TFS-P
SUPPLEMENT TO THE PROSPECTUS
DATED MARCH 1, 1995
(each as previously supplemented February 1, 1995 and as may be
further amended and supplemented)
Age High Income Fund Fund
Dated October 1, 1994
Franklin Balance Sheet Investment Fund
Dated March 1, 1995
Franklin California Tax-Free Income Fund, Inc.
Dated August 1, 1994
Franklin California Insured Tax-Free Income Fund
Dated November 1, 1994
Franklin California Intermediate-Term Tax-Free Income Fund, Dated
November 1, 1994
Franklin Custodian Funds, Inc.
(FCF - Growth, Utilities, DynaTech, Income And U.S. Government
Securities Series)
and the separate prospectuses for Income Series and U.S.
Government Securities Series
All Dated February 1, 1995
Franklin Equity Fund
Dated November 1, 1994, as Amended January 19, 1995
Franklin Federal Tax-Free Income Fund
Dated September 1, 1994
Franklin Gold Fund
Dated December 1, 1994
Franklin Pacific Growth Fund
Dated March 1, 1995
Franklin International Equity Fund
Dated March 1, 1995
Franklin Global Government Income Fund
Dated March 1, 1995
Franklin Short-Intermediate U.S. Government Securities Fund,
Dated March 1, 1995
Franklin Convertible Securities Fund
Dated March 1, 1995
Franklin Adjustable U.S. Government Securities Fund
Dated March 1, 1995
Franklin Equity Income Fund
Dated March 1, 1995
Franklin Adjustable Rate Securities Fund
Dated March 1, 1995
Franklin Corporate Qualified Dividends Fund
Dated February 1, 1995
Franklin Rising Dividends Fund
Dated February 1, 1995
Franklin Investment Grade Income Fund
Dated February 1, 1995
Franklin Municipal Securities Trust
(Hawaii, Washington, Tennessee and Arkansas Municipal Bond Funds)
Dated October 1, 1994
Franklin California High Yield Municipal Fund
Dated October 1, 1994
Franklin New York Tax-Free Income Fund, Inc.
Dated October 1, 1994
Franklin New York Insured Tax-Free Income Fund
Dated May 1, 1994
Franklin New York Intermediate-Term Tax Free Income Fund
Dated May 1, 1994
Franklin Partners Funds
(FPF - Franklin Tax-Advantaged International Bond, U.S.
Government Securities and High Yield Securities Funds)
Dated May 1, 1994, as Amended October 21, 1994
Franklin Premier Return Fund
Dated May 1, 1994, As Amended September 8, 1994
Franklin Real Estate Securities Fund
Dated September 1, 1994
Franklin Strategic Mortgage Portfolio
Dated February 1, 1995
Franklin California Growth Fund
Dated September 1, 1994, as Amended November 11, 1994
Franklin Strategic Income Fund
Dated December 30, 1994
Franklin Global Utilities Fund
Dated September 1, 1994
Franklin Small Cap Growth Fund
Dated September 1, 1994
Franklin Federal Intermediate Tax-Free Income Fund
Dated July 1, 1994, as amended September 30, 1994
Franklin Tax Free Trust
(TF1 - Insured, Massachusetts Insured, Michigan Insured,
Minnesota Insured, Ohio Insured, Arizona Insured and Florida
Insured Tax-Free Income Funds)
Dated July 1, 1994,
(TF2 - Alabama, Florida, Georgia, Kentucky, Louisiana, Maryland,
Missouri, North Carolina, Texas and Virginia Tax-Free Income
Funds)
Dated July 1, 1994, As Amended October 4, 1994
(TF3 - Arizona, Colorado, Connecticut, Indiana, New Jersey, Ohio,
Oregon, Pennsylvania, Puerto Rico and High Yield Tax-Free Income
Funds)
Dated July 1, 1994, As Amended October 4, 1994
Franklin Templeton German Government Bond Fund
Dated March 1, 1995
Franklin Templeton International Currency Funds
(Global, High and High Income Currency Funds)
Dated March 1, 1995
During the period March 1, 1995 through April 30, 1995, the
securities firm of TFS Securities, Inc., ("TFS") will receive the
full front-end sales commission with respect to purchases
originated by TFS, from Franklin Templeton Distributors, Inc.,
the principal underwriter for the above funds.
FRANKLIN
PACIFIC
GROWTH FUND
Franklin International Trust
PROSPECTUS MARCH 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin International Trust (the "Trust") is an open-end
management investment company consisting of two separate
diversified series. Each series of the Trust in effect represents
a separate fund with its own investment objective and policies,
with varying possibilities for income or capital appreciation,
and subject to varying market risks. Through the different
series, the Trust attempts to satisfy different investment
objectives.
This Prospectus pertains only to the Franklin Pacific Growth Fund
(the "Fund"), a diversified series, which seeks long-term growth
of capital. Under normal market conditions, the Fund invests at
least 65% of its total assets in equity securities which trade on
markets in the Pacific Rim and are (i) issued by companies
domiciled in the Pacific Rim or (ii) issued by companies that
derive at least 50% of either their revenues or pre-tax income
from activities in the Pacific Rim. There can, of course, be no
assurance that the Fund's objective will be achieved.
Under normal market conditions, the Fund's assets are
substantially invested in equity securities consisting of common
and preferred stock, securities (bonds or preferred stock)
convertible into common stock, warrants and securities
representing underlying international securities such as American
Depositary Receipts, or ADRs ("Equity Securities").
This Prospectus is intended to set forth in a clear and concise
manner information about the Fund that a prospective investor
should know before investing. After reading the Prospectus, it
should be retained for future reference; it contains information
about the purchase and sale of shares and other items which a
prospective investor will find useful to have.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
A Statement of Additional Information (the "SAI") concerning the
Trust, dated March 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN
DESCRIBED IN ANY STATE IN WHICH THE OFFERING IS NOT AUTHORIZED.
NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED
FROM THE UNDERWRITER.
CONTENTS PAGE
Expense Table
Financial Highlights
About the Fund
Investment Objective and
Policies of the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. These figures are based on aggregate operating
expenses of the Fund (including fees set by contract) for the
Fund's fiscal year ended October 31, 1994.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed 4.50%
on Purchases
(as a percentage of offering
price)
Deferred Sales Charge NONE*
Exchange Fee (per $5.00**
transaction)
*Investments of $1 million or more are not subject to a front-
end sales charge; however, a contingent deferred sales charge
of 1% is imposed on certain redemptions within 12 months of
the calendar month following such investments. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
**$5.00 fee imposed only on Timing Accounts as described
under "Exchange Privilege." All other exchanges are processed
without a fee.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 1.00%**
12b-1 Fees 0.23%***
Other Expenses:
Custodian Fees 0.15%
Registration Fees 0.14%
Other 0.20%
Total Other Expenses 0.49%
Total Fund Operating Expenses 1.72%**
**Represents the amount that would have been payable to the
investment manager, absent a fee reduction by the investment
manager. The investment manager, however, has voluntarily
agreed to waive or limit its management fees payable by the
Fund. With this reduction, management fees were 0.50% of the
Fund's average net assets, and total operating expenses,
including such management fees, were 1.22% of the Fund's
average net assets for the fiscal year ended October 31,
1994. This arrangement may be terminated by the investment
manager at any time.
***Consistent with rules of the National Association of
Securities Dealers, Inc. (the "NASD"), it is possible that
the combination of front-end sales charges and Rule 12b-1
fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charges
permitted under those same rules.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates
the expenses, including the initial sales charge, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period. As noted in the table above, the Fund charges
no redemption fees:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$62 $97 $134 $239
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES
OF THE FUND, BEFORE EXPENSE REDUCTIONS OR FEE WAIVERS, SHOWN
ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The
operating expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. See
"Management of the Fund" for a description of the Fund's
expenses. In addition, federal regulations require the example to
assume an annual return of 5%, but the Fund's actual return may
be more or less than 5%.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The information for each of the three fiscal years in the period
ended October 31, 1994 and for the period from September 20, 1991
(effective date of registration) to October 31, 1991 has been
audited by Coopers & Lybrand L.L.P., independent auditors,
whose audit report appears in the financial statements in the
Trust's SAI. See the discussion "Reports to Shareholders" under
"General Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE**
- --------------------------------------------------------------------------------------------
NET NET
ASSETS REALIZED & TOTAL DISTRI- DISTRI-
VALUES NET UNREALIZED FROM BUTIONS BUTIONS
YEAR AT BEGIN- INVEST- GAIN INVEST- FROM NET FROM
ENDED NING MENT (LOSS)ON MENT INVESTMENT CAPITAL TOTAL
OCT. 31 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN PACIFIC GROWTH FUND
1991+ $10.01 $.06 $ -- $ .060 $ -- $ -- $ --
1992 10.07 .14 .836 .976 (.146) -- (.146)
1993 10.90 .19 3.825 4.015 (.193) (.282) (.475)
1994 14.44 .21 1.008 1.218 (.198) (.060) (.258)
</TABLE>
<TABLE>
<CAPTION>
PER SHARE0
OPERATING
PERFORMANCE** RATIOS/SUPPLEMENTAL DATA
- -------------------- -----------------------------------------------
RATIO
NET RATIO OF OF NET
ASSET NET ASSETS EXPENSES INVESTMENT
YEAR VALUES AT END TO AVERAGE INCOME PORTFOLIO
ENDED AT END TOTAL OF PERIOD NET TO AVERAGE TURNOVER
OCT. 31 OF YEAR RETURN++ (IN 000'S) ASSETS*** NET ASSETS RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FRANKLIN PACIFIC GROWTH FUND
1991+ $10.07 .60% $ 1,165 --% 5.01% --%
1992 10.90 9.77 5,724 .29 1.80 62.96
1993 14.44 38.46 22,619 .50 2.03 47.52
1994 15.40 8.46 58, 241 1.22 1.54 9.16
</TABLE>
*Annualized.
**Selected data for a share of beneficial interest outstanding throughout the
year.
For the period September 20, 1991 (effective date of registration) to October
31, 1991.
Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.5% initial sales charge and assumes
reinvestment of dividends and capital gains at net asset value.
***During the periods indicated below, Franklin Advisers, Inc., the investment
manager, reduced its management fees and reimbursed other expenses incurred by
the Funds. Had such action not been taken, ratios of operating expenses to
average net assets would have been as follows:
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
<S> <C>
FRANKLIN PACIFIC GROWTH
1991+............................... 2.50%*
1992................................ 2.50
1993................................ 2.31
1994 1.72
</TABLE>
ABOUT THE FUND
The Trust is an open-end management investment company which
consists of two diversified, open-end series, commonly called
mutual funds. The Trust is a Delaware business trust, organized
on March 22, 1991, and registered under the Investment Company
Act of 1940 (the "1940 Act"). The Fund is managed by Franklin
Advisers, Inc. (the "Manager" or "Advisers") and up until
December 31, 1992 received portfolio advice and management
assistance from Barclays de Zoete Wedd Investment Management Inc.
("BZWIM"). Since January 1, 1993, Templeton Investment Counsel,
Inc. ("TICI" or the "Sub-adviser"), an indirect subsidiary of
Templeton Worldwide, Inc., which is a direct, wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), serves as
the sub-adviser under a contract with the Manager providing
services similar to those provided by BZWIM and with no increase
in fees to shareholders. (See "Management of the Fund.")
Shares of the Fund may be purchased (minimum investment of $100
initially and $25 thereafter) at the current public offering
price, which is equal to the Fund's net asset value (see
"Valuation of Fund Shares") plus a sales charge not exceeding
4.50% of the offering price. See "How to Buy Shares of the Fund."
INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND
The Fund's principal investment objective is to seek to provide
long-term growth of capital. Under normal market conditions, the
Fund invests at least 65% of its total assets in Equity
Securities which trade on markets in the Pacific Rim, and which
are (i) issued by companies domiciled in the Pacific Rim or (ii)
issued by companies that derive at least 50% of either their
revenues or pre-tax income from activities in the Pacific Rim.
The investment objective of the Fund is a fundamental policy and
may not be changed without the approval of a majority of the
Fund's outstanding shares. There is, of course, no assurance that
the Fund's objective will be achieved.
For purposes of the Fund's 65% investment policy, the countries
in the Pacific Rim are Australia, China, Hong Kong, India,
Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines,
Singapore, South Korea and Thailand.
The Fund may invest up to 35% of its assets in the securities of
issuers domiciled outside of the Pacific Rim. The investments may
consist of: (i) securities of issuers in countries that are not
located in the Pacific Rim but are linked by tradition, economic
markets, cultural similarities or geography to the countries in
the Pacific Rim; and (ii) securities of issuers located elsewhere
in the world which have operations in the Pacific Rim or which
stand to benefit from political and economic events in the
Pacific Rim. For example, the Fund may invest in a company
outside of the Pacific Rim when the Sub-adviser believes at the
time of investment that the value of the company's securities may
be enhanced by conditions or developments in the Pacific Rim even
though the company's production facilities are located outside of
the Pacific Rim.
Up to 35% of the Fund's total assets may be invested in fixed-
income debt securities rated "Baa" or better by Moody's Investors
Service ("Moody's") or "BBB" or better by Standard & Poor's
Corporation ("S&P") or that are not rated but determined by
management to be of comparable quality.
It is currently expected that under normal conditions at least
65% of the Fund's total assets will be invested in securities
traded in at least three foreign countries, including the
countries listed herein. The Fund, may, from time to time, hold
significant cash positions until suitable investment
opportunities are available, consistent with its policy on
temporary investments.
Up to 35% of the Fund's assets may be invested in bonds, fixed-
income debt securities and synthetic securities, as discussed
below. The Fund may seek capital appreciation by investing in
such debt securities which would occur through changes in
relative foreign currency exchange rates, changes in relative
interest rates or improvement in the creditworthiness of an
issuer. The receipt of income from such debt securities is
incidental to the Fund's investment objective of growth of
capital. These debt obligations consist of U.S. and foreign
government securities and corporate debt securities, including
Samurai and Yankee bonds, Eurobonds and depository receipts. The
issuers of such debt securities may or may not be domiciled in
the Pacific Rim. The Fund will limit its purchases of debt
securities to investment grade obligations. For long-term debt
obligations, this includes securities that are rated "Baa" or
better by Moody's or "BBB" or better by S&P, or that are not
rated but determined by management to be of comparable quality.
Fixed-income debt securities within the top three categories
(i.e., "AAA", "AA" and "A" by S&P or "Aaa", "Aa" or "A" by
Moody's) comprise what are known as high-grade bonds and are
regarded as having a strong capacity to pay principal and
interest. Medium-grade bonds (i.e., "BBB" by S&P or "Baa" by
Moody's) are regarded as having an adequate capacity to pay
principal and interest but with greater vulnerability to adverse
economic conditions and some speculative characteristics. An
Appendix discussing these ratings is included in the SAI.
Generally, when interest rates rise, the value of the Fund's
fixed-income and convertible investments will decline.
Conversely, when rates fall, the value of such investments may
rise. As a result, the presence of debt or convertible securities
in the Fund's portfolio may contribute to fluctuation both in the
value of the Fund's shares and the dividends per share paid by
the Fund.
In the event the rating on an issue held in the Fund's portfolio
is lowered by a rating service, such change will be considered by
the Fund in its evaluation of the overall investment merits of
that security but will not necessarily result in an automatic
sale of the security.
The Fund may temporarily invest cash in short-term debt
instruments of U.S. or foreign issuers for cash management
purposes or pending investment. (See "Investment Objective and
Policies of the Fund - Short-Term Investments" below.)
The systematic method employed by the Sub-adviser to identify
opportunities in the equity markets may result in frequent
recommendations to add or remove securities from the Fund's
portfolio, thus increasing the portfolio turnover rate. High
portfolio turnover increases transaction costs which must be paid
by the Fund. High turnover may also result in the realization of
net capital gains, which are taxable when distributed to
shareholders.
RISKS RELATED TO INVESTING IN FOREIGN SECURITIES
Foreign securities involve certain risks which should be
considered carefully by prospective investors in the Fund. These
risks include political, social or economic instability in the
country of the issuer, the difficulty of predicting international
trade patterns, the possibility of the imposition of exchange
controls, expropriation, restrictions on removal of currency or
other assets, nationalization of assets, foreign withholding and
income taxation, and foreign trading practices (including higher
trading commissions, custodial charges and delayed settlements).
Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or
guaranteed by the U.S. government, its instrumentalities or
agencies. The markets on which such securities trade may have
less volume and liquidity, and may be more volatile than
securities markets in the U.S. In addition, there may be less
publicly available information about a foreign company than about
a U.S. domiciled company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. domestic
companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in
the U.S. Confiscatory taxation or diplomatic developments could
also affect investment in those countries.
In many instances, foreign debt securities may provide higher
yields than securities of domestic issuers which have similar
maturities and quality. Under certain market conditions, these
investments may be less liquid than the securities of U.S.
corporations and are certainly less liquid than securities issued
or guaranteed by the U.S. government, its instrumentalities or
agencies. Finally, in the event of a default of any such foreign
debt obligations, it may be more difficult for the Fund to obtain
or to enforce a judgment against the issuers of such securities.
If a security is denominated in foreign currency, the value of
the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs
will be incurred in connection with conversions between
currencies. A change in the value of any foreign currency against
the U.S. dollar will result in a corresponding change in the U.S.
dollar value of the Fund's securities denominated in that
currency. Such changes will also affect the Fund's income and
distributions to shareholders. In addition, although the Fund
will receive income on foreign securities in such currencies, the
Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such
currency declines materially after the Fund's income has been
accrued and translated into U.S. dollars, the Fund could be
required to liquidate portfolio securities to make required
distributions. Similarly, if an exchange rate declines between
the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to
be converted into U.S. dollars in order to pay such expenses in
U.S. dollars will be greater.
The relative performance of foreign currencies in which
securities held by the Fund are denominated is an important
factor in the Fund's overall performance. TICI intends to manage
the Fund's exposure to various currencies to take advantage of
different yield, risk, and return characteristics that different
currencies, currency denominations, and countries can provide for
U.S. investors.
To hedge exposure to currency fluctuations or to increase income,
the Fund may enter into forward foreign currency exchange
contracts, and may buy and sell options, futures contracts and
options on futures contracts relating to foreign currencies. The
Fund will use forward currency exchange contracts in the normal
course of business to lock in an exchange rate in connection with
purchases and sales of securities denominated in foreign
currencies. Other currency management strategies allow the Sub-
adviser to hedge portfolio securities, to shift investment
exposure from one currency to another, or to attempt to profit
from anticipated declines in the value of a foreign currency
relative to the U.S. dollar. Some of these strategies will
require the Fund to set aside liquid assets in a segregated
custodial account to cover its obligations. (See "Currency
Hedging Transactions" below. Options and Futures and Options on
Futures are limited as discussed below.)
Although the Fund will not invest more than 25% of its assets in
any one industry or the government of any one country, the Fund
may invest more than 25% of its assets in the securities of
issuers in one or more countries. Investors should consider the
greater risk of such policy versus the safety that may come with
an investment that involves a wider range of geographic
localities and countries. Accordingly, an investor should compare
the Fund with other investment vehicles before making an
investment decision. There is, of course, no assurance that the
Fund's objective will be achieved.
Some of the countries in which the Fund invests may not permit
direct investment. Investments in such countries may only be
permitted through government approved investment vehicles.
Investing through such vehicles may involve duplicative or
layered fees or expenses and may, as well, be subject to
limitations under the 1940 Act. Under the 1940 Act, the Fund may
invest up to 10% of its assets in shares of other investment
companies and up to 3% of its assets in any one investment
company as long as the investment does not represent more than 5%
of the voting stock of the acquired investment company.
HOW SHAREHOLDERS PARTICIPATE IN
THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If
the securities owned by the Fund increase in value, the value of
the shares of the Fund which the shareholder owns will increase.
If the securities owned by the Fund decrease in value, the value
of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the
securities owned by the Fund.
A decline in the stock market of any country in which the Fund is
invested may also be reflected in declines in the Fund's share
price. Changes in currency valuations will also affect the price
of Fund shares. History reflects both decreases and increases in
worldwide stock markets and currency valuations, and these may
reoccur unpredictably in the future.
Changes in the prevailing rates of interest in any of the
countries in which the Fund is invested will likely affect the
value of the Fund's holdings and thus the value of Fund shares.
Increased rates of interest which frequently accompany higher
inflation and/or a growing economy are likely to have a negative
effect on the value of Fund shares. In addition changes in
currency valuations will impact the price of Fund shares. History
reflects both increases and decreases in interest rates in
individual countries and throughout the world, and in currency
valuations, and these may reoccur unpredictably in the future.
TRADING IN OPTIONS
The Fund may purchase put and call options and write covered put
and call options on securities and securities indices. Such
options may be traded on U.S. exchanges and, to the extent
permitted by law, over-the-counter and on foreign exchanges.
Broadly speaking, to comply with SEC asset coverage requirements,
no more than one third of the Fund's assets will be invested in
options or other assets which, as discussed below, must be
"covered."
WRITING CALL AND PUT OPTIONS ON SECURITIES. The Fund may write
options to generate additional income and to hedge its investment
portfolio against anticipated adverse market and/or exchange rate
movements. Call options written by the Fund give the holder the
right to buy the underlying securities from the Fund at a stated
exercise price. Put options written by the Fund give the holder
the right to sell the underlying security to the Fund at a stated
exercise price. All options written by the Fund will be
"covered."
A call option written by the Fund is "covered" if the Fund owns
the underlying security covered by the call or has an absolute
and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in
a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option
is also covered if the Fund holds a call on the same security and
in the same principal amount as the call written where the
exercise price of the call held (i) is equal to or less than the
exercise price of the call written or (ii) is greater than the
exercise price of the call written if the difference is
maintained by the Fund in cash and high-grade debt securities in
a segregated account with its custodian.
A put option written by the Fund is "covered" if the Fund
maintains cash and high-grade debt securities with a value equal
to the exercise price in a segregated account with its custodian,
or else holds a put on the same security and in the same
principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of
the put written. The premium paid by the purchaser of an option
will reflect, among other things, the relationship of the
exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and
demand, and interest rates.
