INSTITUTIONAL FIDUCIARY TRUST, 497, 1995-02-17

INSTITUTIONAL FIDUCIARY TRUST
497, 1995-02-17

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SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET FUND
INSTITUTIONAL FIDUCIARY TRUST

DATED NOVEMBER 1, 1994

1. The following language is added to the section "Investment Objectives and
Policies of the Fund":

The Fund believes that its investment policies, as stated in its Prospectus
and in the Statement of Additional Information dated November 1, 1994, as
may be amended from time to time, make the Fund a permissible investment for
federal credit unions, based on the Fund's understanding of the laws and
regulations governing credit union regulations as of September 30, 1994.
CREDIT UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISERS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL
INVESTMENTS FOR THEM. Please see the Statement of Additional Information
("The Fund's Investment Objectives and Restrictions - Credit Union
Investment Regulations") for details.

2. The "How to Sell Shares of the Fund" section of the prospectus is amended
to reflect a change to the operational policies of the Fund:

CONTINGENT DEFERRED SALES CHARGE

The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge
will be made by the Fund, as described below. The 12-month contingency
period will be tolled (or stopped) for the period such shares are exchanged
into and held in the Fund.

In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on qualified investments of $1 million or more, a
contingent deferred sales charge of 1% applies to certain redemptions made
by those investors within 12 months of the calendar month after such
investments. 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; (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.

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.

<PAGE>

INSTITUTIONAL
FIDUCIARY TRUST

PROSPECTUS [FRANKLIN LOGO]
November 1, 1994
777 Mariners Island Blvd., P.O. Box 7777
Franklin U.S. Government Agency San Mateo, CA 94403-7777
Money Market Fund 1-800/DIAL BEN

- -------------------------------------------------------------------------------

Franklin's Institutional Fiduciary Trust (the "Trust") is an open-end management
investment company consisting of nine separate and distinct diversified series.
This Prospectus relates only to the Franklin U.S. Government Agency Money Market
Fund (the "Fund"). The Fund is designed for institutional accounts, such as
corporations, banks, savings and loan associations, trust companies and for
government entities for investment of their own capital and of monies held in
accounts for which they act in a fiduciary, advisory, agency, custodial, or
other similar capacity, to the extent permitted by regulations pertaining to
permissible investments of such entities. Shares of the Fund may not be
purchased by individuals.

The investment objectives of the Fund are capital preservation and liquidity
while seeking high current income consistent with capital preservation and
liquidity.

This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and 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.

AN INVESTMENT IN THE fUND IS NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT.

THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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 ("SAI") concerning the Trust in general
and the Fund, dated November 1, 1994, and 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

<PAGE>

the Fund's principal underwriter, Franklin/Templeton Distributors, Inc.,
("Distributors") at the address or telephone number listed above.

Shares of the Fund may be purchased at net asset value, with no sales charge,
with a minimum initial investment of $100,000, except for states, counties,
cities, and their instrumentalities, departments, agencies and authorities,
which may open an account in the Fund with no minimum initial investment. There
is no minimum for subsequent investments in the Fund.

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
representation other than those contained in this Prospectus. Further
information may be obtained from the underwriter.

CONTENTS PAGE

Expense Table ....................................................... 4

Financial Highlights ................................................ 5

About the Fund ...................................................... 5

Investment Objectives and Policies of the Fund ...................... 5

Management of the Fund .............................................. 7

Distributions to Shareholders ....................................... 8

Taxation of the Fund and Its Shareholders ........................... 9

How to Buy Shares of the Fund ....................................... 10

Valuation of Shares of the Fund ..................................... 12

How to Sell Shares of the Fund ...................................... 13

Exchange Privilege ................................................. 15

Telephone Transactions .............................................. 16

Special Services .................................................... 17

How to Get Information Regarding an Investment in the Fund .......... 18

Performance ......................................................... 18

General Information ................................................. 19

Important Notice Regarding Taxpayer IRS Certifications .............. 20

<PAGE>
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.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases NONE
Maximum Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charge NONE
Redemption Fees NONE
Exchange Fee NONE

ESTIMATED ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
Management Fees 0.15%*
12b-1 Fees 0.19%**
Other Expenses 1.09%
Total Operating Expenses 1.43%*
</TABLE>

*For fiscal year ended June 30, 1994 the investment manager voluntarily agreed
to reduce its management fees and assumed payment for operating expenses of the
Fund in order to keep the aggregate maximum annual expenses to 0.50% of the
Fund's average daily net assets, and to reduce them further if it felt it was
necessary in order to increase the Fund's yield. The Fund paid no management
fees and total operating expenses of 0.40% for the same period. Absent the
reductions by the investment manager, management fees and total operating
expenses for the Fund would have been 0.15% (annualized) and 1.43% (annualized),
respectively. After December 31, 1994 the investment manager may discontinue
this arrangement for the Fund.

**The Board of Trustees has adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 for the Fund whereby the Fund may
make payments to the investment manager for promotion and distribution expenses
up to 0.30% annually of the Fund's average daily net assets. Consistent with
National Association of Securities Dealers, Inc.'s rules, it is possible that
the 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. Given the maximum rate permitted under the Fund's Plan of
Distribution, it is estimated that this would take a substantial number of
years.

Investors should be aware that the above table is not intended to reflect
in precise detail the fees and expenses associated with a shareholder'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 regulations of the SEC, the following example illustrates the
expenses 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.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$15 $45 $78 $171
- -------------------------------------------------------------------------------
</TABLE>

THE ABOVE EXAMPLE IS BASED ON THE OPERATING EXPENSES OF THE FUND SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY
BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund
and only indirectly by shareholders as a result of their investment in the Fund.
In addition, federal regulations require the example to assume an annual return
of 5%, but the Fund's actual return may be more or less than 5%.

<PAGE>
FINANCIAL HIGHLIGHTS

Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of the registration statement through the
period ended June 30, 1994. The information for the period ended June 30, 1994,
has been audited by Coopers & Lybrand, independent auditors, whose audit report
thereon appears in the financial statements in the Fund's SAI. See the
discussion "Reports to Shareholders" under "General Information."

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE** RATIOS/SUPPLEMENTAL DATA

NET ASSET DISTRIBUTIONS RATIO OF RATIO OF
PERIOD VALUES NET FROM NET NET ASSET NET ASSETS EXPENSES NET INCOME
ENDED AT BEGINNING INVESTMENT INVESTMENT VALUES AT TOTAL AT END OF YEAR TO AVERAGE TO AVERAGE
JUNE 30 OF YEAR INCOME INCOME END OF YEAR RETURN*** (IN 000'S) NET ASSETS++ NET ASSETS

<S> <C> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN GOVERNMENT AGENCY FUND
1994+ 1.00 0.01 (0.01) 1.00 1.31* 5,065 0.40* 3.32*

<FN>
*Annualized
**Selected data for a share of capital stock outstanding throughout the year.
***Total return measures the change in value of an investment over the periods indicated. It assumes reinvestment of
dividends and capital gains at net asset value.
+For the period February 8, 1994 (effective date) to June 30, 1994
++During the period ended June 30, 1994, the investment manager reduced its management fees and assumed other expenses
incurred by the Fund. Had such action not been taken, the ratio of expenses to average net assets would have been 1.43.*
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

ABOUT THE FUND

Shares of the Fund may be acquired at the current net asset value (without sales
charge). The minimum initial investment for the Fund is $100,000, except for
states, counties, cities, and their instrumentalities, departments, agencies and
authorities may open an account in the Fund with no minimum initial investment.
There is no minimum for subsequent investments in the Fund. Shares of the Fund
may not be purchased by individuals. (See "How to Buy Shares of the Fund.")

INVESTMENT OBJECTIVES AND POLICIES OF THE FUND

GENERAL

The investment objectives of the Fund, as stated below, are fundamental policies
which cannot be changed without shareholder approval. Since all investments are
inherently subject to market risk, no assurances can be given that the Fund
will achieve its stated objectives.

The Fund's investment objectives are capital preservation and liquidity, while
seeking high current income consistent with capital preservation and liquidity.

The Fund must comply with adopted procedures pursuant to Rule 2a-7 under the
1940 Act. The Fund will invest 100% of its assets in U.S. dollar denominated
securities with remaining maturities of 397 days or less, maintain the dollar
weighted average maturity of the securities in the Fund's portfolio at 90 days
or less, and limit its investments to those instruments which the Board of
Trustees determines present minimal credit risks and which are eligible
investments under the rule.

The Fund invests only in U.S. government securities, which consist of marketable
fixed, floating and variable rate securities issued or guaranteed by the U.S.
government, its agencies or by various instrumentalities which have been
established or sponsored by the U.S. government. At least 65% of its net assets
will be invested in notes, bonds, discount

<PAGE>

notes and other short-term securities issued by U.S. government agencies or
instrumentalities, such as the Federal Farm Credit System, Federal Home Loan
Banks, Student Loan Marketing Association, Tennessee Valley Authority, Federal
Deposit Insurance Corporation, Federal Intermediate Credit Bank and Government
Services Administration ("U.S. Government Agency Securities"). Some of these
U.S. Government Agency Securities are supported by the right of the issuer to
borrow from the U.S. Treasury. Others are supported only by the credit of the
instrumentality. In addition, the Fund may invest in direct obligations of the
U.S. Treasury, such as U.S. Treasury bills, notes and bonds. The Fund does not
invest in repurchase agreements or any other type of money market instruments.

Because the Fund will limit its investments to high quality securities, there
will be generally lower yields than if the Fund purchased securities with a
lower rating and correspondingly greater risk.

U.S. Treasury Securities. These securities are supported by the full faith and
credit of the United States and differ only in their interest rates, maturities
and times of issuance. Treasury bills have initial maturities of one year or
less; Treasury notes have initial maturities of one to ten years; and Treasury
bonds generally have initial maturities of greater than ten years. The Fund's
investments may bear fixed or variable rates of interest, and its share price
and yield are not guaranteed by the U.S. government.

When-Issued and Delayed Delivery Transactions. The Fund may purchase short-term
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Fund purchases securities with payment and delivery
scheduled for a future time. Such transactions are subject to market
fluctuation and the value at delivery may be more or less than the purchase
price. The Fund engages in when-issued and delayed delivery transactions only
for the purpose of acquiring portfolio securities consistent with the Fund's
investment objectives and policies, not for investment leverage. In
when-issued and delayed delivery transactions, the Fund relies on the seller
to complete the transaction. The seller's failure to complete the transaction
may cause the Fund to miss a price or yield considered to be advantageous.
Securities purchased on a when-issued or delayed delivery basis do not
generally earn interest until their scheduled delivery date.

OTHER CONSIDERATIONS

The Fund may borrow from banks, under certain circumstances, and pledge its
assets for such loans, up to 5% of the its total net assets. The Fund may not
acquire securities subject to legal or contractual restrictions on resale or
securities which are not readily marketable if, as a result, more than 10% of
the value of its total assets would be invested in such securities.

Whenever the Fund believes market conditions are such that yields could be
increased by actively trading the portfolio securities to take advantage of
short-term market variations, the Fund may do so without restriction or
limitation (subject to the tax requirements for qualification as a regulated
investment company). Typically, such trading involves additional risks of loss
to the extent such securities differ in maturity, credit quality or other
aspects, and to the extent of the brokerage, if any, or other transaction costs
involved. Brokerage or other commissions are not normally charged on the
purchase or sale of money market instruments in which the Fund's invest.

OTHER POLICIES

The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of a majority of the Fund's
shareholders. For a list of these restrictions

<PAGE>
and more information concerning the various transactions mentioned above, please
refer to the SAI.

Currently, in seeking to accomplish its objectives of capital preservation and
liquidity while seeking high current income consistent with capital preservation
and liquidity, the Fund invests directly in a portfolio of securities issued by
the U.S. government, its agencies or instrumentalities. Certain funds
administered by the investment manager participate as feeder funds in
master/feeder fund structures. Under a master/feeder structure one or more
feeder funds, such as the Fund, invests its assets in a master fund, which, in
turn, invests its assets directly in the securities. The Fund hereby reserves
the right to convert to a master/feeder fund structure at a future date. Various
state governments have adopted the North American Securities Administrators
Association Guidelines for registration of master/feeder funds. If required by
those guidelines, as then in effect, the Fund will seek shareholder approval
prior to converting to a master/feeder structure, subject to there not being
adopted a superseding provision or ruling under federal law. If it is determined
by the requisite regulatory authorities that such approval is not required,
shareholders will be deemed to have consented to such conversion by their
purchase of Fund shares and no further shareholder approval will be sought or
needed. Shareholders will, however, be informed in writing in advance of the
conversion. The determination to convert the Government Agency Fund to a
master/feeder fund structure is not expected to result in an increase in the
fees or expenses paid by the Fund or its shareholders. The investment objectives
and other fundamental policies of the Fund, which can be changed only with
shareholder approval, are structured so as to permit the Fund to invest directly
in securities or indirectly in securities through a master/feeder fund
structure.

MANAGEMENT OF THE FUND

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the investment
manager for the Fund. Advisers is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly-owned holding company, the principal
shareholders of which are Charles B. Johnson, Rupert H. Johnson, Jr. and R.
Martin Wiskemann, who own approximately 20%, 16% and 10%, respectively, of
Resources' outstanding shares. Through its subsidiaries, Resources is engaged in
various aspects of the financial services industry. Advisers acts as investment
manager or administrator to 34 U.S. registered investment companies (111
separate series) with aggregate assets of over $74 billion.

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 management agreements for the Fund.

The Fund is responsible for its own operating expenses, including, but not
limited to: the Manager's fee; taxes, if any; custodian, legal and auditing
fees; fees and expenses of trustees who are not members of, affiliated with or
interested persons of the Manager; salaries of any personnel not affiliated with
the Manager; insurance premiums; trade association dues; expenses of obtaining
quotations for calculating the value of the Fund's net assets; printing and
other expenses which are not expressly assumed by the Manager.

For the fiscal year ended June 30, 1994, the management fees which would have
accrued to Advisers

<PAGE>
(based on average daily net assets) was 0.15% (annualized) for the Fund. After
reduction by the investment manager, the Fund paid no management fees. Total
operating expenses, including management fees, for the period represented 1.43%
of which 0.40% was paid by the Fund.

Under the management agreement with Advisers, the Fund is obligated to pay
Advisers a fee equal to an annual rate of 15/100 of 1% of the Fund's average net
assets. The fee is computed and paid monthly based on the average daily net
assets of the Fund during the month.

During the start-up period of the Fund, Advisers will not impose any or will
limit its management fees and assume responsibility for making payments to
offset certain operating expenses otherwise payable by the Fund. This action by
Advisers to limit its management fees and assume responsibility for payment of
expenses related to the operations of the Government Agency Fund may be
terminated by Advisers at any time. The management agreement specifies that the
management fee will be reduced to the extent necessary to comply with the most
stringent limits on the expenses which may be borne by the Fund as prescribed by
any state in which the Fund's shares are offered for sale. Currently, the most
restrictive of such provisions limits a fund's allowable expenses as a
percentage of its average net assets for each fiscal year to 2.5% of the first
$30 million in assets, 2% of the next $70 million, and 1.5% of assets in excess
of $100 million.

It is not anticipated that the Fund will incur a significant amount of brokerage
expenses because short-term money market instruments are generally traded on a
"net" basis, that is, in principal transactions without the addition or
deduction of brokerage commissions or transfer taxes. To the extent that the
Fund does participate in transactions involving brokerage commissions, it is the
Manager's responsibility to select brokers through which such transactions will
be effected. The Manager tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to provide the
best execution, the Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data for the Manager and
its affiliates, as well as the sale of shares of the Fund, as factors in
selecting a broker. Further information is included under "Execution of
Portfolio Transactions" in the SAI.

Shareholder accounting and many of the clerical functions for the Fund is
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.

DISTRIBUTIONS TO SHAREHOLDERS

The Fund declares dividends on each day its net asset value is calculated,
payable to shareholders of record as of the close of business that day. Daily
allocations of dividends will commence on the day funds are wired in accordance
with procedures set forth in "How to Buy Shares of the Funds" or if an investor
has sent a check, on the day the check is converted into federal funds (which
may take two or more days depending upon the banks involved). The amount of the
dividend may fluctuate from day to day and dividends may be omitted on some
days, depending on changes in the factors that comprise the Fund's net income.

<PAGE>
holder Account Application or by notifying the Fund's transfer agent.

The daily dividend includes accrued interest and any original issue or market
discount, plus or minus any gain or loss on the sale of portfolio securities and
changes in unrealized appreciation or depreciation in portfolio securities (to
the extent required to maintain a constant net asset value per share) less the
estimated expenses of the Fund. Net income is calculated immediately prior to
the determination of the net asset value per share of the Fund.

The SAI includes a further discussion of distributions.

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 regarding taxation
is included in the SAI.

Each series in the Trust is treated as a separate entity for federal income
tax purposes. The Fund intends to elect and qualify to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). By distributing all of its income and meeting
certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income or
excise taxes.

For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.

Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
received by the shareholder on December 31 of the calendar year in which they
are declared.

Since the Fund seeks to maintain a constant $1.00 per share price for both
purchases and redemptions, shareholders are not expected to realize a capital
gain or loss upon sale.

Since the Fund's income is derived from interest and gain on the sale of
portfolio securities rather than dividend income, no portion of the Fund's
distributions will generally be eligible for the corporate dividends-received
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.

The Fund may be used for the investment of surplus funds of municipalities
including funds which are subject to the arbitrage rebate requirements of
Section 148 of the Code. The Fund does not meet currently defined exceptions to
the arbitrage rebate requirements and a portion or all of the earnings
distributed by the Fund may be required to be paid over to the U.S. Treasury as
rebatable arbitrage earnings in accordance with the provisions of the Code.
Section 115(1) of the Code provides, in part, that gross income does not include
income derived from the exercise of any essential governmental function and
accruing to a state, territory or political subdivision thereof. To the extent
that investments in the Fund are made in connection with such functions, states
and their political subdivisions will not be subject to federal taxation on
income or gains derived from an investment in the Fund.

<PAGE>
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 received from the Fund.

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 to distributions received by them from the
Fund and the application of foreign tax laws to these distributions.

HOW TO BUY SHARES OF THE FUND

Shares of the Fund may be purchased by institutions, such as banks, savings and
loan associations, trust companies, corporations, and other institutional
entities and by government entities directly from the Fund. The Fund may not be
purchased by individuals. The shares of the Fund are offered at its net asset
value (with no sales charge) on a continuous basis by the Fund. As each payment
is received, full and fractional shares of the Fund will be purchased at the net
asset value next computed and proper entry will be made on the books of the
Fund. The minimum initial investment for the Fund is $100,000, except for
states, counties, cities, and their instrumentalities, departments, agencies and
authorities may open an account in the Fund with no minimum initial investment.
There is no minimum for subsequent investments in the Fund. Investments may be
made in any of the following ways:

1. BY WIRE:
(a) First, call the Fund at 1-800/321-8563 to advise of the intent to wire
funds for investment in the Fund. Shareholders wishing to purchase shares
in excess of $50,000 must first complete an Institutional Telephone
Privileges Request and Agreement, as described under "Telephone
Transactions." Requests to begin a wire order process for the Fund must be
made not later than 11:15 a.m. Pacific time. Trades placed by the above
deadlines will receive same day credit so long as funds are received in
accordance with paragraph (b). In order to maximize efficient fund
management, investors requesting a same day purchase of any size are urged
to place orders as early in the day as possible. Prior business day
notification of such trade may be required. Requests to begin a wire order
after the cut off time for the Fund will not be in proper form for that
day's purchase and will receive credit on the next business day. The Fund
will supply a wire control number for each investment at the time the
telephone call is received. It is necessary to obtain a new wire control
number every time money is wired into an account in the Fund. Wire control
numbers are effective for one transaction only and may not be used more
than once. Wired money which is not properly identified with a currently
effective wire control number will be returned to the bank from which it
was wired and will not be credited to the shareholder's account.

(b) Next, wire funds to Bank of America, ABA routing No. 121000358, for credit
to Institutional Fiduciary Trust - Franklin U.S. Government Agency Money
Market Fund, A/C 1493304779. Be sure to include the wire control number,
the investor's Fund account number and account registration. Wired funds
received by the Bank and reported by the Bank to the Fund by the close of
the Federal Reserve Wire System (currently 3:00 p.m. Pacific time) are
normally available for credit on that day, provided the Fund is timely
notified as described in (a) above. Later wires are credited the following
business day. In order to maximize efficient Fund management, investors
are urged to place

<PAGE>
and wire their investments as early in the day as possible.

(c) In order to receive proper credit, if the purchase is not to an existing
account, send a completed Shareholder Account Application to Franklin U.S.
Government Agency Money Market Fund at the address shown on the cover of
this Prospectus.

2. BY MAIL:
Many of the types of instruments in which the Fund invest must be paid for in
federal funds, which are monies held by its custodian on deposit at the Federal
Reserve Bank of San Francisco and elsewhere. Therefore, the monies paid by an
investor for shares of the Fund generally cannot be invested by the Fund until
they are converted into and are available to the Fund in federal funds, which
may take up to two days. In such cases, purchases by investors will generally
not be considered in proper form and effective until such conversion and
availability. However, in the event the Fund is able to make investments
immediately (within one business day), it may accept a purchase order with
payment other than in federal funds; in such event, shares of the Fund will be
purchased at the net asset value next computed after receipt of the order and
payments converted to federal funds.

(a) For an initial investment, send a completed Shareholder Account
Application.

(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
Institutional Fiduciary Trust - Franklin U.S. Government Agency Money
Market Fund. Instruments drawn on other investment companies will not be
accepted.

(c) Next, send the check, Federal Reserve draft or negotiable bank draft to
Institutional Fiduciary Trust - Franklin U.S. Government Agency Money
Market Fund at the address shown on the cover of this Prospectus.

3. THROUGH SECURITIES DEALERS:
Although the Fund's shares are sold without a sales charge, a shareholder may
invest in the Fund by purchasing shares through a securities dealer which
executes a dealer or similar agreement with Distributors, an affiliate of
Advisers, and the principal underwriter of many of the funds in the Franklin
Group of Funds(R) and the Templeton Group. The use of the term "securities
dealers" includes other financial institutions which pursuant to an agreement
with Distributors (directly or through affiliates) handle customer orders and
accounts for the group. Such reference however is for convenience only and does
not indicate a legal conclusion of capacity. The securities dealer may choose to
wire or mail the monies accompanying an investment in the Fund. Securities
dealers who process orders on behalf of their customers may charge a reasonable
fee for their services. Investments made directly, without the assistance of a
securities dealer, are without charge.

If investments are made through a securities dealer which has executed a dealer
or similar agreement with respect to the Franklin/Templeton funds, Distributors
may make a payment, out of its own resources, to such securities dealer. Please
contact Franklin's Institutional Services Department for additional information.

RIGHTS OF ACCUMULATION/LETTER OF INTENT REGARDING OTHER FUNDS

The cost or current value (whichever is higher) of the shares of the Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds and in the Templeton Group of Funds which are sold with a sales charge.
Included for these pur-

<PAGE>

poses are (a) the open-end investment companies in the Franklin Group (except
Franklin Valuemark Funds and Franklin Government Securities Trust) (the
"Franklin Group of Funds"), (b) other investment products in the Franklin Group
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) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group"), and (c) the open-end U.S. registered investment companies 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 Group").

Purchases of Fund shares may also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Group of Funds and
the Templeton Group which are sold with a sales charge.

For additional information regarding these programs, please contact Franklin's
Institutional Services Department, by mail at the address listed on the cover of
this Prospectus or by telephone at 1-800/321-8563.

GENERAL

Shares of the Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation. 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.

The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of a predetermined amount 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.

The Fund and the Manager reserve the right
to reject any order for the purchase of shares or to waive the minimum
investment requirements.

VALUATION OF SHARES OF THE FUND

The offering price is the net asset value (without a sales charge) next computed
following receipt of an order by the Fund in proper form.

The net asset value of the shares is computed each day that the New York Stock
Exchange is open for trading. The computation is done at 12:30 p.m. Pacific
time.

The net asset value per share is calculated by adding the value of all portfolio
holdings and other assets, deducting the Fund's liabilities, and dividing the
result by the number of shares outstanding for that Fund.

The valuation of portfolio securities is based upon their amortized cost value,
which does not take into account unrealized capital gain or loss. This involves
valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument.

<PAGE>
Additional information is included under the caption "Additional Purchase,
Redemption and Valuation Information" in the SAI.

HOW TO SELL SHARES OF THE FUND

1. BY TELEPHONE WITH PAYMENT TO A PREAUTHORIZED BANK ACCOUNT:

A shareholder which has executed the Institutional Telephone Privileges
Agreement may redeem shares by telephone at 1-800/321-8563. Shareholders wishing
to redeem shares of the Fund in excess of $50,000 must complete an Institutional
Telephone Privileges Request and Agreement, as described under "Telephone
Transactions." Redemption instructions must include the shareholder's name,
account number and security identification number and be called to the Fund.
Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in a Shareholder Account Application or revision,
or a signature guaranteed letter of instruction.

A payment may be transmitted by wire the same business day where a request is
received prior to 11:15 a.m. Pacific time that day. A shareholder which
anticipates requesting a same day wire redemption in excess of $5 million should
notify the Fund on the prior business day of the intention to request such a
redemption. In order to maximize efficient fund management, investors requesting
a same day wire redemption of any size are urged to place orders as early in the
day as possible. Prior business day notification of such trade may be required.
Otherwise, payments will be transmitted by wire on the business day following
receipt of a request received after the above deadlines.

Telephone redemption orders may not be used to direct payments to another
party or non-designated account. Written instructions will be required as set
forth below.

During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section.

2. BY MAIL:

A shareholder may redeem shares by sending a letter requesting redemption to
the Fund, at the address shown on the cover of this Prospectus.

Redemption proceeds will be mailed to the registered address, or mailed or
wired to a preauthorized bank account as requested. Proceeds of redemption may
also be sent to some other party or account as requested, however, in such
cases the signature(s) on the redemption request must be guaranteed.

To be considered in proper form, the signature(s) of all registered owners or
previously designated signers 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 a party 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; or

(4) the Fund or its transfer agent 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
owners 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

<PAGE>
the Fund are given by an agent, not the actual registered owner, or (e) 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.

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.

For any information required about a proposed liquidation, a shareholder may
call Franklin's Institutional Services Department.

GENERAL

After requesting a liquidation from the Fund, a shareholder will receive the
value of the shares of the Fund in the shareholder's account based upon the net
asset value per share next computed on the day a request in proper form is
received by the Fund. Payment for written redemption requests will be sent
within seven days after receipt of a request in proper form, except that the
Fund may delay the mailing of the redemption check, or a portion thereof, until
the clearance of the check used to purchase the 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 redemption
on the business day following their receipt. Arrangements may also be made to
have redemption proceeds wired to the shareholder's designated bank account. 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

<PAGE>
shareholders. Of course, the amount received on redemption may be more or less
than the amount paid for the shares, depending upon the fluctuations in the
market value of the securities owned by the Fund. Redemptions also may be made
in kind, under certain conditions as discussed in the SAI.

Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Fund nor its agents shall be
liable to any shareholder or other party for a redemption payment which meets
the requirements of the 1940 Act but which may not for any reason be processed
on an expedited basis as described in this section.

EXCHANGE PRIVILEGE

The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives or policies. The shares
of many of these investment companies 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 any of the other
mutual funds in the Franklin Group of Funds or the Templeton Group (as defined
under "Rights of Accumulation/Letter of Intent Regarding Other 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.

Shares of the Fund acquired other than pursuant to the exchange privilege, or
the reinvestment of dividends with respect to such shares, may be exchanged at
the offering price of one of the other funds in the Franklin Group of Funds or
the Templeton Group. Such offering price includes the applicable sales charge of
the fund into which the shares are being exchanged. The prospectuses for all
investment companies in the Franklin Group of Funds and the Templeton Group
which are normally sold with a sales charge allow certain institutional
investors to acquire shares at net asset value (without a sales charge). These
institutional investors include government entities, employee benefit plans,
trust companies and bank trust departments. Such exchanges will be effected as
follows:

(a) From the Fund into any other series of the Trust. The exchange will be
effected at net asset value next computed after the exchange request is
received prior to 11:15 a.m. Pacific time, with payment for the purchased
shares processed on the following business day when the funds are made
available from the Fund.

(b) From the Fund into another fund in the Franklin Group of Funds or the
Templeton Group. The exchange will be effected at the respective net asset
values or offering price of the funds involved next computed on the day on
which the request is received in proper form prior to 11:15 a.m. Pacific
time. Requests received after 11:15 a.m. will be effective at the price
next computed on the following business day.

<PAGE>
market funds [excluding the money market funds of the Trust] and 1:00 p.m.
Pacific time for non-money market funds), and a purchase of the Fund's
shares on the following business day at the price computed on such
following business day when the funds for the purchase are available and
the purchase order is in all respects deemed to be in proper form.

Requests for an exchange of shares may be made by mail. The exchange transaction
will be effected upon receipt of written instructions signed by all shareholders
of record. Exchanges of shares of the Fund for the shares of any other fund in
the Franklin Group of Funds or the Templeton Group will not involve certificates
because the Fund does not issue certificates.

There are differences among the funds in the Franklin Group of Funds and the
Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of such company from Distributors, 777 Mariners
Island Boulevard, P.O. Box 7777, San Mateo, California 94403-7777, or from the
shareholder's securities dealer.

The Exchange Privilege may be modified or discontinued at any time upon 60 days'
notice to shareholders.

RESTRICTIONS ON EXCHANGES

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 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 limit.

In addition, 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.

Finally, as indicated under "How to Buy Shares of the Fund," the Fund or
Distributors reserve the right to refuse any order for the purchase of shares.

TELEPHONE TRANSACTIONS

Shareholders of the Funds may be able to execute various transactions by calling
Franklin's Institutional Services Department at 1-800/321-8563. Shareholders
will be able to: (i) effect a change of 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) purchase, redeem or
exchange Fund shares by telephone as described in this Prospectus. Shareholders
who do not wish these privileges extended to a particular account should notify
the Fund or Franklin's Institutional Services Department.

Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a cus-

<PAGE>
tomer representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Request and
Agreement included in the Funds' application or which may be obtained by calling
the number above. The Telephone Transaction options available to retirement
plans are limited to those that are provided under the plan. See "General
Information - Certain Requirements Applicable to Retirement Plans."

VERIFICATION PROCEDURES

The Funds 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, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Funds 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 extend the telephone
transaction privileges to a particular account. In any instance where a Fund or
Investor Services is not reasonably satisfied that the instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Funds 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 FTTC
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 Privilege may be difficult to implement. In this event,
shareholders should follow the other procedures discussed in this Prospectus.
Neither the Fund or Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.

Orders for an exchange will also be accepted by telephone or others means of
electronic transmission from securities dealers of record on the shareholder's
account. The securities dealer may charge the shareholder a fee for handling the
exchange.

SPECIAL SERVICES

Each shareholder may establish multiple accounts as necessary to satisfy
requirements regarding commingling of funds or for accounting convenience. Each
such account is administered separately.

<PAGE>
Subaccounting and Special Services - Special processing has been arranged with
Investor Services for shareholders who wish to open multiple accounts (a master
account and subaccounts). Shareholders wishing to utilize Investor Services'
subaccounting facilities will be required to enter into a separate agreement
with Investor Services. Charges for this service, if any, will be determined on
the basis of the level of services to be rendered and will not increase costs to
the Fund. Subaccounts may be opened with the initial investment or at a later
date. More information on subaccounting services may be obtained by calling
1-800/321-8563.

Special future value reporting services are available for state and local
entities that require arbitrage rebate calculations for the proceeds of their
tax-exempt obligations pursuant to the Code. The Fund assumes no responsibility
for the accuracy of the services provided. Certain fees may be imposed for these
services. More complete information may be obtained by calling the Fund or
Franklin's Institutional Services Department at 1-800/321-8563.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND

Any questions or communications regarding a shareholder's account should be
directed to Franklin's Institutional Services Department at 1-800/321-8563,
Monday through Friday, from 6:00 a.m to 5:00 p.m. Pacific time.

Shareholders may obtain current price, yield or performance information specific
to a fund in the Franklin Group of Funds(R) by calling the automated Franklin
TeleFACTS system (day or night) at 1-800/247-1753 from a touch-tone phone. Yield
information may be accessed by entering Fund Code 46 followed by the # sign,
when requested to do so by the automated operator. This service is not available
when calling from a rotary-dial telephone.

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
information regarding the Fund's performance, including quotations of its
current and effective yield.

Current yield, as prescribed by the SEC, is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from the Fund during a seven-day period. It is computed by determining
the net change, excluding capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield is
computed in the same manner except that the annualization of the return for the
seven-day period reflects the results of compounding.

In each case, performance figures are based upon past performance and will
reflect all recurring charges against the Fund's income. Such quotations will
reflect the value of any additional shares purchased with dividends from the
original share and any dividends declared on both the original share and such
additional shares. The investment results of the Fund, like all other investment
companies, will fluctuate over time; thus, performance figures

<PAGE>
should not be considered to represent what an investment may earn in the future
or what the Fund's performance may be in any future period.

GENERAL INFORMATION

GENERAL

Government Accounting Standards Board (GASB) Statement No. 3 pertaining to
Deposits with Financial Institutions provides, in paragraph 69, that investments
in mutual funds should be disclosed, but not categorized.

