply if you sell the shares
within the Contingency Period. The charge is 1% of the value of the shares
sold or the Net Asset Value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class I shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan is
transferred out of the Franklin Templeton Funds or terminated within 365 days
of the account's initial purchase in the Franklin Templeton Funds.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT,
we will redeem additional shares to cover any Contingent Deferred Sales
Charge. For requests to sell a stated NUMBER OF SHARES, we will deduct the
amount of the Contingent Deferred Sales Charge, if any, from the sale
proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Account fees
o Sales of shares purchased without a front-end sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997,
or (ii) the Securities Dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any
payment in connection with the purchase, or (iv) the Securities Dealer of
record has entered into a supplemental agreement with Distributors
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February 1,
1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, at a rate of up to 1% a month of an account's Net Asset
Value. For example, if you maintain an annual balance of $1 million in
Class I shares, you can redeem up to $120,000 annually through a
systematic withdrawal plan free of charge. Likewise, if you maintain an
annual balance of $10,000 in Class II shares, $1,200 may be redeemed
annually free of charge.
o Distributions from IRAs due to death or disability or upon periodic
distributions based on life expectancy
o Tax-free returns of excess contributions from employee benefit plans
o Redemptions by Trust Company employee benefit plans or employee benefit
plans serviced by ValuSelect(R)
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The fund declares dividends from its net investment income semiannually in
June and December to shareholders of record on the first business day before
the 15th of the month and pays them on or about the last day of that month.
Capital gains, if any, may be distributed annually, usually in December.
Dividends and capital gains are calculated and distributed the same way for
each class. The amount of any income dividends per share will differ,
however, generally due to the difference in the Rule 12b-1 fees of Class I
and Class II.
Dividend payments are not guaranteed, are subject to the Board's discretion
and may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE
ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that
any distribution will lower the value of the fund's shares by the amount of
the distribution and you will then receive a portion of the price you paid
back in the form of a taxable distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the
fund (without a sales charge or imposition of a Contingent Deferred Sales
Charge) by reinvesting capital gain distributions, or both dividend and
capital gain distributions. This is a convenient way to accumulate additional
shares and maintain or increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy shares of another Franklin Templeton Fund (without a
sales charge or imposition of a Contingent Deferred Sales Charge). Many
shareholders find this a convenient way to diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both
dividend and capital gain distributions in cash. If you have the money sent
to another person or to a checking account, you may need a signature
guarantee. If you send the money to a checking account, please see
"Electronic Fund Transfers - Class I Only" under "Services to Help You Manage
Your Account."
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class II shareholders who chose to reinvest their distributions
in Class I shares of the fund or another Franklin Templeton Fund before
November 17, 1997, may continue to do so; and (ii) Class II shareholders may
reinvest their distributions in shares of any Franklin Templeton money fund.
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE
WILL AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE
SAME CLASS OF THE FUND. You may change your distribution option at any time
by notifying us by mail or phone. Please allow at least seven days before the
record date for us to process the new option. For Trust Company retirement
plans, special forms are required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value
per share of the class you wish to purchase, plus any applicable sales
charges. When you sell shares, you receive the Net Asset Value per share
minus any applicable Contingent Deferred Sales Charges.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you
buy or sell shares through your Securities Dealer, however, we will use the
Net Asset Value next calculated after your Securities Dealer receives your
request, which is promptly transmitted to the fund. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the close of the NYSE, normally
1:00 p.m. Pacific time. You can find the prior day's closing Net Asset Value
and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on
a pro rata basis. It is based on each class' proportionate participation in
the fund, determined by the value of the shares of each class. Each class,
however, bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To
calculate Net Asset Value per share of each class, the assets of each class
are valued and totaled, liabilities are subtracted, and the balance, called
net assets, is divided by the number of shares of the class outstanding. The
fund's assets are valued as described under "How are Fund Shares Valued?" in
the SAI.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any
delay in processing your transaction, they should include:
o Your name,
o The fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the
evening if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of
transactions or account changes. These include transactions or account
changes that you could also make by phone, such as certain redemptions of
$50,000 or less, exchanges between identically registered accounts, and
changes to the address of record. For most other types of transactions or
changes, written instructions must be signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential
claims based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost, stolen or destroyed, you may have to pay an insurance premium of up
to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone.
Please refer to the sections of this prospectus that discuss the transaction
you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to
ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we
are not reasonably satisfied that the instructions are genuine. If this
occurs, we will not be liable for any loss. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell
shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b)
retirement accounts by phone, certain restrictions may be imposed on other
retirement plans.
To obtain any required forms or more information about distribution or
transfer procedures, please call Retirement Plan Services.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights
and ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of
survivorship" is shown as "Jt Ten" on your account statement. For any account
with two or more owners, we cannot accept instructions to change owners on
the account unless all owners agree in writing, even if the law in your state
says otherwise. If you would like another person or owner to sign for you,
please send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this
form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please
send us the following documents when you open your account. This will help
avoid delays in processing your transactions while we verify who may sign on
the account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- --------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- --------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- --------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the
shares to the street or nominee name account of another Securities Dealer.
Both dealers must have an agreement with Distributors or we cannot process
the transfer. Contact your Securities Dealer to initiate the transfer. We
will process the transfer after we receive authorization in proper form from
your delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the fund.