The writer of an option that wishes to terminate its obligation
may effect a "closing purchase transaction." This is accomplished
by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position
will be canceled by the clearing corporation. However, a writer
may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who
is the holder of an option may liquidate its position by
effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously
purchased.
The Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium received from
writing the option or is more than the premium paid to purchase
the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium received from writing the option or is less than the
premium paid to purchase the option. Because increases in the
market price of a call option will generally reflect increases in
the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned
by the Fund. There is no guarantee that either a closing purchase
or a closing sale transaction can be effected when the Fund so
desires.
The writing of covered put options involves certain risks. For
example, if the market price of the underlying security rises or
otherwise is above the exercise price, the put option will expire
worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund may attempt to
close the position or take delivery of the security at the
exercise price and the Fund's return will be the premium received
from the put options minus the amount by which the market price
of the security is below the exercise price.
PURCHASING CALL OPTIONS. The Fund may purchase call options on
securities which it intends to purchase in order to limit the
risk of a substantial increase in the market price of such
security. The Fund may also purchase call options on securities
held in its portfolios and on which it has written call options.
A call option gives the holder the right to buy the underlying
securities from the option writer at a stated exercise price.
Prior to its expiration, a call option may be sold in a closing
sale transaction. Profit or loss from such a sale will depend on
whether the amount received is more or less than the premium paid
for the call option plus the related transaction costs.
PURCHASING PUT OPTIONS. The Fund may purchase put options on
particular securities in order to protect against a decline in
the market value of the underlying security below the exercise
price less the premium paid for the option. A put option gives
the holder the right to sell the underlying security at the
option exercise price at any time during the option period. The
ability to purchase put options will allow the Fund to protect
the unrealized gain in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund will
continue to receive interest or dividend income on the security.
The Fund may sell a put option which it has previously purchased
prior to the sale of the securities underlying such option. Such
sales will result in a net gain or loss depending on whether the
amount received on the sale is more or less than the premium and
other transaction costs paid for the put option that is sold.
Such gain or loss may be wholly or partially offset by a change
in the value of the underlying security which the Fund owns or
has the right to acquire.
OPTIONS ON STOCK INDICES. The Fund may also purchase and write
call and put options on stock indices in order to hedge against
the risk of market or industry-wide stock price fluctuations or
to increase income to the Fund. Call and put options on stock
indices are similar to options on securities except that, rather
than the right to purchase or sell particular securities at a
specified price, options on a stock index give the holder the
right to receive, upon exercise of the option, an amount of cash
if the closing level of the underlying stock index is greater
than (or less than, in the case of puts) the exercise price of
the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of
the option, expressed in dollars multiplied by a specified
number. Thus, unlike options on individual securities, all
settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular
industry or segment of the market) rather than price movements in
individual securities.
All options written on stock indices must be covered. When the
Fund writes an option on a stock index, it will establish a
segregated account containing cash or high quality, fixed-income
securities with its custodian in an amount at least equal to the
market value of the option and will maintain the account while
the option is open or will otherwise cover the transaction.
FORWARD CONVERSIONS. The Fund may engage in "forward conversion"
transactions. In a forward conversion, the Fund will purchase
securities and write call options and purchase put options on
such securities. All options written by the Fund will be covered.
By purchasing puts, the Fund protects the underlying security
from depreciation in value. By selling or writing calls on the
same security, the Fund receives premiums which may offset part
or all of the cost of purchasing the puts while foregoing the
opportunity for appreciation in the value of the underlying
security. The Fund will not exercise a put it has purchased while
a call option on the same security is outstanding. The use of
options in connection with forward conversions is intended to
hedge against fluctuations in the market value of the underlying
security. Although it is generally intended in forward conversion
transactions that the exercise price of put and call options
would be identical, situations might occur in which some option
positions are acquired with different exercise prices. Therefore,
the Fund's return may depend in part on movements in the price of
the underlying security because of the different exercise prices
of the call and put options. Such price movements may also affect
the Fund's total return if the conversion is terminated prior to
the expiration date of the options. In such event, the Fund's
return may be greater or less than it would otherwise have been
if it had hedged the security only by purchasing put options.
OVER-THE-COUNTER OPTIONS ON SECURITIES ("OTC" OPTIONS). The Fund
may write covered put and call options and purchase put and call
options which trade in the over-the-counter market to the same
extent that it may engage in exchange traded options. OTC options
differ from exchange traded options in certain material respects.
OTC options are arranged directly with dealers and not, as is the
case with exchange traded options, with a clearing corporation.
Thus, there is a risk of non-performance by the dealer. Because
there is no exchange, pricing is typically done by reference to
information from market makers. However, OTC options are
available for a greater variety of securities and in a wider
range of expiration dates and exercise prices than exchange
traded options; and the writer of an OTC option is paid the
premium in advance by the dealer.
There can be no assurance that a continuous, liquid secondary
market will exist for any particular option at any specific time.
Consequently, 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 the option.
Similarly, when the Fund writes an OTC option, it generally can
close out that option prior to its expiration only by entering
into a closing purchase transaction with the dealer to whom the
Fund originally wrote the option.
The Fund understands the current position of the staff of the SEC
to be that purchased OTC options and the assets used as "cover"
for written OTC options are illiquid securities. The Fund and its
advisers disagree with this position. Nevertheless, pending a
change in the staff's position, the Fund will treat OTC options
as subject to the Fund's limitation on illiquid securities. (See
"Investment Objective and Policies of the Fund - Illiquid
Investments.")
SPREAD AND STRADDLE TRANSACTIONS. The Fund may engage in "spread"
transactions in which it purchases and writes a put or call
option on the same underlying security, with the options having
different exercise prices and/or expiration dates. All options
written by the Fund will be covered. The Fund may also engage in
so-called "straddles," in which it purchases or writes
combinations of put and call options on the same security.
Because the purchase of options by the Fund in connection with
these transactions may, under certain circumstances, involve a
limited degree of investment leverage, the Fund will not enter
into any spreads or straddles if, as a result, more than 5% of
its net assets will be invested at any time in such option
transactions. The Fund's ability to engage in spread or straddle
transactions may be further limited by state securities laws.
FUTURES TRANSACTIONS
The Fund may purchase or sell (i) financial futures contracts;
(ii) interest rate futures contracts; (iii) options on interest
rate futures contracts; (iv) stock index futures contracts; and
(v) options on stock index futures contracts (collectively,
"Futures Transactions") for bona fide hedging purposes. The Fund
may enter into such Futures Transactions on domestic exchanges
and, to the extent such transactions have been approved by the
Commodity Futures Trading Commission ("CFTC") for sale to
customers in the U.S., on foreign exchanges. The Fund will not
engage in Futures Transactions for speculation but only as a
hedge against changes resulting from market conditions in the
value of its securities or securities which it intends to
purchase. The Fund will not enter into any Futures Transactions
if, immediately thereafter, more than 20% of the Fund's net
assets would be represented by futures contracts or options
thereon. In addition, the Fund will not engage in any Futures
Transactions if, immediately thereafter, the sum of the amount of
initial margin deposits on the Fund's futures positions and
premiums paid for options on its futures contracts would exceed
5% of the market value of the Fund's total assets.
FINANCIAL FUTURES CONTRACTS. Financial futures are commodity
contracts that obligate the holder to take or make delivery of a
specified quantity of a financial instrument, such as a U.S.
Treasury security or foreign currencies, during a specified
future period at a specified price. A "sale" of a financial
futures contract means the acquisition of a contractual
obligation to deliver the securities called for by the contract
at a specified price on a specified date. A "purchase" of a
financial futures contract means the acquisition of a contractual
obligation to acquire the securities called for by the contract
at a specified price on a specified date.
At the same time a futures contract is purchased or sold, the
Fund must allocate cash or securities as a deposit payment
("initial deposit"). The futures contract is valued daily
thereafter and the payment of some amount of "variation margin"
may be required, reflecting any decline or increase in the
contract's value.
To the extent the Fund enters into contracts for the purchase or
sale for future delivery of financial futures and to the extent
required by the rules of the SEC, the Fund will maintain, with
its custodian, assets in a segregated account to cover its
obligations with respect to such contracts, which assets will
consist of cash, cash equivalents or high quality debt securities
from its portfolio in an amount equal to the difference between
the fluctuating market value of such futures contracts and the
aggregate value of the initial and variation margin payments made
by the Fund with respect to such futures contracts.
INTEREST RATE FUTURES CONTRACTS. Interest Rate Futures Contracts
are futures contracts on debt securities. The value of these
instruments changes in response to changes in the value of the
underlying debt security, which depends primarily on prevailing
interest rates.
The Fund may enter into interest rate futures contracts in order
to protect its portfolio securities from fluctuations in interest
rates without necessarily buying or selling the underlying fixed-
income securities. For example, if the Fund owns bonds, and
interest rates are expected to increase, it might sell futures
contracts on debt securities having characteristics similar to
those held in the portfolio. Such a sale would have much the same
effect as selling an equivalent value of the bonds owned by the
Fund. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the
futures contracts to the Fund would increase at approximately the
same rate, thereby keeping the net asset value of the Fund from
declining as much as it otherwise would have.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Fund may also
purchase put and call options and write covered put and call
options on interest rate futures contracts to hedge against risks
associated with shifts in interest rates.
STOCK INDEX FUTURES CONTRACTS. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at
which the agreement was made. Open futures contracts are valued
on a daily basis, and the Fund may be obligated to provide or
receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index
is made in the future.
The Fund may sell stock index futures contracts in anticipation
of or during a market decline in an attempt to offset the
decrease in market value of its Equity Securities that might
otherwise result. When the Fund is not fully invested in stocks
and anticipates a significant market advance, it may purchase
stock index futures in order to gain rapid market exposure that
may offset increases in the cost of common stocks that it intends
to purchase.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Call and put options on
stock index futures are similar to options on securities except
that, rather than the right to purchase or sell stock at a
specified price, options on a stock index futures contract give
the holder the right to receive cash. Upon exercise of the
option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case
of a call, or is less than, in the case of a put, the exercise
price of the option on the futures contract. If an option is
exercised on the last trading day prior to the expiration date of
the option, the settlement will be made entirely in cash equal to
the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.
The need to hedge against such risks will depend on the extent of
diversification of the Fund's common stock portfolio and the
sensitivity of such investments to factors influencing the stock
market as a whole.
CURRENCY HEDGING TRANSACTIONS
In order to hedge against currency exchange rate risks, the Fund
may enter into forward currency exchange contracts and currency
futures contracts and options on such futures contracts, as well
as purchase put or call options and write covered put and call
options on currencies traded in U.S. or foreign markets.
A forward currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks). A currency futures contract is a standardized contract
for the future delivery of a specified amount of currency at a
future date at a price set at the time of the contract. The Fund
may enter into currency futures contracts traded on regulated
commodity exchanges, including non-U.S. exchanges.
The Fund may either accept or make delivery of the currency
specified at the maturity of a forward or futures contract or,
prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions
with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract.
Closing transactions with respect to futures contracts and
options thereon are effected on the exchange on which the
contract was entered into (or on a linked exchange).
The Fund may enter into forward currency exchange contracts and
currency futures contracts in several circumstances. For example,
when the Fund enters into a contract for the purchase or sale of
a security denominated in a foreign currency (or options
contracts with respect to such futures contracts), or when the
Fund anticipates the receipt in a foreign currency of dividends
or interest payments on such a security that it holds, it may
desire to "lock in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as
the case may be. In addition, when the Sub-adviser believes that
the currency of a particular country may suffer a substantial
decline against the U.S. dollar, it may enter into a forward or
futures contract to sell, for a fixed amount of U.S. dollars, the
amount of that currency approximating the value of some or all of
the Fund's portfolio securities denominated in such currency. In
addition, the Fund may engage in cross-hedging transactions by
using forward contracts in one currency to hedge against
fluctuations in value of securities denominated in a different
currency when there is a pattern of correlation between the two
currencies.
The Fund may attempt to accomplish objectives similar to those
described above with respect to forward and futures contracts for
currency by means of purchasing put or call options and writing,
on a covered basis, put and call options on currencies traded on
exchanges. A put option can give the Fund the right to sell a
currency at the exercise price on or before the expiration of the
option. A call option can give the purchaser of the option the
right to purchase a currency at the exercise price on or before
the expiration of the option. The purchase or writing of a
foreign currency option may constitute an effective hedge against
foreign exchange rate fluctuations. As with other kinds of option
transactions, however, the writing of a foreign currency option
will constitute only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or
sell currencies at disadvantageous exchange rates, thereby
incurring losses. Likewise, with respect to foreign currency
options purchased by the Fund, the Fund may forfeit the entire
amount of the premium plus related transaction costs if exchange
rates move in a manner adverse to the Fund's position. The Fund
may use foreign currency options to cross-hedge, which involves
writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency with a pattern
of correlation to the first currency. Foreign currency options to
be written or purchased by the Fund will be traded on U.S. or
foreign exchanges or over-the-counter. The Fund will not enter
into such forward currency exchange contracts or currency futures
contracts or purchase or write such options or maintain a net
exposure to such contracts where the completion of the contracts
would obligate the Fund to deliver an amount of currency other
than U.S. dollars in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency or, in
the case of cross-hedging, in a currency closely correlated to
that currency.
RISKS OF OPTIONS AND FUTURES
CONTRACTS AND RELATED OPTIONS
The purchase and sale of futures contracts and options thereon,
as well as the purchase and writing of options on securities and
securities indices and currencies, involve risks different from
those involved with direct investments in securities. While
utilization of options, futures contracts and similar instruments
may be advantageous to the Fund, the Fund's ability to hedge
effectively all or a portion of its securities through such
transactions and to increase income to the Fund through the use
of options on securities and securities indices depends on the
degree to which price movements in the underlying index,
securities or currencies correlate with price movements in the
relevant portion of the Fund's securities. Perfect correlation is
generally not attainable. Consequently, the Fund bears the risk
that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. It is also possible
that there may be a negative correlation between the index,
securities or currencies underlying the hedging instrument and
the hedged securities which would result in a loss on both such
securities and the hedging instrument. In addition, it is not
possible to hedge fully or perfectly against currency
fluctuations affecting the value of securities denominated in
foreign currencies because the value of such securities is also
likely to fluctuate as a result of independent factors not
related to currency fluctuations. Therefore, perfect correlation
between the Fund's futures positions and portfolio positions will
be impossible to achieve. Accordingly, successful use by the Fund
of options on stock indices, financial and currency futures
contracts and related options, and currency options will be
subject to Advisers' and the Sub-adviser's ability to predict
correctly movements in the direction of the securities and
currency markets generally or of a particular segment. If
Advisers or the Sub-adviser is not successful in employing such
instruments in managing the Fund's investments, the Fund's
performance will be worse than if it did not employ such
strategies. In addition, the Fund will pay commissions and other
costs in connection with such investments, which may increase the
Fund's expenses and reduce the return. In writing options on
futures, the Fund's loss is potentially unlimited and may exceed
the amount of the premium received.
In certain cases, the options and futures markets provide
investment or risk management opportunities that are not
available from direct investments in securities. In addition,
some strategies can be performed more effectively and at lower
cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities. However, there are
risks involved in these transactions as discussed above.
Positions in stock index options, stock index futures contracts,
financial futures contracts, foreign currency futures contracts,
related options on futures and options on currencies may be
closed out only on an exchange which provides a secondary market.
There can be no assurance that a liquid secondary market will
exist for any particular option, futures contract or option
thereon at any specific time. Thus, it may not be possible to
close such an option or futures position. The inability to close
options or futures positions could have an adverse impact on the
Fund's ability to effectively hedge its securities or foreign
currency exposure. The Fund will enter into options or futures
positions only if TICI believes that a liquid secondary market
for such options or futures contracts exist.
In the case of OTC options on securities there can be no
assurance that a continuous liquid secondary market will exist
for any particular OTC option at any specific time. Consequently,
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. Similarly, when the
Fund writes an OTC option, it generally can close out that option
prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote
it. If the Fund, on a covered call option, cannot effect a
closing transaction, it cannot sell the underlying security until
the option expires or the option is exercised. Therefore, when
the Fund writes an OTC call option, it may not be able to sell
the underlying security even though it might otherwise be
advantageous to do so. Likewise, the Fund may be unable to sell
the securities it has pledged to secure OTC put options while it
is obligated as a put writer. Similarly, when the Fund is a
purchaser of such put or call option, the Fund might find it
difficult to terminate its position on a timely basis in the
absence of a secondary market.
The risk of loss in trading foreign futures contracts and foreign
options can be substantial. Investors should be aware of the
following:
(1) Participation in foreign futures contracts and foreign
options transactions involves the execution and clearing of
trades on, or subject to, the rules of a foreign board of trade.
(2) Neither the CFTC, the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of
trade, including the execution, delivery and clearing of
transactions, or has the power to compel enforcement of the rules
of a foreign board of trade or any applicable foreign laws.
Generally, the foreign transaction will be governed by applicable
foreign law. This is true even if the exchange is formally linked
to a domestic market so that a position taken on the market may
be liquidated by a transaction on another market. Moreover, such
laws or regulations will vary, depending on the foreign country
in which the foreign futures or foreign options transaction
occurs.
(3) For these reasons, if the Fund trades foreign futures or
foreign options contracts, it might not be afforded certain of
the protective measures provided by the Commodity Exchange Act,
the CFTC's regulations and the rules of the National Futures
Association and any domestic exchange, including the right to use
reparations proceedings before the Commission and arbitration
proceedings provided by the National Futures Association or any
domestic futures exchange. In particular, funds received from the
Fund for foreign futures or foreign options transactions may not
be provided the same protections as funds received in respect of
transactions on U.S. futures exchanges.
(4) The price of any foreign futures or foreign options contract
and, therefore, the potential profit and loss thereon, may be
affected by any variance in the foreign exchange rate between the
time a particular order is placed and the time it is liquidated,
offset or exercised.
The Fund's investment in options, futures contracts, forward
contracts, options on stock indices and futures contracts, and
foreign currencies and securities may be limited by the
requirements of the Internal Revenue Code of 1986, as amended
(the "Code") for qualification as a regulated investment company.
These securities require the application of complex and special
tax rules and elections, more information about which is included
in the SAI.
The Fund's investment in options, futures contracts and forward
contracts, and certain securities transactions involving actual
or deemed short sales or foreign exchange gains or losses may
give rise to taxable income, gain or loss and may be subject to
special tax treatment under certain mark-to-market and straddle
rules, the effect of which may be to accelerate income to the
Fund, defer Fund losses, cause adjustments in the holding periods
of Fund securities, convert capital gains and losses into
ordinary income and losses, convert long-term capital gains into
short-term capital gains, and convert short-term capital losses
into long-term capital losses. These rules could, therefore,
affect the amount, timing and character of distributions to
shareholders. Certain elections may be available to the Fund to
mitigate some of the unfavorable consequences of the provisions
described in this paragraph. These investments and transactions
are discussed in the SAI.
SECURITIES WARRANTS
The Fund may invest up to 10% of its net assets in warrants,
including such warrants that are not listed on an exchange. A
warrant is typically a long-term option issued by a corporation
which gives the holder the privilege of buying a specified number
of shares of the underlying common stock at a specified exercise
price at any time on or before an expiration date. Stock index
warrants entitle the holder to receive, upon exercise, an amount
in cash determined by reference to fluctuations in the level of a
specified stock index. If the Fund does not exercise or dispose
of a warrant prior to its expiration, it will expire worthless.
SYNTHETIC CONVERTIBLES
The Fund may invest up to 35% of its assets in "synthetic
convertible" securities. A synthetic convertible is created by
combining distinct securities which together possess the two
principal characteristics of a true convertible, that is, fixed
income and the right to acquire the underlying equity security.
This combination is achieved by investing in nonconvertible fixed-
income securities and in warrants or stock or stock index call
options which grant the holder the right to purchase a specified
quantity of securities within a specified period of time at a
specified price or to receive cash in the case of stock index
options. Synthetic convertible securities are not considered to
be Equity Securities for purposes of the Fund's 65% investment
policy.
Synthetic convertible securities differ from the true convertible
security in several respects. The value of a synthetic
convertible is the sum of the values of its fixed-income
component and its convertibility component. Thus, the values of a
synthetic convertible and a true convertible security will
respond differently to market fluctuations. Further, although the
Fund expects normally to create synthetic convertibles whose two
components represent one issuer, the character of a synthetic
convertible allows the Fund to combine components representing
distinct issuers or to combine a fixed-income security with a
call option on a stock index, when it is determined that such a
combination would better promote the Fund's investment
objectives. In addition, the component parts of a synthetic
convertible security may be purchased simultaneously or
separately, and the holder of a synthetic convertible faces the
risk that the price of the stock, or the level of the market
index underlying the convertibility component, will decline.
LOANS OF PORTFOLIO SECURITIES
Consistent with procedures approved by the Board of Trustees and
subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other
institutional investors, provided that such loans do not exceed
33 1U3% of the value of the Fund's total assets at the time of
the most recent loan. The borrower must deposit with the Fund's
custodian collateral with an initial market value of at least
102% of the initial market value of the securities loaned,
including any accrued interest, with the value of the collateral
and loaned securities marked-to-market daily to maintain
collateral coverage of at least 100%. Such collateral shall
consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit.
The lending of securities is a common practice in the securities
industry. The Fund engages in security loan arrangements with the
primary objective of increasing the Fund's income either through
investing the cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the borrower.
Under the securities loan agreement, the Fund continues to be
entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower
of the security fail financially.
BORROWING
As a fundamental policy, the Fund will not borrow money or
mortgage or pledge any of its assets, except that borrowings and
the pledging of assets therefor to meet redemption requests and
for other temporary or emergency purposes may be made from banks
in an amount up to 10% of total asset value. While borrowings
exceed 5% of the Fund's total assets, it will not make any
additional investments.