REPORTS TO SHAREHOLDERS

The Fund's fiscal year ends June 30. Annual Reports containing audited financial
statements of the Trust, including the auditors' report, and Semi-Annual Reports
containing unaudited financial statements are automatically sent to
shareholders. Additional 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.

ORGANIZATION

The Trust was organized as a Massachusetts business trust on January 15, 1985.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution.

VOTING RIGHTS

Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are not cumulative, so that the holders of more than 50%
of the shares voting in any election of trustees, can, if they choose to do so,
elect all of the trustees. The Trust does not intend to hold annual
shareholders' meetings. The Trust may, however, hold a special shareholders'
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
the Trustees at their discretion or by shareholders holding at least ten percent
of the outstanding shares of any series of the Trust. 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.

OTHER INFORMATION

The Board of Trustees may from time to time issue other series of the Trust, the
assets and liabilities of which will likewise be separate and distinct from any
other series of the Trust. Currently the Trust consists of nine separate series:
Money Market Portfolio, Franklin Late Day Money Market Portfolio, Franklin U.S.
Government Securities Money Market Portfolio, Franklin U.S. Treasury Money
Market Portfolio, Franklin U.S. Government Agency Money Market Fund, AEA Cash
Management Fund, Franklin Institutional Adjustable U.S. Government Securities
Fund, Franklin Institutional Adjustable Rate Securities Fund, and Franklin Cash
Reserves Fund, each maintaining a totally separate and distinct investment
portfolio.

<PAGE>
PLAN OF DISTRIBUTION

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act, whereby 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 0.30% per annum
of the Fund's average daily net assets, payable on a quarterly basis. All
expenses of distribution and marketing in excess of the maximum amounts will be
borne by Distributors without reimbursement from the Fund. The Plan also covers
any payments made 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.

CONFIRMATIONS

Shares for an initial investment in the Fund, as well as subsequent investments,
including the reinvestment of dividends, are credited to an open share account
(known as "plan balance") in the name of an investor on the books of the Fund
without the issuance of a share certificate. Shareholders will receive
confirmation statements each time there is a transaction which affects an
account, including information on dividends reinvested or paid. These statements
will also show the total number of Fund shares owned by a shareholder.

SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT
BE ISSUED.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS

Pursuant to the Code and U.S. Treasury Regulations, the Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend or other
reportable payment 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 Account Application. A shareholder may also be subject
to backup withholding if the IRS or a broker notifies the Fund that the TIN
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.

<PAGE>

SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN LATE DAY MONEY MARKET PORTFOLIO
FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO

INSTITUTIONAL FIDUCIARY TRUST
DATED NOVEMBER 1, 1994

1. The following language is added to the section "Investment Objectives and
Policies of the Funds":

The Funds believe that their investment policies, as stated in this
Prospectus and in the Statement of Additional Information dated November 1,
1994, as may be amended from time to time, make the Funds a permissible
investment for federal credit unions, based on the Funds' understanding of
the laws and regulations governing credit union regulations as of September
30, 1994. CREDIT UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN LEGAL
ADVISERS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF A FUND
CONSTITUTE LEGAL INVESTMENTS FOR THEM. Please see the Statement of
Additional Information ("The Funds' Investment Objectives and Restrictions -
Credit Union Investment Regulations") for details.

2. The "How to Sell Shares of the Funds" section of the prospectus is amended to
reflect a change to the operational policies of the Funds:

CONTINGENT DEFERRED SALES CHARGE

The Funds do not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge
will be made by the Funds, as described below. The 12-month contingency
period will be tolled (or stopped) for the period such shares are exchanged
into and held in the Funds.

<PAGE>

INSTITUTIONAL
FIDUCIARY
TRUST

PROSPECTUS

NOVEMBER 1, 1994

Franklin Late Day
Money Market Portfolio

Franklin U.S. Treasury
Money Market Portfolio

[FRANKLIN LOGO]

<PAGE>
INSTITUTIONAL
FIDUCIARY TRUST

PROSPECTUS [FRANKLIN LOGO]
November 1, 1994

Franklin Late Day
Money Market Portfolio
777 Mariners Island Blvd., P.O. BOX 7777
Franklin U.S. Treasury San Mateo, CA 94403-7777
Money Market Portfolio 1-800/DIAL BEN

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Franklin's Institutional Fiduciary Trust (the "Trust") is an open-end management
investment company consisting of nine separate and distinct diversified series.
This Prospectus relates only to the Franklin Late Day Money Market Portfolio
(the "Late Day Fund") (formerly Franklin Government Investors Money Market
Portfolio) and Franklin U.S. Treasury Money Market Portfolio (the U.S. Treasury
Fund) (also the "Fund" or "Funds"). The Funds are designed for institutional
accounts, such as corporations, banks, savings and loan associations, trust
companies and for government entities for investment of their own capital and of
monies held in accounts for which they act in a fiduciary, advisory, agency,
custodial, or other similar capacity, to the extent permitted by regulations
pertaining to permissible investments of such entities. Shares of the Funds may
not be purchased by individuals.

The investment objectives of the Late Day Fund are capital preservation and
liquidity while seeking high current income consistent with capital preservation
and liquidity. The investment objective of the U.S. Treasury Fund is to seek as
high a level of current income as is consistent with capital preservation and
liquidity.

This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and the Funds 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.

AN INVESTMENT IN THE FUNDS IS NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

A Statement of Additional Information ("SAI") concerning the Trust in general
and the Funds, dated November 1, 1994, and 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

<PAGE>
("SEC") and is incorporated herein by reference. A copy is available without
charge from the Funds or the Funds' principal underwriter, Franklin/Templeton
Distributors, Inc., ("Distributors") at the address or telephone number listed
above.

SHARES OF THE FUNDS 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 FUNDS INVOLVE INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.

Shares of the Late Day and the U.S. Treasury Funds may be purchased at net asset
value with no sales charge with a minimum initial investment of $100,000, except
for states, counties, cities, and their instrumentalities, departments, agencies
and authorities which may open an account in either Fund with a minimum initial
investment of $1,000. There is no minimum for subsequent investments in either
of the Funds.

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 representation
other than those contained in this Prospectus. Further information may be
obtained from the underwriter.

CONTENTS PAGE

Expense Table..................................................... 4

Financial Highlights.............................................. 5

About the Trust................................................... 6

Investment Objectives and Policies of the Fund.................... 6

Management of the Funds........................................... 8

Distributions to Shareholders..................................... 9

Taxation of the Funds and Their Shareholders...................... 9

How to Buy Shares of the Funds.................................... 10

Valuation of Shares of the Funds.................................. 13

How to Sell Shares of the Funds................................... 13

Exchange Privilege................................................ 15

Telephone Transactions............................................ 17

Special Services.................................................. 18

How to Get Information Regarding an Investment in a Fund.......... 18

Performance....................................................... 19

General Information............................................... 19

Important Notice Regarding Taxpayer IRS Certifications............ 21

<PAGE>
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 Funds.
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<TABLE>
<CAPTION>

LATE DAY U.S. TREASURY
FUND FUND
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases NONE NONE
Maximum Sales Charge Imposed on Reinvested Dividends NONE NONE
Deferred Sales Charge NONE NONE
Redemption Fees NONE NONE
Exchange Fee NONE NONE

ESTIMATED ANNUAL OPERATING EXPENSES (as a percentage of average net assets)

Management Fees 0.62%* 0.25%*
12b-1 Fees 0.00%+ 0.00%**
Other Expenses 0.19% 0.05%
Total Operating Expenses 0.81%* 0.30%*

</TABLE>

*For fiscal year ended June 30, 1994 the investment manager voluntarily agreed
to reduce its management fees and assumed payment for operating expenses of the
Funds in order to keep the aggregate maximum annual expenses to 0.15% of the
Late Day Fund's average daily net assets and to 0.05% of U.S. Treasury Fund's
average daily net assets and to reduce them further if it felt it was necessary
in order to increase a Fund's yield. The Late Day Fund paid no management fees
and total operating expenses of 0.15% for fiscal year ended June 30, 1994. The
U.S. Treasury Fund paid no management fees and total operating expenses of 0.05%
for the same period. Absent the reductions by the investment manager, management
fees and total operating expenses for the Late Day Fund would have been 0.62%
and 0.81%, respectively, and management fees and total operating expenses for
the U.S. Treasury Fund would have been 0.25% and 0.30%, respectively. After
December 31, 1994 the investment manager may discontinue this arrangement for
either Fund.

**The Board of Trustees has adopted a Plan of Distribution pursuant
to Rule 12b-1 under the Investment Company Act of 1940 for each Fund whereby
each may make payments to the investment manager for promotion and distribution
expenses up to 0.15% annually of the Late Day Fund and the U.S. Treasury Fund's
average daily net assets. The Late Day Fund and the U.S. Treasury Funds have not
been required to make payments for such expenses.

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Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder'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 regulations of the SEC, the following example illustrates the
expenses that apply to a $1,000 investment in each 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 Funds charge no redemption
fees.

<TABLE>
<CAPTION>
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FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Late Day Fund $ 8 $26 $45 $100
Treasury Fund $ 3 $10 $17 $ 38
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</TABLE>

THE ABOVE EXAMPLE IS BASED ON THE OPERATING EXPENSES OF EACH FUND 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 a Fund
and only indirectly by shareholders as a result of their investment in such
Fund. In addition, federal regulations require the example to assume an annual
return of 5%, but a Fund's actual return may be more or less than 5%.

<PAGE>
FINANCIAL HIGHLIGHTS

Set forth below is a table containing the financial highlights for a share of
the Funds from the effective date of the registration statement for each fund as
indicated below through the fiscal year ended June 30, 1994. The information for
each of the five fiscal years in the period ended June 30, 1994, has been
audited by Coopers & Lybrand, independent auditors, whose audit report thereon
appears in the financial statements in the Funds' SAI. The remaining figures,
which are also audited, are not covered by the auditor's current report. See the
discussion "Reports to Shareholders" under "General Information."

<TABLE>
<CAPTION>
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PER SHARE OPERATING PERFORMANCE** RATIOS/SUPPLEMENTAL DATA

1988+ $1.00 $0.03 (0.03) $1.00 $6.00* $ 36,838 --% 6.95%
1989 1.00 0.09 (0.09) 1.00 9.10 108,365 0.05 9.14
1990 1.00 0.08 (0.08) 1.00 8.65 192,749 0.25 8.24
1991 1.00 0.07 (0.07) 1.00 7.19 167,704 0.25 7.01
1992 1.00 0.04 (0.04) 1.00 4.58 43,300 0.25 4.58
1993 1.00 0.03 (0.03) 1.00 3.15 23,130 0.15 3.12
1994 1.00 0.03 (0.03) 1.00 3.20 60,299 0.15 3.17

FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO:

1992++ 1.00 0.04 (0.04) 1.00 3.93* 194,223 0.02* 4.38*
1993 1.00 0.03 (0.03) 1.00 3.14 179,232 0.05 3.12
1994 1.00 0.03 (0.03) 1.00 3.23 195,135 0.05 3.17

*Annualized

**Selected data for a share of capital stock outstanding throughout the year.

***Total return measures the change in value of an investment over the periods indicated. It assumes reinvestment of
dividends and capital gains at net asset value.

+For the period January 19, 1988 (effective date) to June 30, 1988.

++For the period August 2, 1991 (effective date) to June 30, 1992.

+++During the periods indicated, the investment managers reduced their management fees and assumed other expenses
incurred by the Funds. Had such action not been taken, the ratios of expenses to average net assets would have
been as follows:
</TABLE>

<TABLE>
<CAPTION>
RATIO OF EXPENSES RATIO OF EXPENSES
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
<S> <C> <C> <C>
FRANKLIN LATE DAY MONEY MARKET PORTFOLIO FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO

1988+ 0.63%* 1992++ 0.31%*
1989 0.70 1993 0.35
1990 0.63 1994 0.30
1991 0.63
1992 0.67
1993 0.77
1994 0.81
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</TABLE>

<PAGE>

ABOUT THE TRUST

Shares of each Fund may be acquired at the current net asset value (without
sales charge). The minimum initial investment for the Late Day and the U.S.
Treasury Funds is $100,000, except that states, counties, cities and their
instrumentalities, departments, agencies and authorities may open an account by
investing $1,000 or more. There is no minimum for subsequent investments in
either of the Funds. Shares of the Funds may not be purchased by individuals.
(See "How to Buy Shares of the Funds.")

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

GENERAL

The investment objectives of the Funds, as stated below, are fundamental
policies which cannot be changed without shareholder approval. Since all
investments are inherently subject to market risk, no assurances can be given
that the Funds will achieve their stated objectives.

The Late Day Fund's investment objectives are capital preservation and
liquidity, while seeking high current income consistent with capital
preservation and liquidity.

The U.S. Treasury Fund's investment objective is to seek as high a level of
current income as is consistent with capital preservation and liquidity.

The Funds must comply with adopted procedures pursuant to Rule 2a-7 under the
1940 Act. Each Fund will invest 100% of its assets in U.S. dollar denominated
securities with remaining maturities of 397 days or less, maintain the dollar
weighted average maturity of the securities in the Fund's portfolio at 90 days
or less, and limit its investments to those instruments which the Board of
Trustees determines present minimal credit risks and which are eligible
investments under the rule. (As a matter of fundamental policy, the Late Day
Fund is required to invest at least 80% of the Fund's assets in securities which
have remaining maturities of 12 months or less.)

The U.S. Treasury Fund invests only in U.S. Treasury securities. By itself, the
Fund does not constitute a balanced investment plan. Investors should recognize
that many securities can provide a higher yield than direct U.S. government
obligations, although they will not provide the same high quality and security
of principal.

The Late Day Fund will limit its investments to marketable securities issued or
guaranteed by the U.S. government, by various agencies of the U.S. government
and by various instrumentalities which have been established or sponsored by the
U.S. government, and in repurchase agreements with respect to obligations issued
or guaranteed by the U.S. government and supported by the full faith and credit
of the U.S. government.

Because the Late Day Fund will limit its investments to high quality securities,
there will be generally lower yields than if the Fund purchased securities with
a lower rating and correspondingly greater risk.

U.S. Treasury securities. These securities are supported by the full faith and
credit of the United States and differ only in their interest rates, maturities
and times of issuance. Treasury bills have initial maturities of one year or
less; Treasury notes have initial maturities of one to ten years; and Treasury
bonds generally have initial maturities of greater than ten years. Each Fund's
investments may bear

<PAGE>

fixed or variable rates of interest, and their share price and yield are not
guaranteed by the U.S. government. The U.S. Treasury Fund does not invest in
repurchase agreements, securities issued by agencies or instrumentalities of
the federal government or any other type of money market instruments.

When-Issued and Delayed Delivery Transactions. The Funds may purchase short-term
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. Such transactions are subject to market fluctuation
and the value at delivery may be more or less than the purchase price. A Fund
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with the Fund's investment objectives
and policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous. Securities purchased on a when-issued or
delayed delivery basis do not generally earn interest until their scheduled
delivery date.

Repurchase Agreements. As noted above, the Late Day 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. However, the Fund intends to enter into repurchase agreements
only with government securities dealers recognized by the Federal Reserve Board
or with member banks of the Federal Reserve System. Under the 1940 Act, a
repurchase agreement is deemed to be the loan of money by the Fund to the
seller, collateralized by the underlying security. The U.S. government security
subject to resale (the collateral) will be held pursuant to a written agreement
and the Fund's custodian will take title to, or actual delivery of, the
security. The Fund does not engage in reverse repurchase transactions.

Securities subject to repurchase agreements will be deemed to have a maturity
date coincident with the date upon which the Fund has agreed to resell such
securities.

OTHER CONSIDERATIONS

As a fundamental policy, the Late Day Fund may only borrow from banks, not to
exceed 5% of its total assets, for temporary or emergency purposes and may
pledge up to 5% of its assets for such borrowing. The Fund may not acquire
securities subject to legal or contractual restrictions on resale, securities
which are not readily marketable, or enter into repurchase agreements with more
than seven days to maturity if, as a result, more than 10% of the value of the
Fund's total assets would be invested in such repurchase agreements or
securities.

The U.S. Treasury Fund may borrow from banks, for temporary emergency purposes
only, and pledge its assets for such loans, up to 5% of the Fund's total net
assets. The Fund may also make loans of its portfolio securities not in excess
of 10% of the value of its total net assets. As with any extension of credit,
there are risks of delay in recovery and loss

<PAGE>

of rights in the collateral should the borrower of the securities fail
financially.

Whenever the Funds believe market conditions are such that yields could be
increased by actively trading the portfolio securities to take advantage of
short-term market variations, the Fund may do so without restriction or
limitation (subject to the tax requirements for qualification as a regulated
investment company). Typically, such trading involves additional risks of loss
to the extent such securities differ in maturity, credit quality or other
aspects, and to the extent of the brokerage, if any, or other transaction costs
involved. Brokerage or other commissions are not normally charged on the
purchase or sale of money market instruments in which the Funds invest.

OTHER POLICIES

The Funds are subject to a number of additional investment restrictions, some of
which may be changed only with the approval of a majority of the respective
Fund's shareholders. For a list of these restrictions and more information
concerning the various transactions mentioned above, please refer to the SAI.

MANAGEMENT OF THE FUNDS

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the investment
manager for each Fund. Advisers is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly-owned holding company, the principal
shareholders of which are Charles B. Johnson, Rupert H. Johnson, Jr. and R.
Martin Wiskemann, who own approximately 20%, 16% and 10%, respectively, of
Resources' outstanding shares. Through its subsidiaries, Resources is engaged
in various aspects of the financial services industry. Advisers acts as
investment manager or administrator to 34 U.S. registered investment companies
(111 separate series) with aggregate assets of over $74 billion.

The Manager supervises and implements each Fund's investment activities and
provides certain administrative services and facilities which are necessary to
conduct the Funds' business, pursuant to management agreements for each Fund.

The Funds are responsible for their own operating expenses, including, but not
limited to: the Manager's fee; taxes, if any; custodian, legal and auditing
fees; fees and expenses of trustees who are not members of, affiliated with or
interested persons of the Manager; salaries of any personnel not affiliated with
the Manager; insurance premiums; trade association dues; expenses of obtaining
quotations for calculating the value of each Fund's net assets; printing and
other expenses which are not expressly assumed by the Manager.

For the fiscal year ended June 30, 1994, the management fees which would have
accrued to Advisers (based on average daily net assets) was 0.62% for the Late
Day Fund and 0.25% for the U.S. Treasury Fund. After reduction by the investment
manager, the Funds paid no management fees. Total operating expenses, including
management fees, for the period represented 0.81% and 0.30%, respectively, of
which 0.15% was paid by the Late Day Fund and 0.05% by the U.S. Treasury Fund.

It is not anticipated that the Funds will incur a significant amount of
brokerage expenses because short-term money market instruments are generally
traded on a "net" basis, that is, in principal transactions without the addition
or deduction of brokerage commissions or transfer taxes. To the extent that a

<PAGE>

Fund does participate in transactions involving brokerage commissions, it is the
Manager's responsibility to select brokers through which such transactions will
be effected. The Manager tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to provide the
best execution, the Manager will consider the furnishing of quotations and of
other market services, research, statistical and other data for the Manager and
its affiliates, as well as the sale of shares of a Fund, as factors in selecting
a broker. Further information is included under "Execution of Portfolio
Transactions" in the SAI.

Shareholder accounting and many of the clerical functions for the Funds 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.

DISTRIBUTIONS TO SHAREHOLDERS

Each Fund declares dividends on each day its net asset value is calculated,
payable to shareholders of record as of the close of business that day. Daily
allocations of dividends will commence on the day funds are wired in accordance
with procedures set forth in "How to Buy Shares of the Funds" or if an investor
has sent a check, on the day the check is converted into federal funds (which
may take two or more days depending upon the banks involved). The amount of the
dividend may fluctuate from day to day and dividends may be omitted on some
days, depending on changes in the factors that comprise a Fund's net income.

The SAI includes a further discussion of distributions.

TAXATION OF THE FUNDS AND THEIR SHAREHOLDERS

The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information regarding taxation
is included in the SAI.

Each Fund is treated as a separate entity for federal income tax purposes. The
Late Day and the U.S. Treasury Funds have elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), qualified as such, and intend to continue to so qualify.
By distributing all of its income and meeting certain other requirements
relating to the sources of its income and diversification of its assets, each
Fund will not be liable for federal income or excise taxes.

For federal income tax purposes, any income dividends which the shareholder
receives from each 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.

Pursuant to the Code, certain distributions which are declared in October,
November or December

<PAGE>

but which, for operational reasons, may not be paid to the shareholder until the
following January, will be treated for tax purposes as if received by the
shareholder on December 31 of the calendar year in which they are declared.

Since the Funds seek to maintain a constant $1.00 per share price for both
purchases and redemptions, shareholders are not expected to realize a capital
gain or loss upon sale.

Since each Fund's income is derived from interest and gain on the sale of
portfolio securities rather than dividend income, no portion of each Fund's
distributions will generally be eligible for the corporate dividends-received
deduction.

Each 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.

Each Fund may be used for the investment of surplus funds of municipalities
including funds which are subject to the arbitrage rebate requirements of
Section 148 of the Code. The Funds do not meet currently defined exceptions to
the arbitrage rebate requirements and a portion or all of the earnings
distributed by the Funds may be required to be paid over to the U.S. Treasury as
rebatable arbitrage earnings in accordance with the provisions of the Code.
Section 115(1) of the Code provides, in part, that gross income does not include
income derived from the exercise of any essential governmental function and
accruing to a state, territory or political subdivision thereof. To the extent
that investments in the Funds are made in connection with such functions, states
and their political subdivisions will not be subject to federal taxation on
income or gains derived from an investment in the Funds.

Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares in each
Fund and to distributions received from each Fund.

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 to distributions received by them from a Fund
and the application of foreign tax laws to these distributions.

HOW TO BUY SHARES OF THE FUNDS

Shares of each Fund may be purchased by institutions, such as banks, savings and
loan associations, trust companies, corporations, and other institutional
entities and by government entities directly from the Fund. The Funds may not be
purchased by individuals. The shares of each Fund are offered at their net asset
value (with no sales charge) on a continuous basis by each Fund. As each payment
is received, full and fractional shares of the Funds will be purchased at the
net asset value next computed and proper entry will be made on the books of the
Funds. The minimum initial investment for the Late Day and the U.S. Treasury
Funds is $100,000, except for states, counties, cities, and their
instrumentalities, departments, agencies and authorities which may open an
account in each Fund with a minimum initial investment of $1,000. There is no
minimum for subsequent investments in either Fund. Investments may be made in
any of the following ways:

1. BY WIRE:

(a) First, call the Fund at 1-800/321-8563 to advise of the intent to wire funds
for investment in a Fund. Shareholders wishing to purchase shares in excess
of $50,000 must first complete an Institutional Telephone Privileges
Request

<PAGE>

and Agreement, as described under "Telephone Transactions." Requests to
begin a wire order process for the Late Day Fund must be made not later
than 1:30 p.m. Pacific time and by 11:15 a.m. Pacific time for the U.S.
Treasury Fund. Trades placed by the above deadlines will receive same day
credit so long as funds are received in accordance with paragraph (b). In
order to maximize efficient fund management, investors requesting a same
day purchase of any size are urged to place orders as early in the day as
possible. Prior business day notification of such trade may be required.
Requests to begin a wire order after the cut off time for each Fund will
not be in proper form for that day's purchase and will receive credit on
the next business day. The Funds will supply a wire control number for each
investment at the time the telephone call is received. It is necessary to
obtain a new wire control number every time money is wired into an account
in a Fund. Wire control numbers are effective for one transaction only and
may not be used more than once. Wired money which is not properly
identified with a currently effective wire control number will be returned
to the bank from which it was wired and will not be credited to the
shareholder's account.

(b) Next, wire funds to Bank of America, ABA routing No. 121000358, for credit
to Institutional Fiduciary Trust - Franklin Late Day Money Market Portfolio
or Franklin U.S. Treasury Money Market Portfolio, A/C 1493304779. Be sure
to include the wire control number, the investor's Fund account number and
account registration. Wired funds received by the Bank and reported by the
Bank to a Fund by the close of the Federal Reserve Wire System (currently
3:00 p.m. Pacific time) are normally available for credit on that day,
provided the Fund is timely notified as described in (a) above. Later wires
are credited the following business day. In order to maximize efficient
Fund management, investors are urged to place and wire their investments as
early in the day as possible.

(c) In order to receive proper credit, if the purchase is not to an existing
account, send a completed Shareholder Account Application to Franklin Late
Day Money Market Portfolio or Franklin U.S. Treasury Money Market Portfolio
at the address shown on the cover of this Prospectus.

2. BY MAIL:

Many of the types of instruments in which the Funds invest must be paid for in
federal funds, which are monies held by its custodian on deposit at the Federal
Reserve Bank of San Francisco and elsewhere. Therefore, the monies paid by an
investor for shares of a Fund generally cannot be invested by such Fund until
they are converted into and are available to the Fund in federal funds, which
may take up to two days. In such cases, purchases by investors will generally
not be considered in proper form and effective until such conversion and
availability. However, in the event a Fund is able to make investments
immediately (within one business day), it may accept a purchase order with
payment other than in federal funds; in such event, shares of the Fund will be
purchased at the net asset value next computed after receipt of the order and
payments converted to federal funds.

(a) For an initial investment, send a completed Shareholder Account Application.

(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
Institutional Fiduciary Trust - Franklin Late Day Money Market Portfolio or
Franklin U.S. Treasury Money Market Portfolio. Instruments drawn

<PAGE>

on other investment companies will not be accepted.

(c) Next, send the check, Federal Reserve draft or negotiable bank draft to
Institutional Fiduciary Trust - Franklin Late Day Money Market Portfolio or
Franklin U.S. Treasury Money Market Portfolio at the address shown on the
cover of this Prospectus.

3. THROUGH SECURITIES DEALERS:

Although each Fund's shares are sold without a sales charge, a shareholder may
invest in a Fund by purchasing shares through a securities dealer which executes
a dealer or similar agreement with Distributors, an affiliate of Advisers, and
the principal underwriter of many of the funds in the Franklin Group of Funds(R)
and the Templeton Group. The use of the term "securities dealers" includes other
financial institutions which pursuant to an agreement with Distributors
(directly or through affiliates) handle customer orders and accounts for the
group. Such reference however is for convenience only and does not indicate a
legal conclusion of capacity. The securities dealer may choose to wire or mail
the monies accompanying an investment in the Fund. Securities dealers who
process orders on behalf of their customers may charge a reasonable fee for
their services. Investments made directly, without the assistance of a
securities dealer, are without charge.

RIGHTS OF ACCUMULATION/LETTER OF INTENT REGARDING OTHER FUNDS

The cost or current value (whichever is higher) of the shares of each Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds and in the Templeton Group of Funds which are sold with a sales charge.
Included for these purposes are (a) the open-end investment companies in the
Franklin Group (except Franklin Valuemark Funds and Franklin Government
Securities Trust) (the "Franklin Group of Funds"), (b) other investment products
in the Franklin Group 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) (the products in subparagraphs (a) and (b) are
referred to as the "Franklin Group"), and (c) the open-end U.S. registered
investment companies 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
Group").

GENERAL

Shares of a Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation.

<PAGE>
SUCH INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND
TO WHAT EXTENT THE SHARES OF A FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into a
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.

Each Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of a predetermined amount 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.

The Funds and the Manager reserve the right to reject any order for the purchase
of shares or to waive the minimum investment requirements.

VALUATION OF SHARES OF THE FUNDS

The offering price is the net asset value (without a sales charge) next computed
following receipt of an order by the Fund in proper form.

The net asset value of the shares is computed each day that the New York Stock
Exchange is open for trading. The computation is done at 12:30 p.m. Pacific time
for the U.S. Treasury Fund and 3:00 p.m. Pacific time for the Late Day Fund.

Additional information is included under the caption "Additional Purchase,
Redemption and Valuation Information" in the SAI.

HOW TO SELL SHARES OF THE FUNDS

1. BY TELEPHONE WITH PAYMENT TO A PREAUTHORIZED BANK ACCOUNT:

A payment may be transmitted by wire the same business day where a request is
received as to the Late Day Fund prior to 1:30 p.m. Pacific time and as to the
U.S. Treasury Fund prior to 11:15 a.m. Pacific time that day. A shareholder
which anticipates requesting a same day wire redemption in excess of $5 million
should notify the Fund on the prior business day of the intention to request
such a redemption. In order to maximize efficient fund management, investors
requesting a same day wire

<PAGE>

redemption of any size are urged to place orders as early in the day as
possible. Prior business day notification of such trade may be required.
Otherwise, payments will be transmitted by wire on the business day following
receipt of a request received after the above deadlines.

Telephone redemption orders may not be used to direct payments to another party
or non-designated account. Written instructions will be required as set forth
below.

2. BY MAIL:

A shareholder may redeem shares by sending a letter requesting redemption to a
Fund, at the address shown on the cover of this Prospectus.

Redemption proceeds will be mailed to the registered address, or mailed or wired
to a preauthorized bank account as requested. Proceeds of redemption may also be
sent to some other party or account as requested, however, in such cases the
signature(s) on the redemption request must be guaranteed.

To be considered in proper form, the signature(s) of all registered owners or
previously designated signers 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 a party 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; or

(4) a Fund or its transfer agent 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 owners
cannot be confirmed, (b) multiple owners have a dispute or give inconsistent
instructions to a Fund (c) a 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, or (e) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of a 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.

Liquidation requests of corporate, partnership, trust, and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:

<PAGE>

Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.

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.

For any information required about a proposed liquidation, a shareholder may
call Franklin's Institutional Services Department.

GENERAL

After requesting a liquidation from a Fund, a shareholder will receive the value
of the shares of that Fund in the shareholder's account based upon the net asset
value per share next computed on the day a request in proper form is received by
the Fund. Payment for written redemption requests will be sent within seven days
after receipt of a request in proper form, except that a Fund may delay the
mailing of the redemption check, or a portion thereof, until the clearance of
the check used to purchase the 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 redemption on the
business day following their receipt. Arrangements may also be made to have
redemption proceeds wired to the shareholder's designated bank account. 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 on redemption may be more or less than the amount paid for the
shares, depending upon the fluctuations in the market value of the securities
owned by a Fund. Redemptions also may be made in kind, under certain conditions
as discussed in the SAI.

Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Funds to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Funds nor their agents shall be
liable to any shareholder or other party for a redemption payment which meets
the requirements of the 1940 Act but which may not for any reason be processed
on an expedited basis as described in this section.

EXCHANGE PRIVILEGE

<PAGE>

Accumulation/Letter of Intent Regarding other 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.

Shares of a fund acquired other than pursuant to the exchange privilege, or the
reinvestment of dividends with respect to such shares, may be exchanged at the
offering price of one of the other funds in the Franklin Group of Funds or the
Templeton Group. Such offering price includes the applicable sales charge of
the fund into which the shares are being exchanged. The prospectuses for all
investment companies in the Franklin Group of Funds and the Templeton Group
which are normally sold with a sales charge allow certain institutional
investors to acquire shares at net asset value (without a sales charge). These
institutional investors include government entities, employee benefit plans,
trust companies and bank trust departments. Such exchanges will be effected as
follows:

(a) From a Fund into any other series of the Trust. The exchange will be
effected at net asset value next computed after the exchange request is received
prior to 11:15 a.m. Pacific time with respect to the Treasury Fund and 1:30 p.m.
Pacific time with respect to the Late Day Fund, with payment for the purchased
shares processed on the following business day when the funds are made available
from the Fund.

(b) From a Fund into another fund in the Franklin Group of Funds or the
Templeton Group. The exchange will be effected at the respective net asset
values or offering price of the funds involved next computed on the day on which
the request is received in proper form prior to 11:15 a.m. Pacific time.
Requests received after 11:15 a.m. will be effective at the price next computed
on the following business day.

(c) From another fund in the Franklin Group of Funds or the Templeton Group into
a Fund. In order to avoid dilution of the Funds, such transactions will be
handled as a liquidation from the other fund at its net asset value next
computed on the day the exchange request is received in proper form prior to the
time the valuation of shares for that fund is effected, generally 3:00 p.m.
Pacific time for money market funds [excluding the money market funds of the
Trust] and 1:00 p.m. Pacific time for non-money market funds), and a purchase of
the Fund's shares on the following business day at the price computed on such
following business day when the funds for the purchase are available and the
purchase order is in all respects deemed to be in proper form.

Requests for an exchange of shares may be made by mail. The exchange transaction
will be effected upon receipt of written instructions signed by all shareholders
of record. Exchanges of shares of a Fund for the shares of any other fund in the
Franklin Group of Funds or the Templeton Group will not involve certificates
because the Funds do not issue certificates.

<PAGE>

The Exchange Privilege may be modified or discontinued at any time upon 60 days'
notice to shareholders.

RESTRICTIONS ON EXCHANGES

The Funds reserve 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 a 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 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 limit.

In addition, the Funds reserve 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.

Finally, as indicated under "How to Buy Shares of the Funds," a Fund or
Distributors reserve the right to refuse any order for the purchase of shares.

TELEPHONE TRANSACTIONS

Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Request and
Agreement included in the Funds' application or which may be obtained by
calling the number above. The Telephone Transaction options available to
retirement plans are limited to those that are provided under the plan. See
"General Information - Certain Requirements Applicable to Retirement Plans."

VERIFICATION PROCEDURES

<PAGE>

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 extend the telephone transaction privileges to a
particular account. In any instance where a Fund or Investor Services is not
reasonably satisfied that the instructions received by telephone are genuine,
the requested transaction will not be executed, and neither the Funds nor
Investor Services will be liable for any losses which may occur because of a
delay in implementing a transaction.