Telephone instructions directly from your representative will be accepted
unless you have told us that you do not want telephone privileges to apply to
your account.
TAX IDENTIFICATION NUMBER
The IRS requires us to have your correct Social Security or tax
identification number on a signed shareholder application or applicable tax
form. Federal law requires us to withhold 31% of your taxable distributions
and sale proceeds if (i) you have not furnished a certified correct taxpayer
identification number, (ii) you have not certified that withholding does not
apply, (iii) the IRS or a Securities Dealer notifies the fund that the number
you gave us is incorrect, or (iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if
the IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do
this if the value of your account fell below this amount because you
voluntarily sold your shares and your account has been inactive (except for
the reinvestment of distributions) for at least six months. Before we close
your account, we will notify you and give you 30 days to increase the value
of your account to $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the fund.
Under the plan, you can have money transferred automatically from your
checking account to the fund each month to buy additional shares. If you are
interested in this program, please refer to the automatic investment plan
application included with this prospectus or contact your investment
representative. The market value of the fund's shares may fluctuate and a
systematic investment plan such as this will not assure a profit or protect
against a loss. You may discontinue the program at any time by notifying
Investor Services by mail or phone.
AUTOMATIC PAYROLL DEDUCTION - CLASS I ONLY
You may have money transferred from your paycheck to the fund to buy
additional Class I shares. Your investments will continue automatically until
you instruct the fund and your employer to discontinue the plan. To process
your investment, we must receive both the check and payroll deduction
information in required form. Due to different procedures used by employers
to handle payroll deductions, there may be a delay between the time of the
payroll deduction and the time we receive the money.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or
annual basis. The value of your account must be at least $5,000 and the
minimum payment amount for each withdrawal must be at least $50. For
retirement plans subject to mandatory distribution requirements, the $50
minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete
the systematic withdrawal plan section of the shareholder application
included with this prospectus and indicate how you would like to receive your
payments. You may choose to direct your payments to buy the same class of
shares of another Franklin Templeton Fund or have the money sent directly to
you, to another person, or to a checking account. If you choose to have the
money sent to a checking account, please see "Electronic Fund Transfers -
Class I Only" below. Once your plan is established, any distributions paid by
the fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan may
also be subject to a Contingent Deferred Sales Charge. Please see "Contingent
Deferred Sales Charge" under "How Do I Sell Shares?"
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. Please see "How Do I Buy, Sell and Exchange
Shares? - Systematic Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS - CLASS I ONLY
You may choose to have dividend and capital gain distributions from Class I
shares of the fund or payments under a systematic withdrawal plan sent
directly to a checking account. If the checking account is with a bank that
is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If you choose this option, please
allow at least fifteen days for initial processing. We will send any payments
made during that time to the address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares (within the same class) between identically registered
Franklin Templeton Class I and Class II accounts; and
o request duplicate statements and deposit slips for Franklin Templeton
accounts.
You will need the code number for each class to use TeleFACTS(R). The code
number is 180 for Class I and 280 for Class II.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the fund will be sent every six months. To reduce
fund expenses, we attempt to identify related shareholders within a
household and send only one copy of a report. Call Fund Information if you
would like an additional free copy of the fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more
information, call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your
shares are held by a financial institution, in a street name account, or
networked through the NSCC, the fund may not be able to offer these services
directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The fund, Distributors and Advisers are also located at this
address. You may also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
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Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan
Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with
high quality service. You will hear a regular beeping tone if your call is
being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
Advisers - Franklin Advisers, Inc., the fund's investment manager
Board - The Board of Trustees of the Trust
CD - Certificate of deposit
Class I and Class II - The fund offers two classes of shares, designated
"Class I" and "Class II." The two classes have proportionate interests in the
fund's portfolio. They differ, however, primarily in their sales charge
structures and Rule 12b-1 plans.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the
contingency period is 18 months. The holding period for Class I begins on the
first day of the month in which you buy shares. Regardless of when during the
month you buy Class I shares, they will age one month on the last day of that
month and each following month. The holding period for Class II begins on the
day you buy your shares. For example, if you buy Class II shares on the 18th
of the month, they will age one month on the 18th day of the next month and
each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply
if you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Eligible Governmental Authority - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
the fund is a legally permissible investment and that can only buy shares of
the fund without paying sales charges.
Franklin Templeton Funds - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Franklin Templeton Group of Funds - All U.S. registered investment companies
in the Franklin Group of Funds(R)and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the fund's administrator
Investor Services - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRA - Individual retirement account or annuity qualified under section 408 of
the Code
IRS - Internal Revenue Service
Letter - Letter of Intent
Market Timers - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange
shares based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
Moody's - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
Offering Price - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 4.50% for Class I and 1% for Class II.
Qualified Retirement Plans - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established
under section 408(k) of the Code
SIMPLE (Savings Incentive Match Plan for Employees) - An employer sponsored
salary deferral plan established under section 408(p) of the Code
TeleFACTS(R) - Franklin Templeton's automated customer servicing system
Trust Company - Franklin Templeton Trust Company. Trust Company is an
affiliate of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
We/Our/Us - Unless the context indicates a different meaning, these terms
refer to the fund and/or Investor Services, Distributors, or other wholly
owned subsidiaries of Resources.