ILLIQUID INVESTMENTS
The Fund reserves the right to invest up to 10% of its net assets
in illiquid securities (a term which means securities that cannot
be disposed of within seven days in the normal course of business
at approximately the amount at which the Fund has valued the
securities). It is the current policy of the Fund, however (which
may be changed without the approval of the Fund's shareholders),
to limit any such investments (including illiquid Equity
Securities, repurchase agreements of more than seven days
duration, OTC options, illiquid real estate investment trusts,
securities of issuers with less than three years continuous
operation and other securities which are not readily marketable)
to 5% of the Fund's net assets. The Board of Trustees has
authorized the Fund to invest in restricted securities where such
investments are consistent with the Fund's investment objective
and has authorized such securities to be considered to be liquid
and thus not within the foregoing 10% limit, to the extent the
Sub-adviser or the Manager, as the case may be, determines on a
daily basis that there is a liquid institutional or other market
for such securities. Notwithstanding the determinations of the
Manager and the Sub-adviser in this regard, the Board of Trustees
remains responsible for such determinations and considers
appropriate action to maximize the Fund's liquidity and its
ability to meet redemption demands if a security should become
illiquid subsequent to its purchase. To the extent the Fund
invests in restricted securities that are deemed liquid, the
general level of illiquidity in the Fund may be increased if
qualified institutional buyers become uninterested in purchasing
these securities or the market for these securities contracts.
(See "Investment Objectives, Policies and Restrictions - Other
Investment Policies" in the SAI.)
SHORT-TERM INVESTMENTS
Occasionally, in order to honor redemptions, pending investment
of proceeds from new sales of Fund shares or to satisfy other
short-term needs, the Fund may hold cash (U.S. dollars, foreign
currencies or multinational currency units) and/or invest a
portion of its assets in high quality money-market instruments.
In any period of market weakness or of uncertain market or
economic conditions, or while awaiting attractive investment
opportunities, the Fund may establish a temporary defensive
position by investing in high quality money-market instruments if
the Manager or Sub-adviser anticipates that developments in any
market may seriously jeopardize the value of most Equity
Securities in such market. Any decision to substantially withdraw
from the equity market is reviewed by the Board of Trustees.
Money-market instruments in which the Fund may invest include,
but are not limited to, the following instruments of U.S. or
foreign issuers: government securities; commercial paper; bank
certificates of deposit; bankers' acceptances; and repurchase
agreements secured by any of the foregoing. It is impossible to
predict when or for how long the Fund would employ defensive
strategies. All such securities will be rated "A-1" or "A-2" by
S&P or "P-1" or "P-2" by Moody's or, if not rated, determined by
the Manager or Sub-adviser to be of comparable quality.
REPURCHASE AGREEMENTS
For cash management or other short-term purposes as listed above,
the Fund may engage in repurchase transactions, in which the Fund
purchases a U.S. government security subject to resale to a bank
or dealer at an agreed-upon price and date. The transaction
requires the collateralization of the seller's obligation by the
transfer of securities with an initial market value, including
accrued interest, equal to at least 102% of the dollar amount
invested by the Fund in each agreement, with the value of the
underlying security marked to market daily to maintain coverage
of at least 100%. A default by the seller might cause the Fund to
experience a loss or delay in the liquidation of the collateral
securing the repurchase agreement. The Fund might also incur
disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with
financial institutions such as broker-dealers and banks which are
deemed to be credit worthy by the Fund's investment manager. A
repurchase agreement is deemed to be a loan by the Fund under the
1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian
approved by the Fund's Board and will be held pursuant to a
written agreement.
The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of shareholders, which limit its activities to some extent. For a
list of these restrictions and more information concerning the
policies discussed herein, please see the SAI.
MANAGEMENT OF THE FUND
The Board of Trustees has the primary responsibility for the
overall management of the Trust and for electing the officers of
the Trust who are responsible for administering its day-to-day
operations.
Advisers serves as the Fund's investment manager. Advisers is a
wholly owned subsidiary of Resources, a publicly owned holding
company, the principal shareholders of which are Charles B.
Johnson and Rupert H. Johnson, Jr., who own approximately 20% and
16%, respectively, of Resources' outstanding shares. Resources is
engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton
Group"). Advisers acts as investment manager or administrator to
33 U.S. registered investment companies (111 separate series)
with aggregate assets of over $73 billion. Under a management
agreement, the Manager also serves as investment manager and
adviser to the Trust's Franklin International Equity Fund.
TICI is an indirect subsidiary of Templeton Worldwide, Inc.,
which, operating through its subsidiaries, is a major investment
management organization with approximately $41.8 billion of
assets currently under management and a long history of global
investing. Under a sub-advisory agreement, TICI also serves as
sub-adviser to the Trust's Franklin International Equity Fund.
Pursuant to the management agreements, the Manager supervises and
implements the Fund's investment activities and provides certain
administrative services and facilities which are necessary to
conduct the Fund's business.
Pursuant to the sub-advisory agreement between Advisers and TICI,
and subject to the overall policies, control, direction and
review of the Board of Trustees and to the instructions and
supervision of Advisers, TICI is responsible for recommending an
optimal geographic equity allocation, for providing advice with
respect to the Fund's investments and, subject to the Board's and
Advisers' direction and supervision, for determining which
securities will be purchased, retained or sold, as well as for
execution of portfolio transactions. Investments may be shifted
among the world's various capital markets and among different
types of securities in accordance with ongoing analysis of trends
and developments affecting such markets and securities.
Under the management agreement with the Fund, for the services
provided and expenses assumed by it the Manager is entitled to
receive a fee, computed and payable monthly, based upon the
Fund's average net assets. The management fee is higher than the
management fees paid by most mutual funds, although the Board of
Trustees believes it to be comparable to fees paid by many
international funds having similar investment objectives and
policies.
Under the sub-advisory agreement with the Manager, for its sub-
advisory fee TICI is entitled to receive from the Manager an
amount equal to approximately 50% of the fees paid by the Fund to
the Manager (subject to certain adjustments). The sub-advisory
fees paid by the Manager have no effect on the fees payable by
the Fund to the Manager.
During the fiscal year ended October 31, 1994, fees totaling
1.00% of the average net assets of the Fund would have accrued to
Advisers. Total operating expenses, including management fees,
would have represented 1.72% of the average net assets of the
Fund. Pursuant to an agreement by Advisers to limit its fees, the
Fund paid management fees totaling 0.50% of the average net
assets of the Fund. This action by Advisers to limit its
management fees may be terminated by Advisers at any time.
Further information on the services provided by Advisers and TICI
and the fees payable by the Fund for these services is included
in the SAI under "Investment Advisory and Other Services."
Among the responsibilities of Advisers and TICI under their
respective agreements are the selection of brokers and dealers
through which transactions in the Fund's portfolio securities for
which each is responsible are effected. The Manager and Sub-
adviser seek to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to
provide the best execution, Advisers and TICI will consider the
furnishing of quotations and of other market services, research,
statistical and other data for Advisers and TICI and their
affiliates, as well as the sale of shares of the Fund, as factors
in selecting a broker. Further information is included under
"Policies Regarding Brokers Used on Portfolio Transactions" in
the SAI.
Except as noted above and in the SAI under "Investment Advisory
and Other Services", the Fund's service contractors bear all
expenses in connection with the performance of their services,
except that Distributors and Advisers are reimbursed for expenses
incurred under the Plan of Distribution (as described below).
Similarly, the Fund bears the expenses incurred in its operation.
(See the SAI - "Investment Advisory and Other Services" for
further information describing the Fund's expenses.)
Shareholder accounting and many of the clerical functions for the
Fund are performed by Franklin/Templeton Investor Services, Inc.
("Investor Services" or "Shareholder Services Agent") in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.
During the fiscal year ended October 31, 1994, expenses borne by
the Fund, including fees paid to Advisers and Investor Services,
totaled 1.22% of the average net assets of the Fund.
PLAN OF DISTRIBUTION
The Fund has adopted a distribution plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by
Distributors or others in the promotion and distribution of the
Fund's shares. Such expenses may include, but are not limited to,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributor's overhead
expenses attributable to the distribution of Fund shares, as well
as any distribution or service fees paid to securities dealers or
their firms or others who have executed a servicing agreement
with the Fund, Distributors or its affiliates. The maximum amount
which the Fund may pay to Distributors or others for such
distribution expenses is 0.25% per annum of the average daily net
assets of the Fund, payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without
reimbursement from the Fund. The Plan also covers any payments to
or by the Fund, Distributors, Advisers, or other parties on
behalf of the Fund, Distributors, Advisers, to the extent such
payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1. The payments under the
Plan are included in the maximum operating expenses which may be
borne by the Fund. For more information, please see the SAI.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which the Fund may make to
its shareholders:
1. INCOME DIVIDENDS. The Fund receives income in the form of
dividends, interest and other income derived from its
investments. This income, less the expenses incurred in the
Fund's operations, is its net investment income from which income
dividends may be distributed. Thus, the amount of dividends paid
per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains
or losses in connection with sales or other dispositions of its
portfolio securities. Distributions by the Fund derived from net
short-term and net long-term capital gains (after taking into
account any net capital loss carryovers) may generally be made
once a year in December to reflect any net short-term and net
long-term capital gains realized by the Fund as of October 31 of
the current fiscal year and any undistributed net capital gains
from the prior fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund
may make more than one distribution derived from net short-term
and net long-term capital gains in any year or adjust the timing
of these distributions for operational or other reasons.
DISTRIBUTION DATE
Although subject to change by the Trust's Board of Trustees
without prior notice to or approval by shareholders, the Fund's
current policy is to declare income dividends, payable semi-
annually in June and December, to shareholders of record
generally on the first business day preceding the 15th day of
these months, payable on or about the last business day of such
months. The amount of income dividend payments by the Fund is
dependent upon the amount of net income received by the Fund from
its portfolio holdings, is not guaranteed and is subject to the
discretion of the Trust's Board of Trustees. Fund shares are
quoted ex-dividend on the first business day following the record
date (generally the 15th day of such months or prior business day
depending on the record date). THE FUND DOES NOT PAY "INTEREST"
OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS
SHARES.
In order to be entitled to a dividend, an investor must have
acquired Fund shares prior to the close of business on the record
date. An investor considering purchasing Fund shares shortly
before the record date of a distribution should be aware that
because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply
and demand, any distribution of income or capital gain will
result in a decrease in the value of the Fund's shares equal to
the amount of the distribution. While a dividend or capital gain
distribution received shortly after purchasing shares represents,
in effect, a return of a portion of the shareholder's investment,
it may be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless requested otherwise in writing or on the Shareholder
Application, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's
account in the form of additional shares, valued at the closing
net asset value (without a sales charge) on the dividend
reinvestment date. Shareholders have the right to change their
election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as
to distributions for which the record date is seven or more
business days after the Fund has been notified. See the SAI for
more information.
Many of the Fund's shareholders receive their distributions in
the form of additional shares. This is a convenient way to
accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so acquired
remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected distributions
to another fund in the Franklin Group of Funds (REGISTERED
TRADEMARK) or the Templeton Funds, to another person, or directly
to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Dividends which may be paid
in the interim will be sent to the address of record. Additional
information regarding automated fund transfers may be obtained
from Franklin's Shareholder Services Department. Dividend and
capital gain distributions are eligible for investment in another
fund in the Franklin Group of Funds or the Templeton Funds at net
asset value. See "Purchases at Net Asset Value" under "How to Buy
Shares of the Fund."
Investors should be aware that for federal tax purposes, foreign
exchange losses realized by the Fund, including any such losses
realized on a sale of foreign currency-denominated debt
securities, are treated as ordinary losses. This treatment may
have the effect of reducing the Fund's income available for
distribution to shareholders and causing some or all of the
Fund's previously distributed income to be classified as a return
of capital.
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations
that affect mutual funds and their shareholders. Additional
information on tax matters relating to the Fund and its
shareholders is included in the section entitled, "Additional
Information Regarding Taxation" in the SAI.
The Fund intends to qualify for treatment as a regulated
investment company under Subchapter M of the Code. By
distributing all of its income and meeting certain other
requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
Foreign securities, which meet the definition in the Code of a
Passive Foreign Investment Company ("PFIC") may subject the Fund
to an income tax and interest charge with respect to such
investments. To the extent possible, the Fund will avoid such
treatment by not investing in PFIC securities or by adopting
other tax strategies for any PFIC securities it does purchase.
For federal income tax purposes, any income dividends which the
shareholder receives from the Fund, as well as any distributions
derived from the excess of net short-term capital gain over net
long-term capital loss, are treated as ordinary income whether
the shareholder has elected to receive them in cash or in
additional shares. Distributions derived from the excess of net
long-term capital gain over net short-term capital loss are
treated as long-term capital gain regardless of the length of
time the shareholder has owned Fund shares and regardless of
whether such distributions are received in cash or in additional
shares.
Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons,
may not be paid to the shareholder until the following January,
will be treated for tax purposes as if paid by the Fund and
received by the shareholder on December 31 of the calendar year
in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on
which a shareholder may realize a gain or a loss. Any loss
incurred on sale or exchange of the Fund's shares, held for six
months or less, will be treated as a long-term capital loss to
the extent of capital gain dividends received with respect to
such shares.
For corporate shareholders, it is anticipated that only a small
portion of the Fund's dividends during the current fiscal year
will qualify for the corporate dividends-received deduction
because of the Fund's principal investment objective of investing
in foreign equity securities and non-equity investments. To the
extent that the Fund pays dividends which qualify for this
deduction, the availability of the deduction is subject to
certain holding period and debt financing restrictions imposed
under the Code on the corporation claiming the deduction.
The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid, and will
promptly after the close of each calendar year advise them of the
tax status for federal income tax purposes of such dividends and
distributions.
Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes on distributions received by them from the Fund and the
application of foreign tax laws to these distributions.
Shareholders should consult their tax advisors with respect to
the applicability of state and local intangible property or
income taxes to their shares in the Fund and to distributions and
redemption proceeds received from the Fund.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities
dealers which execute an agreement with Distributors, the
principal underwriter of the Fund's shares. The use of the term
"securities dealer" shall include other financial institutions
which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the
Fund. Such reference, however, is for convenience only and does
not indicate a legal conclusion of capacity. The minimum initial
investment is $100 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are purchased
through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for
the purchase of shares.
The Fund may impose a $10 charge for each returned item, against
any shareholder account which, in connection with the purchase of
Fund shares, submits a check or a draft which is returned unpaid
to the Fund.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price,
which is the net asset value per share, plus a sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check). The sales charge
is a variable percentage of the offering price depending upon the
amount of the sale. On orders for 100,000 shares or more, the
offering price will be calculated to four decimal places. On
orders for less than 100,000 shares, the offering price will be
calculated to two decimal places using standard rounding
criteria. A description of the method of calculating net asset
value per share is included under the caption "Valuation of Fund
Shares."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions.
TOTAL SALES CHARGE
DEALER
AS A CONCESSION
AS A PERCENTAGE AS A
PERCENTAGE OF NET PERCENTAGE
SIZE OF TRANSACTION OF OFFERING AMOUNT OF OFFERING
AT OFFERING PRICE PRICE INVESTED PRICE*,***
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more none none (see
below)**
*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, from
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 1.00% on sales
of $1 million but less $2 million, plus 0.80% on sales of $2
million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
to be an underwriter as that term is defined in the Securities
Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of all or a portion of investments of $1
million or more within 12 months of the calendar month following
such investments ("contingency period"). See "How to Sell Shares
of the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales
charge on the purchase of Fund shares is determined by adding the
amount of the shareholder's current purchase plus the cost or
current value (whichever is higher) of a shareholder's existing
investment in one or more of the funds in the Franklin Group of
Funds (REGISTERED TRADEMARK) and the Templeton Group of Funds.
Included for these aggregation purposes are (a) the mutual funds
in the Franklin Group of Funds except Franklin Valuemark Funds
and Franklin Government Securities Trust (the "Franklin Funds");
(b) other investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) the U.S. mutual funds in the Templeton Group of Funds
except Templeton American Trust, Inc., Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds").
(Franklin Funds and Templeton Funds are collectively referred to
as the "Franklin Templeton Funds.") Sales charge reductions based
upon aggregate holdings of (a), (b) and (c) above ("Franklin
Templeton Investments") may be effective only after notification
to Distributors that the investment qualifies for a discount.
Distributors, or one of its affiliates, may make payments, out of
its own resources, of up to 1% of the amount purchased to
securities dealers who initiate and are responsible for purchases
made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers), certain non-designated plans,
certain trust company and trust departments of banks and certain
retirement plans of organizations with collective retirement plan
assets of $10 million or more. See definitions under "Description
of Special Net Asset Value Purchases" and as set forth in the
SAI.
Distributors, or one of its affiliates, out of its own resources,
may also provide additional compensation to securities dealers in
connection with sales of shares of the Franklin Templeton Funds.
Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training
programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and
programs regarding one or more of the Franklin Templeton Funds
and other dealer-sponsored programs or events. In some instances,
this compensation may be made available only to certain
securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin
Templeton Funds. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and members of their
families to locations within or outside of the United States for
meetings or seminars of a business nature. Dealers may not use
sales of the Fund's shares to qualify for this compensation to
the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of
Securities Dealers, Inc. None of the aforementioned additional
compensation is paid for by the Fund or its shareholders.
Certain officers and Trustees of the Trust are also affiliated
with Distributors. A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide
for a reduced sales charge. To be certain to obtain the reduction
of the sales charge, the investor or the dealer should notify
Distributors at the time of each purchase of shares which
qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, investments in any Franklin
Templeton Investments may be combined with those of the
investor's spouse and children under the age of 21. In addition,
the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of
the account.
In addition, an investment in the Fund may qualify for a
reduction in the sales charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value (whichever
is higher) of existing investments in the Franklin Templeton
Investments may be combined with the amount of the current
purchase in determining the sales charge to be paid.
2. LETTER OF INTENT. An investor may immediately qualify for a
reduced sales charge on a purchase of shares of the Fund by
completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By completing
the Letter, the investor expresses an intention to invest during
the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge and grants to
Distributors a security interest in the reserved shares and
irrevocably appoints Distributors as attorney-in-fact with full
power of substitution to surrender for redemption any or all
shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors
that this Letter is in effect each time a purchase is made.
AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE
LISTED UNDER "DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES")
ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five
percent (5%) of the amount of the total intended purchase will be
reserved in shares of the Fund, registered in the investor's
name, to assure that the full applicable sales charge will be
paid if the intended purchase is not completed. The reserved
shares will be included in the total shares owned as reflected on
periodic statements; income and capital gain distributions on the
reserved shares will be paid as directed by the investor. The
reserved shares will not be available for disposal by the
investor until the Letter of Intent has been completed or the
higher sales charge paid.
For more information, see "Additional Information Regarding
Purchases" in the SAI.
GROUP PURCHASES
An individual who is a member of a qualified group may also
purchase shares of the Fund at the reduced sales charge
applicable to the group as a whole. The sales charge is based
upon the aggregate dollar value of shares previously purchased
and still owned by the group, plus the amount of the current
purchase. For example, if members of the group had previously
invested and still held $80,000 of Fund shares and now were
investing $25,000, the sales charge would be 3.75%. Information
concerning the current sales charge applicable to a group may be
obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for
more than six months, (ii) has a purpose other than acquiring
Fund shares at a discount and (iii) satisfies uniform criteria
which enable Distributors to realize economies of scale in its
costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings
between representatives of the Fund or Distributors and the
members, agree to include sales and other materials related to
the Fund in its publications and mailings to members at reduced
or no cost to Distributors, and seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of
the payroll deduction and the time the money reaches the Fund.
The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll
deduction data are received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased without the imposition of
either a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (1) officers, trustees,
directors and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and
by their spouses and family members; (2) companies exchanging
shares with or selling assets pursuant to a merger, acquisition
or exchange offer; (3) insurance company separate accounts for
pension plan contracts; (4) accounts managed by the Franklin
Templeton Group; (5) shareholders of Templeton Institutional
Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended, in shares of the Fund;
(6) certain unit investment trusts and unit holders of such
trusts reinvesting their distributions from the trusts in the
Fund; (7) registered securities dealers and their affiliates, for
their investment account only, and (8) registered personnel and
employees of securities dealers and by their spouses and family
members, in accordance with the internal policies and procedures
of the employing securities dealer.
Shares of the Fund may be purchased at net asset value by persons
who have redeemed, within the previous 120 days, their shares of
the Fund or another of the Franklin Templeton Funds which were
purchased with a front-end sales charge or assessed a contingent
deferred sales charge on redemption. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of this Prospectus and the SAI.
Dividends and capital gains received in cash by the shareholder
may also be used to purchase shares of the Fund or another of the
Franklin Templeton Funds at net asset value and without the
imposition of a contingent deferred sales charge within 120 days
of the payment date of such distribution. To exercise this
privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be
obtained from Shareholder Services at 1-800/632-2301. See
"Distributions in Cash" under "Distributions to Shareholders."
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
investors who have, within the past 60 days, redeemed an
investment in an unaffiliated mutual fund which charged the
investor a contingent deferred sales charge upon redemption and
which has investment objectives similar to those of the Fund.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
registered investment advisors and/or their affiliated broker-
dealers, who have entered into a supplemental agreement with
Distributors, on behalf of their clients who are participating in
a comprehensive fee program (sometimes known as a wrap fee
program).
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
anyone who has taken a distribution from an existing retirement
plan already invested in the Franklin Templeton Funds (including
former participants of the Franklin Templeton Profit Sharing
401(k) plan), to the extent of such distribution. In order to
exercise this privilege a written order for the purchase of
shares of the Fund must be received by Franklin Templeton Trust
Company (the "Trust Company"), the Fund or Investor Services,
within 120 days after the plan distribution. A prospectus
outlining the investment objectives and policies of a fund in
which the shareholder wishes to invest may be obtained by calling
toll free at 1-800/DIAL BEN (1-800/342-5236).