RESTRICTED ACCOUNTS

GENERAL

During periods of drastic economic or market changes, it is possible that the
Telephone Transaction Privilege may be difficult to implement. In this event,
shareholders should follow the other procedures discussed in this Prospectus.
Neither the Funds or Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.

SPECIAL SERVICES

Each shareholder may establish multiple accounts as necessary to satisfy
requirements regarding commingling of funds or for accounting convenience. Each
such account is administered separately.

Subaccounting and Special Services - Special processing has been arranged with
Investor Services for shareholders who wish to open multiple accounts (a master
account and subaccounts). Shareholders wishing to utilize Investor Services'
subaccounting facilities will be required to enter into a separate agreement
with Investor Services. Charges for this service, if any, will be determined on
the basis of the level of services to be rendered and will not increase costs
to the Funds. Subaccounts may be opened with the initial investment or at a
later date. More information on subaccounting services may be obtained by
calling 1-800/321-8563.

Special future value reporting services are available for state and local
entities that require arbitrage rebate calculations for the proceeds of their
tax-exempt obligations pursuant to the Code. The Funds assume no responsibility
for the accuracy of the services provided. Certain fees may be imposed for these
services. More complete information may be obtained by calling the Funds or
Franklin's Institutional Services Department at 1-800/321-8563.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN A FUND

Any questions or communications regarding a shareholder's account should be
directed to Franklin's Institutional Services Department at

<PAGE>

1-800/321-8563, Monday through Friday, from 6:00 a.m to 5:00 p.m. Pacific time.

Shareholders may obtain current price, yield or performance information specific
to a fund in the Franklin Group of Funds(R) by calling the automated Franklin
TeleFACTS system (day or night) at 1-800/247-1753 from a touch-tone phone. Yield
information may be accessed by entering Fund Code 41 for the Late Day Fund and
Fund Code 43 for the U.S. Treasury Fund followed by the # sign, when requested
to do so by the automated operator. This service is not available when calling
from a rotary-dial telephone.

PERFORMANCE

Advertisements, sales literature and communications to shareholders may contain
information regarding a Fund's performance, including quotations of its current
and effective yield.

Current yield, as prescribed by the SEC, is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from a Fund during a seven-day period. It is computed by determining
the net change, excluding capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield is
computed in the same manner except that the annualization of the return for the
seven-day period reflects the results of compounding.

In each case, performance figures are based upon past performance and will
reflect all recurring charges against a Fund's income. Such quotations will
reflect the value of any additional shares purchased with dividends from the
original share and any dividends declared on both the original share and such
additional shares. The investment results of a 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 a
Fund's performance may be in any future period.

Additional performance information is contained in the Funds' annual report,
which is available without charge upon request.

GENERAL INFORMATION

GENERAL

REPORTS TO SHAREHOLDERS

<PAGE>
ORGANIZATION

VOTING RIGHTS

OTHER INFORMATION

Certain of the programs and privileges described in this Prospectus may not be
available directly from a 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.

PLANS OF DISTRIBUTION

Each Fund has adopted a Distribution Plan (the "Plans") pursuant to Rule 12b-1
under the 1940 Act, whereby each Fund may reimburse Distributors or others for
all expenses incurred by Distributors or others in the promotion and
distribution of the Funds' 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 each Fund may
pay to Distributors or others for such distribution expenses is 0.15% per annum
of each Fund's average daily net assets, payable on a quarterly basis.

<PAGE>
All expenses of distribution and marketing in excess of the maximum amounts will
be borne by Distributors without reimbursement from the Funds. The Plans also
cover any payments made by the Funds, Advisers, Distributors or other parties on
behalf of the Funds, 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 Funds within the context of Rule 12b-1. There
have been no payments made by the Funds under the Plans since inception nor will
they make any such payments through June 30, 1995.

CONFIRMATIONS

Shares for an initial investment in a Fund, as well as subsequent investments,
including the reinvestment of dividends, are credited to an open share account
(known as "plan balance") in the name of an investor on the books of the Fund
without the issuance of a share certificate. Shareholders will receive
confirmation statements each time there is a transaction which affects an
account, including information on dividends reinvested or paid. These statements
will also show the total number of Fund shares owned by a shareholder.

SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL
NOT BE ISSUED.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS

Pursuant to the Code and U.S. Treasury Regulations, each Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend or other
reportable payment 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 Account Application. A shareholder may also be subject
to backup withholding if the IRS or a broker notifies a Fund that the TIN
furnished by the shareholder is incorrect or that the shareholder is subject to
backup withholding for previous under-reporting of interest or dividend income.

Each 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.

<PAGE>

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777

1-800/DIAL BEN

<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
MONEY MARKET PORTFOLIO
FRANKLIN U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
INSTITUTIONAL FIDUCIARY TRUST

DATED NOVEMBER 1, 1994
AS AMENDED JANUARY 17, 1995

The "How to Sell Shares of the Funds" section of the prospectus is amended to
reflect a change to the operational policies of the Funds:

CONTINGENT DEFERRED SALES CHARGE

The Funds do not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge will
be made by the Funds, as described below. The 12-month contingency period will
be tolled (or stopped) for the period such shares are exchanged into and held
in the Funds.

In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on qualified investments of $1 million or more, a
contingent deferred sales charge of 1% applies to certain redemptions made by
those investors within 12 months of the calendar month after such investments.
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; (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.

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.

<PAGE>

INSTITUTIONAL
FIDUCIARY
TRUST

PROSPECTUS

NOVEMBER 1, 1994
AS AMENDED JANUARY 17, 1995

Money Market Portfolio

Franklin U.S. Government Securities
Money Market Portfolio

[FRANKLIN LOGO]

<PAGE>
INSTITUTIONAL
FIDUCIARY TRUST

PROSPECTUS

November 1, 1994
as amended January 17, 1995 [FRANKLIN LOGO]

777 Mariners Island Blvd., P.O. Box 7777
Franklin U.S. Government Securities San Mateo, CA 94403-7777
Money Market Portfolio 1-800/321-8563

- --------------------------------------------------------------------------------

Franklin's Institutional Fiduciary Trust (the "Trust") is a diversified,
open-end management investment company consisting of nine separate and distinct
series. This Prospectus relates only to the Money Market Portfolio (the "Money
Fund") and the Franklin U.S. Government Securities Money Market Portfolio (the
"U.S. Securities Fund") (also the "Fund" or "Funds"). The Funds are designed for
institutional accounts, such as corporations, banks, savings and loan
associations, trust companies, and other institutional entities, for investment
of their own capital and of monies held in accounts for which they act in a
fiduciary, advisory, agency, custodial, or other similar capacity. The U.S.
Securities Fund is also designed for government authorities and agencies. Shares
of each Fund may not be purchased by individuals.

Shares of each Fund may be purchased at net asset value, with no sales charge,
with a minimum initial investment of $100,000, except that government entities,
including states, counties, cities, and their instrumentalities, departments,
agencies and authorities, may open an account in either Fund with a minimum
initial investment of $1,000.

A Statement of Additional Information ("SAI") concerning the Trust in general
and the Funds, dated November 1, 1994, 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 Funds or the Funds'
principal underwriter, Franklin/Templeton Distributors, Inc., ("Distributors"),
at the address or telephone number shown above.

<PAGE>
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The investment objectives of the Money Fund are high current income consistent
with capital preservation and liquidity. The investment objectives of the U.S.
Securities Fund are capital preservation and liquidity while seeking high
current income consistent with capital preservation and liquidity. EACH FUND,
UNLIKE MOST FUNDS WHICH INVEST DIRECTLY IN SECURITIES, SEEKS TO ACHIEVE ITS
OBJECTIVES BY INVESTING ITS ASSETS IN THE SHARES OF ANOTHER INVESTMENT COMPANY
(THE "MASTER FUND") WHOSE INVESTMENT OBJECTIVES ARE SUBSTANTIALLY SIMILAR TO
THAT OF THE FUND (A "FEEDER FUND"). THE MASTER FUND, IN TURN, INVESTS ITS ASSETS
IN THE SAME TYPE OF MONEY MARKET INSTRUMENTS IN WHICH THE FEEDER FUND IS
AUTHORIZED TO INVEST.

The Money Fund seeks to achieve its objectives by investing its assets in The
Money Market Portfolio (the "Money Portfolio"). The Money Portfolio, in turn,
invests in various types of money market instruments [U.S. government and
federal agency obligations, certificates of deposit, bankers' acceptances, time
deposits of major financial institutions, high grade commercial paper, high
grade, short-term corporate obligations, taxable municipal securities and
repurchase agreements (secured by U.S. government securities)].

The U.S. Securities Fund seeks to achieve its objectives by investing its assets
in shares of The U.S. Government Securities Money Market Portfolio (the "U.S.
Securities Portfolio"). At the present time, it is the U.S. Securities
Portfolio's policy to limit its portfolio investments to U.S. Treasury bills,
notes and bonds and to repurchase agreements collateralized only by such
securities. This policy may only be changed upon 30 days' written notice to
shareholders and to the National Association of Insurance Commissioners.

AN INVESTMENT IN EITHER FUND IS NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT EITHER FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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 Distributors.

CONTENTS PAGE

Expense Table .................................................... 4

Financial Highlights ............................................. 5

About the Trust .................................................. 6

Investment Objectives and Policies of each Fund .................. 6

Administration and Management of the Funds ....................... 12

Distributions to Shareholders .................................... 14

Taxation of the Funds and Their Shareholders ..................... 15

How to Buy Shares of the Funds ................................... 16

Valuation of Shares of the Funds.................................. 18

How to Sell Shares of the Funds................................... 19

Exchange Privilege ............................................... 21

Telephone Transactions ........................................... 22

Special Services ................................................. 23

How to Get Information Regarding an Investment in a Fund ......... 23

Performance ...................................................... 24

General Information .............................................. 24

Important Notice Regarding Taxpayer IRS Certifications ........... 26

<PAGE>

EXPENSE TABLE

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
MONEY U.S. SECURITIES
FUND FUND

<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases NONE NONE
Maximum Sales Charge Imposed on Reinvested Dividends NONE NONE
Deferred Sales Charge NONE NONE
Redemption Fees NONE NONE
Exchange Fees NONE NONE

ANNUAL OPERATING EXPENSES (as a percentage of average net assets)

Management Fees of the Respective Portfolio in which each Fund Invests 0.15%* 0.15%*
Fund Administration Fees 0.05% 0.05%
2b-1 Fees 0.00%** 0.00%**
Other Expenses of the Fund 0.05% 0.05%
Total Operating Expenses 0.25%* 0.25%*
</TABLE>

*For fiscal year ended June 30, 1994, the investment manager voluntarily agreed
to reduce its management and administration fees in order to keep the aggregate
maximum annual expenses to 0.15% of each Fund's average daily net assets. The
Funds paid no management or administration fees for the fiscal year ended June
30, 1994. The investment manager has agreed to limit the annual aggregate
expenses of each Fund to 0.15% of its average net assets through December 31,
1994. After December 31, 1994, the investment manager may, at any time,
discontinue this arrangement for either Fund.

**The Board of Trustees has adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 for each Fund whereby each Fund
may pay Distributors or others for promotion and distribution expenses up to
0.15% annually of each Fund's average daily net assets. The Funds have not been
required to make payments for such expenses.

Investors should be aware that the preceding table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder's own
investment in a 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 regulations of the SEC, the following example illustrates the
expenses that apply to a $1,000 investment in each 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 preceding table, the Funds charge no
redemption fees.

<TABLE>
<CAPTION>
---------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Money Fund $3 $8 $14 $32
U.S. Securities Fund $3 $8 $14 $32
---------------------------------------------------------
</TABLE>

THIS EXAMPLE IS BASED ON THE OPERATING EXPENSES OF EACH FUND AND PORTFOLIO 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
a Fund and only indirectly by shareholders as a result of their investment in
such Fund. In addition, federal regulations require the example to assume an
annual return of 5%, but a Fund's actual return may be more or less than 5%.

The above table summarizes the aggregate fees and expenses incurred by each Fund
and its respective Portfolio. The Board of Trustees of the Trust considered the
aggregate fees and expenses to be paid by both the Fund and the Portfolio under
each Fund's policy of investing its assets in shares of a Portfolio, and such
fees and expenses each Fund would have paid if it had continued to invest
directly in the various types of money market instruments. Because this
arrangement enables eligible institutional investors, including the Funds and
other investment companies, to pool their assets, which may be expected to
result in the achievement of a variety of operating economies, the Board of
Trustees concluded that the combined expenses of each Fund and Portfolio

<PAGE>
were expected to be lower than the expenses that would be incurred by each
Fund if it continued to invest directly in various types of money market
instruments. Of course, there is no guarantee or assurance that asset growth and
lower expenses will be recognized. Advisers has agreed to limit expenses so that
in no event will shareholders of the Funds incur higher expenses than if the
Funds continued to invest directly in various types of money market instruments
(see "Administration and Management of the Funds").

FINANCIAL HIGHLIGHTS

Set forth below is a table containing the financial highlights for a share of
each Fund from the effective date of the registration statement for each Fund as
indicated below through the fiscal years ended June 30, 1994. The information
for each of the five fiscal years in the period ended June 30, 1994, has been
audited by Coopers & Lybrand, independent auditors, whose audit report thereon
appears in the financial statements in the Trust's SAI, a copy of which may be
obtained without charge as noted on the front cover of this Prospectus. The
remaining figures, which are also audited, are not covered by the auditor's
current report.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE** RATIOS/SUPPLEMENTAL DATA

NET ASSET DISTRIBUTIONS RATIO OF**** RATIO OF
PERIOD VALUES NET FROM NET NET ASSET NET ASSETS EXPENSES NET INCOME
ENDED AT BEGINNING INVESTMENT INVESTMENT VALUES AT TOTAL AT END OF YEAR TO AVERAGE TO AVERAGE
JUNE 30 OF YEAR INCOME INCOME END OF YEAR RETURN*** (IN 000'S) NET ASSETS(3) NET ASSETS

<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO:
1986(1) $1.00 $0.06 $(0.06) $1.00 5.23% 20,183 -- 5.58%*
1987 1.00 0.06 (0.06) 1.00 6.30 45,141 -- 6.21
1988 1.00 0.07 (0.07) 1.00 7.23 101,660 0.05% 7.00
1989 1.00 0.09 (0.09) 1.00 8.97 122,216 0.25 8.68
1990 1.00 0.08 (0.08) 1.00 8.65 236,199 0.25 8.27
1991 1.00 0.07 (0.07) 1.00 7.28 231,655 0.25 7.11
1992 1.00 0.05 (0.05) 1.00 4.72 188,846 0.25 4.69
1993 1.00 0.03 (0.03) 1.00 3.30 222,282 0.05 3.25
1994 1.00 0.03 (0.03) 1.00 3.35 218,254 -- 3.24

FRANKLIN U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO:
1988(2) 1.00 0.02 (0.02) 1.00 5.40* 22,080 -- 6.32*
1989 1.00 0.08 (0.08) 1.00 8.28 54,003 -- 8.37
1990 1.00 0.08 (0.08) 1.00 8.68 203,153 0.21 8.27
1991 1.00 0.07 (0.07) 1.00 7.13 373,371 0.25 6.79
1992 1.00 0.04 (0.04) 1.00 4.55 195,286 0.25 4.59
1993 1.00 0.03 (0.03) 1.00 3.18 310,382 0.04 3.12
1994 1.00 0.03 (0.03) 1.00 3.25 218,547 -- 3.20

*Annualized

**Selected data for a share of capital stock outstanding throughout the year

***Total return measures the change in value of an investment over the periods indicated. It assumes reinvestment of dividends
and capital gains at net asset value.

(1) For the period June 17, 1985 (effective date) to June 30, 1986.

(2) For the period January 19, 1988 (effective date) to June 30, 1988.

(3) During the periods indicated, the investment managers reduced their management fees and assumed other expenses incurred by
the Funds. Had such action not been taken, the ratios of expenses to average net assets should have been as follows:
</TABLE>

<TABLE>
<CAPTION>
RATIO OF EXPENSES RATIO OF EXPENSES
TO AVERAGE NET ASSETS TO AVERAGE NET ASSETS
FRANKLIN U.S. GOVERNMENT SECURITIES
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO:
<S> <C> <C> <C>
1988 .079% 1988 0.57%*
1989 .078 1989 0.70
1990 .074 1990 0.62
1991 0.71 1991 0.56
1992 0.74 1992 0.58
1993 0.32 1993 0.27
1994 0.08 1994 0.08
</TABLE>

****The combined ratio of expenses to average net assets of each Fund and the
Portfolio in which each Fund invests is as follows:

<TABLE>
<CAPTION>
AFTER FEE BEFORE FEE AFTER FEE BEFORE FEE
REDUCTION REDUCTION REDUCTION REDUCTION
FRANKLIN U.S. GOVERNMENT SECURITIES
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO:
<S> <C> <C> <C> <C> <C>
1993 0.20%* 0.49%* 1993 0.19%* 0.45%*
1994 0.15 0.25 1994 0.15 0.25
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

ABOUT THE TRUST

Shares of a Fund may be acquired at the current net asset value (without sales
charge). The minimum initial investment is $100,000, except that states,
counties, cities and their instrumentalities, departments, agencies and
authorities may open an account in a Fund by investing a minimum of $1,000.
There is no minimum on subsequent investments. (See "How to Buy Shares of the
Fund.")

INVESTMENT OBJECTIVES AND POLICIES OF EACH FUND

The investment objectives of the Money Fund are high current income consistent
with capital preservation and liquidity. The Money Fund's ability to achieve
high current income is limited by the Money Portfolio's universe of investments,
which are high quality money market instruments, which consist of U.S.
government and federal agency obligations, certificates of deposit, bankers'
acceptances, time deposits of major financial institutions, high grade
commercial paper, high grade, short-term corporate obligations, taxable
municipal securities and repurchase agreements (secured by U.S. government
securities). The investment objectives of the U.S. Securities Fund are capital
preservation and liquidity while seeking high current income consistent with
capital preservation and liquidity. Each Fund pursues its investment objectives
by investing its assets in a master fund which has substantially similar
investment objectives and policies as the Fund.

The U.S. Securities Portfolio and the Money Portfolio (the "Portfolio" or
"Portfolios") are the master funds and are separate diversified series of The
Money Market Portfolios, an open-end management investment company managed by
Advisers, whose shares are acquired by the feeder funds at net asset value, with
no sales charge. Accordingly, an investment in a Fund is an indirect investment
in its respective Portfolio.

SPECIAL INFORMATION REGARDING THE FUNDS' MASTER/FEEDER FUND STRUCTURE

The investment objectives of the Funds and the Portfolios are fundamental and
may not be changed without shareholder approval. The investment policies of the
Funds, fundamental and non-fundamental, are substantially similar to those
described herein with respect to the respective Portfolios, except that in all
cases, the Fund is permitted to pursue such policies by investing in an open-end
management investment company with substantially similar investment objectives,
policies and limitations. Any additional exceptions are noted below. Information
on administration and expenses is included under "Administration and Management
of the Funds;" see the SAI for information regarding the Funds' and the
Portfolios' investment restrictions.

An investment in a Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other future
shareholders in a Portfolio, the Fund's expenses may increase or the economies
of scale which have been achieved as a result of the structure may be
diminished. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than that of the Fund could have effective
voting control over the operation of the Portfolio. Further, in the event that
the shareholders of a Fund do not approve a proposed future change in the Fund's
objectives or fundamental policies, which has been approved for the Portfolio in
which that Fund invests, the Fund may be forced to withdraw its

<PAGE>

investment from the Portfolio and seek another investment company with the same
objectives and policies. If the Board of Trustees considers that it is in the
best interests of that Fund to do so, the Fund may withdraw its investment in
the Portfolio at any time. In that event, the Board of Trustees would consider
what action to take, including the investment of the assets of the Fund in
another pooled investment entity having the same investment objectives and
policies as that Fund or the hiring of an investment adviser to manage the
Fund's investments. Either may cause an increase in expenses for that Fund.
Further, the Funds' structure is a relatively new format, which often results in
certain operational and other complexities. The Franklin organization, however,
was one of the first mutual fund complexes in the country to implement such a
structure and the trustees do not believe that the additional complexities
outweigh the benefits to be gained by shareholders.

The Franklin Group of Funds has other funds which also invest in the Portfolios,
all of which offer their shares to the public at net asset value but may be
available to only certain categories of investors. It is possible that in the
future other funds may be created which may likewise invest in the Portfolios or
existing funds may be restructured so that they may invest in the Portfolios.
The Funds or Distributors will forward any interested shareholder additional
information, including a prospectus and SAI, if requested, regarding such other
institutions through which they may make investments in the Portfolios.
Investors interested in obtaining information about such funds may contact
Franklin's Institutional Services Department at 1-800/321-8563.

The Money Market Portfolios is a management investment company which was
organized as a Delaware business trust on June 16, 1992. The Money Market
Portfolios is authorized to issue an unlimited number of shares of beneficial
interest, with a par value of $.01 per share. All shares have one vote and, when
issued, are fully paid, non-assessable, and redeemable. The Money Market
Portfolios issues shares in two separate series; however, additional series may
be added in the future by the Board of Trustees of The Money Market Portfolios,
the assets and liabilities of which will be separate and distinct from any other
series.

Whenever a Fund, as an investor in a Portfolio, is asked to vote on a matter
relating to that Portfolio, the Trust, on behalf of the Fund, will hold a
meeting of that Fund's shareholders and will cast its votes in the same
proportions as the Fund's shareholders have voted.

GENERAL

As required by Rule 2a-7 under the 1940 Act, each Portfolio will limit its
investments to those U.S. dollar denominated instruments which the Board of
Trustees of The Money Market Portfolios determines present minimal credit risks
and which are, as required by the federal securities laws, rated in one of the
two highest rating categories as determined by nationally recognized statistical
rating organizations, or which are unrated and of comparable quality, with
remaining maturities of 397 calendar days or less ("Eligible Securities"). Each
Portfolio will maintain a dollar weighted average maturity of the securities in
its portfolio of 90 days or less. As a matter of fundamental policy, each
Portfolio is required to invest 100% of its assets in securities which have
remaining maturities of 397 days or less. Neither Portfolio will invest more
than 5% of its total assets in Eligible Securities of a single issuer (the Money
Portfolio's fundamental policy in regard to diversification applies to 75% of
the Portfolio's total assets), other than U.S. government securities, rated in
the highest category by the requisite number of rating organizations, except
that a Portfolio

<PAGE>

may exceed that limit as permitted by Rule 2a-7 for a period of up to three
business days. Neither Portfolio will invest (a) the greater of 1% of its total
assets or $1 million in Eligible Securities issued by a single issuer rated in
the second highest category nor (b) more than 5% of its total assets in Eligible
Securities of all issuers rated in the second highest category.

Each Fund's policies, fundamental and non-fundamental, with respect to Rule 2a-7
and otherwise, are substantially similar to those of its respective Portfolio,
except that each Fund may pursue its policies by investing in another open-end
investment company that has substantially similar policies, such as the
Portfolios.

Because each Portfolio will limit its investments to high quality securities,
there will be generally lower yields than if each Portfolio purchased securities
with a lower rating and correspondingly greater risk.

DESCRIPTION OF SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST

THE MONEY PORTFOLIO

The Money Portfolio invests its assets in various types of money market
instruments, which consist of U.S. government and federal agency obligations,
certificates of deposit, bankers' acceptances, time deposits of major financial
institutions, high grade commercial paper, high grade, short-term corporate
obligations, taxable municipal securities and repurchase agreements (secured by
U.S. government securities). An explanation of the various types of money market
instruments follows. Since all investments are inherently subject to market
risk, no assurances can be given that the Money Portfolio will achieve its
stated objective.

THE U.S. SECURITIES PORTFOLIO

The U.S. Securities Portfolio may invest only in marketable securities issued or
guaranteed by the U.S. government, by various agencies of the U.S. government
and by various instrumentalities which have been established or sponsored by the
U.S. government. As a fundamental policy subject to change only by shareholder
approval, the U.S. Securities Portfolio will invest only in obligations,
including U.S. Treasury bills, notes, bonds and securities of the Government
National Mortgage Association (popularly called "GNMAs" or "Ginnie Maes") and
the Federal Housing Administration, which are issued or guaranteed by the U.S.
government or which carry a guarantee that is supported by the full faith and
credit of the U.S. Repurchase agreements with respect to obligations issued or
guaranteed by the U.S. government and supported by the full faith and credit of
the U.S. are included within this fundamental policy. The U.S. Securities Fund's
fundamental policy in this regard permits it to invest in another open-end
investment company which also has such a policy.

At the present time, it is the U.S. Securities Portfolio's policy to limit its
portfolio investments to U.S. Treasury bills, notes and bonds and to repurchase
agreements collateralized only by such securities. This policy may only be
changed upon 30 days' written notice to shareholders and to the National
Association of Insurance Commissioners.

These U.S. government securities and repurchase agreements, with respect to such
securities, are specifically permitted for investment through mutual funds by
California local agencies pursuant to California Government Code Sections 53601
and 53635.

U.S. Government Securities. The Money Portfolio may invest in U.S. government
securities, which consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which have been established or sponsored by the U.S.
government. Certain of these obligations,

<PAGE>

including U.S. Treasury bills, notes, and bonds and GNMA and Federal Housing
Administration securities are issued or guaranteed by the U.S. government or
carry a guarantee supported by the full faith and credit of the U.S. government.
Other U.S. government securities are issued or guaranteed by federal agencies or
government-sponsored enterprises and are not direct obligations of the U.S.
government but involve sponsorship or guarantees by government agencies or
enterprises. These obligations include securities that are supported by the
right of the issuer to borrow from the U.S. Treasury, such as obligations of the
Federal Home Loan Bank, and securities that are supported by the credit of the
instrumentality, such as Federal National Mortgage Association ("FNMA") bonds.

Municipal Securities. The Money Portfolio may invest up to 10% of its assets in
taxable municipal securities, issued by or on behalf of states, territories and
possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies, and instrumentalities, the interest on which is not
exempt from federal income tax, which are considered by the Money Portfolio to
be Eligible Securities. Generally, municipal securities are used to raise money
for various public purposes such as constructing public facilities and making
loans to public institutions. Taxable municipal bonds are generally issued to
provide funding for privately operated facilities.

Repurchase Agreements. Each Portfolio may engage in repurchase transactions, in
which it 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 to the Portfolio of
securities with an initial market value, including accrued interest, equal to at
least 102% of the dollar amount invested by the Portfolio in each agreement,
with the value of the underlying securities marked to market daily to maintain
coverage of at least 100%. A default by the seller might cause a Portfolio to
experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. A Portfolio might also incur disposition costs in
liquidating the collateral. The Portfolios, however, intend to enter into
repurchase agreements only with financial institutions such as broker-dealers
and banks which are deemed creditworthy by the Portfolios' investment manager. A
repurchase agreement is deemed to be a loan under the 1940 Act. The U.S.
government security subject to resale (the collateral) will be held on behalf of
a Portfolio by a custodian approved by the Portfolios' Board and will be held
pursuant to a written agreement.

Securities subject to repurchase agreements will be deemed to have a maturity
date coincident with the date upon which the Portfolio has agreed to resell such
securities. Securities subject to unconditional puts will be deemed to mature on
the exercise date of the put.

The U.S. Securities Portfolio may not enter into a repurchase agreement with
more than seven days to maturity if, as a result, more than 10% of the market
value of its total assets would be invested in repurchase agreements, together
with any other investments for which market quotations are not readily
available.

Bank Obligations. The Money Portfolio may invest in bank obligations or
instruments secured by bank obligations. Such instruments may include fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits, and bankers' acceptances issued by banks and savings institutions with
assets of at least one billion dollars. Bank obligations may be obligations of
U.S. banks, foreign branches of U.S. banks (referred to as "Eurodollar
Investments"), U.S. branches of foreign banks (referred to as

<PAGE>

"Yankee Dollar Investments") and foreign branches of foreign banks ("Foreign
Bank Investments"). When investing in a bank obligation issued by a branch, the
parent bank must have assets of at least five billion dollars. The Money
Portfolio may invest only up to 25% of its assets in obligations of foreign
branches of U.S. or foreign banks. Investments in obligations of U.S. branches
of foreign banks, which are considered domestic banks, may only be made if such
branches have a federal or state charter to do business in the U.S. and are
subject to U.S. regulatory authorities. Accordingly, these branches are subject
to comparable regulation as U.S. banks. (See "Investment Risk Considerations"
for more information regarding these investments.)

Time deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. or foreign banking institution for a specified period of time at a stated
interest rate. The Money Portfolio may not invest more than 10% of its assets in
time deposits with maturities in excess of seven calendar days.

Commercial Paper. The Money Portfolio may invest in commercial paper of domestic
or foreign issuers which is considered by the Money Portfolio to present minimal
credit risks and which is considered to be an Eligible Security. For a
description of commercial paper ratings, see the SAI.

Commercial paper obligations may include variable amount master demand notes
that are obligations which permit the investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the Money
Portfolio (or the Money Fund), as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. The Money Portfolio has the right to
increase the amount provided by the note agreement, or to decrease the amount,
and the borrower may repay up to the full amount of the note without penalty.
The borrower is often a large industrial or finance company which also issues
commercial paper. Typically, these notes provide that the interest rate is set
daily by the borrower; the rate is usually the same or similar to the interest
on commercial paper being issued by the borrower. Because variable amount master
demand notes are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that such instruments will be traded,
and there is no secondary market for these notes, although they are redeemable
(and thus immediately repayable by the borrower) at face value plus accrued
interest at any time. Accordingly, the Money Portfolio's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, the Money
Portfolio's investment manager will consider earning power, cash flow and other
liquidity ratios of the issuer. The Money Portfolio, which has no specific
limits on aggregate investments in master demand notes, will invest in notes of
only U.S. issuers.

Corporate Obligations. The corporate obligations which the Money Portfolio may
purchase are fixed, floating and variable rate bonds, debentures or notes which
are considered by the Money Portfolio to be Eligible Securities. Such
obligations must mature in 397 calendar days or less. Generally speaking, the
higher an instrument is rated, the greater its safety and the lower its yield.

INVESTMENT RISK CONSIDERATIONS OF THE MONEY PORTFOLIO

Any of the Money Portfolio's Eurodollar Investments, Yankee Dollar Investments,
Foreign Bank Investments or investments in commercial paper of foreign issuers
will involve risks that are different from investments in obligations of
domestic entities. These risks may include future unfavorable political and
economic developments, possible withholding

<PAGE>

taxes, seizure of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on securities the Portfolio holds. In addition, there may be less
publicly available information about such foreign banks or foreign issuers of
commercial paper.

The Money Portfolio may also purchase and sell securities on a "when-issued" and
"delayed delivery" basis. These transactions are subject to market fluctuation
and the value at delivery may be more or less than the purchase price. When the
Money Portfolio is the buyer in such a transaction, it will maintain, in a
segregated account with its custodian, cash or high-grade marketable securities
having an aggregate value equal to the amount of such purchase commitments until
payment is made. To the extent the Money Portfolio engages in when-issued and
delayed-delivery transactions, it will do so for the purpose of acquiring
securities for its portfolio consistent with its investment objective and
policies and not for the purpose of investment leverage. In when-issued and
delayed delivery transactions, the Portfolio relies on the seller to complete
the transaction. The seller's failure to complete the transaction may cause the
Portfolio to miss a price or yield considered to be advantageous. Securities
purchased on a when-issued or delayed delivery basis do not generally earn
interest until their scheduled delivery date.

OTHER POLICIES

As fundamental policies, the Money Portfolio may only borrow from banks, not to
exceed 5% of its total assets, for temporary or emergency purposes and pledge up
to 5% of its assets for such borrowing. To generate additional income, the Money
Portfolio may also lend its portfolio securities to securities dealers or other
institutional investors if at least 102% cash collateral is pledged and
maintained by the borrower, although such loans shall not exceed at any time 25%
of the value of the Money Portfolio's total assets. The Money Portfolio may not
acquire securities subject to legal or contractual restrictions on resale,
securities which are not readily marketable, or enter into repurchase agreements
or master demand notes with more than seven days to maturity if, as a result,
more than 10% of the value of its total assets would be invested in such
repurchase agreements or securities.

The U.S. Securities Portfolio may borrow from banks, for temporary emergency
purposes only, and pledge its assets for such loans, up to 10% of its total net
assets. No new investments will be made while any outstanding loans exceed 5% of
its total net assets. The U.S. Securities Portfolio may also make loans of its
portfolio securities not in excess of 10% of the value of its total net assets.
The U.S. Securities Portfolio will engage in security loan arrangements with the
primary objective of increasing its income through investment of the cash
collateral in short-term interest bearing obligations, but will do so only to
the extent consistent with its tax status as a regulated investment company.

Whenever a Portfolio believes market conditions are such that yields could be
increased by actively trading its portfolio securities to take advantage of
short-term market variations, it may do so without restriction or limitation
(subject to the tax requirements for qualification as a regulated investment
company).

The Portfolios may purchase or sell securities without regard to the length of
time the security has been held. The yield on certain instruments held by the
Portfolios may decline if withdrawn prior to maturity. The Funds and the
Portfolios are subject to a number of additional investment restrictions, some
of which may be changed only with the approval of a majority of either the
Fund's or the

<PAGE>

Portfolio's shareholders. For a list of these restrictions and more information
concerning the various transactions mentioned above, please refer to the SAI.