Shares of the Fund may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is
a legally permissible investment and which is prohibited by
applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any
registered management investment company ("an eligible
governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES
OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal
investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net asset
value is made through a securities dealer who has executed a
dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to
such securities dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales
Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with
respect to number of employees or amount of purchase, which may
be established by Distributors. Currently, those criteria require
that the employer establishing the plan have 200 or more
employees or that the amount invested or to be invested during
the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
trust companies and bank trust departments for funds over which
they exercise exclusive discretionary investment authority and
which are held in a fiduciary, agency, advisory, custodial or
similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be
established by Distributors. Currently, those criteria require
that the amount invested or to be invested during the subsequent
13-month period in this Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly
from the bank or trust company, with payment by federal funds
received by the close of business on the next business day
following such order.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
trustees or other fiduciaries purchasing securities for certain
retirement plans of organizations with collective retirement plan
assets of $10 million or more, without regard to where such
assets are currently invested.
Refer to the SAI for further information.
GENERAL
Securities laws of states in which the Fund's shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions selling Fund shares may be
required to register as dealers pursuant to state law.
PURCHASING SHARES OF THE FUND
IN CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS
Shares of the Fund may be used for individual or employer-
sponsored retirement plans involving tax-deferred investments.
The Fund may be used as an investment vehicle for an existing
retirement plan, or Franklin Templeton Trust Company ( the "Trust
Company") may provide the plan documents and serve as custodian
or trustee. A plan document must be adopted for a retirement
plan to be in existence.The Trust Company, an affiliate of
Distributors, can serve as custodian or trustee for retirement
plans. Brochures for the Trust Company plans contain important
information regarding eligibility, contribution and deferral
limits and distribution requirements. Please note that an
application other than the one contained in this Prospectus must
be used to establish a retirement plan account with the Trust
Company. To obtain a retirement plan brochure or application,
call toll free 1-800/DIAL BEN (1-800/342-5236).
Please see "How to Sell Shares of the Fund" for specific
information regarding redemptions from retirement plan accounts.
Specific forms are required to be completed for distributions
from Franklin Templeton Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or
benefits and pension consultants before choosing a retirement
plan. In addition, retirement plan investors should consider
consulting their investment representatives or advisers
concerning investment decisions within their plans.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION
MAY NOT BE AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE
SHARES ARE HELD, OF RECORD, BY A FINANCIAL INSTITUTION OR IN A
"STREET NAME" ACCOUNT, OR NETWORKED ACCOUNT THROUGH THE NATIONAL
SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE SECTION
CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and capital
gain distributions, are generally credited to an account in the
name of an investor on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the
risk of loss or theft of a share certificate. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder semi-
annually to reflect the dividends reinvested during that period
and after each other transaction which affects the shareholder's
account. This statement will also show the total number of shares
owned by the shareholder, including the number of shares in "plan
balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account, if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application
included with this Prospectus contains the requirements
applicable to this program. In addition, shareholders may obtain
more information concerning this program from their securities
dealers or from Distributors.
The market value of the Fund's shares is subject to fluctuation.
Before undertaking any plan for systematic investment, the
investor should keep in mind that such a program does not assure
a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. Retirment plans subject to mandatory distribution
requirements are not subject to the $50 minimum.The plan may be
established on a monthly, quarterly, semiannual or annual basis.
If the shareholder establishes a plan, any capital gain
distributions and income dividends paid by the Fund will be
reinvested for the shareholder's account in additional shares at
net asset value. Payments will then be made from the liquidation
of shares at net asset value on the day of the transaction (which
is generally the first business day of the month in which the
payment is scheduled) with payment generally received by the
shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to
another of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the account
is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Withdrawals which may be
paid in the interim will be sent to the address of record.
Liquidation of shares may reduce or possibly exhaust the shares
in the shareholder's account, to the extent withdrawals exceed
shares earned through dividends and distributions, particularly
in the event of a market decline. If the withdrawal amount
exceeds the total plan balance, the account will be closed and
the remaining balance will be sent to the shareholder. As with
other redemptions, a liquidation to make a withdrawal payment is
a sale for federal income tax purposes. Because the amount
withdrawn under the plan may be more than the shareholder's
actual yield or income, part of the payment may be a return of
the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the additional
purchases. The shareholder should ordinarily not make additional
investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in
effect. A Systematic Withdrawal Plan may be terminated on written
notice by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives or policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, the Fund shares may be exchanged
for shares of other Franklin Templeton Funds which are eligible
for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and
investment minimums. Investors should review the prospectus of
the fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on
exercising the exchange privilege, for example, minimum holding
periods or applicable sales charges. Exchanges may be made in any
of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of the
written instructions together with any outstanding share
certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF
ANY, MAY EXCHANGE SHARES OF THE FUND BY TELEPHONE BY CALLING
INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED FRANKLIN
TELEFACTS (REGISTERED TRADEMARK) SYSTEM (DAY OR NIGHT) AT 1-
800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE
EXTENDED TO A PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES
SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect
exchanges from the Fund into an identically registered account in
one of the other available Franklin Templeton Funds. The
Telephone Exchange Privilege is available only for uncertificated
shares or those which have previously been deposited in the
shareholder's account. The Fund and Investor Services will employ
reasonable procedures to confirm that instructions communicated
by telephone are genuine. Please refer to "Telephone Transactions
- - Verification Procedures."
During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be difficult
to implement and the TeleFACTS option may not be available. In
this event, shareholders should follow the other exchange
procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's
shares, Investor Services will accept exchange orders by
telephone or by other means of electronic transmission from
securities dealers who execute a dealer or similar agreement with
Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which
certificates have previously been deposited. A securities dealer
may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
A contingent deferred sales charge will not be imposed on
exchanges. If, however, the exchanged shares were subject to a
contingent deferred sales charge in the original fund purchased,
and shares are subsequently redeemed within the contingency
period, a contingent deferred sales charge will be imposed. The
contingency period will be tolled (or stopped) for the period
such shares are exchanged into and held in a Franklin or
Templeton money market fund. See also "How to Sell Shares of the
Fund - Contingent Deferred Sales Charge."
Exchanges are made on the basis of the net asset values of the
funds involved, except as set forth below. Exchanges of shares of
the Fund which were purchased without a sales charge will be
charged a sales charge in accordance with the terms of the
prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on
which the investor paid a sales charge. Exchanges of shares of
the Fund which were purchased with a lower sales charge to a fund
which has a higher sales charge will be charged the difference,
unless the shares were held in the Fund for at least six months
prior to executing the exchange.
When an investor requests the exchange of the total value of the
Fund account, declared but unpaid income dividends and capital
gain distributions will be transferred to the fund being
exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax
purposes. Backup withholding and information reporting may also
apply. Information regarding the possible tax consequences of
such an exchange is included in the tax section in this
Prospectus and in the SAI.
There are differences among the Franklin Templeton Funds. Before
making an exchange, a shareholder should obtain and review a
current prospectus of the fund into which the shareholder wishes
to transfer.
If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the Fund
pursuant to the exchange privilege, the Fund might have to
liquidate portfolio securities it might otherwise hold and incur
the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the
general policy of the Fund to initially invest this money in
short-term, interest-bearing money market instruments, unless it
is felt that attractive investment opportunities consistent with
the Fund's investment objectives exist immediately. Subsequently,
this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a
manner as is possible when attractive investment opportunities
arise.
The Exchange Privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.
RETIREMENT ACCOUNTS
Franklin Templeton IRA and 403(b) retirement accounts may
accomplish exchanges directly. Certain restrictions may apply,
however, to other types of retirement plans. See "Restricted
Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing
services to purchase or redeem shares based on predetermined
market indicators ("Timing Accounts") will be charged a $5.00
administrative service fee per each such exchange. All other
exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses,
certain funds do not accept or may place differing limitations
than those below on exchanges by Timing Accounts.
The Fund reserves the right to temporarily or permanently
terminate the exchange privilege or reject any specific purchase
order for any Timing Account or any person whose transactions
seem to follow a timing pattern who: (i) make an exchange request
out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) make more than two exchanges out of the
Fund per calendar quarter, or (iii) exchange shares equal in
value to at least $5 million, or more than 1% of the Fund's net
assets. Accounts under common ownership or control, including
accounts administered so as to redeem or purchase shares based
upon certain predetermined market indicators, will be aggregated
for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in
the Manager's judgment, the Fund would be unable to invest
effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if
the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing"
strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated in "How to Buy
Shares of the Fund," reserve the right to refuse any order for
the purchase of shares.
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and receive
from the Fund the value of the shares. Shares may be redeemed in
any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of this
Prospectus, and any share certificates which have been issued for
the shares being redeemed, properly endorsed and in order for
transfer. The shareholder will then receive from the Fund the
value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by
Investor Services. Redemption requests received after the time at
which the net asset value is calculated (1:00 p.m. Pacific time)
each day that the New York Stock Exchange (the "Exchange") is
open for business will receive the price calculated on the
following business day. Shareholders are requested to provide a
telephone number(s) where they may be reached during business
hours, or in the evening if preferred. Investor Services' ability
to contact a shareholder promptly when necessary will speed the
processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED
IF THE REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record, preauthorized
bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess
of $50,000; or
(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on the
transfer instructions, including, for example, when (a) the
current address of one or more joint owners of an account
cannot be confirmed, (b) multiple owners have a dispute or
give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions
received by the Fund are given by an agent, not the actual
registered owner, (e) the Fund determines that joint owners
who are married to each other are separated or may be the
subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or
other entity has not been established to the satisfaction of
the Fund.
Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Generally, eligible guarantor institutions
include (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a
national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the
request to be in proper form.
Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied by
the share certificate and a share assignment form signed by the
registered shareholders exactly as the account is registered,
with the signature(s) guaranteed as referenced above.
Shareholders are advised, for their own protection, to send the
share certificate and assignment form in separate envelopes if
they are being mailed in for redemption. Liquidation requests of
corporate, partnership, trust and custodianship accounts, and
accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from
the authorized officer(s) of the corporation and (2) a corporate
resolution.
Partnership - (1) Signature guaranteed letter of instruction from
a general partner and (2) pertinent pages from the partnership
agreement identifying the general partners or a certification for
a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the
trustee(s) and (2) a copy of the pertinent pages of the trust
document listing the trustee(s) or a Certification for Trust if
the trustee(s) are not listed on the account registration.
Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.
Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"), included
with this Prospectus may redeem shares of the Fund by telephone,
subject to the Restricted Account exception noted under
"Telephone Transactions - Restricted Accounts." INFORMATION MAY
ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE
FUND AND INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO
CONFIRM THAT INSTRUCTIONS GIVEN BY TELEPHONE ARE GENUINE.
SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN CERTAIN CASES AS
DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."
For shareholder accounts with the completed Agreement on file,
redemptions of uncertificated shares or shares which have
previously been deposited with the Fund or Investor Services may
be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before 1:00 p.m. Pacific time on any
business day will be processed that same day. The redemption
check will be sent within seven days, made payable to all the
registered owners on the account, and will be sent only to the
address of record. Redemption requests by telephone will not be
accepted within 30 days following an address change by telephone.
In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, government
entities, and qualified retirement plans which qualify to
purchase shares at net asset value pursuant to the terms of this
Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges
Agreement which is available from Franklin's Institutional
Services Department by telephoning 1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders by telephone or other
means of electronic transmission from securities dealers who have
entered into a dealer or similar agreement with Distributors.
This is known as a repurchase. The only difference between a
normal redemption and a repurchase is that if the shareholder
redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer
receives the order which is promptly transmitted to the Fund,
rather than on the day the Fund receives the shareholder's
written request in proper form. These documents, as described in
the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt
of a repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other documents
set forth above. A shareholder's letter should reference the
Fund, the account number, the fact that the repurchase was
ordered by a dealer and the dealer's name. Details of the dealer-
ordered trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of the
redemption. The seven-day period within which the proceeds of the
shareholder's redemption will be sent will begin when the Fund
receives all documents required to complete ("settle") the
repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the
dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to have
the required documentation completed and forwarded to the Fund as
soon as possible. The shareholder's dealer may charge a fee for
handling the order. The SAI contains more information on the
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers on
investments of $1 million or more, a contingent deferred sales
charge of 1% applies to redemptions of those investments within
the contingency period of 12 months of the calendar month
following their purchase. The charge is 1% of the lesser of the
value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares,
and is retained by Distributors. In determining if a charge
applies, shares not subject to a contingent deferred sales charge
are deemed to be redeemed first, in the following order: (i)
shares representing amounts attributable to capital appreciation
of those shares held less than 12 months; (ii) shares purchased
with reinvested dividends and capital gain distributions; and
(iii) other shares held longer than 12 months; and followed by
any shares held less than 12 months, on a "first in, first out"
basis.
The contingent deferred sales charge is waived for: exchanges;
any account fee; distributions to participants in Trust Company
retirement plan accounts due to death, disability or attainment
of age 59 1/2; tax-free returns of excess contributions to
employee benefit plans; distributions from employee benefit
plans, including those due to plan termination or plan transfer;
redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995 and, for Systematic Withdrawal Plans set up
thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); and
redemptions initiated by the Fund due to a shareholder's account
falling below the minimum specified account size. In addition to
the waiver referred to above, shares of participants in Trust
Company retirement plan accounts will, in the event of death,
disability or attainment of age 59 1/2, no longer be subject to
the contingent deferred sales charge.
Requests for redemptions for a specified dollar amount will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for
redemption of a specific number of shares will result in the
applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally
reduce this delay, shares purchased with these checks will also
be held pending clearance. Shares purchased by federal funds wire
are available for immediate redemption. In addition, the right of
redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by
order, for the protection of shareholders. Of course, the amount
received may be more or less than the amount invested by the
shareholder, depending on fluctuations in the market value of
securities owned by the Fund.
RETIREMENT ACCOUNTS
Retirement account liquidations require the completion of certain
additional forms to ensure compliance with Internal Revenue
Service ("IRS") regulations. To liquidate a retirement account, a
shareholder or securities dealer may call Franklin's Retirement
Plans Department to obtain the necessary forms.
Tax penalties may apply to distributions from such plans by
participants under age 59 1/2 or to other premature
distributions, as defined in Treasury regulations.
OTHER
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option (see "Restricted Accounts" below),
(iii) transfer Fund shares in one account to another identically
registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition,
shareholders who complete and file an Agreement as described
under "How to Sell Shares of the Fund - Redemptions by Telephone"
will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. These will include: recording all telephone calls
requesting account activity by telephone, requiring that the
caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call
for the purpose of establishing the caller's identification, and
by sending a confirmation statement on redemptions to the address
of record each time account activity is initiated by telephone.
So long as the Fund and Investor Services follow instructions
communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused
by an unauthorized transaction. Shareholders are, of course,
under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services
is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be
executed, and neither the Fund nor Investor Services will be
liable for any losses which may occur because of a delay in
implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be
accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are
required for any distribution, redemption, or dividend payment.
While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain
restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer
procedures, including any required forms, retirement account
shareholders may call to speak to a Retirement Plan Specialist at
1-800/527-2020 for Franklin accounts or 1-800/354-9191 (press "2"
when prompted to do so) for Templeton accounts.
GENERAL
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their investment
representative for assistance, or to send written instructions to
the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice
to shareholders.
VALUATION OF FUND SHARES
The net asset value per share of the Fund is determined as of
1:00 p.m. Pacific time each day that the Exchange is open for
trading. Many newspapers carry daily quotations of the prior
trading day's closing "bid" (net asset value) and "ask" (offering
price, which includes the maximum sales charge of the Fund).
The net asset value per share of the Fund is determined in the
following manner: The aggregate of all liabilities, including,
without limitation, the current market value of any outstanding
options written by the Fund, accrued expenses and taxes and any
necessary reserves, is deducted from the aggregate gross value of
all assets, and the difference is divided by the number of shares
of the Fund outstanding at the time. For the purpose of
determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is
recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on
the NASDAQ National Market System for which market quotations are
readily available are valued at the last quoted sale price of the
day or, if there is no such reported sale, within the range of
the most recent quoted bid and ask prices. Over-the-counter
portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and
ask prices as obtained from one or more dealers that make markets
in the securities. Portfolio securities which are traded both in
the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying
actively traded call options are valued at their market price as
determined above. The current market value of any option held by
the Fund is its last sales price on the relevant exchange prior
to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the
options are valued within the range of the current closing bid
and ask prices if such valuation is believed to fairly reflect
the contract's market value. Other securities for which market
quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a
variety of factors, including recent trades, institutional size
trading in similar types of securities (considering yield, risk
and maturity) and/or developments related to specific issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Trustees. With the
approval of trustees, the Fund may utilize a pricing service,
bank or securities dealer to perform any of the above described
functions.
Securities denominated in foreign currencies and traded on
foreign exchanges or in foreign markets will be valued in a
similar manner and their value translated into U.S. dollars at
the bid price of their respective currency denomination against
U.S. dollars last quoted by a major bank or, if no such quotation
is available, at the rate of exchange determined in accordance
with policies established in good faith by the Board of Trustees.
Because the value of securities denominated in foreign currencies
must be translated into U.S. dollars, fluctuations in the value
of such currencies in relation to the U.S. dollar will affect the
net asset value of Fund shares even though there has not been any
change in the values of such securities.
Because foreign securities markets may close prior to the time
the Fund determines its net asset value, events affecting the
value of portfolio securities occurring between the time prices
are determined and the time the Fund calculates its net asset
value will not be reflected in the Fund's calculation of net
asset value unless Advisers or the Sub-adviser, under supervision
of the Board of Trustees, determines that the particular event
would materially affect the Fund's net asset value. The Fund's
portfolio securities listed on foreign exchanges may trade on
days other than the Fund's normal business days, such as
Saturdays. As a result, the net asset value of the Fund may be
significantly affected by such trading on days when shareholders
have no access to the Fund.
HOW TO GET INFORMATION
REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.
From a touch-tone phone, shareholders may obtain current price,
yield or performance information specific to a fund in the
Franklin Funds by calling the automated Franklin TeleFACTS
(REGISTERED TRADEMARK) system (day or night) at 1-800/247-1753.
Information about the Fund may be accessed by entering Fund Code
90 followed by the # sign, when requested to do so by the
automated operator. The TeleFACTS system is also available for
processing exchanges. See "Exchange Privilege."
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
HOURS OF OPERATION
(PACIFIC TIME)
(MONDAY THROUGH
DEPARTMENT NAME TELEPHONE NO. FRIDAY)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00
p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00
p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00
p.m.
8:30 a.m. to 5:00
p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00
p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00
p.m.
In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including current yield, various expressions of
total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of $1,000
invested at the maximum public offering price (offering price
includes sales charge) for one-, five- and ten-year periods, or
portion thereof, to the extent applicable, through the end of the
most recent calendar quarter, assuming reinvestment of all
distributions. The Fund may also furnish total return quotations
for other periods or based on investments at various sales charge
levels or at net asset value. For such purposes, total return
equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus
(or minus) the change in the value of the original investment,
expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's
portfolio investments; it is calculated by dividing the Fund's
net investment income per share during a recent 30-day period by
the maximum public offering price on the last day of that period
and annualizing the result.
Yield which is calculated according to a formula prescribed by
the SEC (see the SAI) is not indicative of the dividends or
distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders are
reflected in the current distribution rate, which may be quoted
to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by the Fund
during the past 12 months by a current maximum offering price.
Under certain circumstances, such as when there has been a change
in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the
dividends paid during the period such policies were in effect,
rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield
computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium
income from option writing, and short-term capital gain, and is
calculated over a different period of time.
In each case, performance figures are based upon past
performance, reflect all recurring charges against Fund income
and will assume the payment of the maximum sales charge on the
purchase of shares. When there has been a change in the sales
charge structure, the historical performance figures will be
restated to reflect the new rate. The investment results of the
Fund, like all other investment companies, will fluctuate over
time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the
Fund's yield, distribution rate or total return may be in any
future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends October 31. Annual Reports containing
audited financial statements of the Trust, including the
auditors' report, and Semi-Annual Reports containing unaudited
financial statements are automatically sent to shareholders.
Copies may be obtained, without charge, upon request to the Trust
at the telephone number or address set forth on the cover page of
this Prospectus.
Additional information on Fund performance is included in the
Trust's Annual Report to Shareholders and the SAI.
ORGANIZATION
The Trust is a Delaware business trust, organized on March 22,
1991. The Trust is authorized to issue an unlimited number of
shares of beneficial interest, with a par value of $.01 per
share, in various series. All shares have one vote, and, when
issued for the consideration described in the prospectus, are
fully paid, non-assessable, and redeemable. Currently, the Trust
issues shares in two series or funds. Additional series may be
added in the future by the Board of Trustees.
VOTING RIGHTS
Shares of each fund vote separately as to issues affecting that
fund or the Trust, unless otherwise permitted by the 1940 Act.
Shares have non-cumulative voting rights, which means that in all
elections of trustees, the holders of more than 50% of the shares
voting can elect 100% of the trustees if they choose to do so,
and, in such event, the holders of the remaining shares voting
will not be able to elect any person or persons to the Board of
Trustees. Delaware corporate law does not require corporations
registered as management investment companies under the 1940 Act
to hold routine annual meetings of shareholders, and the Fund
does not intend to hold such routine annual meetings. The Fund
may, however, hold a meeting for such purposes as changing
fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on
by shareholders under the 1940 Act. A meeting may also be called
by a majority of the Board of Trustees or by shareholders of a
Fund holding at least ten percent of the shares entitled to vote
at the meeting. Shareholders may receive assistance in
communicating with other shareholders in connection with the
election or removal of trustees such as that provided in Section
16(c) of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account has a value of less than $50,
but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a
period of at least six months, provided advance notice is given
to the shareholder. More information is included in the SAI.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed, and neither the Fund nor its affiliates will be
liable for any loss to the shareholder caused by the
shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft
or wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions
as to ownership. Where there are two co-owners on the account,
the account will be registered as "Owner 1" and "Owner 2"; the
"or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or
convert on the signature of only one owner, a limited power of
attorney may be used.
Accounts should not be registered in the name of a minor, either
as sole or co-owner of the account. Transfer or redemption for
such an account may require court action to obtain release of the
funds until the minor reaches the legal age of majority. The
account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should
only be used if the account is being established pursuant to a
legal, valid trust document. Use of such a designation in the
absence of a legal trust document may cause difficulties and
require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint
tenants or "Jt Ten" shall mean "as joint tenants with rights of
survivorship" and not "as tenants in common."
Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements
on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures, the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor will be deemed to have authorized the use
of electronic instructions on the account, including, without
limitation, those initiated through the services of the NSCC, to
have adopted as instruction and signature any such electronic
instructions received by the Fund and the Shareholder Services
Agent, and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in
the near future, include the "NSCC's Networking," "Fund/SERV,"
and "ACATS" systems.
Any questions regarding an intended registration should be
answered by the securities dealer handling the investment, or by
calling Franklin's Fund Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the IRS any taxable dividend, capital
gain distribution, or other reportable payment (including share
redemption proceeds) and withhold 31% of any such payments made
to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and
made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to
backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for
previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a TIN along with the required
certifications and (2) close an account by redeeming its shares
in full at the then current net asset value upon receipt of
notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a
shareholder who has completed an "awaiting TIN" certification to
provide the Fund with a certified TIN within 60 days after
opening the account.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-to-
day management of the Fund's portfolio: William T. Howard, Jr.,
Mark Beveridge and Gary Clemons.
BIOGRAPHICAL INFORMATION
William T. Howard, Jr.
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Howard is a Chartered Financial Analyst and holds a Master of
Business Administration degree from Emory University. He earned
his Bachelor of Arts degree from Rhodes College. Prior to joining
Templeton, Mr. Howard was a portfolio manager and analyst with
the State of Tennessee Consolidated Retirement System. He started
managing the Fund upon joining Templeton in 1993.
Mark R. Beveridge
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Beveridge is a Chartered Financial Analyst and holds a
Bachelor of Business Administration degree in finance from the
University of Miami. He joined Templeton in 1985 and started
managing the Fund in January 1994.
Gary Clemons
Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Clemons is a Chartered Financial Analyst and holds a Master
of Business Administration degree from the University of
Wisconsin at Madison. He earned his Bachelor of Science degree in
Earth Science from the University of Nevada at Reno. Mr. Clemons
was a research analyst for Structured Asset Management. He joined
Templeton in 1990.
FRANKLIN
INTERNATIONAL
EQUITY FUND
Franklin International Trust
PROSPECTUS MARCH 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin International Trust (the "Trust") is an open-end
management investment company consisting of two separate
diversified series. Each series of the Trust in effect represents
a separate fund with its own investment objective and policies,
with varying possibilities for income or capital appreciation,
and subject to varying market risks. Through the different
series, the Trust attempts to satisfy different investment
objectives.
This Prospectus pertains only to the Franklin International
Equity Fund (the "Fund"), a diversified series, which seeks long-
term growth of capital. Under normal market conditions, the Fund
invests at least 65% of its total assets in an internationally
mixed portfolio of equity securities which trade on markets in
countries other than the United States ("U.S.") and are (i)
issued by companies domiciled in countries other than the U.S. or
(ii) issued by companies that derive at least 50% of either their
revenues or pre-tax income from activities outside of the U.S.
There can, of course, be no assurance that the Fund's objective
will be achieved.
Under normal market conditions, the Fund's assets are
substantially invested in equity securities consisting of common
and preferred stock, securities (bonds or preferred stock)
convertible into common stock, warrants and securities
representing underlying international securities such as American
Depositary Receipts or ADRs, and European Depositary Receipts or
EDRs ("Equity Securities").
This Prospectus is intended to set forth in a clear and concise
manner information about the Fund that a prospective investor
should know before investing. After reading the Prospectus, it
should be retained for future reference; it contains information
about the purchase and sale of shares and other items which a
prospective investor will find useful to have.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information ("SAI") concerning the
Trust, dated March 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc.
("Distributors") at the address or telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN
DESCRIBED IN ANY STATE IN WHICH THE OFFERING IS NOT AUTHORIZED.
NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED
FROM THE UNDERWRITER.
CONTENTS PAGE
Expense Table
Financial Highlights
About the Fund
Investment Objective and Policies
of the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund and
Its Shareholders
How to Buy Shares of the Fund
Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. These figures are based on the aggregate operating
expenses of the Fund (including fees set by contract) for the
Fund's fiscal year ended October 31, 1994.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50%
Deferred Sales Charge NONE*
Exchange Fee (per transaction) $5.00**
*Investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1%
is imposed on certain redemptions within 12 months of the
calendar month following such investments. See "How to Sell
Shares of the Fund - Contingent Deferred Sales Charge."
**$5.00 fee imposed only on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 1.00%**
12b-1 Fees 0.24%
Other Expenses
Custodian Fees 0.14%
Registration Fees 0.12%
Other 0.26%
Total Other Expenses 0.52%
Total Fund Operating Expenses 1.76%***
**Represents the amount that would have been payable to the
investment manager, absent a fee waiver by the investment
manager. The investment manager, however, has voluntarily agreed
to waive or limit its management fees payable by the Fund. With
this reduction, management fees were 0.46% of the Fund's average
net assets, and total operating expenses, including such
management fees, were 1.22% of the Fund's average net assets for
the fiscal year ended October 31, 1994. This arrangement may be
terminated by the investment manager at any time.
***Consistent with rules of the National Association of
Securities Dealers, Inc. (the "NASD"), it is possible that the
combination of front-end sales charges and Rule 12b-1 fees could
cause long-term shareholders to pay more than the economic
equivalent of the maximum front-end sales charges permitted under
those same rules.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates
the expenses, including the initial sales charge, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period. As noted in the table above, the Fund charges
no redemption fees:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$62 $98 $136 $243
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES
OF THE FUND, BEFORE EXPENSE REDUCTIONS OR FEE WAIVERS, SHOWN
ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The
operating expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. See
"Management of the Fund" for a description of the Fund's
expenses. In addition, federal regulations require the example to
assume an annual return of 5%, but the Fund's actual return may
be more or less than 5%.
FINANCIAL HIGHLIGHTS
The information for each of the three fiscal years in the period
ended October 31, 1994 and for the period from September 20, 1991
(effective date of registration) to October 31, 1991 has been
audited by Coopers & Lybrand L.L.P., independent auditors, whose
audit report appears in the financial statements in the Trust's
SAI. See the discussion "Reports to Shareholders" under "General
Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE**
- ----------------------------------------------------------------
NET ASSET NET REALIZED
YEAR VALUES AT NET & UNREALIZED TOTAL FROM
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT
OCT. 31 OF YEAR INCOME ON SECURITIES OPERATIONS
- ----------------------------------------------------------------
FRANKLIN INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C>
1991+ $10.01 $.06 $ -- $ .060
1992 10.07 .19 (.038) .152
1993 10.02 .42 2.253 2.673
1994 12.28 .23 1.540 1.770
</TABLE>
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE**
- ------------------------------------------------------------------
DISTRIBUTIONS NET ASSET
YEAR FROM NET DISTRIBUTIONS VALUES AT
ENDED INVESTMENT FROM TOTAL END OF TOTAL
OCT. 31 INCOME CAPITAL GAINS DISTRIBUTIONS YEAR RETURN
- -----------------------------------------------------------------------------
FRANKLIN INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C> <C>
1991+ $ -- $ -- $ -- $10.07 .60%
1992 (.202) -- (.202) 10.02 1.46
1993 (.413) -- (.413) 12.28 27.40
1994 (.220) -- (.220) 13.83 14.56
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
YEAR AT END EXPENSES INCOME PORTFOLIO
ENDED OF PERIOD TO AVERAGE TO AVERAGE TURNOVER
OCT. 31 (IN 000'S) NET ASSETS*** NET ASSETS RATE
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991+ $ 1,286 --% 4.92%* --%
1992 6,944 .29 2.36 48.78
1993 19,217 .50 4.22 52.99
1994 57,854 1.22 1.99 21.80
</TABLE>
*Annualized.
**Selected data for a share of beneficial interest outstanding throughout the
year.
+For the period September 20, 1991 (effective date of registration) to October
31, 1991.
++Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.5% initial sales charge and assumes
reinvestment of dividends and capital gains at net asset value.
***During the periods indicated below, Franklin Advisers, Inc., the investment
manager, reduced its management fees and reimbursed other expenses incurred by
the Funds. Had such action not been taken, ratios of operating expenses to
average net assets would have been as follows:
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
FRANKLIN INTERNATIONAL EQUITY
<S> <C>
1991 ...................................... 2.50%*
1992 ...................................... 2.50
1993 ...................................... 2.27
1994 1.76
</TABLE>
ABOUT THE FUND
The Trust is an open-end management investment company which
consists of two diversified, open-end series, commonly called
mutual funds. The Trust is a Delaware business trust, organized
on March 22, 1991 and registered under the Investment Company Act
of 1940 (the "1940 Act"). The Fund is managed by Franklin
Advisers, Inc. (the "Manager" or "Advisers") and up until
December 31, 1992 received portfolio advice and management
assistance from Barclays de Zoete Wedd Investment Management Inc.
("BZWIM"). Since January 1, 1993, Templeton Investment Counsel,
Inc. ("TICI" or the "Sub-adviser"), an indirect subsidiary of
Templeton Worldwide, Inc., which is a direct, wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), serves as
the Sub-adviser under a contract with the Manager providing
services similar to those provided by BZWIM with no increase in
fees to shareholders. (See "Management of the Fund.")
Shares of the Fund may be purchased (minimum investment of $100
initially and $25 thereafter) at the current public offering
price, which is equal to the Fund's net asset value (see
"Valuation of Fund Shares") plus a sales charge not exceeding
4.50% of the offering price. See "How to Buy Shares of the Fund."
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund's principal investment objective is to seek long-term
growth of capital. Under normal market conditions, the Fund seeks
its objective by investing at least 65% of its total assets in a
diverse international portfolio of Equity Securities which trade
on markets in countries other than the U.S. and which are issued
by companies (i) domiciled in countries other than the U.S., or
(ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the U.S. Thus it is possible,
although not anticipated, that up to 35% of the Fund's assets
could be invested in U.S. companies. The investment objective of
the Fund is a fundamental policy and may not be changed without
the approval of a majority of the Fund's outstanding shares.
There is, of course, no assurance that the Fund's objective will
be achieved.
In selecting portfolio securities, the Fund attempts to take
advantage of the difference between economic trends and the
anticipated performance of securities and securities markets in
various countries. Up to 35% of the Fund's total assets may be
invested in fixed-income debt securities rated "Baa" or better by
Moody's Investors Service ("Moody's") or "BBB" or better by
Standard & Poor's Corporation ("S&P") or that are not rated but
determined by management to be of comparable quality.
The Fund may invest in securities of issuers in the following
countries: Argentina, Australia, Austria, Belgium, Bermuda,
Brazil, Canada, Chile, Columbia, Denmark, Finland, France,
Germany, Greece, Hong Kong, India, Indonesia, Italy, Japan, South
Korea, Luxembourg, Malaysia, Mexico, the Netherlands, New
Zealand, Norway, the Philippines, Portugal, Singapore, Spain,
Sweden, Switzerland, Taiwan, Thailand, Turkey, and the United
Kingdom. It is currently expected that under normal conditions at
least 65% of the Fund's total assets will be invested in
securities traded in at least three foreign countries listed
herein. The Fund, may, from time to time, hold significant cash
positions until suitable investment opportunities are available,
consistent with its policy on temporary investments.
Up to 35% of the Fund's assets may be invested in bonds, fixed-
income debt securities and synthetic securities, as discussed
below. The Fund may seek capital appreciation by investing in
such debt securities which would occur through changes in
relative foreign currency exchange rates, changes in relative
interest rates or improvement in the creditworthiness of an
issuer. The receipt of income from such debt securities is
incidental to the Fund's investment objective of growth of
capital. These debt obligations consist of U.S. and foreign
government securities and corporate debt securities, including
Samurai and Yankee bonds, Eurobonds and depositary receipts. The
Fund will limit its purchases of debt securities to investment
grade obligations. For long-term debt obligations this includes
securities that are rated "Baa" or better by Moody's or "BBB" or
better by S&P, or that are not rated but determined by management
to be of comparable quality.
Fixed-income debt securities within the top three categories
(i.e., "AAA", "AA" and "A" by S&P or "Aaa", "Aa" or "A" by
Moody's) comprise what are known as high-grade bonds and are
regarded as having a strong capacity to pay principal and
interest. Medium-grade bonds (i.e., "BBB" by S&P or "Baa" by
Moody's) are regarded as having an adequate capacity to pay
principal and interest but with greater vulnerability to adverse
economic conditions and some speculative characteristics. An
Appendix discussing these ratings is included in the SAI.
Generally, when interest rates rise, the value of the Fund's
fixed-income and convertible investments will decline.
Conversely, when rates fall, the value of such investments may
rise. As a result, the presence of debt or convertible securities
in the Fund's portfolio may contribute to fluctuation both in the
value of the Fund's shares and the dividends per share paid by
the Fund.
In the event the rating on an issue held in the Fund's portfolio
is lowered by a rating service, such change will be considered by
the Fund in its evaluation of the overall investment merits of
that security but will not necessarily result in an automatic
sale of the security.
The Fund may temporarily invest cash in short-term debt
instruments of U.S. or foreign issuers for cash management
purposes or pending investment. (See "Investment Objective and
Policies of the Fund - Short-Term Investments" below.)
The systematic method employed by the Sub-adviser to identify
opportunities in the equity markets may result in frequent
recommendations to add or remove securities from the Fund's
portfolio, thus increasing the portfolio turnover rate. High
portfolio turnover increases transaction costs which must be paid
by the Fund. High turnover may also result in the realization of
net capital gains, which are taxable when distributed to
shareholders.
RISKS RELATED TO INVESTING IN FOREIGN SECURITIES
Foreign securities involve certain risks which should be
considered carefully by prospective investors in the Fund. These
risks include political, social or economic instability in the
country of the issuer, the difficulty of predicting international
trade patterns, the possibility of the imposition of exchange
controls, expropriation, restrictions on removal of currency or
other assets, nationalization of assets, foreign withholding and
income taxation, and foreign trading practices (including higher
trading commissions, custodial charges and delayed settlements).
Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or
guaranteed by the U.S. government, its instrumentalities or
agencies. The markets on which such securities trade may have
less volume and liquidity, and may be more volatile than
securities markets in the U.S. In addition, there may be less
publicly available information about a foreign company than about
a U.S. domiciled company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. domestic
companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in
the U.S. Confiscatory taxation or diplomatic developments could
also affect investment in those countries.
In many instances, foreign debt securities may provide higher
yields than securities of domestic issuers which have similar
maturities and quality. Under certain market conditions these
investments may be less liquid than the securities of U.S.
corporations and are certainly less liquid than securities issued
or guaranteed by the U.S. government, its instrumentalities or
agencies. Finally, in the event of a default of any such foreign
debt obligations, it may be more difficult for the Fund to obtain
or to enforce a judgment against the issuers of such securities.
If a security is denominated in foreign currency, the value of
the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs
will be incurred in connection with conversions between
currencies. A change in the value of any foreign currency against
the U.S. dollar will result in a corresponding change in the U.S.
dollar value of the Fund's securities denominated in that
currency. Such changes will also affect the Fund's income and
distributions to shareholders. In addition, although the Fund
will receive income on foreign securities in such currencies, the
Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such
currency declines materially after the Fund's income has been
accrued and translated into U.S. dollars, the Fund could be
required to liquidate portfolio securities to make required
distributions. Similarly, if an exchange rate declines between
the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to
be converted into U.S. dollars in order to pay such expenses in
U.S. dollars will be greater.
The relative performance of foreign currencies in which
securities held by the Fund are denominated is an important
factor in the Fund's overall performance. TICI intends to manage
the Fund's exposure to various currencies to take advantage of
different yield, risk, and return characteristics that different
currencies, currency denominations, and countries can provide for
U.S. investors.
To hedge exposure to currency fluctuations or to increase income,
the Fund may enter into forward foreign currency exchange
contracts, and may buy and sell options, futures contracts and
options on futures contracts relating to foreign currencies. The
Fund will use forward currency exchange contracts in the normal
course of business to lock in an exchange rate in connection with
purchases and sales of securities denominated in foreign
currencies. Other currency management strategies allow the Sub-
adviser to hedge portfolio securities, to shift investment
exposure from one currency to another, or to attempt to profit
from anticipated declines in the value of a foreign currency
relative to the U.S. dollar. Some of these strategies will
require the Fund to set aside liquid assets in a segregated
custodial account to cover its obligations. (See "Currency
Hedging Transactions" below. Options and Futures and Options on
Futures are limited as discussed below.)
Although the Fund will not invest more than 25% of its assets in
any one industry or the government of any one country, the Fund
may invest more than 25% of its assets in the securities of
issuers in one or more countries. Investors should consider the
greater risk of such policy versus the safety that comes with an
investment that does not involve potential geographic
concentration and should compare the Fund with other investment
vehicles before making an investment decision. There is, of
course, no assurance that the Fund's objective will be achieved.
Some of the countries in which the Fund invests may not permit
direct investment. Investments in such countries may only be
permitted through government approved investment vehicles.
Investing through such vehicles may involve duplicative or
layered fees or expenses and may, as well, be subject to
limitations under the 1940 Act. Under the 1940 Act, the Fund may
invest up to 10% of its assets in shares of other investment
companies and up to 3% of its assets in any one investment
company as long as the investment does not represent more than 5%
of the voting stock of the acquired investment company.
HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S
ACTIVITIES
The assets of the Fund are invested in portfolio securities. If
the securities owned by the Fund increase in value, the value of
the shares of the Fund which the shareholder owns will increase.
If the securities owned by the Fund decrease in value, the value
of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the
securities owned by the Fund.
A decline in the stock market of any country in which the Fund is
invested may also be reflected in declines in the Fund's share
price. Changes in currency valuations will also affect the price
of Fund shares. History reflects both decreases and increases in
worldwide stock markets and currency valuations, and these may
reoccur unpredictably in the future.
Changes in the prevailing rates of interest in any of the
countries in which the Fund is invested will likely affect the
value of the Fund's holdings and thus the value of Fund shares.
Increased rates of interest which frequently accompany higher
inflation and/or a growing economy are likely to have a negative
effect on the value of Fund shares. In addition changes in
currency valuations will impact the price of Fund shares. History
reflects both increases and decreases in interest rates in
individual countries and throughout the world, and in currency
valuations, and these may reoccur unpredictably in the future.
TRADING IN OPTIONS
The Fund may purchase put and call options and write covered put
and call options on securities and securities indices. Such
options may be traded on U.S. exchanges and, to the extent
permitted by law, over-the-counter and on foreign exchanges.
Broadly speaking, to comply with SEC asset coverage requirements,
no more than one third of the Fund's assets will be invested in
options or other assets which, as discussed below, must be
"covered."
WRITING CALL AND PUT OPTIONS ON SECURITIES. The Fund may write
options to generate additional income and to hedge its investment
portfolio against anticipated adverse market and/or exchange rate
movements. Call options written by the Fund give the holder the
right to buy the underlying securities from the Fund at a stated
exercise price. Put options written by the Fund give the holder
the right to sell the underlying security to the Fund at a stated
exercise price. All options written by the Fund will be
"covered."
A call option written by the Fund is "covered" if the Fund owns
the underlying security covered by the call or has an absolute
and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in
a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option
is also covered if the Fund holds a call on the same security and
in the same principal amount as the call written where the
exercise price of the call held (i) is equal to or less than the
exercise price of the call written or (ii) is greater than the
exercise price of the call written if the difference is
maintained by the Fund in cash and high-grade debt securities in
a segregated account with its custodian.
A put option written by the Fund is "covered" if the Fund
maintains cash and high-grade debt securities with a value equal
to the exercise price in a segregated account with its custodian,
or else holds a put on the same security and in the same
principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of
the put written. The premium paid by the purchaser of an option
will reflect, among other things, the relationship of the
exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and
demand, and interest rates.
The writer of an option that wishes to terminate its obligation
may effect a "closing purchase transaction." This is accomplished
by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position
will be canceled by the clearing corporation. However, a writer
may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who
is the holder of an option may liquidate its position by
effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously
purchased.
The Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium received from
writing the option or is more than the premium paid to purchase
the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium received from writing the option or is less than the
premium paid to purchase the option. Because increases in the
market price of a call option will generally reflect increases in
the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned
by the Fund. There is no guarantee that either a closing purchase
or a closing sale transaction can be effected when the Fund so
desires.
The writing of covered put options involves certain risks. For
example, if the market price of the underlying security rises or
otherwise is above the exercise price, the put option will expire
worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund may attempt to
close the position or take delivery of the security at the
exercise price and the Fund's return will be the premium received
from the put options minus the amount by which the market price
of the security is below the exercise price.
PURCHASING CALL OPTIONS. The Fund may purchase call options on
securities which it intends to purchase in order to limit the
risk of a substantial increase in the market price of such
security. The Fund may also purchase call options on securities
held in its portfolios and on which it has written call options.
A call option gives the holder the right to buy the underlying
securities from the option writer at a stated exercise price.
Prior to its expiration, a call option may be sold in a closing
sale transaction. Profit or loss from such a sale will depend on
whether the amount received is more or less than the premium paid
for the call option plus the related transaction costs.
PURCHASING PUT OPTIONS. The Fund may purchase put options on
particular securities in order to protect against a decline in
the market value of the underlying security below the exercise
price less the premium paid for the option. A put option gives
the holder the right to sell the underlying security at the
option exercise price at any time during the option period. The
ability to purchase put options will allow the Fund to protect
the unrealized gain in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund will
continue to receive interest or dividend income on the security.
The Fund may sell a put option which it has previously purchased
prior to the sale of the securities underlying such option. Such
sales will result in a net gain or loss depending on whether the
amount received on the sale is more or less than the premium and
other transaction costs paid for the put option that is sold.
Such gain or loss may be wholly or partially offset by a change
in the value of the underlying security which the Fund owns or
has the right to acquire.