The Money Portfolio may not invest more than 5% of its total assets in the
securities of companies (including predecessors) which have been in continuous
operation for less than three years, nor invest more than 25% of its total
assets in any particular industry. The Money Portfolio may, however, invest more
than 25% of its assets in certain domestic bank obligations. The foregoing
limitations do not apply to U.S. government securities and federal agency
obligations, or to repurchase agreements secured by such government securities
or obligations, although certain tax diversification requirements apply to
investments in repurchase agreements and other securities that are not treated
as U.S. government obligations under the Internal Revenue Code.

ADMINISTRATION AND MANAGEMENT OF THE FUNDS

The Board of Trustees has the primary responsibility for the overall management
of the Trust, including the Funds, and for electing the officers of the Trust
who are responsible for administering the day-to-day operations of all series of
the Trust. For information concerning the officers and trustees of the Trust and
The Money Market Portfolios, see "Trustees and Officers" in the SAI of the
Funds. The Board of Trustees, with all of the disinterested trustees as well as
interested trustees voting in favor, has adopted written procedures designed to
deal with potential conflicts of interest which may arise from the fact of
having the same persons serving on each Trust's Board of Trustees. The
procedures call for an annual review of each Fund's relationship to its
respective Portfolio, and, in the event a conflict is deemed to exist, the Board
may take action, up to and including the establishment of a new Board of
Trustees. The Board of Trustees has determined that there are no conflicts of
interest presented by this arrangement at the present time. Further information
is included in the SAI.

Franklin Advisers, Inc., serves as both Funds' administrator and as the
Portfolios' investment manager. Advisers is a wholly-owned subsidiary of
Franklin Resources, Inc. ("Resources"), a publicly owned holding company, the
principal shareholders of which are Charles B. Johnson, Rupert H. Johnson, Jr.
and R. Martin Wiskemann, who own approximately 20%, 16% and 10%, respectively,
of Resources' outstanding shares. Through its subsidiaries, Resources is engaged
in various aspects of the financial services industry. Advisers acts as
investment manager or administrator to 34 U.S. registered investment companies
(111 separate series) with aggregate assets of over $72 billion.

Advisers serves as the Funds' administrator pursuant to separate administration
agreements, effective October 26, 1992. Pursuant to the administration agreement
for each Fund, Advisers will provide various administrative, statistical, and
other services to each Fund in return for a monthly administration fee at the
annual rate of 5/100 of 1% of each Fund's average daily net assets.

Each Fund is responsible for its own operating expenses, including, but not
limited to: Advisers' administration fees; taxes, if any; custodian, legal and
auditing fees; fees and expenses of trustees who are not members of, affiliated
with or interested persons of Advisers; salaries of any personnel not affiliated
with Advisers; insurance premiums, trade association dues, expenses of obtaining
quotations for calculating the value of each Fund's net assets; printing and
other expenses relating to each Fund's operations; filing fees; brokerage fees
and commissions, if any; costs of registering and maintaining registration of
each Fund's shares under federal and state securities laws; plus any
extraordinary and

<PAGE>
non-recurring expenses which are not expressly assumed by Advisers.

The administration agreements specify that the administration fees for each Fund
(if ever imposed) will also be reduced to the extent necessary to comply with
the most stringent limits prescribed by any state in which a Fund's shares are
offered for sale. The most stringent current state restriction limits a fund's
allowable aggregate operating expenses (excluding interest, taxes, distribution
plan expenses up to 1% per annum and extraordinary expenses such as litigation
costs) in any fiscal year to 2.5% of the first $30 million of net assets of the
fund, 2% of the next $70 million of net assets of the fund and 1.5% of net
assets of the fund in excess of $100 million.

Prior to October 26, 1992, the Money Fund's assets were managed pursuant to a
management and administration agreement with Franklin Trust Company (now
Franklin Templeton Trust Company) and the U.S. Securities Fund's assets were
managed pursuant to a management agreement with Advisers.

The Portfolios have separate management agreements with Advisers which provide
for the supervision and implementation of each Portfolio's investment activities
and provides certain administrative services and facilities which are necessary
to conduct a Portfolio's business.

Under the management agreements with Advisers, each Portfolio is obligated to
pay Advisers a fee equal to an annual rate of 15/100 of 1% of the Portfolio's
average net assets. The fee is computed and paid monthly based on the average
daily net assets of such Portfolio during the month. Each Portfolio is
responsible for its own operating expenses, including, but not limited to:
Advisers' fee; taxes, if any; legal and auditing fees; fees and costs of its
custodian; the fees and expenses of trustees who are not members of, affiliated
with or interested persons of Advisers; salaries of any personnel not affiliated
with Advisers; insurance premiums, trade association dues, and expenses of
obtaining quotations for calculating the value of each Portfolio's net assets;
printing and other expenses relating to the Portfolio's operations; filing fees;
brokerage fees and commissions, if any; plus any extraordinary and non-recurring
expenses which are not expressly assumed by Advisers.

Advisers may, but is not obligated to, waive all or any portion of the
management fees due from the Portfolios or the administration fees due from the
Funds. Administration fees and total expenses amounting to .05% and .08%,
respectively, of each Fund's daily net assets were accrued by Advisers.
Advisers, however, waived the entire administration fees and other expenses of
the Funds. Each Fund's proportionate share of its respective Portfolio's
management fees was .15%. Advisers, however, waived a portion of each
Portfolio's management fee. With this reduction, each Fund's proportionate share
of its respective Portfolio's management fees was .13%. Total operating expenses
including administration fees and each Fund's proportionate share of its
respective Portfolio's expenses, would have totaled .17%. Since Advisers waived
a portion of each Portfolio's management fees, total operating expenses of each
Fund, including its proportionate share of its respective Portfolio's operating
expenses, totaled .15%. See "Expense Table" at the front of this Prospectus.

Advisers will reduce the administration fees of each Fund and the management
fees of the Portfolio in which it invests through December 31, 1994, in order to
keep the combined annual operating expenses to a maximum of 0.15% of average
daily

<PAGE>

net assets. Any such reduction will have the effect of increasing the
yield to each Fund's shareholders.

It is not anticipated that the Portfolios or the Funds will incur a significant
amount of brokerage expenses because short-term money market instruments are
generally traded on a "net" basis, that is, in principal transactions without
the addition or deduction of brokerage commissions or transfer taxes. To the
extent that a Portfolio does participate in transactions involving brokerage
commissions, it is Advisers' responsibility to select brokers through whom such
transactions will be effected. Advisers tries to obtain the best execution on
all such transactions. If it is felt that more than one broker or dealer is able
to provide the best execution, Advisers will consider the furnishing of
quotations and of other market services, research, statistical and other data
for Advisers and its affiliates, as well as the sale of shares of the Funds, as
factors in selecting a broker. Further information is included under "Execution
of Portfolio Transactions" in the SAI.

PLANS OF DISTRIBUTION

Each Fund has adopted a Distribution Plan (the "Plans") pursuant to Rule 12b-1
under the 1940 Act, whereby each Fund may reimburse Distributors or others for
expenses actually incurred by Distributors or others in the promotion and
distribution of the Funds' shares, including but not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and distribution-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 service agreement with the Funds,
Distributors or its affiliates. The maximum amount which each Fund may pay to
Distributors or others for such distribution expenses is 0.15% per annum of each
Fund's average daily net assets, payable on a quarterly basis. All expenses of
distribution and marketing in excess of this limit will be borne by Distributors
or others incurring such expenses without reimbursement from the Funds. The
Plans also cover any payments made by the Funds, Distributors, or other parties
on behalf of the Funds 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 Funds within the context of Rule 12b-1. There have been
no payments made by the Funds under the Plans since inception nor will the Funds
make any such payments through at least June 30, 1995.

DISTRIBUTIONS TO SHAREHOLDERS

Each Fund declares dividends for each day that the Fund's net asset value is
calculated, payable to shareholders of record as of the close of business that
day. Daily allocations of dividends will commence on the day funds are wired in
accordance with procedures set forth in "How to Buy Shares of the Fund" or, if
an investor has sent a check, on the day the check is converted into federal
funds (which may take two or more days, depending upon the banks involved). The
amount of dividends may fluctuate from day to day and dividends may be omitted
on some days, depending on changes in the factors that comprise a Fund's net
investment income. Each Fund does not pay "interest" to its shareholders, nor is
any amount of dividends or return guaranteed in any way.

<PAGE>

Dividends are declared daily and automatically reinvested monthly in the form of
additional shares of a Fund at the net asset value per share at the close of
business on the last business day of the month. Shareholders (excluding
retirement plan participants) may request to have their dividends paid out
monthly in cash on the Shareholder Account Application or by notifying the
Funds' transfer agent.

Since the net income of each Fund is declared as a dividend each time the net
income is determined, the net asset value per share of a Fund (i.e., the value
of the net assets of a Fund divided by the number of shares of such Fund
outstanding) is expected to remain at $1.00 per share immediately after each
such determination and dividend declaration. Any increase in the value of a
shareholder's investment in a Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of such Fund in the
shareholder's account.

Each Fund's daily dividend consists of the income dividends paid by each Fund's
respective Portfolio. Each Portfolio's daily dividend includes accrued interest
and any original issue or market discount, less any premium amortization, plus
or minus any gain or loss on the sale of portfolio securities and changes in
unrealized appreciation or depreciation in portfolio securities (to the extent
required to maintain a stable net asset value per share), less the estimated
expenses of each Portfolio.

Each Portfolio's (and thus, each respective Fund's) portfolio is composed of
short-term securities and, under normal circumstances, each Fund (through its
investment in a Portfolio) does not expect to realize any long-term capital
gain. Any undistributed net short-term capital gain which is realized by the
Funds (adjusted for any daily amounts of unrealized appreciation or depreciation
reported above) will be distributed at least once each year and may be
distributed more frequently if necessary in order to avoid federal excise taxes.
Any distributions of short-term capital gain will also be reinvested in the form
of additional Fund shares at net asset value, unless the shareholder has
previously notified the Fund to have them paid in cash.

The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.

The SAI includes a further discussion of distributions.

TAXATION OF THE FUNDS AND THEIR SHAREHOLDERS

The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information regarding taxation
is included in the SAI.

Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
qualified as such, and intends to continue to so qualify. By distributing all of
its income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, each Fund will not be liable for
federal income or excise taxes.

<PAGE>
Since each Fund seeks to maintain a constant $1.00 per share price for both
purchases and redemptions, shareholders are not expected to realize a capital
gain or loss upon sale.

Since each Fund's income is derived from interest income and gain on the sale of
portfolio securities rather than dividend income, no portion of each Fund's
distributions will generally be eligible for the corporate dividends-received
deduction.

Each 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.

Each Fund may be used for the investment of surplus funds of municipalities,
including funds which are subject to the arbitrage rebate requirements of
Section 148 of the Code. Each Fund does not meet currently defined exceptions to
the arbitrage rebate requirements and a portion or all of the earnings
distributed by a Fund may be required to be paid over to the U.S. Treasury as
rebatable arbitrage earnings in accordance with the provisions of the Code.
Section 115(1) of the Code provides, in part, that gross income does not include
income derived from the exercise of any essential governmental function and
accruing to a state, territory or political subdivision thereof. To the extent
that investments in a Fund are made in connection with such functions, states
and their political subdivisions will not be subject to federal taxation on
income or gains derived from an investment in such Fund.

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 to distributions received by them from a Fund
and the application of foreign tax laws to these distributions.

HOW TO BUY SHARES OF THE FUNDS

The Funds are available for purchase by institutional accounts, such as
corporations, banks, savings and loan associations, trust companies, and other
institutional entities, for investment of their own capital and of monies held
in accounts for which they act in a fiduciary, advisory, agency, custodial, or
other similar capacity. The U.S. Securities Fund is also designed for government
authorities and agencies. Shares of either Fund may not be purchased by
individuals. Individuals who were investors in the U.S. Securities Fund prior to
August 1, 1991 may continue to purchase additional shares either through
reinvestment of dividends or through direct purchases. The shares of each Fund
are offered at their net asset value (with no sales charge) on a continuous
basis by each Fund. As each payment is received, full and fractional shares of a
Fund will be purchased at the net asset value next computed and proper entry
will be made on the books of the Funds. The minimum initial investment is
$100,000, except for states, counties, cities, and their instrumentalities,
departments, agencies and authorities, which may open an account in a Fund with
a minimum initial investment of $1,000. There is no minimum on subsequent
investments. The Funds and Distributors reserve the right to reject any order
for the purchase of shares or to waive the minimum investment requirements.
Investments may be made by any one of the following ways:

Many of the types of instruments in which the Portfolios invest must be paid for
in federal funds, which are monies held by its custodian bank on

<PAGE>

deposit at the Federal Reserve Bank of San Francisco and elsewhere. Therefore,
the monies paid by an investor for shares of a Fund generally cannot be invested
by its respective Portfolio until they are converted into and are available to
that Portfolio in federal funds, which may take up to two days. In such cases,
purchases by investors will generally not be considered in proper form and
effective until such conversion and availability. In the event a Portfolio is
able to make investments immediately (within one business day), a Fund may
accept a purchase order with payment other than in federal funds; in such event,
shares of a Fund will be purchased at the net asset value next computed after
receipt of the order and payments.

1. BY WIRE:

(a) First, call the Fund at 1-800/321-8563 or 1-415/312-5600 by 11:15 a.m.
Pacific time to advise of the intention to wire funds for investment.
Shareholders wishing to purchase shares in excess of $50,000 must first
complete an Institutional Telephone Privileges Request and Agreement, as
described under "Telephone Transactions." If notification is received by
11:15 a.m. Pacific time and funds are received in accordance with the
following paragraph (b), shares will be purchased that day and will be
eligible to receive that day's dividend, if any (same day credit). If a
request to begin the wire order process is not made by 11:15 a.m., the order
will not be in proper form for that day's purchase and will receive credit
on the next business day. The Fund will supply a wire control number for the
investment on that day. It is necessary to obtain a new wire control number
every time money is wired into an account in the Fund. Wire control numbers
are effective for one transaction only and may not be used more than once.
Wired money which is not properly identified with a currently effective wire
control number will be returned to the bank from which it was wired and will
not be credited to the shareholder's account.

(b) Next, wire funds to Bank of America, ABA routing number 121000358 for credit
to Institutional Fiduciary Trust - Money Market Portfolio or Franklin U.S.
Government Securities Money Market Portfolio, A/C 1493304779. Be sure to
include the wire control number, the Fund account number and registration.
Wired funds received by the bank and reported by the bank to the Fund by the
close of the Federal Reserve Wire System (currently 3:00 p.m. Pacific time)
are normally available to purchase Fund shares on that day, provided the
Fund is timely notified as described in (a) above. Wires received after 3:00
p.m. Pacific time are credited the following business day. In order to
maximize efficient Fund management, investors are urged to place and wire
their investments as early in the day as possible.

(c) If the purchase is not to an existing account, send a completed Shareholder
Account Application to Institutional Fiduciary Trust, either Money Market
Portfolio or Franklin U.S. Government Securities Money Market Portfolio, at
the address shown on the cover of this Prospectus, to assure proper credit.

2. BY MAIL:

(a) For an initial investment, send a completed Shareholder Account Application.

(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
Institutional Fiduciary Trust - Money Market Portfolio or Franklin U.S.
Government Securities Money Market Portfolio. Instruments drawn on other
investment companies will not be accepted.

<PAGE>

(c) Next, send the check, Federal Reserve draft or negotiable bank draft to the
Trust at the address shown on the cover of this Prospectus.

3. THROUGH SECURITIES DEALERS

Although each Fund's shares are sold without a sales charge, a shareholder may
invest in a Fund by purchasing shares through a securities dealer which executes
a dealer or similar agreement with Distributors, the Funds' principal
underwriter. The use of the term "securities dealers" shall include other
financial institutions which, pursuant to an agreement with Distributors
(directly or through affiliates), handle customer orders and accounts for the
group. Such reference, however, is for convenience only and does not indicate a
legal conclusion of capacity. The securities dealer may choose to wire or mail
the monies accompanying an investment in the Fund. Securities dealers who
process orders on behalf of their customers may charge a reasonable fee for
their services. Investments made directly, without the assistance of a
securities dealer, are without charge.

If investments are made through a securities dealer which has executed a dealer
or similar agreement with respect to the Funds, Distributors may make a payment,
out of its own resources, to such securities dealer. Please contact Franklin's
Institutional Services Department for additional information.

RIGHTS OF ACCUMULATION/LETTER OF INTENT REGARDING OTHER FUNDS

The cost or current value (whichever is higher) of the shares in a Fund will be
included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds and in the Templeton Group of Funds which are sold with a sales charge.
Included for these purposes are (a) the open-end investment companies in the
Franklin Group (except Franklin Valuemark Funds and Franklin Government
Securities Trust) (the "Franklin Group of Funds"), (b) other investment products
in the Franklin Group 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) (the products in subparagraphs (a) and (b) are
referred to as the "Franklin Group"), and (c) the open-end U.S. registered
investment companies 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
Group").

Purchases of Fund shares will also be included toward the completion of a
Letter of Intent with respect to any of the funds in the Franklin Group of
Funds and the Templeton Group which are sold with a sales charge.

For additional information regarding these programs, please contact Investor
Services or Franklin's Institutional Services Department by mail at the address
listed on the cover or by telephone at 1-800/321-8563.

VALUATION OF SHARES OF THE FUNDS

The offering price is the net asset value (without a sales charge) next computed
following receipt of an order by a Fund in proper form.

The net asset value of the shares of each Fund is computed at 12:30 p.m. Pacific
time each day that the New York Stock Exchange is open for trading and on which
there is sufficient degree of trading in the portfolio securities of the Fund
that the net asset value of that Fund's shares may be affected.

<PAGE>

liabilities, and dividing the result by the number of shares outstanding for
that Fund.

The valuation of portfolio securities held by the Portfolios is based upon their
amortized cost value, which does not take into account unrealized capital gain
or loss. This involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the instrument.

HOW TO SELL SHARES OF THE FUNDS

1. BY TELEPHONE WITH PAYMENT TO A PREAUTHORIZED BANK ACCOUNT

A shareholder may redeem shares of a Fund, up to $50,000, by telephoning
Franklin's Institutional Services Department at 1-800/321-8563. Shareholders
wishing to redeem shares of a Fund in excess of $50,000 must complete an
Institutional Telephone Privileges Request and Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number, and security identification number. The requirements for
telephone transactions extend to transactions transmitted by facsimile or
computer, as well as those communicated directly to a customer representative.
Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in a Shareholder Account Application or Revision,
or a signature guaranteed letter of instruction.

Telephone redemption orders may not be used to direct payments to another person
or to an account which was not previously designated by prior written
instructions. Written instructions will be required as set forth below.

A redemption payment may be transmitted by wire the same business day where a
request is received prior to 11:15 a.m. Pacific time that day. A shareholder
which anticipates requesting a same day wire redemption in excess of $5 million
should notify the Fund on the prior business day of the intention to request
such a redemption. In order to maximize efficient Fund management, investors
requesting same day wire redemptions of any size are urged to place redemption
orders as early in the day as possible. Payments will generally be transmitted
by wire on the business day following receipt of a request received after the
above deadline.

2. BY MAIL:

A shareholder may redeem shares by sending a letter requesting redemption to the
Funds. Redemption proceeds will be mailed to the registered address, or mailed
or wired to a preauthorized bank account as requested. Redemption proceeds may
also be sent to another party or account as requested; however, in such cases
the signature(s) on the redemption request must be guaranteed.

TO BE CONSIDERED IN PROPER FORM, THE SIGNATURE(S) OF ALL REGISTERED OWNERS OR
PREVIOUSLY DESIGNATED SIGNERS 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 a party other than the
registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to other than the address of
record, preauthorized bank account or brokerage firm account; or

<PAGE>

(4) the Funds 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 an account cannot be
confirmed, (b) a Fund has been notified of an adverse claim, (c) the
instructions received by a Fund are given by an agent, not the actual
registered owner, or (d) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of a Fund.

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.

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 - Consult court documents and the laws in the
state of the relevant court, since these accounts have varying requirements,
depending upon the applicable state.

For any information required about a proposed liquidation, a shareholder may
call Franklin's Institutional Services Department.

GENERAL

<PAGE>
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 on redemption may be more or less than the amount paid for the shares,
depending upon the fluctuations in the market value of the securities owned by a
Fund. Redemptions may be made in kind, under certain limited conditions as
discussed in the SAI.

Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Funds to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Funds nor their agents shall be
liable to any shareholder or other person for a redemption payment which for any
reason may not be processed in the expedited manner described in this section.

EXCHANGE PRIVILEGE

The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives or policies. The shares
of many of these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for the securities
markets changes, a Fund's shares may be exchanged for shares of any of the other
mutual funds in the Franklin Group of Funds or the Templeton Group (as defined
under "Rights of Accumulation/Letter of Intent Regarding Other 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. There are
differences among the funds in the Franklin Group of Funds and the Templeton
Group. Before making an exchange, investors should review the prospectus of the
fund they wish to exchange from and the fund they wish to exchange into for all
specific requirements or limitations on exercising the exchange privilege, for
example, minimum holding periods or applicable sales charges. By requesting an
exchange, a shareholder represents to the fund that the shareholder has done so.

Shares of a Fund acquired other than pursuant to the exchange privilege, or the
reinvestment of dividends with respect to such shares, may be exchanged at the
offering price of one of the other funds in the Franklin Group of Funds or the
Templeton Group. Such offering price includes the applicable sales charge of the
fund into which the shares are being exchanged. The prospectuses for all
investment companies in the Franklin Group of Funds and the Templeton Group
which are normally sold with a sales charge allow certain institutional
investors to acquire shares at net asset value (without a sales charge). These
institutional investors include government entities, employee benefit plans,
trust companies and bank trust departments. Such exchanges will be effected as
follows:

(a) From a Fund into any other series of the Trust. The exchange will be
effected at net asset value next computed after the exchange request is
received prior to 11:15 a.m. Pacific time, with payment for the purchased
shares processed on the following business day when the funds are made
available from the Fund.

(b) From a Fund into another fund in the Franklin Group of Funds or the
Templeton Group. The exchange will be effected at the respective net asset
values or offering price of the funds involved next computed on the day on
which the request is received in proper form prior to 11:15 a.m. Pacific
time. Requests received after 11:15 a.m. will be effective at the price next
computed on the following business day.

<PAGE>
(c) From another fund in the Franklin Group of Funds or the Templeton Group into
a Fund. In order to avoid dilution of a Fund, such transactions will be
handled as a liquidation from the other fund at its net asset value next
computed on the day the exchange request is received in proper form prior to
the time the valuation of shares for that fund is effected (generally 3:00
p.m. Pacific time for money market funds, excluding the money market funds
in the Trust, and 1:00 p.m. Pacific time for non-money market funds), and a
purchase of the Fund's shares on the following business day at the price
computed on such following business day when the funds for the purchase are
available and the purchase order is in all respects deemed to be in proper
form.

The use of the exchange program may be discontinued or modified by a Fund upon
60 days' written notice to shareholders.

EXCHANGES BY MAIL

Requests for an exchange of shares may be made by mail. The exchange transaction
will be effected upon receipt of written instructions signed by all shareholders
of record. Exchanges of shares of a Fund for the shares of any other fund in the
Franklin Group of Funds or the Templeton Group will not involve certificates
because the Funds do not issue certificates.

EXCHANGES BY TELEPHONE

A shareholder may exchange shares of a Fund by telephone by calling Franklin's
Institutional Services Department at 1-800/321-8563. Shareholders wishing to
exchange shares of a Fund in excess of $50,000 must complete an Institutional
Telephone Privileges Request and Agreement, as described under "Telephone
Transactions."

During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement. In this event,
shareholders should follow the other exchange procedures discussed in this
section.

RESTRICTIONS ON EXCHANGES

The Funds reserve 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 a Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) make more than two exchanges out of a Fund per calendar
quarter, or (iii) exchange shares equal in value to at least $5 million, or more
than 1% of a Fund's 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 limit.

In addition, the Funds reserve the right to refuse the purchase side of exchange
requests by any Timing Account, person, or group if, in Advisers' judgment, a
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 a Fund receives
or anticipates simultaneous orders affecting significant portions of a Fund's
assets. In particular, a pattern of exchanges that coincide with a "market
timing" strategy may be disruptive to a Fund and, therefore, may be refused.

Finally, as indicated under "How to Buy Shares of the Funds," a Fund or
Distributors reserve the right to refuse any order for the purchase of shares.

TELEPHONE TRANSACTIONS

Shareholders of a Fund may be able to execute various transactions by calling
Franklin's Institutional

<PAGE>
Services Department at 1-800/321-8563. Shareholders will be able to: (i) effect
a change in address, (ii) change a dividend option (iii) transfer Fund shares
in one account to another identically registered account in a Fund, and (iv)
purchase, redeem or exchange a Fund's shares by telephone as described in this
Prospectus. Shareholders who do not wish these privileges extended to a
particular account should notify a Fund or Franklin's Institutional Services
Department.

Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Request and
Agreement included in the Fund's application or which may be obtained by calling
the number above.

VERIFICATION PROCEDURES

The Funds 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, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as a 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 extend the telephone
transaction privileges to a particular account. In any instance where a Fund or
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither a Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.

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
registered investment representative for assistance, or to send written
instructions to a Fund as detailed elsewhere in this Prospectus.

Neither the Funds 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.

SPECIAL SERVICES

Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires,
or other special handling which a shareholder may request. Such special services
to certain shareholders will not increase the expenses borne by the Funds.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN A FUND

Any questions or communications regarding a shareholder's account should be
directed to Franklin's Institutional Services Department at 1-800/321-8563,

<PAGE>

Monday through Friday, from 6:00 a.m to 5:00 p.m. Pacific time.

From a touch-tone telephone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds by
calling the automated Franklin TeleFACTS system (day or night) at
1-800/247-1753. Yield information may be accessed by entering Code 40 for the
Money Fund and Code 42 for the U.S. Securities Fund followed by the # sign, when
requested to do so by the automated operator. This service is not available when
calling from a rotary-dial telephone.

PERFORMANCE

Advertisements, sales literature and communications to shareholders may contain
information regarding a Fund's performance, including quotations of its current
and effective yield.

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

The Trust's fiscal year ends June 30. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional 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

<PAGE>

of each series have equal and exclusive rights as to dividends and distributions
as declared by such series and the net assets of such series upon liquidation or
dissolution.

Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are not cumulative, so that the holders of more than 50% of
the shares voting in any election of trustees, can, if they choose to do so,
elect all of the trustees. The Trust does not intend to hold annual shareholders
meetings. The Trust may, however, hold a special shareholders 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. Whenever a Fund, as an investor in a Portfolio,
is asked to vote on a fundamental policy matter relating to that Portfolio, the
Trust, on behalf of the Fund, will hold a meeting of that Fund's shareholders
and will cast its votes in the same proportions as the Fund's shareholders have
voted. A meeting may also be called by the trustees at their discretion or by
shareholders holding at least ten percent of the outstanding shares of any
series of the Trust. 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.

The Board of Trustees may from time to time issue other series of the Trust, the
assets and liabilities of which will likewise be separate and distinct from any
other series of the Trust. Currently, the Trust consists of nine separate
series, including the Money Market Portfolio, the Franklin Late Day Money Market
Portfolio, the Franklin U.S. Government Securities Money Market Portfolio, the
Franklin U.S. Treasury Money Market Portfolio, the Franklin U.S. Government
Agency Money Market Fund, the Franklin Cash Reserves Fund, the AEA Cash
Management Fund, the Franklin Institutional Adjustable U.S. Government
Securities Fund and the Franklin Institutional Adjustable Rate Securities Fund,
each maintaining a totally separate and distinct investment portfolio.

Certain of the programs and privileges described in this Prospectus may not be
available directly from the Funds to shareholders whose shares are held, of
record, by a financial institution or in a "street name" account.

CONFIRMATIONS

SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUNDS WILL NOT
BE ISSUED.

REDEMPTION BY THE FUNDS

Each Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $20,000 ($500 for states,
counties, cities and their instrumentalities, departments, agencies and
authorities), 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

<PAGE>
distributions) for a period of at least six months, provided advance notice is
given to the shareholder. More information is included in the SAI.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS

Pursuant to the Code and U.S. Treasury regulations, each Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend or other
reportable payment 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 Account Application. A shareholder may also be subject
to backup withholding if the IRS or a securities dealer notifies a Fund that the
TIN furnished by the shareholder is incorrect or that the shareholder is subject
to backup withholding for previous under-reporting of interest or divi-dend
income.

<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND

INSTITUTIONAL FIDUCIARY TRUST
DATED NOVEMBER 1, 1994

The "How to Sell Shares of the Funds" section of the prospectus is amended to
reflect a change to the operational policies of the Funds:

CONTINGENT DEFERRED SALES CHARGE

The Funds do not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge will
be made by the Funds, as described below. The 12-month contingency period will
be tolled (or stopped) for the period such shares are exchanged into and held
in the Funds.

In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on qualified investments of $1 million or more, a
contingent deferred sales charge of 1% applies to certain redemptions made by
those investors within 12 months of the calendar month after such investments.
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; (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.

Requests for redemptions for a specified dollar amount will result in
additional shares being re-deemed 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.

<PAGE>
INSTITUTIONAL
FIDUCIARY TRUST

PROSPECTUS
November 1, 1994
[FRANKLIN LOGO]
Franklin Institutional Adjustable
U.S. Government Securities Fund
777 Mariners Island Blvd., P.O. Box 7777
Franklin Institutional Adjustable San Mateo, CA 94403-7777
Rate Securities Fund 1-800/DIAL BEN

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Franklin's Institutional Fiduciary Trust (the "Trust") is an open-end management
investment company consisting of nine separate and distinct series. This
Prospectus relates only to the Franklin Institutional Adjustable U.S. Government
Securities Fund (the "Adjustable U.S. Government Fund") and Franklin
Institutional Adjustable Rate Securities Fund (the "Adjustable Rate Securities
Fund") (also the "Fund" or "Funds"), two no-load diversified series of the
Trust.

The investment objective of each Fund is to seek a high level of current income,
consistent with lower volatility of principal. EACH FUND, UNLIKE MOST FUNDS
WHICH INVEST DIRECTLY IN SECURITIES, SEEKS TO ACHIEVE ITS OBJECTIVES BY
INVESTING ITS ASSETS IN THE SHARES OF ANOTHER INVESTMENT COMPANY (THE "MASTER
FUND") WHOSE INVESTMENT OBJECTIVE IS IDENTICAL TO THAT OF SUCH FUND (A "FEEDER
FUND"). THE MASTER FUND, IN TURN, INVESTS ALL OF ITS ASSETS IN THE SAME TYPE OF
SECURITIES IN WHICH THE FEEDER FUND IS AUTHORIZED TO INVEST.

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 FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

A Statement of Additional Information ("SAI") concerning the Funds, dated
November 1, 1994, 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 Funds or the Funds' principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), by mail at the above
address or by calling the telephone number shown above.

The Adjustable U.S. Government Fund seeks to achieve its objective by investing
all of its assets in the U.S. Government Adjustable Rate Mortgage Portfolio (the
"Mortgage Portfolio"), a separate series of the Adjustable Rate Securities
Portfolios, whose investment objective is identical to that of the Fund. The
Mortgage Portfolio in turn invests primarily in adjustable rate mortgage
securities ("ARMS") created from pools of adjustable rate mortgages which are
issued or guaranteed by the U.S. government, its agencies or instrumentalities.

<PAGE>
The Adjustable Rate Securities Fund seeks to achieve its objective by investing
all of its assets in the Adjustable Rate Securities Portfolio (the "Securities
Portfolio"), a separate series of the Adjustable Rate Securities Portfolios,
whose investment objective is identical to that of the Fund. The Securities
Portfolio in turn invests primarily in adjustable rate securities, including
ARMS, which are issued or guaranteed by private institutions or by the U.S.
government, its agencies or instrumentalities, collateralized by or representing
an interest in mortgages created from pools of adjustable rate mortgages, and
other adjustable rate asset backed securities (collectively "ARS"). All
securities purchased by the Securities Portfolio will be rated at least AA by
Standard & Poor's Corporation ("S&P") or Aa by Moody's Investors Service
("Moody's"), two nationally recognized statistical rating agencies, or if
unrated, will be deemed to be of comparable quality by its investment manager.

The Funds are designed for institutional investors such as corporations, banks,
thrifts, credit unions, government authorities and agencies, and trust companies
for investment of their own capital and of monies held in accounts for which
they act in a fiduciary, advisory, agency, custodial, or other similar capacity
where such institution by law, regulation, charter or stated policy is
prohibited from investing in a fund with a Distribution Plan pursuant to Rule
12b-1 (a "12b-1 Plan") under the Investment Company Act of 1940 (the "1940
Act"). Shares of each Fund may be purchased at net asset value with no sales
charge by qualified investors who have, or will have, after purchase of shares
of the Funds, at least $5,000,000 invested in the Franklin Group of Funds(R) or
the Templeton Group ($1,000,000 for qualified bank trust departments and trust
companies). There can, of course, be no assurance that the Funds' objectives
will be achieved.

This Prospectus is intended to set forth in a clear and concise manner
information about the Funds 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.

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 Funds at the above address.