OPTIONS ON STOCK INDICES. The Fund may also purchase and write
call and put options on stock indices in order to hedge against
the risk of market or industry-wide stock price fluctuations or
to increase income to the Fund. Call and put options on stock
indices are similar to options on securities except that, rather
than the right to purchase or sell particular securities at a
specified price, options on a stock index give the holder the
right to receive, upon exercise of the option, an amount of cash
if the closing level of the underlying stock index is greater
than (or less than, in the case of puts) the exercise price of
the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of
the option, expressed in dollars multiplied by a specified
number. Thus, unlike options on individual securities, all
settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular
industry or segment of the market) rather than price movements in
individual securities.
All options written on stock indices must be covered. When the
Fund writes an option on a stock index, it will establish a
segregated account containing cash or high quality, fixed-income
securities with its custodian in an amount at least equal to the
market value of the option and will maintain the account while
the option is open or will otherwise cover the transaction.
FORWARD CONVERSIONS. The Fund may engage in "forward conversion"
transactions. In a forward conversion, the Fund will purchase
securities and write call options and purchase put options on
such securities. All options written by the Fund will be covered.
By purchasing puts, the Fund protects the underlying security
from depreciation in value. By selling or writing calls on the
same security, the Fund receives premiums which may offset part
or all of the cost of purchasing the puts while foregoing the
opportunity for appreciation in the value of the underlying
security. The Fund will not exercise a put it has purchased while
a call option on the same security is outstanding. The use of
options in connection with forward conversions is intended to
hedge against fluctuations in the market value of the underlying
security. Although it is generally intended in forward conversion
transactions that the exercise price of put and call options
would be identical, situations might occur in which some option
positions are acquired with different exercise prices. Therefore,
the Fund's return may depend in part on movements in the price of
the underlying security because of the different exercise prices
of the call and put options. Such price movements may also affect
the Fund's total return if the conversion is terminated prior to
the expiration date of the options. In such event, the Fund's
return may be greater or less than it would otherwise have been
if it had hedged the security only by purchasing put options.
OVER-THE-COUNTER OPTIONS ON SECURITIES ("OTC" OPTIONS). The Fund
may write covered put and call options and purchase put and call
options which trade in the over-the-counter market to the same
extent that it may engage in exchange traded options. OTC options
differ from exchange traded options in certain material respects.
OTC options are arranged directly with dealers and not, as is the
case with exchange traded options, with a clearing corporation.
Thus, there is a risk of non-performance by the dealer. Because
there is no exchange, pricing is typically done by reference to
information from market makers. However, OTC options are
available for a greater variety of securities and in a wider
range of expiration dates and exercise prices than exchange
traded options; and the writer of an OTC option is paid the
premium in advance by the dealer.
There can be no assurance that a continuous, liquid secondary
market will exist for any particular option at any specific time.
Consequently, 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 the option.
Similarly, when the Fund writes an OTC option, it generally can
close out that option prior to its expiration only by entering
into a closing purchase transaction with the dealer to whom the
Fund originally wrote the option.
The Fund understands the current position of the staff of the SEC
to be that purchased OTC options and the assets used as "cover"
for written OTC options are illiquid securities. The Fund and its
advisers disagree with this position. Nevertheless, pending a
change in the staff's position, the Fund will treat OTC options
as subject to the Fund's limitation on illiquid securities. (See
"Investment Objective and Policies of the Fund - Illiquid
Investments.")
SPREAD AND STRADDLE TRANSACTIONS. The Fund may engage in "spread"
transactions in which it purchases and writes a put or call
option on the same underlying security, with the options having
different exercise prices and/or expiration dates. All options
written by the Fund will be covered. The Fund may also engage in
so-called "straddles," in which it purchases or writes
combinations of put and call options on the same security.
Because the purchase of options by the Fund in connection with
these transactions may, under certain circumstances, involve a
limited degree of investment leverage, the Fund will not enter
into any spreads or straddles if, as a result, more than 5% of
its net assets will be invested at any time in such option
transactions. The Fund's ability to engage in spread or straddle
transactions may be further limited by state securities laws.
FUTURES TRANSACTIONS
The Fund may purchase or sell (i) financial futures contracts;
(ii) interest rate futures contracts; (iii) options on interest
rate futures contracts; (iv) stock index futures contracts; and
(v) options on stock index futures contracts (collectively,
"Futures Transactions") for bona fide hedging purposes. The Fund
may enter into such Futures Transactions on domestic exchanges
and, to the extent such transactions have been approved by the
Commodity Futures Trading Commission ("CFTC") for sale to
customers in the U.S., on foreign exchanges. The Fund will not
engage in Futures Transactions for speculation but only as a
hedge against changes resulting from market conditions in the
value of its securities or securities which it intends to
purchase. The Fund will not enter into any Futures Transactions
if, immediately thereafter, more than 20% of the Fund's net
assets would be represented by futures contracts or options
thereon. In addition, the Fund will not engage in any Futures
Transactions if, immediately thereafter, the sum of the amount of
initial margin deposits on the Fund's futures positions and
premiums paid for options on its futures contracts would exceed
5% of the market value of the Fund's total assets.
FINANCIAL FUTURES CONTRACTS. Financial futures are commodity
contracts that obligate the holder to take or make delivery of a
specified quantity of a financial instrument, such as a U.S.
Treasury security or foreign currencies, during a specified
future period at a specified price. A "sale" of a financial
futures contract means the acquisition of a contractual
obligation to deliver the securities called for by the contract
at a specified price on a specified date. A "purchase" of a
financial futures contract means the acquisition of a contractual
obligation to acquire the securities called for by the contract
at a specified price on a specified date.
At the same time a futures contract is purchased or sold, the
Fund must allocate cash or securities as a deposit payment
("initial deposit"). The futures contract is valued daily
thereafter and the payment of some amount of "variation margin"
may be required, reflecting any decline or increase in the
contract's value.
To the extent the Fund enters into contracts for the purchase or
sale for future delivery of financial futures and to the extent
required by the rules of the SEC, the Fund will maintain, with
its custodian, assets in a segregated account to cover its
obligations with respect to such contracts, which assets will
consist of cash, cash equivalents or high quality debt securities
from its portfolio in an amount equal to the difference between
the fluctuating market value of such futures contracts and the
aggregate value of the initial and variation margin payments made
by the Fund with respect to such futures contracts.
INTEREST RATE FUTURES CONTRACTS. Interest Rate Futures Contracts
are futures contracts on debt securities. The value of these
instruments changes in response to changes in the value of the
underlying debt security, which depends primarily on prevailing
interest rates.
The Fund may enter into interest rate futures contracts in order
to protect its portfolio securities from fluctuations in interest
rates without necessarily buying or selling the underlying fixed-
income securities. For example, if the Fund owns bonds, and
interest rates are expected to increase, it might sell futures
contracts on debt securities having characteristics similar to
those held in the portfolio. Such a sale would have much the same
effect as selling an equivalent value of the bonds owned by the
Fund. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the
futures contracts to the Fund would increase at approximately the
same rate, thereby keeping the net asset value of the Fund from
declining as much as it otherwise would have.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Fund may also
purchase put and call options and write covered put and call
options on interest rate futures contracts to hedge against risks
associated with shifts in interest rates.
STOCK INDEX FUTURES CONTRACTS. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at
which the agreement was made. Open futures contracts are valued
on a daily basis, and the Fund may be obligated to provide or
receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index
is made in the future.
The Fund may sell stock index futures contracts in anticipation
of or during a market decline in an attempt to offset the
decrease in market value of its Equity Securities that might
otherwise result. When the Fund is not fully invested in stocks
and anticipates a significant market advance, it may purchase
stock index futures in order to gain rapid market exposure that
may offset increases in the cost of common stocks that it intends
to purchase.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Call and put options on
stock index futures are similar to options on securities except
that, rather than the right to purchase or sell stock at a
specified price, options on a stock index futures contract give
the holder the right to receive cash. Upon exercise of the
option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case
of a call, or is less than, in the case of a put, the exercise
price of the option on the futures contract. If an option is
exercised on the last trading day prior to the expiration date of
the option, the settlement will be made entirely in cash equal to
the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.
The need to hedge against such risks will depend on the extent of
diversification of the Fund's common stock portfolio and the
sensitivity of such investments to factors influencing the stock
market as a whole.
CURRENCY HEDGING TRANSACTIONS
In order to hedge against currency exchange rate risks, the Fund
may enter into forward currency exchange contracts and currency
futures contracts and options on such futures contracts, as well
as purchase put or call options and write covered put and call
options on currencies traded in U.S. or foreign markets.
A forward currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks). A currency futures contract is a standardized contract
for the future delivery of a specified amount of currency at a
future date at a price set at the time of the contract. The Fund
may enter into currency futures contracts traded on regulated
commodity exchanges, including non-U.S. exchanges.
The Fund may either accept or make delivery of the currency
specified at the maturity of a forward or futures contract or,
prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions
with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract.
Closing transactions with respect to futures contracts and
options thereon are effected on the exchange on which the
contract was entered into (or on a linked exchange).
The Fund may enter into forward currency exchange contracts and
currency futures contracts in several circumstances. For example,
when the Fund enters into a contract for the purchase or sale of
a security denominated in a foreign currency (or options
contracts with respect to such futures contracts), or when the
Fund anticipates the receipt in a foreign currency of dividends
or interest payments on such a security that it holds, it may
desire to "lock in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as
the case may be. In addition, when the Sub-adviser believes that
the currency of a particular country may suffer a substantial
decline against the U.S. dollar, it may enter into a forward or
futures contract to sell, for a fixed amount of U.S. dollars, the
amount of that currency approximating the value of some or all of
the Fund's portfolio securities denominated in such currency. In
addition, the Fund may engage in cross-hedging transactions by
using forward contracts in one currency to hedge against
fluctuations in value of securities denominated in a different
currency when there is a pattern of correlation between the two
currencies.
The Fund may attempt to accomplish objectives similar to those
described above with respect to forward and futures contracts for
currency by means of purchasing put or call options and writing,
on a covered basis, put and call options on currencies traded on
exchanges. A put option can give the Fund the right to sell a
currency at the exercise price on or before the expiration of the
option. A call option can give the purchaser of the option the
right to purchase a currency at the exercise price on or before
the expiration of the option. The purchase or writing of a
foreign currency option may constitute an effective hedge against
foreign exchange rate fluctuations. As with other kinds of option
transactions, however, the writing of a foreign currency option
will constitute only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or
sell currencies at disadvantageous exchange rates, thereby
incurring losses. Likewise, with respect to foreign currency
options purchased by the Fund, the Fund may forfeit the entire
amount of the premium plus related transaction costs if exchange
rates move in a manner adverse to the Fund's position. The Fund
may use foreign currency options to cross-hedge, which involves
writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency with a pattern
of correlation to the first currency. Foreign currency options to
be written or purchased by the Fund will be traded on U.S. or
foreign exchanges or over-the-counter.
The Fund will not enter into such forward currency exchange
contracts or currency futures contracts or purchase or write such
options or maintain a net exposure to such contracts where the
completion of the contracts would obligate the Fund to deliver an
amount of currency other than U.S. dollars in excess of the value
of the Fund's portfolio securities or other assets denominated in
that currency or, in the case of cross-hedging, in a currency
closely correlated to that currency.
RISKS OF OPTIONS AND FUTURES
CONTRACTS AND RELATED OPTIONS
The purchase and sale of futures contracts and options thereon,
as well as the purchase and writing of options on securities and
securities indices and currencies, involve risks different from
those involved with direct investments in securities. While
utilization of options, futures contracts and similar instruments
may be advantageous to the Fund, the Fund's ability to hedge
effectively all or a portion of its securities through such
transactions and to increase income to the Fund through the use
of options on securities and securities indices depends on the
degree to which price movements in the underlying index,
securities or currencies correlate with price movements in the
relevant portion of the Fund's securities. Perfect correlation is
generally not attainable. Consequently, the Fund bears the risk
that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. It is also possible
that there may be a negative correlation between the index,
securities or currencies underlying the hedging instrument and
the hedged securities which would result in a loss on both such
securities and the hedging instrument. In addition, it is not
possible to hedge fully or perfectly against currency
fluctuations affecting the value of securities denominated in
foreign currencies because the value of such securities is also
likely to fluctuate as a result of independent factors not
related to currency fluctuations. Therefore, perfect correlation
between the Fund's futures positions and portfolio positions will
be impossible to achieve. Accordingly, successful use by the Fund
of options on stock indices, financial and currency futures
contracts and related options, and currency options will be
subject to Advisers' and the Sub-adviser's ability to predict
correctly movements in the direction of the securities and
currency markets generally or of a particular segment. If
Advisers or the Sub-adviser is not successful in employing such
instruments in managing the Fund's investments, the Fund's
performance will be worse than if it did not employ such
strategies. In addition, the Fund will pay commissions and other
costs in connection with such investments, which may increase the
Fund's expenses and reduce the return. In writing options on
futures, the Fund's loss is potentially unlimited and may exceed
the amount of the premium received.
In certain cases the options and futures markets provide
investment or risk management opportunities that are not
available from direct investments in securities. In addition,
some strategies can be performed more effectively and at lower
cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities. However, there are
risks involved in these transactions as discussed above.
Positions in stock index options, stock index futures contracts,
financial futures contracts, foreign currency futures contracts,
related options on futures and options on currencies may be
closed out only on an exchange which provides a secondary market.
There can be no assurance that a liquid secondary market will
exist for any particular option, futures contract or option
thereon at any specific time. Thus, it may not be possible to
close such an option or futures position. The inability to close
options or futures positions could have an adverse impact on the
Fund's ability to effectively hedge its securities or foreign
currency exposure. The Fund will enter into options or futures
positions only if TICI believes that a liquid secondary market
for such options or futures contracts exist.
In the case of OTC options on securities there can be no
assurance that a continuous liquid secondary market will exist
for any particular OTC option at any specific time. Consequently,
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. Similarly, when the
Fund writes an OTC option, it generally can close out that option
prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote
it. If the Fund, on a covered call option, cannot effect a
closing transaction, it cannot sell the underlying security until
the option expires or the option is exercised. Therefore, when
the Fund writes an OTC call option, it may not be able to sell
the underlying security even though it might otherwise be
advantageous to do so. Likewise, the Fund may be unable to sell
the securities it has pledged to secure OTC put options while it
is obligated as a put writer. Similarly, when the Fund is a
purchaser of such put or call option, the Fund might find it
difficult to terminate its position on a timely basis in the
absence of a secondary market.
The risk of loss in trading foreign futures contracts and foreign
options can be substantial. Investors should be aware of the
following:
(1) Participation in foreign futures contracts and foreign
options transactions involves the execution and clearing of
trades on, or subject to, the rules of a foreign board of trade.
(2) Neither the CFTC, the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of
trade, including the execution, delivery and clearing of
transactions, or has the power to compel enforcement of the rules
of a foreign board of trade or any applicable foreign laws.
Generally, the foreign transaction will be governed by applicable
foreign law. This is true even if the exchange is formally linked
to a domestic market so that a position taken on the market may
be liquidated by a transaction on another market. Moreover, such
laws or regulations will vary, depending on the foreign country
in which the foreign futures or foreign options transaction
occurs.
(3) For these reasons, if the Fund trades foreign futures or
foreign options contracts, it might not be afforded certain of
the protective measures provided by the Commodity Exchange Act,
the CFTC's regulations and the rules of the National Futures
Association and any domestic exchange, including the right to use
reparations proceedings before the Commission and arbitration
proceedings provided by the National Futures Association or any
domestic futures exchange. In particular, funds received from the
Fund for foreign futures or foreign options transactions may not
be provided the same protections as funds received in respect of
transactions on U.S. futures exchanges.
(4) The price of any foreign futures or foreign options contract
and, therefore, the potential profit and loss thereon, may be
affected by any variance in the foreign exchange rate between the
time a particular order is placed and the time it is liquidated,
offset or exercised.
The Fund's investment in options, futures contracts, forward
contracts, options on stock indices and futures contracts, and
foreign currencies and securities may be limited by the
requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment
company. These securities require the application of complex and
special tax rules and elections, more information about which is
included in the SAI.
The Fund's investment in options, futures contracts and forward
contracts, and certain securities transactions involving actual
or deemed short sales or foreign exchange gains or losses may
give rise to taxable income, gain or loss and may be subject to
special tax treatment under certain mark-to-market and straddle
rules, the effect of which may be to accelerate income to the
Fund, defer Fund losses, cause adjustments in the holding periods
of Fund securities, convert capital gains and losses into
ordinary income and losses, convert long-term capital gains into
short-term capital gains, and convert short-term capital losses
into long-term capital losses. These rules could, therefore,
affect the amount, timing and character of distributions to
shareholders. Certain elections may be available to the Fund to
mitigate some of the unfavorable consequences of the provisions
described in this paragraph. These investments and transactions
are discussed in the SAI.
Transactions in options, futures, options on futures and forward
contracts are generally considered "derivative securities."
SECURITIES WARRANTS
The Fund may invest up to 10% of its net assets in warrants,
including such warrants that are not listed on an exchange. A
warrant is typically a long-term option issued by a corporation
which gives the holder the privilege of buying a specified number
of shares of the underlying common stock at a specified exercise
price at any time on or before an expiration date. Stock index
warrants entitle the holder to receive, upon exercise, an amount
in cash determined by reference to fluctuations in the level of a
specified stock index. If the Fund does not exercise or dispose
of a warrant prior to its expiration, it will expire worthless.
SYNTHETIC CONVERTIBLES
The Fund may invest up to 35% of its assets in "synthetic
convertible" securities. A synthetic convertible is created by
combining distinct securities which together possess the two
principal characteristics of a true convertible, that is, fixed
income and the right to acquire the underlying equity security.
This combination is achieved by investing in nonconvertible fixed-
income securities and in warrants or stock or stock index call
options which grant the holder the right to purchase a specified
quantity of securities within a specified period of time at a
specified price or to receive cash in the case of stock index
options. Synthetic convertible securities are not considered to
be Equity Securities for purposes of the Fund's 65% investment
policy.
Synthetic convertible securities differ from the true convertible
security in several respects. The value of a synthetic
convertible is the sum of the values of its fixed-income
component and its convertibility component. Thus, the values of a
synthetic convertible and a true convertible security will
respond differently to market fluctuations. Further, although the
Fund expects normally to create synthetic convertibles whose two
components represent one issuer, the character of a synthetic
convertible allows the Fund to combine components representing
distinct issuers, or to combine a fixed-income security with a
call option on a stock index, when it is determined that such a
combination would better promote the Fund's investment
objectives. In addition, the component parts of a synthetic
convertible security may be purchased simultaneously or
separately; and the holder of a synthetic convertible faces the
risk that the price of the stock, or the level of the market
index underlying the convertibility component, will decline.
LOANS OF PORTFOLIO SECURITIES
Consistent with procedures approved by the Board of Trustees and
subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other
institutional investors, provided that such loans do not exceed
33 1/3% of the value of the Fund's total assets at the time of
the most recent loan. The borrower must deposit with the Fund's
custodian collateral with an initial market value of at least
102% of the initial market value of the securities loaned,
including any accrued interest, with the value of the collateral
and loaned securities marked-to-market daily to maintain
collateral coverage of at least 100%. Such collateral shall
consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit.
The lending of securities is a common practice in the securities
industry. The Fund engages in security loan arrangements with the
primary objective of increasing the Fund's income either through
investing the cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the borrower.
Under the securities loan agreement, the Fund continues to be
entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower
of the security fail financially.
BORROWING
As a fundamental policy, the Fund will not borrow money or
mortgage or pledge any of its assets, except that borrowings and
the pledging of assets therefore to meet redemption requests and
for other temporary or emergency purposes may be made from banks
in an amount up to 10% of total asset value. While borrowings
exceed 5% of the Fund's total assets, it will not make any
additional investments.
ILLIQUID INVESTMENTS
The Fund reserves the right to invest up to 10% of its net assets
in illiquid securities (a term which means securities that cannot
be disposed of within seven days in the normal course of business
at approximately the amount at which the Fund has valued the
securities). It is the current policy of the Fund, however (which
may be changed without the approval of the Fund's shareholders),
to limit any such investments (including illiquid Equity
Securities, repurchase agreements of more than seven days
duration, OTC options, illiquid real estate investment trusts,
securities of issuers with less than three years continuous
operation and other securities which are not readily marketable)
to 5% of the Fund's net assets. The Board of Trustees has
authorized the Fund to invest in restricted securities where such
investments are consistent with the Fund's investment objective
and has authorized such securities to be considered to be liquid
and thus not within the foregoing 10% limit, to the extent the
Sub-adviser or the Manager, as the case may be, determines on a
daily basis that there is a liquid institutional or other market
for such securities. Notwithstanding the determinations of the
Manager and the Sub-adviser in this regard, the Board of Trustees
remains responsible for such determinations and considers
appropriate action to maximize the Fund's liquidity and its
ability to meet redemption demands if a security should become
illiquid subsequent to its purchase. To the extent the Fund
invests in restricted securities that are deemed liquid, the
general level of illiquidity in the Fund may be increased if
qualified institutional buyers become uninterested in purchasing
these securities or the market for these securities contracts.
(See "Investment Objectives, Policies and Restrictions - Other
Investment Policies" in the SAI.)
SHORT-TERM INVESTMENTS
Occasionally, in order to honor redemptions, pending investment
of proceeds from new sales of Fund shares or to satisfy other
short-term needs, the Fund may hold cash (U.S. dollars, foreign
currencies or multinational currency units) and/or invest a
portion of its assets in high quality money market instruments.
In any period of market weakness or of uncertain market or
economic conditions, or while awaiting suitable investment
opportunities, the Fund may establish a temporary defensive
position by investing in high quality money market instruments if
the Manager or Sub-adviser anticipates that developments in any
market may seriously jeopardize the value of most Equity
Securities in such market. Any decision to substantially withdraw
from the equity market is reviewed by the Board of Trustees.