CONTENTS PAGE

Expense Table ........................................................ 4

Financial Highlights ................................................. 5

About the Trust ...................................................... 6

Investment Objective and Policies of each Fund ....................... 6

Administration of the Funds .......................................... 19

Distributions to Shareholders ........................................ 20

Taxation of the Funds and Their Shareholders ......................... 21

How to Buy Shares of the Funds ....................................... 22

Exchange Privilege ................................................... 24

Telephone Transactions ............................................... 25

How to Sell Shares of the Funds ...................................... 27

Valuation of Shares of the Funds ..................................... 28

How to Get Information Regarding an Investment in the Funds .......... 29

Performance .......................................................... 29

General Information .................................................. 30

Important Notice Regarding Taxpayer IRS Certifications ............... 31

Portfolio Operations ................................................. 32

<PAGE>
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 each Fund. The figures are based on aggregate
operating expenses of each Fund for fiscal year ended June 30, 1994, including
those attributable to the Portfolio in which each Fund invests its assets.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ADJUSTABLE U.S. GOVERNMENT ADJUSTABLE RATE
SECURITIES FUND SECURITIES FUND
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases NONE NONE
Maximum Sales Charge Imposed on Reinvested Dividends NONE NONE
Deferred Sales Charge NONE NONE
Redemption Fees NONE NONE

ANNUAL OPERATING EXPENSES (as a percentage of average
net assets of each Fund)

Management Fees of the Respective Portfolios in which
Each Fund Invests 0.36%* 0.40%*
Administration Fees of Each Fund 0.05%* 0.05%*
12b-1 Fees NONE NONE
Other Expenses of Each Fund 0.04%* 0.05%*
Other Expenses of the Respective Portfolios 0.00%* 0.00%*
Total Operating Expenses 0.45%* 0.50%*
</TABLE>

*For fiscal year ended June 30, 1994, Franklin Advisers, Inc. ("Advisers"), the
Funds' administrator and the Portfolios' investment manager, voluntarily agreed
to waive all or a portion of the administration fees for each Fund, as well as
the management fees for each Portfolio and payment of the operating expenses
otherwise payable by the Adjustable Rate Securities Fund. The following table
shows the management and administration fees and total expenses of each Fund
after the reduction by Advisers. This arrangement may be terminated by Advisers
at any time.

<TABLE>
<CAPTION>
ADJUSTABLE ADJUSTABLE
U.S. GOVERNMENT RATE SECURITIES
FUND FUND

<S> <C> <C>
Administration Fees of Each Fund 0.03% 0.00%
Management Fees of the Respective
Portfolios in Which Each Fund Invests 0.00% 0.25%
Total Operating Expenses 0.07% 0.25%
- ----------------------------------------------------------------------------------------------------------
</TABLE>

Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder'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
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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Adjustable U.S. Government Fund $ 5 $14 $25 $57
Adjustable Rate Securities Fund $ 5 $16 $28 $63
------------------------------------------------------------------------
</TABLE>

THE ABOVE EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES SHOWN
ABOVE (INCLUDING AMOUNTS SET BY CONTRACT) 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 each Fund and only indirectly by
shareholders as a result of their investment in a Fund. In addition, federal
regulations require the example to assume an annual return of 5%, but each
Fund's actual return may be more or less than 5%.

<PAGE>
The above table summarizes the aggregate fees and expenses incurred by each Fund
and the Portfolio in which each invests. The Board of Trustees of the Trust
considered the aggregate fees and expenses to be paid by both the Fund and the
respective Portfolio under each Fund's policy of investing all of its assets in
shares of the respective Portfolio, and fees and expenses the Fund would have
paid if it invested directly in the various types of securities. Because this
arrangement enables eligible institutional investors, including the Funds and
other investment companies, to pool their assets, which may be expected to
result in the achievement of a variety of operating economies, the Board
concluded that the aggregate expenses of each Fund and the respective Portfolio
were expected to be lower than the expenses that would be incurred by the Funds
if each invested directly in the various types of securities, although there is
no guarantee or assurance that asset growth and lower expenses will be
recognized. Advisers has agreed to limit expenses so that in no event will
shareholders of the Funds incur higher expenses than if each continued to invest
directly in the various types of securities. Further information regarding each
Fund's and the respective Portfolio's fees and expenses is included under
"Administration of the Funds."

FINANCIAL HIGHLIGHTS

Set forth below is a table containing the financial highlights for a share of
each Fund from the effective date of its registration through the fiscal year
ended June 30, 1994. This information has been audited by Coopers & Lybrand,
independent auditors, whose audit report thereon appears in the financial
statements in the Trust's SAI. See the discussion "Report to Shareholders" under
"General Information."

<TABLE>
<CAPTION>
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PER SHARE OPERATING PERFORMANCE

NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
VALUE AT NET & UNREALIZED TOTAL FROM FROM NET VALUE AT
YEAR BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT END OF TOTAL
ENDED OF YEAR INCOME ON SECURITIES OPERATIONS INCOME YEAR RETURN+

<S> <C> <C> <C> <C> <C> <C> <C>
ADJUSTABLE U.S.
GOVERNMENT FUND:
1992(1) $10.00 $.373 $(.010) $.363 $(.373) $9.99 3.70%
1993 9.99 .480 (.130) .350 (.480) 9.86 4.01
1994 9.86 .360 (.467) (.107) (.353) 9.40 (1.11)

ADJUSTABLE RATE
SECURITIES FUND:
1992(2) 10.00 .239 .040 .279 (.239) 10.04 2.82
1993 10.04 .559 -- .559 (.559) 10.04 5.72
1994 10.04 .437 (.270) .167 (.437) 9.77 1.65
</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA

NET ASSETS RATIO OF RATIO OF
AT END OF EXPENSES NET INCOME PORTFOLIO
YEAR YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED (IN 000'S) NET ASSETS++ NET ASSETS RATE

<S> <C> <C> <C> <C>
ADJUSTABLE U.S.
GOVERNMENT FUND:
1992(1) $1,265,392 .05%* 6.24%* 62.79%
1993 861,311 .05 4.89 66.55
1994 51,738 .05 3.49 29.47

ADJUSTABLE RATE
SECURITIES FUND:
1992(2) -- -- 7.13* --
1993 44,734 -- 5.56 74.77
1994 31,198 -- 4.32 197.22

(1) For the period November 1, 1991 (effective date of registration) to June 30. 1992.

(2) For the period January 3, 1992 (effective date of registration) to June 30, 1992

*Annualized

+Total return measures the change in value of an investment over the periods indicated, assuming reinvestment
of dividends and capital gains at net asset value

++During the periods indicated, Advisers reduced its administration fees and paid other expenses incurred by
the Funds. Had such action not been taken, the ratios of expenses to average net assets would have been as follows:
</TABLE>

RATIO OF EXPENSES RATIO OF EXPENSES
TO AVERAGE NET ASSETS TO AVERAGE NET ASSETS
ADJUSTABLE U.S. GOVERNMENT FUND: ADJUSTABLE RATE SECURITIES FUND:
<S> <C> <C> <C>
1992 .07% 1992 --
1993 .06 1993 .08
1994 .07 1994 .07

</TABLE>

<TABLE>
<CAPTION>
The combined ratio of expenses to average net assets of each Fund and the Portfolio in which each Fund invests is as follows:

AFTER FEE BEFORE FEE AFTER FEE BEFORE FEE
REDUCTION REDUCTION REDUCTION REDUCTION

ADJUSTABLE U.S. GOVERNMENT FUND: ADJUSTABLE RATE SECURITIES FUND:
<S> <C> <C> <C> <C> <C>
1992 0.35%* 0.49%* 1993 0.00% 0.60%*
1993 0.35* 0.46* 1994 0.25 0.50
1994 0.07 0.45
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</TABLE>

<PAGE>
ABOUT THE TRUST

The Trust, organized as a Massachusetts business trust on January 15, 1985, is
an open-end management investment company, or mutual fund, and has registered as
such under the 1940 Act. The Fund is a diversified series of the Trust.

Shares of each Fund may be purchased at net asset value with no sales charge by
qualified investors who have, or will have, after the purchase of shares of a
Fund, at least $5,000,000 invested in the Franklin Group of Funds(R) or the
Templeton Group ($1,000,000 for qualified bank trust departments and trust
companies.) (See "How to Buy Shares of the Funds.")

INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND

The investment objective of each Fund is to seek a high level of current income,
consistent with lower volatility of principal. The Adjustable U.S. Government
Securities Fund pursues its investment objective by investing all of its assets
in the Mortgage Portfolio which has the same investment objective and policies
as that of the Fund. The Adjustable Rate Securities Portfolio pursues its
investment objective by investing all of its assets in the Securities Portfolio
which has the same investment objective and policies as that of the Fund.

The Portfolios are separate diversified series of the Adjustable Rate Securities
Portfolios (an open-end management investment company managed by Advisers) whose
shares are acquired by the feeder funds at net asset value with no sales charge.
Accordingly, an investment in a Fund is an indirect investment in its respective
Portfolio.

SPECIAL INFORMATION REGARDING THE FUNDS' MASTER/FEEDER FUND STRUCTURE

The investment objectives of both the Funds and the Portfolios are fundamental
and may not be changed without shareholder approval. Each Fund has invested all
of its assets in the respective Portfolios since inception. The investment
policies described herein include those followed by the Portfolio in which each
Fund invests. Information on administration and expenses is included under
"Administration of the Funds." See the SAI for information regarding each Fund's
and Portfolio's investment restrictions.

An investment in a Fund may be subject to certain risks due to the Funds'
structure, such as the potential that upon redemption by other future
shareholders in the Portfolios, the Funds' expenses may increase or economies of
scale which have been achieved as a result of the structure may be diminished.
Institutional investors in the Portfolios that have a greater pro rata ownership
interest in the Portfolios than that of the Funds could have effective voting
control over the operation of the Portfolios. Further, in the event that the
shareholders of the Funds do not approve a proposed future change in a Fund's
objective or fundamental policies, which has been approved for the Portfolio in
which that Fund invests, the Fund may be forced to withdraw its investment from
the Portfolio and seek another investment company with the same objective and
policies. In addition, a Fund may withdraw its investment in the Portfolio at
any time, if the Board of Trustees of the Trust considers that it is in the best
interests of that Fund to do so. Upon any such withdrawal, the Board of Trustees
of the Trust would consider what action to take, including the investment of all
of the assets of a Fund in another pooled investment entity having the same
investment objective and policies as that Fund, or the hiring of an investment
adviser to manage the Fund's investments. Such circumstances may cause an
increase in expenses for that Fund. Further, the Funds' structure is a
relatively new format, which often results in certain operational and other com-

<PAGE>
plexities. However, the Franklin organization was one of the first mutual
fund complexes in the country to implement such a structure and the trustees do
not believe that the additional complexities outweigh the benefits to be gained
by shareholders.

Currently, Franklin Investors Securities Trust has two series which may invest
in the two separate series of the Adjustable Rate Securities Portfolios both of
which are offered at the public offering price (which includes a sales charge).
It is possible that in the future, other funds in the Franklin Group of Funds(R)
may be created which may likewise invest in one or more series of the Adjustable
Rate Securities Portfolios. The Funds or Distributors will forward to any
interested shareholder additional information, including a prospectus and SAI,
if requested, regarding such other investment companies through which they may
make investments in the Portfolios. Any such funds may be offered at net asset
value or with variable sales charges; thus, an investor in such fund may
experience a different return from an investor in another fund which invests
also exclusively in the Portfolio.

The Portfolios are series of the Adjustable Rate Securities Portfolios, a
management investment company which was organized as a Delaware business trust
on February 15, 1991. The Adjustable Rate Securities Portfolios is authorized to
issue an unlimited number of shares of beneficial interest, with a par value of
$.01 per share. All shares have one vote and, when issued, are fully paid,
non-assessable, and redeemable. The Adjustable Rate Securities Portfolios issues
shares in two separate series; however, additional series may be added in the
future by the Board of Trustees of The Adjustable Rate Securities Portfolios,
the assets and liabilities of which will be separate and distinct from any other
series.

Whenever a Fund, as an investor in the Portfolio, is asked to vote on a matter
relating to that Portfolio, the Trust, on behalf of the Fund, will hold a
meeting of that Fund's shareholders and will cast its votes in the same
proportions as the Fund's shareholders have voted.

THE ADVANTAGES OF INVESTING IN THE FUNDS

The Adjustable U.S. Government Fund enables its shareholders to invest easily,
without a sales charge or distribution plan expenses, in mortgage securities
which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Any such guarantee will extend to the payment of interest and
principal due on the mortgage securities and will not provide any protection
from fluctuations in the market value of such mortgage securities. However, the
Fund believes that by investing in the Mortgage Portfolio, which in turn invests
primarily in mortgage securities providing for variable rates of interest, it
will achieve a more consistent and less volatile net asset value than is
characteristic of mutual funds that invest primarily in mortgage securities
paying a fixed rate of interest.

The Adjustable Rate Securities Fund enables its shareholders, in effect, to
invest easily without a sales charge or distribution plan expenses in ARS which
are rated at least AA by S&P or Aa by Moody's, or if unrated, deemed to be of
comparable quality by the Securities Portfolio's investment manager or, such ARS
which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

The Adjustable Rate Securities Fund believes that by investing in the Securities
Portfolio, which in turn invests primarily in ARS which provide for variable
rates of interest, it will achieve a more consistent and less volatile net asset
value than is characteristic of mutual funds that invest primarily in securities
paying a fixed rate of interest.

<PAGE>
Principal payments received on each Portfolio's mortgage securities will be
reinvested by the Portfolio in other securities. Such securities may have a
higher or lower yield than the mortgage securities already held by the
Portfolio, depending upon market conditions.

An investment in a Fund provides liquidity for the investor, who may redeem any
portion of the shares at the current net asset value at any time in accordance
with procedures described under the caption "How to Sell Shares of the Funds."
An investment in a Fund may be a permissible investment for banks, credit
unions, and thrifts, as well as state and local government authorities and
agencies. HOWEVER, INVESTORS WHOSE INVESTMENT AUTHORITY IS RESTRICTED BY
APPLICABLE LAW OR REGULATION SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF A FUND CONSTITUTE LEGAL
INVESTMENTS FOR THEM. Municipal investors considering investment of proceeds of
bond offerings into a Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or Advisers on arbitrage
rebate calculations.

DESCRIPTION OF SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST

The Portfolios and the Funds have adopted substantially similar investment
policies; however, the Portfolios follow the policies through direct investments
and the Funds follow the policies indirectly by investing in the respective
Portfolios.

The Mortgage Portfolio pursues its objective by investing primarily (at least
65% of its total assets) in ARMS or other securities collateralized by or
representing an interest in mortgages (collectively, "mortgage securities"),
which have interest rates resetting at periodic intervals. All such mortgage
securities in which the Mortgage Portfolio invests will be issued or guaranteed
by the U.S. government, its agencies or instrumentalities. In addition to these
mortgage securities, the Mortgage Portfolio may invest up to 35% of its total
assets in (a) notes, bonds and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Federal Home
Loan Mortgage Corporation, and Small Business Administration, (b) obligations of
or guaranteed by the full faith and credit of the U.S. government, and
repurchase agreements collateralized by such obligations, and (c) time and
savings deposits in commercial or savings banks or in institutions whose
accounts are insured by the FDIC. There is, of course, no assurance that the
investment objective will be achieved. As the value of the Portfolio's
securities holdings fluctuate, the Portfolio's net asset value per share will
also fluctuate.

The Securities Portfolio pursues its objective by investing primarily (at least
65% of its total assets) in ARS which are issued or guaranteed by private
institutions or by the U.S. government, its agencies or instrumentalities,
collateralized by or representing an interest in mortgages, and other adjustable
rate asset backed securities which have interest rates resetting at periodic
intervals. All securities in which the Securities Portfolio invests will be
rated at least AA or Aa by S&P or Moody's, respectively or, if unrated, will be
deemed to be of comparable quality by the Portfolio's investment manager.
Non-governmental issuers of the ARMS in which the Securities Portfolio may
invest include commercial banks, savings and loan institutions, insurance
companies, including private mortgage insurance companies, mortgage bankers,
mortgage conduits of investment banks, finance companies, real estate companies
and private corporations and others so long as they are consistent with the
Securities

<PAGE>
Portfolio's investment objective ("private mortgage securities"). Such private
mortgage securities which are not issued or guaranteed by the U.S. government
are generally structured with one or more types of credit enhancement. The
Securities Portfolio may from time to time increase its investments by borrowing
from banks (see "Borrowing" for further information.) In addition, the
Securities Portfolio may invest up to 35% of its total assets in the following
fixed rate securities: (a) notes, bonds and discount notes of the following U.S.
government agencies or instrumentalities: Federal Home Loan Banks, Federal
National Mortgage Association, Government National Mortgage Association, Federal
Home Loan Mortgage Corporation, and Small Business Administration, (b)
obligations of or guaranteed by the full faith and credit of the U.S. government
and repurchase agreements collateralized by such obligations, (c) asset-backed
and mortgage-backed securities issued by private and government entities,
including fixed-rate asset-backed and mortgage-backed securities, and (d) time
and savings deposits in commercial or savings banks or in institutions whose
accounts are insured by the FDIC. Investments in savings deposits are considered
illiquid and are further restricted as noted under "Other Permitted
Investments." Investments in fixed rate securities generally decline in value
during periods of rising interest rates and conversely, increase in value when
interest rates fall. To the extent any Portfolio assets are invested in such
fixed rate securities, the Portfolio's values will be more sensitive to interest
rate changes than if it were fully invested in adjustable rate securities. There
is, of course, no assurance that the Portfolio's investment objective will be
achieved. As the value of the Portfolio's securities holdings fluctuate, the
Portfolio's net asset value per share will also fluctuate.

THE CHARACTERISTICS OF THE MORTGAGE SECURITIES IN WHICH THE PORTFOLIOS MAY
INVEST

Adjustable Rate Mortgage Securities. ARMS, like traditional mortgage securities,
represent interests in a pool of mortgage loans. Most mortgage securities are
pass-through securities, which means that they provide investors with payments
consisting of both principal and interest as mortgages in the underlying
mortgage pool are paid off by the borrower. The dominant issuers or guarantors
of mortgage securities today are the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal
Home Loan Mortgage Corporation ("FHLMC"). GNMA creates mortgage securities from
pools of government-guaranteed or insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers, commercial banks, and
savings and loan associations. FNMA and FHLMC issue mortgage securities from
pools of conventional and federally insured and/or guaranteed residential
mortgages obtained from various entities, including savings and loan
associations, savings banks, commercial banks, credit unions, and mortgage
bankers. Non-governmental issuers of mortgage pools may be the originators of
the underlying mortgage loans as well as the guarantors of the private mortgage
securities. The Mortgage Portfolio will not invest in private mortgage
securities.

The adjustable interest rate feature generally will act as a buffer to reduce
sharp changes in a Portfolio's net asset value in response to normal interest
rate fluctuations. As the interest rates on the mortgages underlying a
Portfolio's investments are reset periodically, yields of portfolio securities
will gradually align themselves to reflect changes in market rates and should
cause the net asset value of a Portfolio to fluctuate less significantly than it
would if a

<PAGE>
Portfolio invested in more traditional long-term, fixed-rate debt securities.

During periods of rising interest rates, however, changes in the coupon rate lag
behind changes in the market rate. This may result in possibly a lower net asset
value until the coupon resets to market rates. Thus, investors could suffer some
principal loss if they sold their shares of a Fund before the interest rates on
the underlying mortgages are adjusted to reflect current market rates. A portion
of the ARS in which the Securities Portfolio may invest may not reset for up to
three years. During periods of extreme fluctuation in interest rates, a Fund's
net asset value will fluctuate as well. Since most mortgage securities held by
the Portfolios will generally have annual reset caps of 100 to 200 basis points,
short-term fluctuation in interest rates above these levels could cause such
mortgage securities to "cap out" and to behave more like long-term, fixed-rate
debt securities.

Unlike fixed-rate mortgages, which generally decline in value during periods of
rising interest rates, adjustable rate mortgage securities allow the Portfolios
to participate in increases in interest rates through periodic adjustments in
the coupons of the underlying mortgages, resulting in both higher current yields
and lower price fluctuations. Furthermore, if prepayments of principal are made
on the underlying mortgages during periods of rising interest rates, the
Portfolios generally will be able to reinvest such amounts in securities with a
higher current rate of return. The Portfolios, however, will not benefit from
increases in interest rates to the extent that interest rates rise to the point
where they cause the current coupon of adjustable rate mortgages held as
investments by the Portfolios to exceed the maximum allowable annual or lifetime
reset limits (or "cap rates") for a particular mortgage. Also, the Portfolios'
net asset value could vary to the extent that current yields on mortgage-backed
securities are different than market yields during interim periods between
coupon reset dates.

During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower yields to the Portfolios. Further, because
of this feature, the value of ARMS are unlikely to rise during periods of
declining interest rates to the same extent as fixed-rate instruments. As with
other mortgage backed securities, interest rate declines may result in
accelerated prepayment of mortgages and the proceeds from such prepayments must
be reinvested at lower prevailing interest rates.

One additional difference between ARMS and fixed-rate mortgages is that for
certain types of ARMS, the rate of amortization of principal, as well as
interest payments, can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of interest
due to an ARMS holder is calculated by adding a specified additional amount, the
"margin," to the index, subject to limitations or "caps" on the maximum and
minimum interest that is charged to the mortgagor during the life of the
mortgage or to maximum and minimum changes to that interest rate during a given
period. It is these special characteristics which are unique to adjustable rate
mortgages that the Portfolios' investment manager believes make them attractive
investments in seeking to accomplish the objective of each Portfolio.

The mortgage securities which are issued or guaranteed by GNMA, FHLMC, or FNMA
("Certificates") are called pass-through Certificates because a pro-rata share
of both regular interest and principal payments (less GNMA's, FHLMC's, or FNMA's
fees and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool are passed through monthly to the
holder of the Certificate. The principal and interest

<PAGE>
on GNMA securities are guaranteed by GNMA and backed by the full faith and
credit of the U.S. government. FNMA guarantees full and timely payment of all
interest and principal, while FHLMC guarantees timely payment of interest and
ultimate collection of principal. Mortgage securities from FNMA and FHLMC are
not backed by the full faith and credit of the U.S. government; however, they
are generally considered to offer minimal credit risks. The yields provided by
these mortgage securities have historically exceeded the yields on other types
of U.S. government securities with comparable maturities in large measure due to
the risks associated with prepayment features. (See "Risks of Mortgage
Securities.")

The Securities Portfolio may also invest in pass-through certificates issued by
non-governmental issuers. Pools of conventional residential mortgage loans
created by such issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payment. Timely payment of interest and principal of
these pools is, however, generally supported by various forms of credit
enhancement, including corporate guarantees and pool insurance. Corporate
guarantees, provided by parents and third parties, are reimbursement obligations
for mortgage delinquency and default. Pool insurance refers to an insurance
policy written, typically by a private mortgage insurer, on the security
collateral. Such corporate guarantees and pool insurance, as well as the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets the Portfolio's quality standards. The
Portfolio may buy mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of the poolers, the
investment manager determines that the securities meet the Portfolio's quality
standards.

The Securities Portfolio expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, the
investment manager will, consistent with the Portfolio's objective, policies and
quality standards, consider making investments in such new types of securities.

Adjustable Rate Securities. ARS are debt securities with interest rates which,
rather than being fixed, are adjusted periodically pursuant to a pre-set formula
and interval. As stated above, the Securities Portfolio will invest primarily in
ARS. The interest paid on ARS and, therefore, the current income earned by the
Portfolio in such securities, will be a function primarily of the indexes upon
which adjustments are based and the applicable spread relating to such
securities. (See "Resets").

The interest rates paid on ARS are generally readjusted periodically to an
increment over the chosen interest rate index. Such readjustments occur at
intervals ranging from one to thirty-six months. The degree of volatility in the
market value of the Portfolio's holdings and of the net asset value of the
Portfolio shares will be a function primarily of the length of the adjustment
period and the degree of volatility in the applicable indices. It will also be a
function of the maximum increase or decrease of the interest rate adjustment on
any one adjustment date, in any one year and over the life of the securities.
These maximum increases and decreases are typically referred to as "caps" and
"floors", respectively. The Portfolio does not seek to maintain an

<PAGE>
overall average cap or floor, although the Portfolio's investment manager will
consider caps or floors in selecting ARS for the Portfolio.

While the Portfolio does not attempt to maintain a constant net asset value per
share, during periods in which short-term interest rates move within the caps
and floors of the Portfolio's holdings the fluctuation in market value of the
ARS held is expected to be relatively limited, since the interest rate on the
portfolio will adjust to market rates within a short period of time. In periods
of substantial short-term volatility in short-term interest rates, the value of
the portfolio may fluctuate more substantially since the caps and floors of the
ARS in the portfolio may not permit the interest rate to adjust to the full
extent of the movements in short-term rates during any one adjustment period. In
the event of dramatic increases in interest rates, the lifetime caps on the ARS
may prevent such securities from adjusting to prevailing rates over the term of
the loan. In this circumstance, the market value of the ARS may be substantially
reduced with a corresponding decline in the Portfolio's net asset value.

See "Asset-Backed Securities" for a discussion of the Portfolio's investments in
adjustable rate asset-backed securities.

RISKS OF ADJUSTABLE RATE SECURITIES

ARS have several characteristics that should be considered before investing in
the Adjustable Rate Securities Fund. As indicated above, the interest rate reset
features of ARS held by the Securities Portfolio will reduce the effect on the
net asset value of the Portfolio shares caused by changes in market interest
rates. However, the market value of ARS and, therefore, the Portfolio's net
asset value, may vary to the extent that the current interest rate on such
securities differs from market interest rates during periods between the
interest reset dates. A portion of the ARS in which the Portfolio may invest may
not reset for up to three years. These variations in value occur inversely to
changes in the market interest rates. Thus, if market interest rates rise above
the current rates on the securities the value of the securities will decrease;
conversely, if market interest rates fall below the current rate on the
securities, the value of the securities will rise. If investors in the Fund sold
their shares during periods of rising rates before an adjustment occurred, such
investors may suffer some loss. The longer the adjustment intervals on ARS held
by the Portfolio, the greater the potential for fluctuations in the Portfolio's
net asset value.

Investors in the Fund will receive increased income as a result of upward
adjustments of the interest rates on ARS held by the Portfolio in response to
market interest rates. However, the Fund and its shareholders will not benefit
from increases in market interest rates once such rates rise to the point where
they cause the rates on such ARS to reach their maximum adjustment date, annual
or lifetime caps. In addition, because of their interest rate adjustment
feature, ARS are not an effective means of "locking-in" attractive interest
rates for periods in excess of the adjustment period. Also a consideration, in
the case of privately issued ARMS where the underlying mortgage assets carry no
agency or instrumentality guarantee, is that the mortgagors on the loans
underlying ARS are often qualified for such loans on the basis of the original
payment amounts. The mortgagor's income may not be sufficient to enable them to
continue making their loan payments as such payments increase, resulting in a
greater likelihood of default.

Conversely, any benefits to the Fund and its shareholders from an increase in
the Portfolio's net asset value caused by falling market interest rates is
reduced by the potential for a decline in the interest rates paid on ARS held by
the Portfolio. In this

<PAGE>
regard, the Fund is not designed for investors seeking capital appreciation.

Collateralized Mortgage Obligations ("CMOs"), Real Estate Mortgage Investment
Conduits ("REMICs") and Multi-Class Pass-throughs. These are debt obligations
which are collateralized by mortgage loans or mortgage pass-through securities.
Such securities may be issued and guaranteed by U.S. government agencies or
issued by certain financial institutions and other mortgage lenders. The
Mortgage Portfolio will not invest in privately issued CMOs except to the extent
that it invests in the securities of entities that are instrumentalities of the
U.S. government. CMOs and REMICs are debt instruments issued by special purpose
entities which are secured by pools of mortgage loans or other mortgage-backed
securities. Multi-class pass-through securities are equity interests in a trust
composed of mortgage loans or other mortgage-backed securities. Payments of
principal and interest on underlying collateral provides the funds to pay debt
service on the CMO or REMIC or make scheduled distributions on the multi-class
pass-through securities. CMOs, REMICs and multi-class pass-through securities
(collectively CMO unless the context indicates otherwise) may be issued by
agencies or instrumentalities of the U.S. government or by private
organizations. CMOs purchased by the Mortgage Portfolio may be:

(1) collateralized by pools of mortgages in which each mortgage is guaranteed as
to payment of principal and interest by an agency or instrumentality of the
U.S. government;

(2) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and the guarantee is collateralized by
U.S. government securities; or

(3) securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are supported by the
credit of an agency or instrumentality of the U.S. government.

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specified coupon
rate or adjustable rate tranche (discussed in the paragraph following) and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than the
stated maturities or final distribution dates. Interest is paid or accrues on
all classes of a CMO on a monthly, quarterly or semi-annual basis. The principal
and interest on the underlying mortgages may be allocated among several classes
of a series of a CMO in many ways. In a common structure, payments of principal,
including any principal prepayments, on the underlying mortgages are applied to
the classes of a series of a CMO in the order of their respective stated
maturities or final distribution dates, so that no payment of principal will be
made on any class of a CMO until all other classes having an earlier stated
maturity or final distribution date have been paid in full.

One or more tranches of a CMO may have coupon rates which reset periodically at
a specified increment over an index such as the London Interbank Offered Rate
("LIBOR"). These adjustable rate tranches, known as "floating rate CMOs," will
be considered as ARMS by the Portfolio. Floating rate CMOs may be backed by
fixed rate or adjustable rate mortgages; to date, fixed rate mortgages have been
more commonly utilized for this purpose. Floating rate CMOs are typically issued
with lifetime "caps," on the coupon rate thereon. These caps, similar to the
caps on adjustable rate mortgages, represent a ceiling beyond which the coupon
rate on a floating rate CMO may not be increased

<PAGE>
regardless of increases in the interest rate index to which the floating rate
CMO is geared.

REMICs, which are authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities. As with CMOs, the mortgages which collateralize
the REMICs in which the Portfolio may invest include mortgages backed by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
government, its agencies or instrumentalities or issued by private entities,
which are not guaranteed by any government agency.

Yields on privately-issued CMOs as described above have been historically higher
than the yields on CMOs issued or guaranteed by U.S. government agencies.
However, the risk of loss due to default on such instruments is higher since
they are not guaranteed by the U.S. government. The trustees of the Adjustable
Rate Securities Portfolios believe that accepting the risk of loss by the
Securities Portfolio relating to privately issued CMOs that the Portfolio
acquires is justified by the higher yield the Portfolio will earn in light of
the historic loss experience on such instruments. The Portfolio will not invest
in subordinated privately issued CMOs.

To the extent any privately issued CMOs and REMICs in which the Securities
Portfolio invests are considered by the SEC to be investment companies, the
Portfolio will limit its investments in such securities in a manner consistent
with the provisions of the 1940 Act.

Resets. The interest rates paid on the ARS and CMOs generally are readjusted at
intervals of one year or less to an increment over some predetermined interest
rate index. There are three main categories of indices: those based on U.S.
Treasury securities; those derived from a calculated measure such as a cost of
funds index; or a moving average of mortgage rates. Commonly utilized indices
include the one-, three- and five-year constant maturity Treasury rates, the
three-month Treasury bill rate, the 180-day Treasury bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-month,
six-month or one-year LIBOR, the prime rate of a specific bank, or commercial
paper rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Home Loan Bank Cost of Funds index, tend to lag behind changes in
market rate levels and tend to be somewhat less volatile.

Caps and Floors. The underlying mortgages which collateralize the ARMS and CMOs
will frequently have caps and floors which limit the maximum amount by which the
loan rate to the residential borrower may change up or down (1) per reset or
adjustment interval and (2) over the life of the loan. Some residential mortgage
loans restrict periodic adjustments by limiting changes in the borrower's
monthly principal and interest payments rather than limiting interest rate
changes. These payment caps may result in negative amortization.

Stripped Mortgage Securities. Stripped mortgage securities are derivative
multiclass mortgage securities. The stripped mortgage securities in which the
Portfolios may invest will be issued and guaranteed by the U. S. government, its
agencies or instrumentalities. Stripped mortgage securities have greater market
volatility than other types of mortgage securities in which the Portfolios
invests.

Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool

<PAGE>
of mortgage assets. A common type of stripped mortgage security will have one
class receiving some of the interest and most of the principal from the mortgage
assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the yield to maturity
on any such IOs held by a Portfolio. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, a Portfolio may
fail to fully recoup its initial investment in these securities even if the
securities are rated in the highest rating categories, AAA or Aaa, by S&P or
Moody's, respectively.

Although stripped mortgage securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. As a result, established trading
markets have not yet been fully developed and, accordingly, these securities may
generally be illiquid. The staff of the SEC (the "Staff") has indicated that it
views such securities as illiquid. Until further clarification of this matter is
provided by the Staff, each Portfolio's investment in stripped mortgage
securities will be treated as illiquid and will, together with any other
illiquid investments, not exceed 10% of each Portfolio's net assets.

Up to 5% of each Portfolio's assets may be invested in structured notes such as
inverse floaters and super floaters. See the SAI for further information.

RISKS OF MORTGAGE SECURITIES

The mortgage securities in which the Portfolios invest differ from conventional
bonds in that principal is paid back over the life of the mortgage security
rather than at maturity. As a result, the holder of the mortgage securities
receives monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing prepayments on the underlying
mortgages. When the holder reinvests the payments and any unscheduled
prepayments of principal it receives, it may receive a rate of interest which is
lower than the rate on the existing mortgage securities. For this reason,
mortgage securities may be less effective than other types of U.S. government
securities as a means of "locking in" long-term interest rates.