Money market instruments in which the Fund may invest include,
but are not limited to, the following instruments of U.S. or
foreign issuers: government securities; commercial paper; bank
certificates of deposit; bankers' acceptances; and repurchase
agreements secured by any of the foregoing. It is impossible to
predict when or for how long the Fund would employ defensive
strategies. All such securities will be rated "A1" or "A2" by S&P
or "P1" or "P2" by Moody's or, if not rated, determined by the
Manager or Sub-adviser to be of comparable quality.
REPURCHASE AGREEMENTS
For cash management or other short-term purposes as listed above,
the Fund may engage in repurchase transactions, in which the Fund
purchases a U.S. government security subject to resale to a bank
or dealer at an agreed-upon price and date. The transaction
requires the collateralization of the seller's obligation by the
transfer of securities with an initial market value, including
accrued interest, equal to at least 102% of the dollar amount
invested by the Fund in each agreement, with the value of the
underlying security marked to market daily to maintain coverage
of at least 100%. A default by the seller might cause the Fund to
experience a loss or delay in the liquidation of the collateral
securing the repurchase agreement. The Fund might also incur
disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with
financial institutions such as broker-dealers and banks which are
deemed to be credit worthy by the Fund's investment manager. A
repurchase agreement is deemed to be a loan by the Fund under the
1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian
approved by the Fund's Board and will be held pursuant to a
written agreement.
The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of shareholders, which limit its activities to some extent. For a
list of these restrictions and more information concerning the
policies discussed herein, please see the SAI.
MANAGEMENT OF THE FUND
The Board of Trustees has the primary responsibility for the
overall management of the Trust and for electing the officers of
the Trust who are responsible for administering its day-to-day
operations.
Advisers serves as the Fund's investment manager. Advisers is a
wholly-owned subsidiary of Resources, a publicly owned holding
company, the principal shareholders of which are Charles B.
Johnson and Rupert H. Johnson, Jr., who own approximately 20% and
16%, respectively, of Resources' outstanding shares. Resources is
engaged in various aspects of the financial services industry
through its subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 33 U.S.
registered investment companies (111 separate series) with
aggregate assets of over $73 billion. Under a management
agreement, the Manager also serves as investment manager and
adviser to the Trust's Franklin Pacific Growth Fund.
TICI is an indirect subsidiary of Templeton Worldwide, Inc.,
which, operating through its subsidiaries, is a major investment
management organization with approximately $41.8 billion of
assets currently under management and a long history of global
investing. Under a sub-advisory agreement, TICI also serves as
sub-adviser to the Trust's Franklin Pacific Growth Fund.
Pursuant to the management agreement, the Manager supervises and
implements the Fund's investment activities and provides certain
administrative services and facilities which are necessary to
conduct the Fund's business.
Pursuant to the sub-advisory agreement between Advisers and TICI,
and subject to the overall policies, control, direction and
review of the Board of Trustees and to the instructions and
supervision of Advisers, TICI is responsible for recommending an
optimal geographic equity allocation, for providing advice with
respect to the Fund's investments and, subject to the Board's and
Advisers' direction and supervision, for determining which
securities will be purchased, retained or sold, as well as for
execution of portfolio transactions. Investments may be shifted
among the world's various capital markets and among different
types of securities in accordance with ongoing analysis of trends
and developments affecting such markets and securities.
Under the management agreement with the Fund, for the services
provided and expenses assumed by it the Manager is entitled to
receive a fee, computed and payable monthly, based upon the
Fund's average net assets. The management fee is higher than the
management fees paid by most mutual funds, although the Board of
Trustees believes it to be comparable to fees paid by many
international funds having similar investment objectives and
policies.
Under the sub-advisory agreement with the Manager, for its sub-
advisory fee TICI is entitled to receive from the Manager an
amount equal to approximately 50% of the fees paid by the Fund to
the Manager (subject to certain adjustments). The sub-advisory
fees paid by the Manager have no effect on the fees payable by
the Fund to the Manager.
During the fiscal year ended October 31, 1994, fees totaling
1.00% of the average daily net assets of the Fund would have
accrued to Advisers. Total operating expenses, including
management fees, would have represented 1.76% of the average net
assets of the Fund. Pursuant to an agreement by Advisers to limit
its fees, the Fund paid management fees totaling .46% of the
average net assets of the Fund. This action by Advisers to limit
its management fees may be terminated by Advisers at any time.
Further information on the services provided by Advisers and TICI
and the fees payable by the Fund for these services is included
in the SAI under "Investment Advisory and Other Services."
Among the responsibilities of Advisers and TICI under their
respective agreements are the selection of brokers and dealers
through which transactions in the Fund's portfolio securities for
which each is responsible are effected. The Manager and Sub-
adviser seek to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to
provide the best execution, Advisers and TICI will consider the
furnishing of quotations and of other market services, research,
statistical and other data for Advisers and TICI and their
affiliates, as well as the sale of shares of the Fund, as factors
in selecting a broker. Further information is included under
"Policies Regarding Brokers Used on Portfolio Transactions" in
the SAI.
Except as noted above and in the SAI under "Investment Advisory
and Other Services", the Fund's service contractors bear all
expenses in connection with the performance of their services,
except that Distributors and Advisers are reimbursed for expenses
incurred under the Plan of Distribution (as described below).
Similarly, the Fund bears the expenses incurred in its operation.
(See the SAI - "Investment Advisory and Other Services" for
further information describing the Fund's expenses.)
Shareholder accounting and many of the clerical functions for the
Fund are performed by Franklin/Templeton Investor Services, Inc.
("Investor Services" or "Shareholder Services Agent") in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.
During the fiscal year ended October 31, 1994, expenses borne by
the Fund, including fees paid to Advisers and Investor Services,
totaled 1.22% of the average net assets of the Fund.
PLAN OF DISTRIBUTION
The Fund has adopted a distribution plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by
Distributors or others in the promotion and distribution of the
Fund's shares. Such expenses may include, but are not limited to,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead
expenses attributable to the distribution of Fund shares, as well
as any distribution or service fees paid to securities dealers or
their firms or others who have executed a servicing agreement
with the Fund, Distributors or its affiliates. The maximum amount
which the Fund may pay to Distributors or others for such
distribution expenses is 0.25% per annum of the average daily net
assets of the Fund, payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without
reimbursement from the Fund. The Plan also covers any payments to
or by the Fund, Advisers, Distributors, or other parties on
behalf of the Fund, Advisers, or Distributors, to the extent such
payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1. The payments under the
Plan are included in the maximum operating expenses which may be
borne by the Fund. For more information please see the SAI.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which the Fund may make to
its shareholders:
1. INCOME DIVIDENDS. The Fund receives income in the form of
dividends, interest and other income derived from its
investments. This income, less the expenses incurred in the
Fund's operations, is its net investment income from which income
dividends may be distributed. Thus, the amount of dividends paid
per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains
or losses in connection with sales or other dispositions of its
portfolio securities. Distributions by the Fund derived from net
short-term and net long-term capital gains (after taking into
account any net capital loss carryovers) may generally be made
once a year in December to reflect any net short-term and net
long-term capital gains realized by the Fund as of October 31, of
the current fiscal year, and any undistributed net capital gains
from the prior fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund
may make more than one distribution derived from net short-term
and net long-term capital gains in any year or adjust the timing
of these distributions for operational or other reasons.
DISTRIBUTION DATE
Although subject to change by the Trust's Board of Trustees,
without prior notice to or approval by shareholders, the Fund's
current policy is to declare income dividends, payable semi-
annually in June and December, to shareholders of record
generally on the first business day preceding the 15th day of
these months, payable on or about the last business day of such
months. The amount of income dividend payments by the Fund is
dependent upon the amount of net income received by the Fund from
its portfolio holdings, is not guaranteed and is subject to the
discretion of the Trust's Board of Trustees. Fund shares are
quoted ex-dividend on the first business day following the record
date (generally the 15th day of such months or prior business day
depending on the record date). THE FUND DOES NOT PAY "INTEREST"
OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS
SHARES.
In order to be entitled to a dividend, an investor must have
acquired Fund shares prior to the close of business on the record
date. An investor considering purchasing Fund shares shortly
before the record date of a distribution should be aware that
because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply
and demand, any distribution of income or capital gain will
result in a decrease in the value of the Fund's shares equal to
the amount of the distribution. While a dividend or capital gain
distribution received shortly after purchasing shares represents,
in effect, a return of a portion of the shareholder's investment,
it may be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless requested otherwise in writing or on the Shareholder
Application, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's
account in the form of additional shares, valued at the closing
net asset value (without a sales charge) on the dividend
reinvestment date. Shareholders have the right to change their
election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as
to distributions for which the record date is seven or more
business days after the Fund has been notified. See the SAI for
more information.
Many of the Fund's shareholders receive their distributions in
the form of additional shares. This is a convenient way to
accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so acquired
remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected distributions
to another fund in the Franklin Group of Funds(Registered
Trademark) or the Templeton Funds, to another person, or directly
to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Dividends which may be paid
in the interim will be sent to the address of record. Additional
information regarding automated fund transfers may be obtained
from Franklin's Shareholder Services Department. Dividend and
capital gain distributions are eligible for investment in another
fund in the Franklin Group of Funds or the Templeton Funds at net
asset value. See "Purchases at Net Asset Value" under "How to Buy
Shares of the Fund."
Investors should be aware that for federal tax purposes, foreign
exchange losses realized by the Fund, including any such losses
realized on a sale of foreign currency-denominated debt
securities, are treated as ordinary losses. This treatment may
have the effect of reducing the Fund's income available for
distribution to shareholders and causing some or all of the
Fund's previously distributed income to be classified as a return
of capital.
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations
that affect mutual funds and their shareholders. Additional
information on tax matters relating to the Fund and its
shareholders is included in the section entitled, "Additional
Information Regarding Taxation" in the SAI.
The Fund intends to continue to qualify for treatment as a
regulated investment company under Subchapter M of the Code. By
distributing all of its income and meeting certain other
requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
Foreign securities which meet the definition in the Code of a
Passive Foreign Investment Company ("PFIC") may subject the Fund
to an income tax and interest charge with respect to such
investments. To the extent possible, the Fund will avoid such
treatment by not investing in PFIC securities or by adopting
other tax strategies for any PFIC securities it does purchase.
For federal income tax purposes, any income dividends which the
shareholder receives from the Fund, as well as any distributions
derived from the excess of net short-term capital gain over net
long-term capital loss, are treated as ordinary income whether
the shareholder has elected to receive them in cash or in
additional shares.
Distributions derived from the excess of net long-term capital
gain over net short-term capital loss are treated as long-term
capital gain regardless of the length of time the shareholder has
owned Fund shares and regardless of whether such distributions
are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons,
may not be paid to the shareholder until the following January,
will be treated for tax purposes as if paid by the Fund and
received by the shareholder on December 31 of the calendar year
in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on
which a shareholder may realize a gain or a loss. Any loss
incurred on sale or exchange of the Fund's shares, held for six
months or less, will be treated as a long-term capital loss to
the extent of capital gain dividends received with respect to
such shares.
For corporate shareholders, it is anticipated that only a small
portion of the Fund's dividends during the current fiscal year
will qualify for the corporate dividends-received deduction
because of the Fund's principal investment objective of investing
in foreign equity securities and non-equity investments. To the
extent that the Fund pays dividends which qualify for this
deduction, the availability of the deduction is subject to
certain holding period and debt financing restrictions imposed
under the Code on the corporation claiming the deduction.
The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid, and will
promptly after the close of each calendar year advise them of the
tax status for federal income tax purposes of such dividends and
distributions.
Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes on distributions received by them from the Fund and the
application of foreign tax laws to these distributions.
Shareholders should consult their tax advisors with respect to
the applicability of state and local intangible property or
income taxes to their shares in the Fund and to distributions and
redemption proceeds received from the Fund.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities
dealers which execute an agreement with Distributors, the
principal underwriter of the Fund's shares. The use of the term
"securities dealer" shall include other financial institutions
which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the
Fund. Such reference, however, is for convenience only and does
not indicate a legal conclusion of capacity. The minimum initial
investment is $100 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are purchased
through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for
the purchase of shares.
The Fund may impose a $10 charge for each returned item, against
any shareholder account which, in connection with the purchase of
Fund shares, submits a check or a draft which is returned unpaid
to the Fund.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price,
which is the net asset value per share, plus a sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund, or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check). The sales charge
is a variable percentage of the offering price depending upon the
amount of the sale. On orders for 100,000 shares or more, the
offering price will be calculated to four decimal places. On
orders for less than 100,000 shares, the offering price will be
calculated to two decimal places using standard rounding
criteria. A description of the method of calculating net asset
value per share is included under the caption "Valuation of Fund
Shares."
Set forth below is a table of total sales charges or underwriting
commissions and dealer concessions.
TOTAL SALES CHARGE
SIZE OF AS A PERCENTAGE AS A PERCENTAGE DEALER
TRANSACTION AT OF OFFERING OF NET AMOUNT CONCESSION AS A
OFFERING PRICE PRICE INVESTED PERCENTAGE OF
OFFERING
PRICE*, ***
Less than 4.50% 4.71% 4.00%
$100,000
$100,000 but 3.75% 3.90% 3.25%
less than
$250,000
$250,000 but 2.75% 2.83% 2.50%
less than
$500,000
$500,000 but 2.25% 2.30% 2.00%
less than
$1,000,000
$1,000,000 or none none (see below)**
more
*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, from
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 1.00% on sales
of $1 million but less $2 million, plus 0.80% on sales of $2
million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100
million or more. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
to be an underwriter as that term is defined in the Securities
Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of all or a portion of investments of $1
million or more within 12 months of the calendar month following
such investments ("contingency period"). See "How to Sell Shares
of the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales
charge on the purchase of Fund shares is determined by adding the
amount of the shareholder's current purchase plus the cost or
current value (whichever is higher) of a shareholder's existing
investment in one or more of the funds in the Franklin Group of
Funds and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the mutual funds in the Franklin
Group of Funds except Franklin Valuemark Funds and Franklin
Government Securities Trust (the "Franklin Funds") (b) other
investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) the U.S. mutual funds in the Templeton Group of Funds
except Templeton American Trust, Inc., Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds").
(Franklin Funds and Templeton Funds are collectively referred to
as the "Franklin Templeton Funds.") Sales charge reductions based
upon aggregate holdings of (a), (b) and (c) above ("Franklin
Templeton Investments") may be effective only after notification
to Distributors that the investment qualifies for a discount.
Distributors, or one of its affiliates, may make payments, out of
its own resources, of up to 1% of the amount purchased to
securities dealers who initiate and are responsible for purchases
made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers), certain non-designated plans,
certain trust company and trust departments of banks and certain
retirement plans of organizations with collective retirement plan
assets of $10 million or more. See definitions under "Description
of Special Net Asset Value Purchases" and as set forth in the
SAI.
Distributors, or one of its affiliates, out of its own resources,
may also provide additional compensation to securities dealers in
connection with sales of shares of the Franklin Templeton Funds.
Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training
programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and
programs regarding one or more of the Franklin Templeton Funds,
and other dealer-sponsored programs or events. In some instances,
this compensation may be made available only to certain
securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin
Templeton Funds. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and members of their
families to locations within or outside of the United States for
meetings or seminars of a business nature. Dealers may not use
sales of the Fund's shares to qualify for this compensation to
the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of
Securities Dealers, Inc. None of the aforementioned additional
compensation is paid for by the Fund or its shareholders.
Certain officers and trustees of the Trust are also affiliated
with Distributors. A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide
for a reduced sales charge. To be certain to obtain the reduction
of the sales charge, the investor or the dealer should notify
Distributors at the time of each purchase of shares which
qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, any Franklin Templeton
Investments may be combined with those of the investor's spouse
and children under the age of 21. In addition, the aggregate
investments of a trustee or other fiduciary account (for an
account under exclusive investment authority) may be considered
in determining whether a reduced sales charge is available, even
though there may be a number of beneficiaries of the account.
In addition, an investment in the Fund may qualify for a
reduction in the sales charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value (whichever
is higher) of existing investments in the Franklin Templeton
Investments may be combined with the amount of the current
purchase in determining the sales charge to be paid.
2. LETTER OF INTENT. An investor may immediately qualify for a
reduced sales charge on a purchase of shares of the Fund by
completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By completing
the Letter, the investor expresses an intention to invest during
the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge and grants to
Distributors a security interest in the reserved shares and
irrevocably appoints Distributors as attorney-in-fact with full
power of substitution to surrender for redemption any or all
shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors
that this Letter is in effect each time a purchase is made.
AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE
LISTED UNDER "DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES")
ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION:
Five percent (5%) of the amount of the total intended purchase
will be reserved in shares of the Fund registered in the
investor's name, to assure that the full applicable sales charge
will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as
reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by
the investor. The reserved shares will not be available for
disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. For more information,
see "Additional Information Regarding Purchases" in the SAI.
GROUP PURCHASES
An individual who is a member of a qualified group may also
purchase shares of the Fund at the reduced sales charge
applicable to the group as a whole. The sales charge is based
upon the aggregate dollar value of shares previously purchased
and still owned by the group, plus the amount of the current
purchase. For example, if members of the group had previously
invested and still held $80,000 of Fund shares and now were
investing $25,000, the sales charge would be 3.75%. Information
concerning the current sales charge applicable to a group may be
obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for
more than six months, (ii) has a purpose other than acquiring
Fund shares at a discount and (iii) satisfies uniform criteria
which enable Distributors to realize economies of scale in its
costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings
between representatives of the Fund or Distributors and the
members, agree to include sales and other materials related to
the Fund in its publications and mailings to members at reduced
or no cost to Distributors, and seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of
the payroll deduction and the time the money reaches the Fund.
The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll
deduction data are received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased without the imposition of
either a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (1) officers, trustees,
directors and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and
by their spouses and family members, including subsequent
payments made by such parties after cessation of employment; (2)
companies exchanging shares with or selling assets pursuant to a
merger, acquisition or exchange offer; (3) insurance company
separate accounts for pension plan contracts; (4) accounts
managed by the Franklin Templeton Group; (5) Shareholders of
Templeton Institutional Funds, Inc. reinvesting redemption
proceeds from that fund under an employee benefit plan qualified
under Section 401 of the Internal Revenue Code of 1986, as
amended, in shares of the Fund; (6) certain unit investment
trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (7) registered
securities dealers and their affiliates, for their investment
account only, and (8) registered personnel and employees of
securities dealers and by their spouses and family members, in
accordance with the internal policies and procedures of the
employing securities dealer.
Shares of the Fund may be purchased at net asset value by persons
who have redeemed, within the previous 120 days, their shares of
the Fund or another of the Franklin Templeton Funds which were
purchased with a front-end sales charge or assessed a contingent
deferred sales charge on redemption. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of this Prospectus and the SAI.
Dividends and capital gains received in cash by the shareholder
may also be used to purchase shares of the Fund or another of the
Franklin Templeton Funds at net asset value and without the
imposition of a contingent deferred sales charge within 120 days
of the payment date of such distribution. To exercise this
privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be
obtained from Shareholder Services at 1-800/632-2301. See
"Distributions in Cash" under "Distributions to Shareholders."
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
investors who have, within the past 60 days, redeemed an
investment in an unaffiliated mutual fund which charged the
investor a contingent deferred sales charge upon redemption and
which has investment objectives similar to those of the Fund.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
broker-dealers who have entered into a supplemental agreement
with Distributors, or by registered investment advisers
affiliated with such broker-dealers, on behalf of their clients
who are participating in a comprehensive fee program (sometimes
known as a wrap fee program).
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
anyone who has taken a distribution from an existing retirement
plan already invested in the Franklin Templeton Funds (including
former participants of the Franklin Templeton Profit Sharing
401(k) plan), to the extent of such distribution. In order to
exercise this privilege a written order for the purchase of
shares of the Fund must be received by Franklin Templeton Trust
Company (the "Trust Company"), the Fund or Investor Services,
within 120 days after the plan distribution. A prospectus
outlining the investment objectives and policies of a fund in
which the shareholder wishes to invest may be obtained by calling
toll free at 1-800/DIAL BEN (1-800/342-5236).
Shares of the Fund may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is
a legally permissible investment and which is prohibited by
applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any
registered management investment company ("an eligible
governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES
OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal
investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net asset
value is made through a securities dealer who has executed a
dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to
such securities dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales
Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with
respect to number of employees or amount of purchase, which may
be established by Distributors. Currently those criteria require
that the employer establishing the plan have 200 or more
employees or that the amount invested or to be invested during
the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
trust companies and bank trust departments for funds over which
they exercise exclusive discretionary investment authority and
which are held in a fiduciary, agency, advisory, custodial or
similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be
established by Distributors. Currently, those criteria require
that the amount invested or to be invested during the subsequent
13-month period in this Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly
from the bank or trust company, with payment by federal funds
received by the close of business on the next business day
following such order.
Shares of the Fund may be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
trustees or other fiduciaries purchasing securities for certain
retirement plans of organizations with collective retirement plan
assets of $10 million or more, without regard to where such
assets are currently invested.
Refer to the SAI for further information.
GENERAL
Securities laws of states in which the Fund's shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions selling Fund shares may be
required to register as dealers pursuant to state law.
PURCHASING SHARES OF THE FUND
IN CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS
Shares of the Fund may be used for individual or employer-
sponsored retirement plans involving tax-deferred investments.
The Fund may be used as an investment vehicle for an existing
retirement plan, or Franklin Templeton Trust Company (the "Trust
Company") may provide the plan documents and serve as custodian
or trustee. A plan document must be adopted for a retirement plan
to be in existence.
The Trust Company, an affiliate of Distributors, can serve as
custodian or trustee for retirement plans. Brochures for the
Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution
requirements. Please note that an application other than the one
contained in this Prospectus must be used to establish a
retirement account with the Trust Company. To obtain a retirement
plan brochure or application, call toll free 1-800/DIAL BEN (1-
800/342-5236).
Please see "How to Sell Shares of the Fund" for specific
information regarding redemptions from retirement accounts.
Specific forms are required to be completed for distributions
from Franklin Templeton Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or
benefits and pension plan consultants before choosing a
retirement plan.
In addition, retirement plan investors should consider consulting
their investment representatives or advisers concerning
investment decisions within their plans.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION
MAY NOT BE AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE
SHARES ARE HELD, OF RECORD, BY A FINANCIAL INSTITUTION OR IN A
"STREET NAME" ACCOUNT, OR NETWORKED ACCOUNT THROUGH THE NATIONAL
SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE SECTION
CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and capital
gain distributions, are generally credited to an account in the
name of an investor on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the
risk of loss or theft of a share certificate. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder semi-
annually to reflect the dividends reinvested during that period
and after each other transaction which affects the shareholder's
account. This statement will also show the total number of shares
owned by the shareholder, including the number of shares in "plan
balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account, if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application
included with this Prospectus contains the requirements
applicable to this program. In addition, shareholders may obtain
more information concerning this program from their securities
dealers or from Distributors.
The market value of the Fund's shares is subject to fluctuation.
Before undertaking any plan for systematic investment, the
investor should keep in mind that such a program does not assure
a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. Retirement plans subject to mandatory distribution
requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis.
If the shareholder establishes a plan, any capital gain
distributions and income dividends paid by the Fund will be
reinvested for the shareholder's account in additional shares at
net asset value. Payments will then be made from the liquidation
of shares at net asset value on the day of the transaction (which
is generally the first business day of the month in which the
payment is scheduled) with payment generally received by the
shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to
another of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the account
is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Withdrawals which may be
paid in the interim will be sent to the address of record.
Liquidation of shares may reduce or possibly exhaust the shares
in the shareholder's account, to the extent withdrawals exceed
shares earned through dividends and distributions, particularly
in the event of a market decline. If the withdrawal amount
exceeds the total plan balance, the account will be closed and
the remaining balance will be sent to the shareholder. As with
other redemptions, a liquidation to make a withdrawal payment is
a sale for federal income tax purposes. Because the amount
withdrawn under the plan may be more than the shareholder's
actual yield or income, part of the payment may be a return of
the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the additional
purchases. The shareholder should ordinarily not make additional
investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in
effect. A Systematic Withdrawal Plan may be terminated on written
notice by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives or policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, the Fund shares may be exchanged
for shares of other Franklin Templeton Funds which are eligible
for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and
investment minimums. Investors should review the prospectus of
the fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on
exercising the exchange privilege, for example, minimum holding
periods or applicable sales charges. Exchanges may be made in any
of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of the
written instructions together with any outstanding share
certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF
ANY, MAY EXCHANGE SHARES OF THE FUND BY TELEPHONE BY CALLING
INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED FRANKLIN
TELEFACTS SYSTEM (DAY OR NIGHT) AT 1-800/247-1753. IF THE
SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect
exchanges from the Fund into an identically registered account in
one of the other available Franklin Templeton Funds. The
Telephone Exchange Privilege is available only for uncertificated
shares or those which have previously been deposited in the
shareholder's account. The Fund and Investor Services will employ
reasonable procedures to confirm that instructions communicated
by telephone are genuine. Please refer to "Telephone Transactions
- - Verification Procedures."
During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be difficult
to implement and the TeleFACTS option may not be available. In
this event, shareholders should follow the other exchange
procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's
shares, Investor Services will accept exchange orders by
telephone or by other means of electronic transmission from
securities dealers who execute a dealer or similar agreement with
Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which
certificates have previously been deposited. A securities dealer
may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
A contingent deferred sales charge will not be imposed on
exchanges. If, however, the exchanged shares were subject to a
contingent deferred sales charge in the original fund purchased,
and shares are subsequently redeemed within the contingency
period, a contingent deferred sales charge will be imposed. The
contingency period will be tolled (or stopped) for the period
such shares are exchanged into and held in a Franklin or
Templeton money market fund. See also "How to Sell Shares of the
Fund - Contingent Deferred Sales Charge."
Exchanges are made on the basis of the net asset values of the
funds involved, except as set forth below. Exchanges of shares of
the Fund which were purchased without a sales charge will be
charged a sales charge in accordance with the terms of the
prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on
which the investor paid a sales charge. Exchanges of shares of
the Fund which were purchased with a lower sales charge to a fund
which has a higher sales charge will be charged the difference,
unless the shares were held in the Fund for at least six months
prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, declared but
unpaid income dividends and capital gain distributions will be
transferred to the fund being exchanged into and will be invested
at net asset value. Because the exchange is considered a
redemption and purchase of shares, the shareholder may realize a
gain or loss for federal income tax purposes. Backup withholding
and information reporting may also apply. Information regarding
the possible tax consequences of such an exchange is included in
the tax section in this Prospectus and in the SAI.
There are differences among the Franklin Templeton Funds. Before
making an exchange, a shareholder should obtain and review a
current prospectus of the fund into which the shareholder wishes
to transfer.
If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the Fund
pursuant to the exchange privilege, the Fund might have to
liquidate portfolio securities it might otherwise hold and incur
the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the
general policy of the Fund to initially invest this money in
short-term, interest-bearing money market instruments, unless it
is felt that attractive investment opportunities consistent with
the Fund's investment objectives exist immediately. Subsequently,
this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a
manner as is possible when attractive investment opportunities
arise.
The Exchange Privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.
RETIREMENT ACCOUNTS
Franklin Templeton IRA and 403(b) retirement accounts may
accomplish exchanges directly. Certain restrictions may apply,
however, to other types of retirement plans. See "Restricted
Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing
services to purchase or redeem shares based on predetermined
market indicators ("Timing Accounts") will be charged a $5.00
administrative service fee per each such exchange. All other
exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses,
certain funds do not accept or may place differing limitations
than those below on exchanges by Timing Accounts.
The Fund reserves the right to temporarily or permanently
terminate the exchange privilege or reject any specific purchase
order for any Timing Account or any person whose transactions
seem to follow a timing pattern who: (i) make an exchange request
out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) make more than two exchanges out of the
Fund per calendar quarter, or (iii) exchange shares equal in
value to at least $5 million, or more than 1% of the Fund's net
assets. Accounts under common ownership or control, including
accounts administered so as to redeem or purchase shares based
upon certain predetermined market indicators, will be aggregated
for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in
the Manager's judgment, the Fund would be unable to invest
effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if
the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing"
strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated in "How to Buy
Shares of the Fund," reserve the right to refuse any order for
the purchase of shares.
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and receive
from the Fund the value of the shares. Shares may be redeemed in
any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of this
Prospectus, and any share certificates which have been issued for
the shares being redeemed, properly endorsed and in order for
transfer. The shareholder will then receive from the Fund the
value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by
Investor Services. Redemption requests received after the time at
which the net asset value is calculated (1:00 p.m. Pacific time)
each day that the New York Stock Exchange (the "Exchange") is
open for business will receive the price calculated on the
following business day. Shareholders are requested to provide a
telephone number(s) where they may be reached during business
hours, or in the evening if preferred. Investor Services' ability
to contact a shareholder promptly when necessary will speed the
processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED
IF THE REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record,
preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess
of $50,000; or
(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c)
the Fund has been notified of an adverse claim, (d) the
instructions received by the Fund are given by an agent, not
the actual registered owner, (e) the Fund determines that
joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the
authority of a representative of a corporation, partnership,
association, or other entity has not been established to the
satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Generally, eligible guarantor institutions
include (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a
national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the
request to be in proper form.
Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied by
the share certificate and a share assignment form signed by the
registered shareholders exactly as the account is registered,
with the signature(s) guaranteed as referenced above.
Shareholders are advised, for their own protection, to send the
share certificate and assignment form in separate envelopes if
they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction
require the following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from
the authorized officer(s) of the corporation, and (2) a corporate
resolution.
Partnership - (1) Signature guaranteed letter of instruction from
a general partner and (2) pertinent pages from the partnership
agreement identifying the general partners or a certification for
a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the
trustee(s) and (2) a copy of the pertinent pages of the trust
document listing the trustee(s) or a Certification for Trust if
the trustee(s) are not listed on the account registration.
Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.
Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"), included
with this Prospectus may redeem shares of the Fund by telephone,
subject to the Restricted Account exception noted under
"Telephone Transactions - Restricted Accounts." INFORMATION MAY
ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE
FUND AND INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO
CONFIRM THAT INSTRUCTIONS GIVEN BY TELEPHONE ARE GENUINE.
SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN CERTAIN CASES AS
DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."
For shareholder accounts with the completed Agreement on file,
redemptions of uncertificated shares or shares which have
previously been deposited with the Fund or Investor Services may
be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before 1:00 p.m. Pacific time on any
business day will be processed that same day. The redemption
check will be sent within seven days, made payable to all the
registered owners on the account, and will be sent only to the
address of record. Redemption requests by telephone will not be
accepted within 30 days following an address change by telephone.
In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, government
entities, and qualified retirement plans which qualify to
purchase shares at net asset value pursuant to the terms of this
Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges
Agreement which is available from Franklin's Institutional
Services Department by telephoning 1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders by telephone or other
means of electronic transmission from securities dealers who have
entered into a dealer or similar agreement with Distributors.
This is known as a repurchase. The only difference between a
normal redemption and a repurchase is that if the shareholder
redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer
receives the order which is promptly transmitted to the Fund,
rather than on the day the Fund receives the shareholder's
written request in proper form. These documents, as described in
the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt
of a repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other documents
set forth above. A shareholder's letter should reference the
Fund, the account number, the fact that the repurchase was
ordered by a dealer and the dealer's name. Details of the dealer-
ordered trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of the
redemption. The seven-day period within which the proceeds of the
shareholder's redemption will be sent will begin when the Fund
receives all documents required to complete ("settle") the
repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the
dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to have
the required documentation completed and forwarded to the Fund as
soon as possible. The shareholder's dealer may charge a fee for
handling the order. The SAI contains more information on the
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers on
investments of $1 million or more, a contingent deferred sales
charge of 1% applies to redemptions of those investments within
the contingency period of 12 months of the calendar month
following their purchase. The charge is 1% of the lesser of the
value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares,
and is retained by Distributors. In determining if a charge
applies, shares not subject to a contingent deferred sales charge
are deemed to be redeemed first, in the following order: (i)
shares representing amounts attributable to capital appreciation
of those shares held less than 12 months; (ii) shares purchased
with reinvested dividends and capital gain distributions; and
(iii) other shares held longer than 12 months; and followed by
any shares held less than 12 months, on a "first in, first out"
basis.
The contingent deferred sales charge is waived for: exchanges;
any account fee; distributions to participants in Trust Company
retirement plan accounts due to death, disability or attainment
of age 59 1/2; tax-free returns of excess contributions to
employee benefit plans; distributions from employee benefit
plans, including those due to plan termination or plan transfer;
redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995 and, for Systematic Withdrawal Plans set up
thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); and
redemptions initiated by the Fund due to a shareholder's account
falling below the minimum specified account size. In addition to
the waiver referred to above, shares of participants in Trust
company retirement plan accounts will, in the event of death,
disability or attainment of age 59 1/2, no longer be subject to
the contingent deferred sales charge.
Requests for redemptions for a specified dollar amount will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for
redemption of a specific number of shares will result in the
applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally
reduce this delay, shares purchased with these checks will also
be held pending clearance. Shares purchased by federal funds wire
are available for immediate redemption. In addition, the right of
redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by
order, for the protection of shareholders. Of course, the amount
received may be more or less than the amount invested by the
shareholder, depending on fluctuations in the market value of
securities owned by the Fund.
RETIREMENT ACCOUNTS
Retirement account liquidations require the completion of certain
additional forms to ensure compliance with Internal Revenue
Service ("IRS") regulations. To liquidate a retirement account, a
shareholder or securities dealer may call Franklin's Retirement
Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such
plans to a participant under age 59 1/2, unless the distribution
meets one of the exceptions set forth in the Code.
OTHER
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option (see "Restricted Accounts" below),
(iii) transfer Fund shares in one account to another identically
registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition,
shareholders who complete and file an Agreement as described
under "How to Sell Shares of the Fund - Redemptions by Telephone"
will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. These will include: recording all telephone calls
requesting account activity by telephone, requiring that the
caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call
for the purpose of establishing the caller's identification, and
by sending a confirmation statement on redemptions to the address
of record each time account activity is initiated by telephone.
So long as the Fund and Investor Services follow instructions
communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused
by an unauthorized transaction. Shareholders are, of course,
under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services
is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be
executed, and neither the Fund nor Investor Services will be
liable for any losses which may occur because of a delay in
implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be
accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are
required for any distribution, redemption, or dividend payment.
While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain
restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer
procedures, including any required forms, retirement account
shareholders may call to speak to a Retirement Plan Specialist at
1-800/527-2020 for Franklin accounts or 1-800/354-9191 (press "2"
when prompted to do so) for Templeton accounts.
GENERAL
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their investment
representative for assistance, or to send written instructions to
the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60-days' written notice
to shareholders.
VALUATION OF FUND SHARES
The net asset value per share of the Fund is determined as of
1:00 p.m. Pacific time each day that the Exchange is open for
trading. Many newspapers carry daily quotations of the prior
trading day's closing "bid" (net asset value) and "ask" (offering
price, which includes the maximum sales charge of the Fund).
The net asset value per share of the Fund is determined in the
following manner: The aggregate of all liabilities, including,
without limitation, the current market value of any outstanding
options written by the Fund, accrued expenses and taxes and any
necessary reserves, is deducted from the aggregate gross value of
all assets, and the difference is divided by the number of shares
of the Fund outstanding at the time. For the purpose of
determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is
recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on
the NASDAQ National Market System for which market quotations are
readily available are valued at the last quoted sale price of the
day or, if there is no such reported sale, within the range of
the most recent quoted bid and ask prices. Over-the-counter
portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and
ask prices as obtained from one or more dealers that make markets
in the securities. Portfolio securities which are traded both in
the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying
actively traded call options are valued at their market price as
determined above. The current market value of any option held by
the Fund is its last sales price on the relevant exchange prior
to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the
options are valued within the range of the current closing bid
and ask prices if such valuation is believed to fairly reflect
the contract's market value. Other securities for which market
quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a
variety of factors, including recent trades, institutional size
trading in similar types of securities (considering yield, risk
and maturity) and/or developments related to specific issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Trustees. All money
market instruments with a maturity of more than 60 days are
valued at current market, as discussed above. With the approval
of Trustees, the Fund may utilize a pricing service, bank or
securities dealer to perform any of the above described
functions.
Securities denominated in foreign currencies and traded on
foreign exchanges or in foreign markets will be valued in a
similar manner and their value translated into U.S. dollars at
the bid price of their respective currency denomination against
U.S. dollars last quoted by a major bank or, if no such quotation
is available, at the rate of exchange determined in accordance
with policies established in good faith by the Board of Trustees.
Because the value of securities denominated in foreign currencies
must be translated into U.S. dollars, fluctuations in the value
of such currencies in relation to the U.S. dollar will affect the
net asset value of Fund shares even though there has not been any
change in the values of such securities.
Because foreign securities markets may close prior to the time
the Fund determines its net asset value, events affecting the
value of portfolio securities occurring between the time prices
are determined and the time the Fund calculates its net asset
value will not be reflected in the Fund's calculation of net
asset value unless Advisers or the Sub-adviser, under supervision
of the Board of Trustees, determines that the particular event
would materially affect the Fund's net asset value. The Fund's
portfolio securities listed on foreign exchanges may trade on
days other than the Fund's normal business days, such as
Saturdays. As a result, the net asset value of the Fund may be
significantly affected by such trading on days when shareholders
have no access to the Fund.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.
From a touch-tone phone, shareholders may obtain current price,
yield or performance information specific to a fund in the
Franklin Funds by calling the automated Franklin TeleFACTS system
(day or night) at 1-800/247-1753. Information about the Fund may
be accessed by entering Fund Code 91 followed by the # sign, when
requested to do so by the automated operator. The TeleFACTS
system is also available for processing exchanges. See "Exchange
Privilege."
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
HOURS OF OPERATION
(PACIFIC TIME)
(MONDAY THROUGH
DEPARTMENT NAME TELEPHONE NO. FRIDAY)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00
p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00
p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00
p.m.
8:30 a.m. to 5:00
p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00
p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00
impaired) p.m.
In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including current yield, various expressions of
total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of $1,000
invested at the maximum public offering price (offering price
includes sales charge) for one-, five- and ten-year periods, or
portion thereof, to the extent applicable, through the end of the
most recent calendar quarter, assuming reinvestment of all
distributions. The Fund may also furnish total return quotations
for other periods, or based on investments at various sales
charge levels or at net asset value. For such purposes, total
return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus
(or minus) the change in the value of the original investment,
expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's
portfolio investments; it is calculated by dividing the Fund's
net investment income per share during a recent 30-day period by
the maximum public offering price on the last day of that period
and annualizing the result.
Yield which is calculated according to a formula prescribed by
the SEC (see the SAI) is not indicative of the dividends or
distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders are
reflected in the current distribution rate, which may be quoted
to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by the Fund
during the past 12 months by a current maximum offering price.
Under certain circumstances, such as when there has been a change
in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the
dividends paid during the period such policies were in effect,
rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield
computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium
income from option writing, and short-term capital gain, and is
calculated over a different period of time.
In each case performance figures are based upon past performance,
reflect all recurring charges against Fund income and will assume
the payment of the maximum sales charge on the purchase of
shares. When there has been a change in the sales charge
structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like
all other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent what an
investment may earn in the future or what the Fund's yield,
distribution rate or total return may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends October 31. Annual Reports containing
audited financial statements of the Trust, including the
auditors' report, and Semi-Annual Reports containing unaudited
financial statements are automatically sent to shareholders.
Copies may be obtained by investors or shareholders, without
charge, upon request to the Trust at the telephone number or
address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the
Trust's Annual Report to Shareholders and the SAI.
ORGANIZATION
The Trust is a Delaware business trust, organized on March 22,
1991. The Trust is authorized to issue an unlimited number of
shares of beneficial interest, with a par value of $.01 per
share, in various series. All shares have one vote, and, when
issued for the consideration described in the prospectus, are
fully paid, non-assessable, and redeemable. Currently, the Trust
issues shares in two series or funds. Additional series may be
added in the future by the Board of Trustees.
VOTING RIGHTS
Shares of each fund vote separately as to issues affecting that
fund or the Trust, unless otherwise permitted by the 1940 Act.
Shares have non-cumulative voting rights, which means that in all
elections of trustees, the holders of more than 50% of the shares
voting can elect 100% of the trustees if they choose to do so,
and, in such event, the holders of the remaining shares voting
will not be able to elect any person or persons to the Board of
Trustees. Delaware corporate law does not require corporations
registered as management investment companies under the 1940 Act
to hold routine annual meetings of shareholders, and the Fund
does not intend to hold such routine annual meetings. The Fund
may, however, hold a special meeting for such purposes as
changing fundamental investment restrictions, approving a new
management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. A meeting may
also be called by a majority of the Board of Trustees or by
shareholders of the Fund holding at least ten percent of the
shares entitled to vote at the meeting. Shareholders will receive
assistance in communicating with other shareholders in connection
with the election or removal of trustees such as that provided in
Section 16(c) of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account has a value of less than $50,
but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a
period of at least six months, provided advance notice is given
to the shareholder. More information is included in the SAI.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed, and neither the Fund nor its affiliates will be
liable for any loss to the shareholder caused by the
shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft
or wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions
as to ownership. Where there are two co-owners on the account,
the account will be registered as "Owner 1" AND "Owner 2"; the
"or" designation is not used EXCEPT for money market fund
accounts. If co-owners wish to have the ability to redeem or
convert on the signature of only one owner, a limited power of
attorney may be used.
Accounts should not be registered in the name of a minor, either
as sole or co-owner of the account. Transfer or redemption for
such an account may require court action to obtain release of the
funds until the minor reaches the legal age of majority. The
account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should
only be used if the account is being established pursuant to a
legal, valid trust document. Use of such a designation in the
absence of a legal trust document may cause difficulties and
require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint
tenants or "Jt Ten" shall mean "as joint tenants with rights of
survivorship" and not "as tenants in common."
Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements
on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor will be deemed to have authorized the use
of electronic instructions on the account, including, without
limitation, those initiated through the services of the NSCC, to
have adopted as instruction and signature any such electronic
instructions received by the Fund and the Shareholder Services
Agent, and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in
the near future, include the NSCC's "Networking," "Fund/SERV,"
and "ACATS" systems.
Any questions regarding an intended registration should be
answered by the securities dealer handling the investment, or by
calling Franklin's Fund Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the IRS any taxable dividend, capital
gain distribution, or other reportable payment (including share
redemption proceeds) and withhold 31% of any such payments made
to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and
made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to
backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for
previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a TIN along with the required
certifications and (2) close an account by redeeming its shares
in full at the then current net asset value upon receipt of
notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a
shareholder who has completed an "awaiting TIN" certification to
provide the Fund with a certified TIN within 60 days after
opening the account.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-to-
day management of the Fund's portfolio: Marc Joseph, Mark
Beveridge and Gary Clemons.
Marc S. Joseph
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Joseph holds a Doctor of Jurisprudence degree from Harvard
Law School. He earned a Master of Business Administration degree
from Harvard Business School and a Bachelor of Science degree in
computer science from William and Mary. Prior to joining
Templeton, Mr. Joseph was a vice president with Pacific Financial
Research and management consultant at McKinsey Co. He started
managing the International Equity Fund since joining Templeton in
September 1993.
Mark R. Beveridge
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Beveridge is a Chartered Financial Analyst and holds a
Bachelor of Business Administration degree in finance from the
University of Miami. He joined Templeton in 1985 and started
managing the Fund in January 1994.
Gary Clemons
Portfolio Manager
Templeton Investment Counsel, Inc.
Mr. Clemons is a Chartered Financial Analyst and holds a Master
of Business Administration degree from the University of
Wisconsin at Madison. He earned his Bachelor of Science degree in
Earth Science from the University of Nevada at Reno. Mr. Clemons
was a research analyst for Structured Asset Management. He joined
Templeton in 1990.