The market value of mortgage securities, like other U.S. government securities,
will generally vary inversely with changes in market interest rates, declining
when interest rates rise and rising when interest rates decline. However,
mortgage securities, while having less risk of a decline during periods of
rapidly rising rates, may also have less potential for capital appreciation than
other investments of comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline. To the extent market
interest rates increase beyond the applicable cap or maximum rate on a mortgage
security, the market value of the mortgage security would likely decline to the
same extent as a conventional fixed rate security.

In addition, to the extent mortgage securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments may result in some
loss of the holders' principal investment to the extent of the premium paid. On
the other hand, if mortgage securities are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of principal will
increase

<PAGE>
current and total returns and will accelerate the recognition of income which,
when distributed to shareholders, will be taxable as ordinary income.

With respect to pass-through mortgage pools issued by non-governmental issuers,
there can be no assurance that the private insurers associated with such
securities, can meet their obligations under the policies. Although the market
for such non-governmentally issued or guaranteed mortgage securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The purchase of such securities is subject to the
Portfolio's limit with respect to investment in illiquid securities, as more
fully described herein.

ASSET-BACKED SECURITIES

In addition to the above types of securities, the Securities Portfolio may
invest in asset-backed securities, including adjustable rate asset-backed
securities, which have interest rates which reset at periodic intervals.
Asset-backed securities are similar to mortgage-backed securities. However, the
underlying assets include assets such as receivables on home equity and credit
card loans, and receivables regarding automobile, mobile home and recreational
vehicle loans and leases. The assets are securitized either in a pass-through
structure (similar to a mortgage pass-through structure) or in a pay-through
structure (similar to the CMO structure). The Securities Portfolio may invest in
these and other types of asset-backed securities that may be developed in the
future. In general, the collateral supporting asset-backed securities is of a
shorter maturity than mortgage loans and historically has been less likely to
experience substantial prepayment.

Asset-backed securities entail certain risks not presented by mortgage-backed
securities. Asset-backed securities do not have the benefit of the same type of
security interests in the related collateral. Credit card receivables are
generally unsecured and a number of state and federal consumer credit laws give
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the outstanding balance. In the case of automobile receivables, there
is a risk that the holders may not have either a proper or first security
interest in all of the obligations backing such receivables due to the large
number of vehicles involved in a typical issuance, and technical requirements
under state laws. Therefore, recoveries on repossessed collateral may not always
be available to support payments on the securities. For further discussion
concerning the risks of investing in asset-basked securities, see the SAI .

OTHER INVESTMENT POLICIES

Repurchase Agreements. The Portfolios may engage in repurchase transactions, in
which a Portfolio 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 Portfolio 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 Portfolio to experience a loss or
delay in the liquidation of the collateral securing the repurchase agreement. A
Portfolio might also incur disposition costs in liquidating the collateral. The
Portfolios intend to enter into repurchase agreements only with government
securities dealers recognized by the Federal Reserve Board or with member banks
of the Federal Reserve System and under no circumstances will the Portfolios
enter into repurchase agreements with maturities in excess of one year. Under
the 1940 Act, a repurchase agreement is deemed to be a loan of money by the
Portfolio to the seller, collateralized by the underlying security.

<PAGE>
The U.S. government security subject to resale (the collateral) will be held
pursuant to a written agreement and the Portfolio's custodian will take title
to, or actual delivery of, the security.

When-Issued and Delayed Delivery Transactions. The Portfolios may purchase U.S.
government obligations on a "when-issued" or "delayed delivery" basis. These
transactions are arrangements under which a Portfolio purchases securities with
payment and delivery scheduled for a future time, generally within two weeks.
Purchases of U.S. government securities on a when-issued or delayed delivery
basis are subject to market fluctuation and are subject to the risk that the
value or yields at delivery may be more or less than the purchase price or the
yields available when the transaction was effected. Although a Portfolio will
generally purchase U.S. government securities on a when-issued basis with the
intention of acquiring such securities, it may sell such securities before the
settlement date if it is deemed advisable. When a Portfolio is the buyer in such
a transaction, it will maintain, in a segregated account with its custodian,
cash or high-grade marketable securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. To the extent a
Portfolio engages in when-issued and delayed delivery transactions, it will do
so only for the purpose of acquiring securities consistent with the Portfolio's
investment objective and policies, and not for the purpose of investment
leverage. In when-issued and delayed delivery transactions, the Portfolios rely
on the seller to complete the transaction. The other party's failure may cause a
Portfolio to miss a price or yield considered advantageous. Securities purchased
on a when-issued or delayed delivery basis do not generally earn interest until
their scheduled delivery date. The Portfolios are not subject to any percentage
limit on the amount of their assets which may be invested in when-issued
purchase obligations.

Illiquid Securities. It is the policy of each Portfolio that 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 Portfolio
has valued the securities and includes, among other things, repurchase
agreements of more than seven days duration) may not constitute, at the time of
purchase or at any time, more than 10% of the value of the total net assets of
the Portfolio.

Borrowing. Neither Fund borrows money or mortgages or pledges any of the assets
of the Fund except that the Adjustable Rate Securities Fund may borrow from
banks for temporary or emergency purposes up to 20% of its total assets and
pledge its assets in connection therewith. The Fund may not, however, purchase
any portfolio securities (additional shares of the Securities Portfolio) while
borrowings representing more than 5% of its total assets are outstanding.

The Securities Portfolio may from time to time increase its investments by
borrowing from banks. Borrowings may be secured or unsecured, and at fixed or
variable rates of interest. The Portfolio will borrow only to the extent that
the value of its assets, less its liabilities other than borrowings, is equal to
at least 300% of its borrowings. If the Portfolio does not meet the 300% test,
it will be required to reduce its debt within three business days to the extent
necessary to meet that test. This may require the Portfolio to sell a portion of
its investments at a disadvantageous time.

The Securities Portfolio will borrow when its investment manager believes it is
advantageous to do so. Borrowing for investment purposes is a speculative
investment technique known as leveraging. When the Portfolio leverages its
assets, the net asset value of the Portfolio may increase or decrease at a
greater rate than would be the case if the Portfolio

<PAGE>
were not leveraged. The interest payable on the amount borrowed increases the
Securities Portfolio's expenses, and if the appreciation and income produced by
the investments purchased with the borrowings exceed the cost of the borrowing,
the investment performance of the Portfolio will be increased by leveraging.

Mortgage Dollar Rolls. The Portfolios may enter into mortgage "dollar rolls" in
which a Portfolio sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (name,
type, coupon and maturity) securities on a specified future date. During the
roll period, the Portfolio forgoes principal and interest paid on the
mortgage-backed securities. The Portfolios are compensated by the difference
between the current sales price and the lower forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction and is maintained in a segregated account. Dollar rolls
that are not covered rolls will constitute borrowings and will be included in
the calculation of the Portfolio's borrowings. Covered rolls, however, are not
treated as a borrowing or other senior security and will be excluded from the
calculation of the Portfolio's borrowings and other senior securities.

Loans of Portfolio Securities. With the approval of the Board of Trustees of the
Adjustable Rate Securities Portfolios and subject to various conditions which
may be imposed from time to time under various securities regulations, the
Portfolios may lend their portfolio securities to qualified securities dealers
or other institutional investors, provided that such loans do not exceed 10% of
the value of the Portfolio's total assets at the time of the most recent loan,
and that the borrower deposits and maintains with the Portfolio at least 102%
cash collateral. The lending of securities is a common practice in the
securities industry. The Portfolio will engage in security loan arrangements
with the primary objective of increasing its income through investment of the
cash collateral in short-term interest bearing obligations, but will do so only
to the extent consistent with its tax status as a regulated investment company.
The Portfolio will continue to be entitled to all interest on any loaned
securities. As with any extension of credit, there are risks of delay in
recovery of loaned securities and the possible loss of rights in the collateral
should the borrower fail financially.

Other Permitted Investments. Other permitted investments include: obligations of
the U.S. government; notes, bonds, and discount notes of the following U.S.
government agencies or instrumentalities: Federal Home Loan Banks, Federal
National Mortgage Association, Government National Mortgage Association, Federal
Home Loan Mortgage Corporation, Small Business Administration; and time and
savings deposits (including fixed or adjustable rate certificates of deposit) in
commercial or savings banks or in institutions whose accounts are insured by the
FDIC. Each Portfolio's investments in savings deposits are generally deemed to
be illiquid and will, together with any other illiquid investments, not exceed
10% of each Portfolio's total net assets. Each Portfolio's investments in time
deposits will not exceed 10% of its total assets.

Derivates. The Funds may use certain types of instruments, sometimes referred to
as "derivatives," to help it (a) manage risks relating to interest rates,
currency fluctuations and other market factors; (b) increase liquidity and/or
(c) invest in a particular stock or bond in a more efficient or less expensive

<PAGE>
way. Derivatives are broadly defined as financial instruments whose performance
is derived, at least in part, from the performance of an underlying asset, such
as stock prices or indices of securities, interest rates, currency exchange
rates, or commodity prices. The Funds invest in the following instruments, some,
all or the component parts of which might be considered derivatives: CMOs,
REMICs, multi-class pass-throughs, stripped mortgage securities and other
asset-backed securities, uncovered mortgage dollar rolls, structured notes.
These instruments and their risks are discussed above; the Funds will not
necessarily use the instruments or investment strategies to the full extent
permitted unless the investment manager believes that doing so will help the
Funds reach their objectives, and not all instruments or strategies will be used
at all times.

Temporary Defensive Positions. When maintaining a temporary defensive position,
the Portfolios may invest their assets, without limit, in any U.S. government
securities, certificates of deposit of banks having total assets in excess of $5
billion, and repurchase agreements.

INVESTMENT RESTRICTIONS

Each Portfolio is subject to a number of additional investment restrictions,
some of which, like each Portfolio's investment objective and investment
policies, have been adopted as fundamental policies of each Portfolio and may
only be changed with the approval of a majority of the outstanding voting
securities of that Portfolio. A list of these restrictions and more information
concerning the policies are discussed in the SAI .

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUNDS' ACTIVITIES

The assets of each Fund are invested (through its respective Portfolio) in
portfolio securities. If the securities owned by that 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 Funds.

In addition to the factors which affect the value of individual securities, as
described in the preceding sections, a shareholder may anticipate that the value
of a Fund's shares will fluctuate with movements in the broader equity and bond
markets, as well. In particular, changes in interest rates will affect the value
of each Fund's portfolio and thus its share price. Increased rates of interest
which frequently accompany inflation and/or a growing economy are likely to have
a negative effect on the value of each Fund's shares. History reflects both
increases and decreases in the prevailing rate of interest and these may reoccur
unpredictably in the future.

ADMINISTRATION OF THE FUNDS

The Trust has a Board of Trustees, which has the primary responsibility for the
overall management of the Trust, and the Funds, and for electing the officers of
the Trust who are responsible for administering the day to day operations of all
series of the Trust. The officers and trustees of the Trust are also officers
and trustees of the Adjustable Rate Securities Portfolios. For information
concerning the officers and trustees of the Trust and the Adjustable Rate
Securities Portfolios, see "Trustees and Officers" in the Statement of
Additional Information of the Funds. The Board of Trustees, with all of the
disinterested trustees as well as interested trustees voting in favor, have
adopted written procedures designed to deal with potential conflicts of interest
which may arise from the fact of having the same persons serving on each trust's
Board of Trustees. The procedures call for an annual review of each Fund's
relationship with the respective Portfolio, and in the

<PAGE>
event a conflict is deemed to exist, the Board may take action, up to and
including the establishment of a new Board of Trustees. The Board of Trustees
has determined that there are no conflicts of interest presented by this
arrangement at the present time. Further information is included in the SAI .

Advisers, serves as the Funds' administrator and as the Portfolios' investment
manager. Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly-owned holding company, the principal shareholders of
which are Charles B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann,
who own approximately 20%, 16% and 10%, respectively, of Resources' outstanding
shares. Through its subsidiaries, Resources is engaged in various aspects of the
financial services industry. Advisers acts as investment manager or
administrator to 34 U.S. registered investment companies (111 separate series)
with aggregate assets of over $75 billion.

Pursuant to administration agreements for the Funds, Advisers provides various
administrative, statistical, and other services which are necessary in order to
conduct the Funds' business.

The following table includes the administration fees and total operating
expenses, including expenses attributable to the Funds' investment in the
Portfolio (expressed as a percentage of average daily net assets of each Fund)
which were paid, or which would have otherwise been payable, by each Fund for
the fiscal year ended June 30, 1994:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTABLE ADJUSTABLE RATE
U.S. GOVERNMENT SECURITIES
FUND FUND

<S> <C> <C>
Administration Fees Accrued 0.05% 0.05%

Administration Fees Paid 0.03% 0.00%

Management Fees Attributable to each Portfolio 0.36% 0.40%

Other Expenses Attributable to Each Fund 0.04% 0.05%

Total Expenses 0.45% 0.50%

Total Expenses Actually Paid After Reductions 0.07% 0.25%
</TABLE>
- --------------------------------------------------------------------------------

Each Portfolio has a management agreement with Advisers which provides for the
supervision and implementation of each Portfolio's investment activities and
provides certain administrative services and facilities which are necessary to
conduct the Portfolios' business.

It is not anticipated that the Portfolios or the Funds will incur a significant
amount of brokerage expenses because mortgage securities are generally traded on
a "net" basis, that is, in principal transactions without the addition or
deduction of brokerage commissions. To the extent that the Portfolios do
participate in transactions involving brokerage commissions, it is Advisers'
responsibility to select brokers through which such transactions will be
effected.

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.

DISTRIBUTIONS TO SHAREHOLDERS

There are two types of distributions which the Fund may make to its
shareholders:

1. Income dividends. Each Fund receives income primarily in the form of income
dividends paid by the Portfolio in which it invests. This income, less the
expenses incurred in operations, is a Fund's net investment income from which
income dividends may be distributed. Each Fund ordinarily declares

<PAGE>
dividends from this income on each day its net asset value is calculated. Shares
begin earning dividends on the date trade payment is received in accordance with
the procedures set forth in "How to Buy Shares of the Funds" or, if an investor
has sent a check, on the day the check is converted into federal funds (which
may take two or more days depending upon the banks involved). The amount of the
dividend may fluctuate from day to day depending on changes in the factors that
comprise each Fund's net investment income. The Funds do not pay "interest" to
their shareholders, nor is any amount of dividends or return guaranteed in any
way.

Dividends are declared daily and automatically reinvested monthly in the form of
additional shares of the respective Funds at the net asset value per share,
generally at the close of business on the last business day of the month.
Shareholders may request to have their dividends paid out monthly in cash by
notifying the Fund or its transfer agent. Shareholders redeeming all their
shares at any time during the month will receive all dividends to which they are
entitled together with the redemption check.

2. Capital gain distributions. Distributions by each 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 and will
reflect the net short-term and net long-term capital gains realized by each Fund
as of October 31 of the current fiscal year and any undistributed net capital
gains from the prior fiscal year. Each Fund reserves the right to make more than
one distribution derived from net short-term and net long-term capital gain in
any year or to adjust the timing of these distributions for operational or other
reasons. Further information on the taxation of distributions is included in the
following section.

TAXATION OF THE FUNDS AND THEIR 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 .

Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
qualified as such and intends to continue to so qualify. By distributing all of
its income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, a Fund will not be liable for federal
income or excise taxes.

For federal income tax purposes, any income dividends received from a 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 received
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.

<PAGE>
Redemptions and exchanges of a Fund's shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange of
a 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.

Since each Fund's income is derived from interest income and gain on the sale of
portfolio securities rather than dividend income, no portion of any of the
distributions paid by the Funds will generally be eligible for the corporate
dividends-received deduction. None of the distributions paid by the Funds for
the fiscal year ended June 30, 1994 qualified for this deduction and it is not
anticipated that any of the current year's dividends will so qualify.

Each Fund will inform its 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 shareholders of the tax status for federal income tax
purposes of such dividends and distributions.

While many states grant tax-free status to dividends paid to shareholders of
mutual funds from interest income earned by a Fund from direct obligations of
the U.S. government, none of the distributions of the Funds are expected to
qualify for such tax-free treatment. Investments in mortgage-backed securities
(including GNMA, FNMA and FHLMC securities) and repurchase agreements
collateralized by U.S. government securities do not qualify as direct federal
obligations in most states. Shareholders should consult with their own tax
advisors with respect to the applicability of state and local intangible
property or income taxes to their shares of a Fund and distributions and
redemption proceeds received from a Fund.

Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisers regarding the applicability
of U.S. withholding taxes to distributions received by them from a Fund and the
application of foreign tax laws to these distributions.

HOW TO BUY SHARES OF THE FUNDS

Shares of each Fund may be purchased by institutions, such as corporations,
banks, thrifts, credit unions, government authorities and agencies, and trust
companies, and other institutional entities where such institutions by law,
regulation, charter or stated policies are prohibited from investing in a fund
that charges a sales load or incurs distribution expenses pursuant to a 12b-1
Plan. In addition, in order to be eligible to invest in the Fund, an investor
must have, after purchase of shares of a Fund, at least $5,000,000 (valued at
the higher of cost or current value) invested in the Franklin Group of Funds(R)
or the Templeton Group ($1,000,000 for trust companies and bank trust
departments purchasing shares on behalf of accounts over which they exercise
exclusive investment discretion.) The shares can be purchased directly from a
Fund and are offered at their net asset value (with no sales charge) on a
continuous basis by each Fund. Shares begin earning dividends on the date trade
payment is received, provided that the Fund received notification of the trade
on the previous business day. (For a description of how each Fund's shares are
valued, see "Valuation of Fund Shares.") The Funds reserve the right to waive or
vary the required elements of investor qualification on a case by case basis.
Investments may be made in any one of the following ways:

1. BY WIRE:

(a) First, call the Fund at 1-800/321-8563 or 1-415/312-3600 to advise of the
intention to wire funds for investment. The call must be received prior to
1:00 p.m. Pacific time to receive that day's price. Shares purchased will

<PAGE>
begin earning dividends the date trade payment is received. Each Fund will
supply a wire control number for the investment on the next day. It is
necessary to obtain a new wire control number every time money is wired into
an account in a Fund. Wire control numbers are effective for one transaction
only and may not be used more than once. Wired money which is not properly
identified with a currently effective wire control number will be returned
to the bank from which it was wired and will not be credited to the
shareholder's account.

(b) On the next business day, wire funds to Bank of America ABA Routing No.
121000358, for credit to either Franklin Institutional Adjustable U.S.
Government Securities Fund or Franklin Institutional Adjustable Rate
Securities Fund, A/C 1493304779. Be sure to include the wire control number,
the investor's Franklin account number and account registration. Wired funds
received by the bank and reported by the bank to the Fund by the closing of
the Federal Reserve Wire System (generally 3:00 p.m. Pacific time) are
available for credit on that day. Later wires are credited the following
business day. In order to maximize efficient Fund management, investors are
urged to place and wire their investments as early in the day as possible.

(c) If the purchase is not to an existing account, send a completed Shareholder
Account Application to the Fund in which the investment is being made, at
the address listed on the cover of this Prospectus, for proper credit.

2. BY MAIL:

(a) For an initial investment, send a completed Shareholder Account Application
which is included with this Prospectus.

(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
either Franklin Institutional Adjustable U.S. Government Securities Fund or
Franklin Institutional Adjustable Rate Securities Fund.

(c) Next, send the check, Federal Reserve draft or negotiable bank draft to the
Fund in which the investment is being made, at the address listed on the
cover of this Prospectus. Investments in good order (which generally means a
completed application, for an initial order, along with a check which may
take up to two or more days from receipt) received by the Fund prior to 1:00
p.m. Pacific time on any business day will receive the price next calculated
on that day. Items received after 1:00 p.m. Pacific time will receive the
price calculated on the next business day.

3. THROUGH SECURITIES DEALERS

Although each Fund's shares are sold without a sales charge, a shareholder may
invest in a Fund by purchasing shares through a securities dealer which has
executed a dealer or similar agreement with Distributors, the Fund's principal
underwriter. The use of the term "securities dealers" includes other financial
institutions which pursuant to an agreement with Distributors (directly or
through affiliates) handle customer orders and accounts for the group. The
securities dealer may choose to wire or mail the monies accompanying an
investment in the Fund. Securities dealers who process orders on behalf of their
customers may charge a reasonable fee for their services. Investments made
directly, without the assistance of a securities dealer, are without charge.

<PAGE>
RIGHTS OF ACCUMULATION WITH OTHER FUNDS

The cost or current value (whichever is higher) of the shares in a Fund will be
included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds and in the Templeton Group of Funds which are sold with a sales charge.
Included for these purposes are (a) the open-end investment companies in the
Franklin Group (except Franklin Valuemark Funds and Franklin Government
Securities Trust) (the "Franklin Group of 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) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group"), and (c) the open-end U.S. registered investment companies 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 Group").

Solely for purposes of determining whether an investor will have the required
amount invested in order to qualify, investments in the following accounts may
be combined:

(1) all accounts registered in the name of an institution, for its own account
or for accounts under exclusive investment discretion (such as trust or
custodial accounts)

(2) all accounts with substantially identical ownership; for example, accounts
of all 80% or more owned subsidiaries of a holding company.

The Funds must be advised in writing of all accounts which are to be linked
pursuant to the foregoing.

For additional information regarding these programs, please contact the Funds'
Shareholder Services Agent or Franklin's Institutional Sales Department, by mail
at the address listed on the cover of this Prospectus or by telephone at
1-800/321-8563.

EXCHANGE PRIVILEGE

The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment companies with various investment objectives and policies. The shares
of many of these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for the securities
markets changes, Fund shares may be exchanged for shares of any of the other
investment companies in the Franklin Group of Funds or the Templeton Group (as
defined under "Rights of Accumulation with other 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 excercising the
exchange privilege, for example, minimum holding periods or applicable sales
charges.

Shares of the Fund (other than those acquired pursuant to the Exchange Privilege
from a fund on which a sales charge was assessed or the reinvestment of
dividends with respect to such shares) may be exchanged at the offering price of
one of the other funds in the Franklin Group of Funds or the Templeton Group.
Such offering price includes the applicable sales charge of the fund into which
the shares are being exchanged. The prospectuses for all investment companies in
the Franklin Group of Funds and the Templeton Group which are normally sold with
a sales charge allow certain institutional investors to acquire shares at net
asset value (without a sales charge). These institutional investors include
government entities, employee

<PAGE>
benefit plans, trust companies and bank trust departments.

Exchanges will be effected as noted below:

(a) From the Fund into a money market series of the Trust. In order to avoid
dilution of the fund into which the shareholder is exchanging, such
transactions will be handled as a liquidation from the Fund at its net asset
value next computed after the exchange request is received in proper form
prior to 1:00 p.m. Pacific time and a purchase of shares of the money market
series on the following business day when the funds for the purchase are
available and the purchase order is in all respects deemed to be in proper
form.

(b) From a money market series of the Trust (except Franklin Late Day Money
Market Portfolio for which the time is 1:30 p.m.) into the Fund. Shares of
the Fund will be purchased at the net asset value next computed after the
exchange request is received prior to 11:15 a.m. Pacific time, with payment
for the purchased shares processed on the following business day when the
funds are made available from the money market fund.

(c) From another fund in the Franklin Group of Funds or the Templeton Group into
the Fund. The exchange will be executed at their respective net asset values
next computed on the day the exchange request is received in proper form
prior to 1:00 p.m. Pacific time.

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

A shareholder may exchange shares of the Fund by telephone by calling Franklin's
Institutional Services Department at 1-800/321-8563. Shareholders wishing to
exchange shares of the Fund in excess of $50,000 must complete an Institutional
Telephone Privileges Request and Agreement, as described under "Telephone
Transactions."

RETIREMENT PLANS

Retirement plan participants may be able to exercise exchange privileges in
accordance with the options available under, and the requirements of, their plan
and plan administrator. Retirement plan administrators may charge a fee in
connection with exchanges. See "General Information - Certain Requirements
Applicable to Retirement Plans."

MISCELLANEOUS INFORMATION

There are differences among the funds in the Franklin Group of Funds and the
Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
invest from Distributors or from the shareholder's securities dealer. By
requesting an exchange, a shareholder represents to the fund that the
shareholder has read such Prospectus.

The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.

TELEPHONE TRANSACTIONS

Shareholders of the Funds may be able to execute various transactions by calling
Franklin's Insti-

<PAGE>
tutional Services Department at 1-800/321-8563. Shareholders will be able to:
(i) effect a change in address, (ii) change a dividend option (see "Restricted
Accounts" below), (iii) transfer shares of a Fund in one account to another
identically registered account in such Fund, and (iv) purchase, redeem or
exchange shares of a Fund by telephone as described in this Prospectus.
Shareholders who do not wish these privileges extended to a particular account
should notify the Funds or Franklin's Institutional Services Department.

Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Request and
Agreement included in the Funds' application or which may be obtained by calling
the number above. The Telephone Transaction options available to retirement
plans are limited to those that are provided under the plan. See "General
Information - Certain Requirements Applicable to Retirement Plans."

VERIFICATION PROCEDURES

The Funds 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, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Funds 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 extend the telephone
transaction privileges to a particular account. In any instance where the Funds
or Investor Services are not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Funds 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 Trust Company 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, Franklin/Templeton 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

<PAGE>
written instructions to the Fund as detailed elsewhere in this Prospectus.

Neither the Funds 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.

HOW TO SELL SHARES OF THE FUNDS

1. BY TELEPHONE

A shareholder may redeem shares of a Fund, up to $50,000, by telephoning
Franklin's Institutional Services Department at 1-800/321-8563. Shareholders
wishing to redeem shares of such Fund in excess of $50,000 must complete an
Institutional Telephone Privileges Request and Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number, and security identification number. The requirements for
telephone transactions extend to transactions transmitted by facsimile or
computer, as well as those communicated directly to a customer representative.
Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in A Shareholder Account Application or Revision.

Payment for a redemption request received by 1:00 p.m. Pacific time may be
transmitted by wire on the following business day. A shareholder which
anticipates requesting a wire in excess of $5 million should notify the Fund
promptly.

2. BY MAIL

A shareholder may redeem shares by sending a letter requesting redemption to the
Funds. Redemption proceeds will be mailed to the registered address, or mailed
or wired to a preauthorized bank account as requested. Redemption proceeds may
also be sent to another party or account as requested; however, in such cases,
the signature(s) on the redemption request must be guaranteed.

To be considered in proper form, the signature(s) of all registered owners or
previously designated signers 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 a party other than the
registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to other than the address of
record, preauthorized bank account or brokerage firm account; or

(4) the Funds or Investor Services believe that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of an account cannot be
confirmed, (b) the Funds have been notified of an adverse claim, (c) the
instructions received by the Funds are given by an agent, not the actual
registered owner, or (d) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Funds.

<PAGE>
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.

Liquidation requests of corporate, partnership and trust accounts 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.

For any information required about a proposed liquidation, a shareholder may
call Franklin's Institutional Services Department.

GENERAL

Payment for written redemption requests will be sent within seven days after
receipt of a request in proper form, except that the Funds may delay the mailing
of the redemption check, or a portion thereof, until the clearance of the check
used to purchase the 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. 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 on redemption may be more or less than the amount paid for the
shares, depending upon the fluctuations in the market value of the securities
owned by such Fund. Redemptions may be made in kind, under certain limited
conditions as discussed in the SAI .

Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Funds nor their agent shall be
liable to any shareholder or other person for a redemption payment which for any
reason may not be processed in the expedited manner described in this section.

VALUATION OF SHARES OF THE FUNDS

The net asset value per share of each Fund is determined as of 1:00 p.m. Pacific
time each day that the Exchange is open for trading and on which there is a
sufficient degree of trading in a Fund's

<PAGE>
portfolio securities that the net asset value of the Fund's shares may be
affected.

The net asset value per share for each Fund is calculated by adding the value of
the portfolio holdings (i.e., shares of the Portfolio in which the Fund invests)
and other assets, deducting that Fund's liabilities, and dividing the result by
the number of shares outstanding for that Fund.

For the purpose of determining the aggregate net assets of a Portfolio, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued. Under procedures approved by the Board of Trustees, the mortgage
securities of the Portfolios are valued at current market value provided by a
pricing service, bank or securities dealer when over-the-counter market
quotations are readily available. Securities and other assets for which market
prices are not readily available are valued at fair market value as determined
following procedures approved by the Board of Trustees of the Adjustable
Securities Portfolios.

All money market instruments with a maturity of more than 60 days are valued at
current market, as discussed above. The fair value of debt securities originally
purchased with remaining maturities of 60 days or less is their amortized cost
value, which the Trustees of the Adjustable Rate Securities Portfolios have
determined in good faith constitutes fair value for purposes of complying with
the 1940 Act. This valuation method will continue to be used until such time as
the trustees of the Adjustable Rate Securities Portfolios determine that it does
not constitute fair value for such purposes.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUNDS

From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS system (day or night) at
1-800/247-1753. Information about the Funds may be accessed by entering the Fund
Code 44 for the Adjustable U.S. Government Fund and Code 45 for the Adjustable
Rate Securities Fund followed by the # sign, when requested to do so by the
automated operator. This service is not available when calling from a
rotary-dial telephone.

In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service department
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 a 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 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. A Fund
may also furnish total return quotations for other periods, based on investments
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

<PAGE>
of the original investment, expressed as a percentage of the purchase price.

Current yield reflects the income per share earned by a fund's portfolio
investments; it is calculated by dividing a fund's net investment income per
share during a recent 30-day period by the fund's net asset value 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 a Fund's shareholders. Dividends or distributions paid to shareholders
are reflected in the current distribution rate which may be quoted to a Fund's
shareholders.

In each case performance figures are based upon past performance and reflect all
recurring charges against fund income. The investment results of a 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

Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and the SAI .

ORGANIZATION

VOTING

Shares of each series of the Trust have equal rights as to voting and vote
separately as to issues affecting that series or the Trust unless otherwise
permitted by the 1940 Act. Voting rights are not cumulative, so that the holders
of more than 50% of the shares voting in any election of trustees, can, if they
choose to do so, elect all of the trustees. The Trust does not intend to hold
annual shareholders meetings. The Trust may, however, hold a special
shareholders 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. Whenever a Fund,
as an investor in a Portfolio, is asked to vote on a fundamental policy matter
relating to that Portfolio, the Trust, on behalf of the Fund, will hold a
meeting of that Fund's shareholders and will cast its votes in the same
proportions as the Fund's shareholders have voted. A meeting may also be called
by the trustees at their discretion or by shareholders holding at least ten
percent of the outstanding shares of any series of the Trust. 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.

<PAGE>
The Board of Trustees may from time to time issue other series of the Trust, the
assets and liabilities of which will likewise be separate and distinct from any
other series of the Trust. Currently the Trust consists of nine separate series,
the Money Market Portfolio, the Franklin Late Day Money Market Portfolio, the
Franklin U.S. Government Securities Money Market Portfolio, the Franklin U.S.
Treasury Money Market Portfolio, the Franklin Institutional Adjustable U.S.
Government Securities Fund, the Franklin Institutional Adjustable Rate
Securities Fund, the AEA Cash Management Fund and the Franklin Cash Reserves
Fund, each maintaining a totally separate and distinct investment portfolio.

MISCELLANEOUS

CONFIRMATIONS

Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gains distributions, are credited to
an open share account (known as "plan balance") in the name of an investor on
the books of the Fund without the issuance of a share certificate. Shareholders
will receive confirmation statements quarterly to reflect dividends reinvested
during the period and after each other transaction which affects the account.
These statements will also show the total number of Fund shares owned by a
shareholder.

SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUNDS WILL NOT
BE ISSUED.

REDEMPTIONS BY THE FUNDS

Each Fund reserves the right to redeem shares of any shareholder whose account
has a value of less than $1,000,000 ($500,000 with respect to trust companies
and bank trust departments), but only where the value of such accounts 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.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS

Pursuant to the Code and U.S. Treasury regulations, the Funds 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 Account Application. A
shareholder may also be subject to backup withholding if the IRS or a broker
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 Funds reserve 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 Funds with a certified
TIN within 60 days after opening the account.

<PAGE>
PORTFOLIO OPERATIONS

The following persons are primarily responsible for the day to day portfolio
management of the respective Portfolios in which the Funds invest and have been
since inception of the Portfolios:

T. Anthony Coffey
Portfolio Manager
Franklin Advisers, Inc.

Mr. Coffey holds a bachelor of arts degree from Harvard University and a
master's degree in business administration from the University of California at
Los Angeles. He has been with Advisers since 1989. From 1985 to 1987 Mr. Coffey
was an associate with Analysis Group. He is a member of several securities
industry-related committees and associations.

Roger Bayston
Portfolio Manager
Franklin Advisers, Inc.

Mr. Bayston holds a bachelor of science degree from the University of Virginia
and a master's degree in business administration from the University of
California at Los Angeles. He joined Advisers in 1991, following completion of
his MBA program, and was an assistant treasurer for Bankers Trust Company from
1986 to 1989.

Jack Lemein
Vice President and
Portfolio Manager
Franklin Advisers, Inc.

Mr. Lemein holds a bachelor of science degree in finance from the University of
Illinois. He has been in the securities industry since 1967 and with Advisers
since 1984. He is a member of several securities industry-related committees and
associations.

<PAGE>

SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
AEA CASH MANAGEMENT FUND

INSTITUTIONAL FIDUCIARY TRUST
DATED NOVEMBER 1, 1994

The "How to Sell Shares of the Fund" section of the prospectus is amended to
reflect a change to the operational policies of the Fund:

CONTINGENT DEFERRED SALES CHARGE

The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge will
be made by the Fund, as described below. The 12-month contingency period will
be tolled (or stopped) for the period such shares are exchanged into and held
in the Fund.

In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on qualified investments of $1 million or more, a
contingent deferred sales charge of 1% applies to certain redemptions made by
those investors within 12 months of the calendar month after such investments.
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; (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.

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.

<PAGE>
AEA CASH
MANAGEMENT
FUND

Institutional Fiduciary Trust

PROSPECTUS NOVEMBER 1, 1994

[LOGO]

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/666-4AEA

- -------------------------------------------------------------------------------

AEA Cash Management Fund (the "Fund"), is a diversified series of Franklin's
Institutional Fiduciary Trust (the "Trust") an open-end management investment
company consisting of nine separate and distinct series. This Prospectus relates
only to the Fund.

The Fund is offered exclusively to members of the American Electronics
Association ("AEA"). AEA or its subsidiaries have no responsibility in the
management of the Fund. Franklin/Templeton Distributors, Inc. ("Distributors"),
the Fund's principal underwriter, has entered into an agreement with AEA
Preferred Business Services, Inc. ("PBS") under which PBS will grant to
Distributors the use of the American Electronics Association trademark in
connection with the marketing, advertisement, offering and sale of shares of the
Fund and under which PBS will provide certain administrative services to assist
Distributors in its marketing of the Fund. PBS is not a registered broker or
dealer of securities and PBS will not take any actions or provide any services
that would require such registration under any applicable state or federal laws.

Shares of the Fund may be purchased at net asset value, with no sales charge,
with a minimum initial investment of $2,000 and minimum subsequent investments
of $500 (see "How to Buy Shares of the Fund").

The investment objectives of the Fund are high current income consistent with
capital preservation and liquidity. THE FUND, UNLIKE MOST FUNDS WHICH INVEST
DIRECTLY IN SECURITIES, SEEKS TO ACHIEVE ITS OBJECTIVES BY INVESTING ALL OF ITS
ASSETS IN THE MONEY MARKET PORTFOLIO (THE "PORTFOLIO"), A SEPARATE SERIES OF THE
MONEY MARKET PORTFOLIOS, WHOSE INVESTMENT OBJECTIVES ARE SUBSTANTIALLY SIMILAR
TO THOSE OF THE FUND. The Portfolio, in turn, invests in various types of money
market instruments (U.S. government and federal agency obligations, certificates
of deposit, bankers' acceptances, time deposits of major financial institutions,
high grade commercial paper, high grade short-term corporate obligations, and
repurchase agreements [secured by U.S. government securities]).

AN INVESTMENT IN THE FUND IS NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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 in general
and the Fund, dated November 1, 1994, 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 Distributors by mail at 777
Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777 or by calling
1-800/666-4AEA.

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 or the SAI.

<PAGE>
CONTENTS PAGE

Expense Table........................................................ 2

Financial Highlights................................................. 3

About the Trust...................................................... 3

Investment Objectives and Policies of the Fund....................... 3

Administration and Management of the Fund............................ 7

Distributions to Shareholders........................................ 8

Taxation of the Fund and Its Shareholders............................ 9

How to Buy Shares of the Fund........................................ 9

How to Sell Shares of the Fund....................................... 10

Exchange Privilege................................................... 12

Telephone Transactions............................................... 13

Valuation of Fund Shares............................................. 13

How to Get Information Regarding an Investment in the Fund........... 14

Performance.......................................................... 14

General Information.................................................. 14

Important Notice Regarding Taxpayer IRS Certifications............... 15

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.

SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases ............................ NONE
Maximum Sales Charge Imposed on Reinvested Dividends ................. NONE
Deferred Sales Charge................................................. NONE
Redemption Fees....................................................... NONE
Exchange Fee.......................................................... NONE
ESTIMATED ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fees of the Portfolio...................................... 0.15%*
Rule 12b-1 Fees....................................................... 0.10%**
Administration Fees and Other Expenses of the Fund.................... 0.00%*
Other Expenses........................................................ 0.01%*
-----
Total Operating Expenses.............................................. 0.26%
-----

*For the fiscal year ended June 30, 1995, Franklin Advisers, Inc. ("Advisers")
the Fund's administrator and the Portfolio's investment manager, has voluntarily
agreed to keep the annual expenses of the Fund to 0.01% (excluding Rule 12b-1
expenses as discussed below and excluding the management fees of the Portfolio
shown above). After June 30, 1995, Advisers may discontinue this arrangement for
the Fund.

**The Fund's plan of distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940 provides for payments by the Fund up to an annual rate of
0.25% of the Fund's average daily net assets. Through at least June 30, 1995,
Distributors has agreed to limit payments by the Fund to an annual rate of 0.10%
of average daily net assets. See discussion "Plan of Distribution" under
"General Information."

Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder'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

1 YEAR 3 YEARS
$3 $8

THIS EXAMPLE IS BASED ON THE ANNUALIZED OPERATING EXPENSES OF THE FUND AND
PORTFOLIO SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating
expenses are borne by the Fund and only indirectly by shareholders as a result
of their investment in the Fund. In addition, federal regulations require the
example to assume an annual return of 5%, but the Fund's actual return may be
more or less than 5%.

<PAGE>

The above table summarizes the aggregate fees and expenses incurred by both the
Fund and the Portfolio. The Board of Trustees of the Trust considered the
aggregate fees and expenses to be paid by both the Fund and the Portfolio under
the Fund's policy of investing all of its assets in shares of the Portfolio, and
such fees and expenses the Fund would pay if it invested directly in the various
types of money market instruments. This arrangement, whereby the Fund invests
all of its assets in shares of the Portfolio enables eligible institutional
investors, including the Fund and other investment companies, to pool their
assets which may be expected to result in the achievement of a variety of
operating economies. Accordingly, the Board concluded that the aggregate
expenses of the Fund and the Portfolio were expected to be lower than the
expenses that would be incurred by the Fund if it invested directly in various
types of money market instruments. Of course, there is no guarantee or assurance
that asset growth and lower expenses will be recognized. Further information
regarding the Fund's and the Portfolio's fees and expenses is included under
"Administration and Management of the Fund."

FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of registration to the end of the fiscal year,
June 30, 1994. The information has been audited by Coopers & Lybrand,
independent auditors, whose audit report appears in the financial statements in
the Fund's SAI. See the discussion "Report to Shareholders" under "General
Information.

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------

NET ASSET DISTRIBUTIONS NET ASSET
VALUE AT NET FROM NET VALUE AT
PERIOD BEGINNING INVESTMENT INVESTMENT END OF TOTAL
ENDED OF PERIOD INCOME INCOME PERIOD RETURN**+
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 $1.00 0.014 (0.014) $1.00 1.41%

</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------
RATIO OF EXPENSES
NET ASSETS RATIO OF TO AVERAGE NET ASSETS RATIO OF NET
AT END OF EXPENSES (EXCLUDING WAIVER INVESTMENT INC
PERIOD YEAR TO AVERAGE AND REIMBURSEMENT BY TO AVERAGE
ENDED (IN 000'S) NET ASSETS++ ADMINISTRATOR) NET ASSETS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $955 .11%* 2.60%* 3.69%*

</TABLE>
*Annualized

**Total return measures the change in value of an investment over the period
indicated. It assumes reinvestment of dividends and capital gains at net asset
value.

+For the period February 8, 1994 (effective date of registration) to
June 30, 1994.

++During the period indicated, Advisers reduced administration fees and
reimbursed other expenses incurred by the AEA Fund.

ABOUT THE TRUST
- -------------------------------------------------------------------------------

The Trust, organized as a Massachusetts business trust in January 1985, is an
open-end management investment company, or mutual fund, and has registered with
the SEC under the Investment Company Act of 1940 (the "1940 Act"). Shares of the
Fund may be acquired at the current net asset value (without sales charge). The
Fund is offered exclusively to members of the AEA. (See "How to Buy Shares of
the Fund.")

INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
- -------------------------------------------------------------------------------

The Fund's investment objectives are high current income consistent with capital
preservation and liquidity.

The Fund's ability to achieve high current income is limited by the Portfolio's
universe of investments, which are high quality money market instruments (U.S.
government and federal agency obligations, certificates of deposit, bankers'
acceptances, time deposits of major financial institutions, high grade
commercial paper, high grade short-term corporate obligations, and repurchase
agreements [secured by U.S. government securities]). The Fund pursues its
investment objectives by investing all of its assets in the Portfolio, which
has substantially similar investment objectives and policies as the Fund. The
Portfolio is a separate diversified series of The Money Market Portfolios, an
open-end management investment company managed by Advisers, whose shares are
acquired by the Fund at net asset value, with no sales charge. Accordingly, an
investment in the Fund is an indirect investment in the Portfolio. Since all
investments are inherently subject to market risk, no assurances can be given
that the Fund will achieve its stated objectives.

<PAGE>

GENERAL

As required by Rule 2a-7 under the 1940 Act, the Portfolio will limit its
investments to those U.S. dollar denominated instruments which its Board of
Trustees determines present minimal credit risks and which are, as required by
the federal securities laws, rated in one of the two highest rating categories
as determined by nationally recognized statistical rating organizations, or if
unrated, must be of comparable quality, with remaining maturities of 397
calendar days or less ("Eligible Securities"). The Portfolio will maintain a
dollar weighted average maturity of the securities in its portfolio of 90 days
or less. As a matter of fundamental policy, the Portfolio is required to invest
100% of its assets in securities which have remaining maturities of 397 days or
less. The Portfolio will not invest more than 5% of its total assets in Eligible
Securities of a single issuer, other than U.S. government securities, rated in
the highest category by the requisite number of rating organizations. The
Portfolio, however, may exceed that limit as permitted by Rule 2a-7 for a period
of up to three business days. The Portfolio will not invest (a) the greater of
1% of the Portfolio's total assets or $1 million in Eligible Securities issued
by a single issuer rated in the second highest category, and (b) more than 5% of
the Portfolio's total assets in Eligible Securities of all issuers rated in the
second highest category.

Because the Portfolio will limit its investments to high quality securities,
there will generally lower yields than if the Portfolio purchased securities
with a lower rating and correspondingly greater risk.

SPECIAL INFORMATION REGARDING THE FUND'S MASTER/FEEDER FUND STRUCTURE

The investment objectives of both the Fund and the Portfolio are fundamental and
may not be changed without shareholder approval. The investment policies of the
Fund, fundamental and non-fundamental, are substantially similar to those
described herein with respect to the Portfolio, except that in all cases, the
Fund is permitted to pursue such policies by investing in an open-end management
investment company with substantially similar investment objectives, policies
and limitations. Any exceptions are noted below. Information on administration
and expenses is included under "Administration and Management of the Fund;" see
the SAI for information regarding the Fund's and the Portfolio's investment
restrictions.

An investment in the Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other shareholders in
the Portfolio, the Fund's expenses may increase or the economies of scale which
have been achieved as a result of the structure may be diminished. Investors in
the Portfolio that have a greater pro rata ownership interest in the Portfolio
than the Fund could have effective voting control over the operation of the
Portfolio. Further, in the event that the shareholders of the Fund do not
approve a proposed future change in the Fund's objective or fundamental
policies, which has been approved for the Portfolio, the Fund may be forced to
withdraw its investment from the Portfolio and seek another investment company
with the same objectives and policies. The Fund may withdraw its investment in
the Portfolio at any time, if the Board of Trustees of the Trust considers that
it is in the best interests of the Fund to do so. In that event, the Board of
Trustees of the Trust would consider what action to take, including the
investment of all of the assets of the Fund in another pooled investment entity
having the same investment objectives and policies as the Fund, or the hiring of
an investment adviser to manage the Fund's investments. Either may cause an
increase in Fund expenses. Further, the Fund's structure is a relatively new
format which often results in certain operational and other complexities. The
Franklin organization, however, was one of the first mutual fund complexes in
the country to implement such a structure and the trustees do not believe that
the additional complexities outweigh the potential benefits to be gained by
shareholders.

The Franklin Group of Funds(R) has other funds, which also invest in the
Portfolio, the Money Market and Franklin Cash Reserves Portfolios of the Trust
and Franklin Money Fund, all of which offer their shares to the public at net
asset value but may be available to certain categories of investors. It is
possible that in the future other funds may be created which may likewise invest
in the Portfolio or existing funds may be restructured so that they may invest
in the Portfolio. Investors interested in obtaining information about such funds
may contact the departments listed under "How to Get Information Regarding an
Investment in the Fund."

The Portfolio is a series of The Money Market Portfolios, a management
investment company registered under the 1940 Act. The Money Market Portfolios is
a Delaware business trust, organized on June 16, 1992, and is authorized to
issue an unlimited number of shares of beneficial interest, with a par value of
$.01 per share. All shares have one vote and, when issued, are fully paid,
non-assessable, and redeemable. Currently, The Money Market Portfolios issues
shares in two separate series; however, additional series may be added in

<PAGE>

the future by the Board of Trustees of The Money Market Portfolios, the assets
and liabilities of which will be separate and distinct from any other series.

Whenever the Fund, as an investor in the Portfolio, is asked to vote on a matter
relating to the Portfolio, the Trust, on behalf of the Fund, will hold a meeting
of the Fund's shareholders and will cast its votes in the same proportions as
the Fund's shareholders have voted.

DESCRIPTION OF SECURITIES IN WHICH THE PORTFOLIO MAY INVEST

U.S. Government Securities. The Portfolio may invest in U.S. government
securities, which consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which have been established or sponsored by the U.S.
government. Certain of these obligations, including U.S. Treasury bills, notes,
bonds, and securities of the Government National Mortgage Association (`GNMAs"
or "Ginnie Maes") and the Federal Housing Administration which are issued or
guaranteed by the U.S. government or which carry a guarantee that is supported
by the full faith and credit of the U.S. government. Other U.S. government
securities are issued or guaranteed by federal agencies or government-sponsored
enterprises, and are not direct obligations of the U.S. government but involve
sponsorship or guarantees by government agencies or enterprises. These
obligations include securities that are supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of the Federal Home Loan
Bank, and securities that are supported by the credit of the instrumentality,
such as Federal National Mortgage Association ("FNMA") bonds.

Bank Obligations. The Portfolio may also invest in bank obligations or
instruments secured by bank obligations. Such instruments may include fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits, and bankers' acceptances issued by banks and savings institutions with
assets of at least one billion dollars. Bank obligations may be obligations of
U.S. banks, foreign branches of U.S. banks (referred to as "Eurodollar
Investments"), U.S. branches of foreign banks (referred to as "Yankee Dollar
Investments") and foreign branches of foreign banks ("Foreign Bank
Investments"). When investing in a bank obligation issued by a branch, the
parent bank must have assets of at least five billion dollars. The Portfolio may
invest only up to 25% of its assets in obligations of foreign branches of U.S.
or foreign banks. Investments in obligations of U.S. branches of foreign banks,
which are considered domestic banks, may only be made if such branches have a
federal or state charter to do business in the U.S. and are subject to U.S.
regulatory authorities. Accordingly, these branches are subject to comparable
regulations as U.S. banks. (See "Investment Risk Considerations" for more
information regarding these investments.)

Time deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. or foreign banking institution for a specified period of time at a stated
interest rate. The Portfolio may not invest more than 10% of its assets in Time
Deposits with maturities in excess of seven calendar days.

Commercial Paper. The Portfolio may also invest in commercial paper of domestic
or foreign issuers which is considered by the Portfolio to present minimal
credit risks and which is considered by the Portfolio to be an Eligible
Security. A discussion of rating categories by nationally recognized statistical
rating organizations is included in the SAI.

<PAGE>

immediately repayable by the borrower) at face value plus accrued interest at
any time. Accordingly, the Portfolio's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. In connection
with master demand note arrangements, the Portfolio's investment manager will
consider earning power, cash flow and other liquidity ratios of the issuer. The
Portfolio, which has no specific limits on aggregate investments in master
demand notes, will invest in notes of only U.S. issuers.

Corporate Obligations. The corporate obligations which the Portfolio may
purchase are fixed, floating and variable rate bonds, debentures and notes which
is considered by the Portfolio to be an Eligible Security. Such obligations must
mature in 397 calendar days or less. Generally speaking, the higher an
instrument is rated, the greater its safety and the lower its yield.

Repurchase Agreements. The Portfolio may engage in repurchase transactions, in
which it 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 Portfolio in each agreement, with the value of
the underlying securities marked to market daily to maintain coverage of at
least 100%. A default by the seller might cause the Portfolio to experience a
loss or delay in the liquidation of the collateral securing the repurchase
agreement. The Portfolio might also incur disposition costs in liquidating the
collateral. The Portfolio, however, intends to enter into repurchase agreements
only with government securities dealers recognized by the Federal Reserve Board
or with member banks of the Federal Reserve System. Under the 1940 Act, a
repurchase agreement is deemed to be the loan of money by the Portfolio to the
seller, collateralized by the underlying security. The U.S. government security
subject to resale (the collateral) will be held pursuant to a written agreement
and the Portfolio's custodian will take title to, or actual delivery of, the
security.

Other Securities. The Portfolio may also purchase and sell securities on a
"when-issued" and "delayed delivery" basis. These transactions are subject to
market fluctuation and the value at delivery may be more or less than the
purchase price. Although the Portfolio will generally purchase municipal
securities on a when-issued basis with the intention of acquiring such
securities, it may sell such securities before the settlement date if it is
deemed advisable. When the Portfolio is the buyer in such a transaction, it will
maintain, in a segregated account with its custodian, cash or high-grade
marketable securities having an aggregate value equal to the amount of such
purchase commitments, until payment is made. To the extent the Portfolio engages
in "when-issued" and "delayed delivery" transactions, it will do so for the
purpose of acquiring securities for the Portfolio's portfolio consistent with
its investment objective and policies and not for the purpose of investment
leverage.

MATURITIES

As a matter of fundamental policy (which may not be changed without shareholder
approval), the Portfolio may not purchase any securities, other than obligations
of the U.S. government, its agencies or the value of the Portfolio's total
assets would be invested in securities of any one issuer with respect to 75% of
the Portfolio's total assets (pursuant to the Portfolio's procedures adopted in
accordance with Rule 2a-7 under the 1940 Act, the 5% limitation applies to the
Portfolio's total assets), or more than 10% of the outstanding voting securities
of any one issuer would be owned by the Portfolio. In addition, the Portfolio
may not invest more than 5% of its total assets in the securities of companies
(including predecessors) which have been in continuous operation for less than
three years, nor invest more than 25% of its total assets in any particular
industry. The Portfolio may, however, invest more than 25% of its assets in
certain domestic bank obligations. The foregoing limitations do not apply to
U.S. government securities and federal agency obligations, or to repurchase
agreements secured by such government securities or obligations, although
certain tax diversification requirements apply to investments in repurchase
agreements and other securities that are not treated as U.S. government
obligations under the Internal Revenue Code. These policies are inapplicable to
the Fund to the extent that it invests all or substantially all of its assets in
another registered investment company having the same investment objectives and
policies as the Fund.

INVESTMENT RISK CONSIDERATIONS

Any of the Portfolio's Eurodollar Investments, Yankee Dollar Investments,
Foreign Bank Investments or investments in commercial paper of foreign issuers
will involve risks that are different from investments in obligations of
domestic entities. These risks may include future unfavorable political and
economic developments, possible withholding taxes, seizure of foreign deposits,
currency controls, interest limitations, or other governmental restrictions
which might affect the payment of principal or interest on securities held. In
addition,

<PAGE>

there may be less publicly available information about such foreign banks or
foreign issuers of commercial paper.

As fundamental policies, the Portfolio may only borrow from banks, not to exceed
5% of its total assets, for temporary or emergency purposes and pledge up to 5%
of its assets for such borrowing. To generate additional income, the Portfolio
may also lend its portfolio securities to securities dealers or other
institutional investors if at least 102% cash collateral is pledged and
maintained by the borrower, although such loans shall not exceed at any time 25%
of the value of the Portfolio's total assets. The Portfolio may not acquire
securities subject to legal or contractual restrictions on resale, securities
which are not readily marketable, or enter into repurchase agreements or master
demand notes with more than seven days to maturity or are otherwise illiquid if,
as a result, more than 10% of the value of its total assets would be invested in
such repurchase agreements or securities.

The Portfolio may purchase or sell securities without regard to the length of
time the security has been held. The Fund and the Portfolio are subject to a
number of additional investment restrictions, some of which may be changed only
with the approval of a majority of either the Fund's or the Portfolio's
shareholders. Policies and restrictions of the Fund and the Portfolio which are
not fundamental or changeable only with the consent of shareholders, may be
changed without the approval of shareholders. For a list of restrictions and
more information concerning the various transactions mentioned above, please
refer to the SAI.

ADMINISTRATION AND MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------

The Board of Trustees has the primary responsibility for the overall management
of the Trust, including the Fund, and for electing the officers of the Trust who
are responsible for administering the day-to-day operations of all series of the
Trust. For information concerning the trustees and officers of the Trust and of
The Money Market Portfolios, see "Trustees and Officers" in the SAI. The Board
of Trustees, has unanimously adopted written procedures designed to deal with
potential conflicts of interest which may arise from the fact of having the same
persons serving on each Trust's Board of Trustees. The procedures call for an
annual review of the Fund's relationship with the Portfolio, and in the event a
conflict is deemed to exist, the Board of Trustees may take action, up to and
including the establishment of a new Board of Trustees. The Board of Trustees
has determined that there are no conflicts of interest presented by this
arrangement at the present time.

Advisers serves as the Fund's administrator and as the Portfolio's investment
manager. Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company, the principal shareholders of
which are Charles B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann,
who own approximately 20%, 16% and 10%, respectively, of Resources' outstanding
shares. Through its subsidiaries, Resources is engaged in various aspects of the
financial services industry. Advisers acts as investment manager or
administrator to 34 U.S. registered investment companies (111 separate series)
with aggregate assets of over $74 billion.

Advisers serves as the Fund's administrator pursuant to an administration
agreement (the "Administration Agreement") with Advisers, effective February 8,
1994. Pursuant to the Administration Agreement, Advisers will provide various
administrative, statistical, and other services to the Fund in return for a
monthly administration fee at the annual rate of 3/100 of 1% of the Fund's
average daily net assets. Through at least June 30, 1995, Advisers has agreed to
limit its administration fees and/or make other expenses payable by the Fund
(excluding fees incurred through participation in the Portfolio and excluding
Rule 12b-1 fees) to 0.01% of average daily net assets per annum. After June 30,
1995, this arrangement may be discontinued.

The Fund is responsible for its own operating expenses including, but not
limited to, Advisers' administration fee; taxes, if any; custodian, legal and
auditing fees; fees and expenses of trustees who are not members of, affiliated
with or interested persons of Advisers; salaries of any personnel not affiliated
with Advisers; insurance premiums; trade association dues; expenses of obtaining
quotations for calculating the value of the Fund's net assets; printing and
other expenses relating to the Fund's operations; filing fees; brokerage fees
and commissions, if any; costs of registering and maintaining registration of
the Fund's shares under federal and state securities laws; plus any
extraordinary and non-recurring expenses which are not expressly assumed by
Advisers.

The Administration Agreement specifies that the administration fee will also be
reduced to the extent necessary to comply with the most stringent limits
prescribed by any state in which the Fund's shares are offered for sale. The
most stringent current state restriction limits the Fund's allowable aggregate
operating expenses (excluding interest, taxes, Rule 12b-1 expenses up to 1% per

<PAGE>

annum and extraordinary expenses such as litigation costs) in any fiscal year to
2.5% of the first $30 million of net assets of the Fund, 2% of the next $70
million of net assets of the Fund and 1.5% of average annual net assets of the
Fund in excess of $100 million.

The Portfolio has a management agreement with Advisers which provides for the
supervision and implementation of the Portfolio's investment activities and
certain administrative services and facilities which are necessary to conduct
the Portfolio's business.

Under the management agreement with Advisers, the Portfolio is obligated to pay
Advisers a fee equal to an annual rate of 15/100 of 1% of the Portfolio's
average net assets. The fee is computed and paid monthly based on the average
daily net assets of the Portfolio during the month. Under the management
agreement, the Portfolio is responsible for its own operating expenses,
including, but not limited to: Advisers' fee; taxes, if any; legal and auditing
fees; fees and costs of its custodian; the fees and expenses of trustees who are
not members of, affiliated with or interested persons of Advisers; salaries of
any personnel not affiliated with Advisers; insurance premiums, trade
association dues, and expenses of obtaining quotations for calculating the value
of the Portfolio's net assets; printing and other expenses relating to the
Portfolio's operations; filing fees; brokerage fees and commissions, if any;
plus any extraordinary and non-recurring expenses which are not expressly
assumed by Advisers.

It is not anticipated that the Portfolio or the Fund will incur a significant
amount of brokerage expenses because short-term money market instruments are
generally traded on a "net" basis, that is, in principal transactions without
the addition or deduction of brokerage commissions or transfer taxes. To the
extent that the Portfolio does participate in transactions involving brokerage
commissions, it is Adviser's responsibility to select brokers through whom such
transactions will be effected. Advisers tries to obtain the best execution on
all such transactions. If it is felt that more than one broker or dealer is able
to provide the best execution, Advisers will consider the furnishing of
quotations and of other market services, research, statistical and other data
for Advisers and its affiliates, as well as the sale of shares of the Fund, as
factors in selecting a broker. Further information is included under "Execution
of Portfolio Transactions" in the SAI.

Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/ Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.

DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------

The Fund declares dividends for each day that the Fund's net asset value is
calculated, payable to shareholders of record as of the close of business that
day. Daily allocations of dividends will commence on the day funds are wired in
accordance with procedures set forth in "How to Buy Shares of the Fund" or, if
an investor has sent a check, on the day the check is converted into federal
funds (which may take two or more days, depending upon the banks involved). The
amount of dividends will fluctuate from day to day and dividends may be omitted
on some days, depending on changes in the factors that comprise the Fund's net
investment income. The Fund does not pay "interest" to its shareholders, nor is
any amount of dividends or return guaranteed in any way.

Dividends are declared daily and automatically reinvested monthly in the form of
additional shares of the Fund at the net asset value per share at the close of
business on the last business day of the month. Shareholders may request to have
their dividends paid out monthly in cash on the Shareholder Account Application
or by notifying the Fund's transfer agent. Shareholders redeeming all their
shares at any time during the month will receive all dividends to which they are
entitled together with the redemption check.

Since the net income of the Fund is declared as a dividend each time the net
income is determined, the net asset value per share of the Fund (i.e., the value
of the net assets of the Fund divided by the number of shares of the Fund
outstanding) is expected to remain at $1.00 per share immediately after each
such determination and dividend declaration. Any increase in the value of a
shareholder's investment in the Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Fund in the
shareholder's account.

The Fund's daily dividend consists of the income dividends paid by the
Portfolio. The Portfolio's daily dividend includes accrued interest and any
original issue or market discount, less any premium amortization, plus or minus
any gain or loss on the sale of portfolio securities and changes in unrealized
appreciation or depreciation in portfolio securities (to the extent required to
maintain a stable net asset value per share), less the estimated expenses of the
Portfolio.

<PAGE>
The Portfolio's (and thus, the Fund's) portfolio is composed of short-term
securities and, under normal circumstances, the Fund (through its investment in
the Portfolio) does not expect to realize any long-term capital gain. Any
undistributed net short-term capital gain which is realized by the Fund
(adjusted for any daily amounts of unrealized appreciation or depreciation
reported above) will be distributed at least once each year and may be
distributed more frequently if necessary in order to avoid federal excise taxes.
Any distributions of short-term capital gain will also be reinvested in the form
of additional Fund shares at net asset value, unless the shareholder has
previously notified the Fund to have them paid in cash.

The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.

The SAI includes a further discussion of distributions.

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 regarding taxation
is included in the SAI.

The Fund is treated as a separate entity for federal income tax purposes. The
Fund intends to elect and qualify to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). By distributing all of its net investment income and net realized
short-term and long-term capital gain, if any, for a fiscal year in accordance
with the timing requirements imposed by the Code and by 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.

Distributions derived from the excess of net long-term capital gain over net
short-term capital loss, if any, 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.

The sale of shares of the Fund, either by redemption or exchange, is a taxable
event and may result in a capital gain or loss. However, since the Fund seeks to
maintain a stable $1.00 per share price for both purchases and redemptions,
shareholders are not expected to realize a capital gain or loss upon sale.

For corporate shareholders, it is not expected that any of the distributions to
be paid by the Fund will qualify for the corporate dividends-received 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 shareholders of the tax status for federal income tax
purposes of such dividends and distributions.

Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares of the
Fund and distributions received from the Fund.

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 taxes to distributions received by them from the Fund and
the application of foreign tax laws to these distributions.

HOW TO BUY SHARES OF THE FUND
- -------------------------------------------------------------------------------

The Fund is offered exclusively to members of the AEA. Shares of the Fund may be
purchased at net asset value, with no sales charge, with a minimum initial
investment of $2,000 and a minimum subsequent investment of $500.

Many of the types of instruments in which the Fund (through the Portfolio)
invests must be paid for in federal funds, which are monies held by the Fund's
custodian bank on deposit at a Federal Reserve Bank. Therefore, a check or draft
received from an investor to purchase shares of the Fund generally cannot be
invested by the Fund until it is converted into and is available to the Fund in
federal funds, which may take up to two days. In such case, purchase orders by
an investor will generally not be considered in proper form and effective until
such conversion and availability. In the event the Fund is able to make
investments immediately (within

<PAGE>
one business day), it may accept a purchase order with payment other than in
federal funds and shares of the Fund will be purchased at the net asset value
next computed after receipt of the order and payments.

The Fund and Advisers reserve the right to reject any order for the purchase of
shares or to waive the minimum investment requirements. Investments may be made
in any one of the following ways:

1. BY WIRE

(a) First, call the Fund at 1-800/666-4AEA or 1-415/312-3600 by 11:15 a.m.
Pacific time to advise of the intention to wire funds for investment.
Shareholders wishing to purchase shares in excess of $50,000 must first
complete an Institutional Telephone Privileges Request and Agreement, as
described under "Telephone Transactions." If notification is received by
11:15 a.m. Pacific time and funds are received in accordance with the
following paragraph (b), shares will be purchased that day and will be
eligible to receive that day's dividend, if any (same day credit). If a
request to begin the wire order process is not made by 11:15 a.m., the
order will not be in proper form for that day's purchase and will receive
credit on the next business day. The Fund will supply a wire control number
for the investment on that day. It is necessary to obtain a new wire
control number every time money is wired into an account in the Fund. Wire
control numbers are effective for one transaction only and may not be used
more than once. Wired money which is not properly identified with a
currently effective wire control number will be returned to the bank from
which it was wired and will not be credited to the shareholder's account.

(b) Next, wire funds to Bank of America, ABA routing number 121000358, for
credit to Institutional Fiduciary Trust-AEA Cash Management Fund, A/C
1493304779. Be sure to include the wire control number, the Fund account
number and registration. Wired funds received by the bank and reported by
the bank to the Fund by the close of the Federal Reserve Wire System
(currently 3:00 p.m. Pacific time) are normally available to purchase Fund
shares on that day, provided the Fund is timely notified as described in
(a) above. Wires received after 3:00 p.m. Pacific time are credited the
following business day. In order to maximize efficient Fund management,
investors are urged to place and wire their investments as early in the day
as possible.

(c) If the purchase is not to an existing account, send a completed Shareholder
Account Application to Institutional Fiduciary Trust, AEA Cash Management
Fund, at the address shown on the cover of this Prospectus, to assure
proper credit.

RIGHTS OF ACCUMULATION WITH OTHER FUNDS

The cost or current value (whichever is higher) of the shares in the Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds(R) and in the Templeton Group of Funds which are sold with a sales
charge. Included for these purposes are (a) the open-end investment companies in
the Franklin Group (except Franklin Valuemark Funds and Franklin Government
Securities Trust) (the "Franklin Group of Funds"), (b) other investment products
in the Franklin Group 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) (the products in subparagraphs (a) and (b) are
referred to as the "Franklin Group"), and (c) the open-end U.S. registered
investment companies 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
Group").

Purchases of Fund shares will also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Group of Funds and
the Templeton Group which are sold with a sales charge.

For additional information regarding these programs, please contact Franklin's
Institutional Services Department by mail at the address listed on the cover or
by telephone at 1-800/666-4AEA.

HOW TO SELL SHARES OF THE FUND
- -------------------------------------------------------------------------------

1. BY TELEPHONE

A shareholder may redeem shares of the Fund, up to $50,000, by telephoning
Franklin's Institutional Services Department at 1-800/666-4AEA. Shareholders
wishing to redeem shares of the Fund in excess of $50,000 must complete an
Institutional Telephone Privileges Request and Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number, and security identification number. The requirements for
telephone transactions extend to transactions transmitted by facsimile or
computer, as well as those communi-

<PAGE>

cated directly to a customer representative. Payment may be made by wire
directly to any commercial bank previously designated by the shareholder in a
Shareholder Account Application or Revision.

2. BY MAIL:

TO BE CONSIDERED IN PROPER FORM, THE SIGNATURE(S) OF ALL REGISTERED OWNERS OR
PREVIOUSLY DESIGNATED SIGNERS 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 a party other than the
registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to other than the address of
record, preauthorized bank account or brokerage firm account; or

(4) 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 an account cannot
be confirmed, (b) the Fund has been notified of an adverse claim, (c) the
instructions received by the Fund are given by an agent, not the actual
registered owner, or (d) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund.

Liquidation requests of corporate, partnership and trust accounts 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.

For any information required about a proposed liquidation, a shareholder may
call Franklin's Institutional Services Department.

GENERAL

<PAGE>
funds wire are available for immediate redemption. 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 on
redemption may be more or less than the amount paid for the shares, depending
upon the fluctuations in the market value of the securities owned by the Fund.
Redemptions may be made in kind, under certain limited conditions as discussed
in the SAI.

Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Fund or its agent shall be
liable to any shareholder or other person for a redemption payment which for any
reason may not be processed in the expedited manner described in this section.

EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------

Shares of the Fund (other than those acquired pursuant to the exchange Privilege
from a fund on which a sales charge was assessed or the reinvestment of
dividends with respect to such shares, may be exchanged at the offering price of
one of the other funds in the Franklin Group of Funds or the Templeton Group.
Such offering price includes the applicable sales charge of the fund into which
the shares are being exchanged. Exchanges will be effected at the respective net
asset values or offering prices of the funds involved at the close of business
on the day on which the request is received in proper form. Such exchanges will
be effected as follows:

(c) From another fund in the Franklin Group of Funds or the Templeton Group
into the Fund. In order to avoid dilution of the funds, such transactions
will be handled as a liquidation from the other fund at its net asset value
next computed on the day the exchange request is received in proper form
prior to the time the valuation of shares for that fund is effected
(generally 3:00 p.m. Pacific time for money market funds [excluding the
money market funds in the Trust] and 1:00 p.m. Pacific time for non-money
market funds), and a purchase of the Fund's shares on the following
business day at the price computed on such following business day when the
funds for the purchase are available and the purchase order is in all
respects deemed to be in proper form.

The use of the exchange program may be discontinued or modified by the Fund upon
60 days' written notice to shareholders.

EXCHANGES BY TELEPHONE

During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement. In this event,
shareholders

<PAGE>
should follow the other exchange procedures discussed in this section.

MISCELLANEOUS INFORMATION

There are differences among the funds in the Franklin Group of Funds and the
Templeton Group. Before making an exchange, Investors should review the
prospectus of the fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on exercising the
exchange privilege, for example, minimum holding periods or applicable sales By
requesting an exchange, a shareholder represents to the fund that the
shareholder has done so.

The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.

TELEPHONE TRANSACTIONS
- -------------------------------------------------------------------------------

Shareholders of the Fund may be able to execute various transactions by calling
Franklin's Institutional Services Department at 1-800/321-8563. Shareholders
will be able to: (i) effect a change in address, (ii) change a dividend option
(iii) transfer Fund shares in one account to another identically registered
account in the Fund, and (iv) purchase, redeem or exchange Fund shares by
telephone as described in this Prospectus. Shareholders who do not wish these
privileges extended to a particular account should notify the Fund or Franklin's
Institutional Services Department.

Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Request and
Agreement included in the Fund's application or which may be obtained by calling
the number above.

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, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Fund and Investor Services
follow instructions communicated by telephone which were reasonably believed to
be genuine at the time of their receipt, neither they nor their affiliates will
be liable for any loss to the shareholder caused by an unauthorized transaction.
Shareholders are, of course, under no obligation to extend the telephone
transaction privileges to a particular account. 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.

GENERAL

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 offering price is the net asset value (without a sales charge) next computed
following receipt of the order by the Fund in proper form.

The net asset value of the shares of the Fund is computed at 12:30 p.m. Pacific
time each day that the New York Stock Exchange is open for trading.

The net asset value per share is calculated by adding the value of all of the
Fund's portfolio holdings (i.e., shares of the Portfolio) and other assets,
deducting the Fund's liabilities, and dividing the result by the number of Fund
shares outstanding.

The valuation of portfolio securities held by the Portfolio is based upon their
amortized cost value, which does not take into account unrealized capital gain
or loss. This involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the instrument.

<PAGE>
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- -------------------------------------------------------------------------------

Any questions or communications regarding a shareholder's account should be
directed to Franklin's Institutional Services Department at 1-800/666-4AEA,
Monday through Friday, from 6:00 a.m to 5:00 p.m. Pacific time.

From a touch-tone telephone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS(R) system (day or night) at
1-800/247-1753. Yield information may be accessed by entering Code 47 for the
Fund followed by the # sign, when requested to do so by the automated operator.
This service is not available when calling from a rotary-dial telephone.

PERFORMANCE
- -------------------------------------------------------------------------------

Advertisements, sales literature and communications to shareholders may contain
information regarding the Fund's performance, including quotations of its
current and effective yield.

In each case, performance figures are based upon past performance and will
reflect all recurring charges against Fund income. Such quotations will reflect
the value of any additional shares purchased with dividends from the original
share and any dividends declared on both the original share and such additional
shares. 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
performance may be in any future period.

GENERAL INFORMATION
- -------------------------------------------------------------------------------

REPORTS TO SHAREHOLDERS

The Trust's fiscal year ends June 30. Annual Reports containing audited
financial statements of the Trust, including the auditor's report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
of this Prospectus.

Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and the SAI.

ORGANIZATION

VOTING

Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are not cumulative, so that the holders of more than 50% of
the shares voting in any election of trustees, can, if they choose to do so,
elect all of the trustees. The Trust does not intend to hold annual shareholders
meetings. The Trust may, however, hold a special shareholders 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. Whenever the Fund, as an investor in the
Portfolio, is asked to vote on a fundamental policy matter relating to the
Portfolio, the Trust, on behalf of the Fund, will hold a meeting of the Fund's
shareholders and will cast its votes in the same proportions as the Fund's
shareholders have voted. A meeting may also be called by the trustees at their
discretion or by shareholders holding at least ten percent of the outstanding
shares of any series of the Trust. 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.

<PAGE>
The Board of Trustees may from time to time issue other series of the Trust, the
assets and liabilities of which will likewise be separate and distinct from any
other series of the Trust. Currently the Trust consists of nine separate series,
the Fund, the Franklin U.S. Government Agency Money Market Fund, the Money
Market Portfolio, the Franklin Late Day Money Market Portfolio, the Franklin
U.S. Government Securities Money Market Portfolio, the Franklin U.S. Treasury
Money Market Portfolio, the Franklin Institutional Adjustable U.S. Government
Securities Fund, the Franklin Institutional Adjustable Rate Securities Fund and
the Franklin Cash Reserve Fund, each maintaining a totally separate and distinct
investment portfolio.

PLAN OF DISTRIBUTION

The Fund has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan"), whereby it may reimburse Distributors or others, including the American
Electronics Association, for expenses actually incurred in the promotion and
distribution of the Fund's shares, including but not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparation and
distribution of sales literature and related expenses, advertisements, and other
distribution-related expenses. As previously stated, Distributors has entered
into an agreement with AEA Preferred Business Services, Inc. ("PBS") under which
PBS will grant to Distributors the use of the American Electronics Association
trademark in connection with the marketing, advertisement, offering and sale of
shares of the Fund and under which PBS will provide certain administrative
services to assist Distributors in its marketing of the Fund. For its
administrative services and the licensed use of its trademark, PBS will be paid
by Distributors an amount up to the maximum annual "Rule 12b-1 Fees," calculated
and payable on a quarterly basis. The maximum amount which the Fund may pay to
Distributors for such distribution expenses is 0.25% per annum of the Fund's
average daily net assets payable on a quarterly basis. Through at least June 30,
1995, Distributors has agreed to limit Rule 12b-1 payments by the Fund to an
annual rate of 0.10% of the Fund's average net assets. After June 30, 1995,
Distributors may determine to request reimbursement from the Fund up to the
maximum allowed under the Plan. All expenses of distribution and marketing in
excess of 0.25% per annum will be borne by Distributors without reimbursement
from the Fund.

The Plan also covers any payments made 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.

CONFIRMATIONS

SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUNDS WILL NOT
BE ISSUED.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- -------------------------------------------------------------------------------

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend or other
reportable payment 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 Account Application. A shareholder may also be subject
to backup withholding if the IRS or a securities dealer notifies the Fund that
the TIN furnished by the shareholder is incorrect or that the shareholder is
subject to backup withholding for previous under-reporting of interest or
dividend income.

<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN CASH RESERVES FUND

INSTITUTIONAL FIDUCIARY TRUST
DATED JULY 1, 1994

1. The following paragraph is added as the second paragraph under "Description
of Securities in Which the Portfolio May Invest":

Municipal Securities. The Portfolio may invest up to 10% of its assets in
taxable municipal securities, issued by or on behalf of states, territories
and possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies, and instrumentalities, the interest on which is not
exempt from federal income tax, which are considered by the Portfolio to
present minimal credit risks and which are rated within the two highest rating
categories by nationally recognized statistical rating organizations or, if
unrated, have been determined by Advisers to be of comparable quality to
instruments that are Eligible Securities pursuant to procedures approved by
The Money Market Portfolios' Board of Trustees. Generally, municipal
securities are used to raise money for various public purposes such as
constructing public facilities and making loans to public institutions.
Taxable municipal bonds are generally issued to provide funding for privately
operated facilities.

2. The "How to Sell Shares of the Fund" section of the prospectus is amended to
reflect a change to the operational policies of the Fund:

CONTINGENT DEFERRED SALES CHARGE

The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired
by exchange from another of the Franklin Templeton Funds which would have
assessed a contingent deferred sales charge upon redemption, such charge will
be made by the Fund, as described below. The 12-month contingency period will
be tolled (or stopped) for the period such shares are exchanged into and held
in the Fund.

In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on qualified investments of $1 million or more, a
contingent deferred sales charge of 1% applies to certain redemptions made by
those investors within 12 months of the calendar month after such investments.
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; (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.

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.

<PAGE>
FRANKLIN
CASH RESERVES FUND

INSTITUTIONAL FIDUCIARY TRUST

PROSPECTUS JULY 1, 1994

[FRANKLIN LOGO]

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/632-2000
- --------------------------------------------------------------------------------

Shares of the Fund may be purchased at net asset value, with no sales charge,
and, in the case of qualified retirement plans, no required minimum initial
investment amount. Shares of the Fund may also be purchased by certain
institutional investors, such as corporations, banks, and savings and loan
associations, subject to a minimum initial investment of $100,000, except that
government entities, including states, counties, cities, and their
instrumentalities, departments, agencies and authorities may open an account in
the Fund with a minimum initial investment of $1,000. Subsequent purchases are
not subject to a minimum purchase requirement (see "How to Buy Shares of the
Fund").

The investment objectives of the Fund are high current income consistent with
capital preservation and liquidity. THE FUND, UNLIKE MOST FUNDS WHICH INVEST
DIRECTLY IN SECURITIES, SEEKS TO ACHIEVE ITS OBJECTIVES BY INVESTING ALL OF ITS
ASSETS IN THE MONEY MARKET PORTFOLIO (THE "PORTFOLIO"), A SEPARATE SERIES OF THE
MONEY MARKET PORTFOLIOS, WHOSE INVESTMENT OBJECTIVES ARE IDENTICAL TO THOSE OF
THE FUND. The Portfolio, in turn, invests in various types of money market
instruments (U.S. government and federal agency obligations, certificates of
deposit, bankers' acceptances, time deposits of major financial institutions,
high grade commercial paper, high grade, short-term corporate obligations, and
repurchase agreements secured by U.S. government securities).

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.

AN INVESTMENT IN THE FUND IS NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT. THERE CAN

<PAGE>
BE NO ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.

A Statement of Additional Information concerning the Trust in general and the
Fund, dated July 1, 1994, 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 or the Statement
of Additional Information.

CONTENTS PAGE

Expense Table............................................................. 2

About the Trust........................................................... 4

Investment Objectives and Policies of the Fund............................ 4

Administration and Management of the Fund................................. 9

Distributions to Shareholders............................................. 11

Taxation of the Fund and Its Shareholders................................. 12

How to Buy Shares of the Fund............................................. 13

How to Sell Shares of the Fund............................................ 15

Exchange Privilege........................................................ 16

Telephone Transactions.................................................... 18

Valuation of Fund Shares.................................................. 19

Special Services.......................................................... 19

How to Get Information Regarding an Investment in the Fund................ 20

Performance............................................................... 20

General Information....................................................... 20

Important Notice Regarding Taxpayer IRS Certifications.................... 21

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 and the Portfolio. These figures are
based on contractual annual operating expenses of the Fund, except for "Other
Expenses of the Portfolio" and "Other Expenses of the Fund" which are estimated
expenses.

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases................................ NONE
Maximum Sales Charge Imposed on Reinvested Dividends..................... NONE
Deferred Sales Charge.................................................... NONE
Redemption Fees.......................................................... NONE
Exchange Fee............................................................. NONE

<PAGE>

ESTIMATED AND CONTRACTUAL ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<S> <C>
Management and Administration Fees ................................. 0.20%*
12b-1 Fees.......................................................... 0.25%**
Other Expenses of the Portfolio............................ 0.02%
Other Expenses of the Fund................................. 0.02%
-----
Total Other Expenses................................................ 0.04%
-----
Total Operating Expenses............................................ 0.49%*
=====
</TABLE>

*This amount includes management fees of the Portfolio equal to 0.15% and
administration fees of the Fund equal to 0.05%. Franklin Advisers, Inc.
("Advisers"), the Fund's administrator and the Portfolio's investment manager,
during at least the first year of operation of the Fund, has agreed to limit its
administrative fee so as not to exceed 0.05% of the Fund's average net assets.
Absent the waiver, the Fund would be required to pay Advisers a fee for
administration equal to 0.25% of its average net assets.

**The Board of Trustees has adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 whereby the Fund may reimburse
Distributors or others for promotion and distribution expenses up to 0.25%
annually of the Fund's average daily net assets.

Investors should be aware that the preceding table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder'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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C>
$66 $110
</TABLE>

THIS EXAMPLE IS BASED ON THE CONTRACTUAL AND ESTIMATED ANNUAL OPERATING EXPENSES
OF THE FUND AND THE PORTFOLIO SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN. The operating expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. In addition, federal
regulations require the example to assume an annual return of 5%, but the Fund's
actual return may be more or less than 5%.

The above table summarizes the estimated aggregate fees and expenses incurred by
both the Fund and the Portfolio. The Board of Trustees of the Trust considered
the aggregate fees and expenses to be paid by both the Fund and the Portfolio
under the Fund's policy of investing all of its assets in shares of the
Portfolio, and such fees and expenses the Fund would pay if it invested directly
in the various types of money market instruments. This arrangement, whereby the
Fund invests all of its assets in shares of the Portfolio, enables eligible
institutional investors, including the Fund and other investment companies, to
pool their assets, which may be expected to result in the achievement of a
variety of operating economies. Accordingly, the Board concluded that the
aggregate expenses of the Fund and the Portfolio were expected to be lower than
the expenses that would be incurred by the Fund if it invested directly in
various types of money market instruments. Of course there is no guarantee or
assurance that asset growth and lower expenses will be recognized. Further
information regarding the Fund's and the Portfolio's fees and expenses is
included under "Administration and Management of the Fund."

<PAGE>
ABOUT THE TRUST
- --------------------------------------------------------------------------------

The Trust, organized as a Massachusetts business trust in January 1985, is a
diversified, open-end management investment company, or mutual fund, and has
registered with the SEC under the Investment Company Act of 1940 (the "1940
Act"). Shares of the Fund may be acquired at the current net asset value
(without sales charge). The Fund is offered exclusively to qualified retirement
plan participants and other institutional investors, including corporations,
banks, savings and loan associations and government entities. The Fund may not
otherwise be purchased by individuals. (See "How to Buy Shares of the Fund.")

INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
- --------------------------------------------------------------------------------

The Fund's investment objectives are high current income consistent with capital
preservation and liquidity. The Fund pursues its investment objectives by
investing all of its assets in the Portfolio, which has the same investment
objectives and policies as the Fund. The Portfolio is a separate diversified
series of The Money Market Portfolios, an open-end management investment company
managed by Advisers, whose shares are acquired by the Fund at net asset value,
with no sales charge. Accordingly, an investment in the Fund is an indirect
investment in the Portfolio. The Fund's ability to achieve high current income
is limited by the Portfolio's universe of investments, which are high quality
money market instruments (U.S. government and federal agency obligations,
certificates of deposit, bankers' acceptances, time deposits of major financial
institutions, high grade commercial paper, high grade, short-term corporate
obligations, and repurchase agreements secured by U.S. government securities).
Since all investments are inherently subject to market risk, no assurances can
be given that the Fund will achieve its stated objectives.

GENERAL

The Portfolio will maintain a dollar weighted average maturity of the securities
in its portfolio of 90 days or less. As a matter of fundamental policy, the
Portfolio is required to invest 100% of its assets in securities which have
remaining maturities of 397 days or less. The Portfolio will not invest more
than 5% of its total assets in Eligible Securities of a single issuer, other
than U.S. government securities, rated in the highest category by the requisite
number of rating agencies. The Portfolio, however, may exceed that limit as
permitted by Rule 2a-7 for a period of up to three business days. The Portfolio
will not invest (a) the greater of 1% of the Portfolio's total assets or $1
million in Eligible Securities issued by a single issuer rated in the second
highest category, and (b) more than 5% of the Portfolio's total assets in
Eligible Securities of all issuers rated in the second highest category.

Because the Portfolio will limit its investments to high quality securities,
there will generally be lower yields than if the Portfolio purchased securities
with a lower rating and correspondingly greater risk.

<PAGE>

SPECIAL INFORMATION REGARDING THE FUND'S MASTER/FEEDER FUND STRUCTURE

The investment objectives of both the Fund and the Portfolio are fundamental and
may not be changed without shareholder approval. The investment policies of the
Fund, fundamental and non-fundamental, are identical to those described herein
with respect to the Portfolio, except that in all cases, the Fund is permitted
to pursue such policies by investing in an open-end management investment
company with identical investment objectives, policies and limitations. Any
additional exceptions are noted below. Information on administration and
expenses is included under "Administration and Management of the Fund;" see the
Statement of Additional Information for information regarding the Fund's and the
Portfolio's investment restrictions.

An investment in the Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other future
shareholders in the Portfolio, the Fund's expenses may increase or the economies
of scale which have been achieved as a result of the structure may be
diminished. Investors in the Portfolio that have a greater pro rata ownership
interest in the Portfolio than the Fund could have effective voting control over
the operation of the Portfolio. Further, in the event that the shareholders of
the Fund do not approve a proposed future change in the Fund's objectives or
fundamental policies, which has been approved for the Portfolio, the Fund may be
forced to withdraw its investment from the Portfolio and seek another investment
company with the same objectives and policies. If the Board of Trustees of the
Trust considers that it is in the best interests of the Fund to do so, the Fund
may withdraw its investment in the Portfolio at any time. In that event, the
Board of Trustees of the Trust would consider what action to take, including the
investment of all of the assets of the Fund in another pooled investment entity
having the same investment objectives and policies as the Fund, or the hiring of
an investment adviser to manage the Fund's investments. Either may cause an
increase in Fund expenses. Further, the Fund's structure is a relatively new
format which often results in certain operational and other complexities. The
Franklin organization, however, was one of the first mutual fund complexes in
the country to implement such a structure and the trustees do not believe that
the additional complexities outweigh the potential benefits to be gained by
shareholders.

The Franklin Group of Funds(R) has other funds which invest in the
Portfolio. In the future, other funds may be created which may invest in the
Portfolio or existing funds may be restructured so that they may invest in the
Portfolio. Any such fund may be offered at the same or a different public
offering price; thus, an investor in one fund may experience a different return
from an investor in another fund which also invests exclusively in the
Portfolio. The Fund or Advisers will forward any interested shareholder
additional information, including a prospectus and statement of additional
information, if requested, regarding such other funds through which they may
make investments in the Portfolio. Investors may contact the departments listed
under "How to Get Information Regarding an Investment in the Fund."

<PAGE>
assessable, and redeemable. The Money Market Portfolios currently issues
shares in two separate series; however, additional series may be added in the
future by the Board of Trustees of The Money Market Portfolios, the assets and
liabilities of which will be separate and distinct from any other series.

DESCRIPTION OF SECURITIES IN WHICH THE PORTFOLIO MAY INVEST

U.S. Government Securities. The Portfolio may invest in U.S. government
securities, which consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which have been established or sponsored by the U.S.
government. Certain of these obligations, including U.S. Treasury bills, notes,
and bonds, are supported by the full faith and credit of the U.S. government.
Other government securities are issued or guaranteed by federal agencies or
government-sponsored enterprises, and are not direct obligations of the U.S.
government but involve sponsorship or guarantees by government agencies or
enterprises. They also include securities that are supported by the right of the
issuer to borrow from the Treasury, such as obligations of the Federal Home Loan
Bank, and securities that are supported by the credit of the instrumentality,
such as Federal National Mortgage Association bonds.

Bank Obligations. The Portfolio may also invest in bank obligations or
instruments secured by bank obligations. Such instruments may include fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits, and bankers' acceptances issued by banks and savings institutions with
assets of at least one billion dollars. Bank obligations may be obligations of
U.S. banks, foreign branches of U.S. banks (referred to as "Eurodollar
Investments"), U.S. branches of foreign banks (referred to as "Yankee Dollar
Investments") and foreign branches of foreign banks ("Foreign Bank
Investments"). When investing in a bank obligation issued by a branch, the
parent bank must have assets of at least five billion dollars. The Portfolio may
invest up to 25% of its assets in obligations of foreign branches of U.S. or
foreign banks. Investments in obligations of U.S. branches of foreign banks,
which are considered domestic banks, may only be made if such branches have a
federal or state charter to do business in the United States and are subject to
U.S. regulatory authorities. Accordingly, these branches are subject to
comparable regulation as U.S. banks. See the section "Investment Risk
Considerations" for more information regarding these investments.

Time Deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. or foreign banking institution for a specified period of time at a stated
interest rate. The Portfolio may invest only 10% of its assets in Time Deposits
with maturities in excess of seven calendar days.

Commercial Paper. The Portfolio may also invest in commercial paper of domestic
or foreign issuers which is considered by the Portfolio to be an Eligible
Security. For a description of commercial paper ratings, see "Appendix A" in the
Statement of Additional Information.

<PAGE>
the amounts borrowed. The Portfolio has the right to increase the amount
provided by the note agreement, or to decrease the amount, and the borrower may
repay up to the full amount of the note without penalty. The borrower is
typically a large industrial or finance company which also issues commercial
paper. Typically, these notes provide that the interest rate is set daily by the
borrower; the rate is usually the same or similar to the interest on commercial
paper being issued by the borrower. Because variable amount master demand notes
are direct lending arrangements between the lender and the borrower, it is not
generally contemplated that such instruments will be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value plus accrued interest at
any time. Accordingly, the Portfolio's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand and a default by
the borrower might cause the Portfolio to experience a loss. In connection with
master demand note arrangements, the Portfolio's investment manager will
consider earning power, cash flow and other liquidity ratios of the issuer. The
Portfolio, which has no specific limits on aggregate investments in master
demand notes except as otherwise noted under "Investment Risk Considerations,"
will invest in notes of only U.S. issuers.

Corporate Obligations. The corporate obligations which the Portfolio may
purchase are fixed, floating and variable rate bonds, debentures and notes which
are Eligible Securities.

Although the Fund will generally purchase municipal securities on a when-issued
basis with the intention of acquiring such securities, it may sell such
securities before the settlement date if it is deemed advisable. When the Fund
is the buyer in such a transaction, it will maintain, in a segregated account
with its custodian, cash or high-grade marketable securities having an aggregate
value equal to the amount of such purchase commitments, until payment is made.
To the extent the Fund engages in "when-issued" and "delayed delivery"
transactions, it will do so for the purpose of acquiring securities for the
Fund's portfolio consistent with its invest-

<PAGE>
ment objectives and policies and not for the purpose of investment leverage.

MATURITIES

As a matter of fundamental policy (which may not be changed without shareholder
approval), the Portfolio may not purchase any securities, other than obligations
of the U.S. government, its agencies or instrumentalities if, immediately after
such purchase, (i) more than 5% of the value of the Portfolio's total assets
would be invested in securities of any one issuer with respect to 75% of the
Portfolio's total assets (pursuant to the Portfolio's procedures adopted in
accordance with Rule 2a-7 under the 1940 Act, the 5% limitation applies to the
Portfolio's total assets), or (ii) more than 10% of the outstanding voting
securities of any one issuer would be owned by the Portfolio. In addition, the
Portfolio may not invest more than 5% of its total assets in the securities of
companies (including predecessors) which have been in continuous operation for
less than three years, nor invest more than 25% of its total assets in any
particular industry. The Portfolio may, however, invest more than 25% of its
assets in certain domestic bank obligations. The foregoing limitations do not
apply to U.S. government securities and federal agency obligations, or to
repurchase agreements secured by such government securities or obligations,
although certain tax diversification requirements apply to investments in
repurchase agreements and other securities that are not treated as U.S.
government obligations under the Internal Revenue Code. These policies are
inapplicable to the Fund to the extent that it invests all or substantially all
of its assets in another registered investment company having the same
investment objectives and policies as the Fund.

INVESTMENT RISK CONSIDERATIONS

As fundamental policies, the Portfolio may only borrow from banks, not to exceed
5% of its total assets, for temporary or emergency purposes and pledge up to 5%
of its assets for such borrowing. To generate additional income, the Portfolio
may also lend its portfolio securities to securities dealers or other
institutional investors if at least 102% cash collateral is pledged and
maintained by the borrower, although such loans shall not exceed, at any time,
25% of the value of the Portfolio's total assets. The Portfolio may not acquire
securities subject to legal or contractual restrictions on resale, securities
which are not readily marketable, or enter into repurchase agreements or master
demand notes with more than seven days to maturity or which are otherwise
illiquid if, as a result, more than 10% of the value of its total assets would
be invested in such repurchase agreements or securities.

<PAGE>
ers, may be changed without the approval of shareholders. For a list of these
restrictions and more information concerning the various transactions mentioned
above, please refer to the Statement of Additional Information.

ADMINISTRATION AND MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

The Board of Trustees has the primary responsibility for the overall management
of the Trust, including the Fund, and for electing the officers of the Trust who
are responsible for administering the day-to-day operations of all series of the
Trust. For information concerning the trustees and officers of the Trust and of
The Money Market Portfolios, see "Trustees and Officers" in the Statement of
Additional Information. The Board of Trustees has unanimously adopted written
procedures designed to deal with potential conflicts of interest which may arise
from the fact of having the same persons serving on each Trust's Board of
Trustees. The procedures call for an annual review of the Fund's relationship
with the Portfolio, and in the event a conflict is deemed to exist, the Board of
Trustees may take action, up to and including the establishment of a new Board
of Trustees. The Board of Trustees has determined that there are no conflicts of
interest presented by this arrangement at the present time.

Advisers serves as the Fund's administrator and as the Portfolio's investment
manager. Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company, the principal shareholders of
which are Charles B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann,
who own approximately 20%, 16% and 10%, respectively, of Resources' outstanding
shares. Through its subsidiaries, Resources is engaged in various aspects of the
financial services industry. Advisers acts as investment manager or
administrator to 34 U.S. registered investment companies (112 separate series)
with aggregate assets of over $75 billion.

Advisers serves as the Fund's administrator pursuant to an administration
agreement effective July 1, 1994. Pursuant to the administration agreement,
Advisers will provide various administrative, statistical, and other services to
the Fund in return for a monthly administration fee at the annual rate of 25/100
of 1% of the Fund's average daily net assets.

During at least the first year of operation of the Fund, Advisers has agreed to
limit its administrative fee so as not to exceed 0.05% of the Fund's average net
assets and to assume responsibility for making payments to offset certain
operating expenses otherwise payable by the Fund. This action by Advisers to
limit its administrative fee and assume responsibility for payment of expenses
related to the operations of the Fund may be terminated by Advisers at any time.
The administration agreement specifies that the administration fee will also be
reduced to the extent necessary to comply with the most stringent limits
prescribed by any state in which the

<PAGE>
Fund's shares are offered for sale. The most stringent current state restriction
limits the Fund's allowable aggregate operating expenses (excluding interest,
taxes, distribution plan expenses up to 1% per annum and extraordinary expenses
such as litigation costs) in any fiscal year to 2.5% of the first $30 million of
net assets of the Fund, 2% of the next $70 million of net assets of the Fund and
1.5% of average annual net assets of the Fund in excess of $100 million.

Under the management agreement with Advisers, the Portfolio is obligated to pay
Advisers a fee equal to an annual rate of 15/100 of 1% of the Portfolio's
average net assets. The fee is computed and paid monthly based on the average
daily net assets of the Portfolio during the month. Under the Agreement, the
Portfolio is responsible for its own operating expenses, including, but not
limited to: Advisers' fee; taxes, if any; legal and auditing fees; fees and
costs of its custodian; the fees and expenses of trustees who are not members
of, affiliated with or interested persons of Advisers; salaries of any personnel
not affiliated with Advisers; insurance premiums, trade association dues, and
expenses of obtaining quotations for calculating the value of the Portfolio's
net assets; printing and other expenses relating to the Portfolio's operations;
filing fees; brokerage fees and commissions, if any; plus any extraordinary and
non-recurring expenses which are not expressly assumed by Advisers.

It is not anticipated that the Portfolio or the Fund will incur a significant
amount of brokerage expenses because short-term money market instruments are
generally traded on a "net" basis, that is, in principal transactions without
the addition or deduction of brokerage commissions or transfer taxes. To the
extent that the Portfolio does participate in transactions involving brokerage
commissions, it is Advisers' responsibility to select brokers through whom such
transactions will be effected. Advisers tries to obtain the best execution on
all such transactions. If it is felt that more than one broker or dealer is able
to provide the best execution, Advisers will consider the furnishing of
quotations and of other market services, research, statistical and other data
for Advisers and its affiliates, as well as the sale of shares of the Fund, as
factors in selecting a broker. Further information is included under "Execution
of Portfolio Transactions" in the Statement of Additional Information.

Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.

PLAN OF DISTRIBUTION

The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act (the "Plan"), whereby it may reimburse Distributors or others for
expenses actually incurred in the promotion and distribution of the Fund's
shares, including but not limited to, the printing of prospectuses and reports
used for sales purposes, 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

<PAGE>
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 Distributors or others for such
distribution expenses is 0.25% per annum of the Fund's average daily net
assets, payable on a quarterly basis. All expenses of distribution and
marketing in excess of 0.25% per annum will be borne by Distributors without
reimbursement from the Fund. The Plan also covers any payments made 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.

DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------

Dividends are automatically reinvested monthly in the form of additional shares
of the Fund at the net asset value per share at the close of business on the
last business day of the month. Shareholders (excluding retirement plan
participants) may request to have their dividends paid out monthly in cash on
the Shareholder Account Application or by notifying the Fund's transfer agent.
For such shareholders, the shares reinvested and credited to their account
during the month will be redeemed as of the close of business on the last
business day of the month that the New York Stock Exchange (the "Exchange") is
open for trading, and the proceeds will be paid to them in cash. Dividend
options are available to retirement plan participants as set forth in their
plans. See "General Information - Certain Requirements Applicable to Retirement
Plans."

The Portfolio's (and thus, the Fund's) portfolio is composed of short-term
securities and, under nor-

<PAGE>
mal circumstances, the Fund (through its investment in the Portfolio) does not
expect to realize any long-term capital gain. Any undistributed net short-term
capital gain which is realized by the Fund (adjusted for any daily amounts of
unrealized appreciation or depreciation reported above) will be distributed at
least once each year and may be distributed more frequently if necessary in
order to avoid federal excise taxes. Any distributions of short-term capital
gain will also be reinvested in the form of additional Fund shares at net asset
value, unless the shareholder has previously notified the Fund to have them paid
in cash.

The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.

The Statement of Additional Information includes a further discussion of
distributions.

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 regarding taxation
is included in the Statement of Additional Information.

Dividends received by a qualified retirement plan ordinarily will not be subject
to taxation until the proceeds are distributed from the retirement plan account.
Generally, distributions from the account will be taxable as ordinary income
and, if made prior to the time the participant reaches age 59-1/2 or becomes
permanently disabled, will be subject to an additional tax equal to 10% of the
amount distributed. If the distributions from a retirement plan (other than a
governmental or church plan) for any taxable year following the year in which
the participant reaches age 70-1/2 are less than the "minimum required
distribution" for that taxable year, an excise tax equal to 50% of the
deficiency may be imposed on the payee. Moreover, certain contributions to a
retirement plan in excess of the amounts permitted by law may be subject to an
excise tax.

For corporate shareholders, it is not expected that any of the distributions to
be paid by the Fund will qualify for the corporate dividends-received 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 shareholders of the tax status for federal income tax
purposes of such dividends and distributions.

<PAGE>
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares of the
Fund and distributions received from the Fund.

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 taxes to distributions received by them from the Fund and
the application of foreign tax laws to such distributions.

HOW TO BUY SHARES OF THE FUND
- --------------------------------------------------------------------------------

The Fund is offered exclusively to qualified retirement plan participants and
other institutional investors, including corporations, banks, savings and loan
associations and government entities. The Fund may not otherwise be purchased by
individuals. Shares of the Fund may be purchased at net asset value, with no
sales charge. In the case of qualified retirement plans, there is no required
minimum initial investment amount. Although the amount that may be contributed
to the various investment options under a retirement plan in any one year is
subject to certain limitations, assets already held by a retirement plan may be
invested in the Fund without regard to such limitations. Shares of the Fund may
also be purchased by certain institutional investors, such as corporations,
banks, and savings and loan associations, subject to a minimum initial
investment of $100,000. Government entities, however, including states,
counties, cities, and their instrumentalities, departments, agencies and
authorities may open an account in the Fund with a minimum initial investment of
$1,000. Subsequent purchases are not subject to a minimum purchase requirement.

The Fund and Advisers reserve the right to reject any order for the purchase of
shares or to waive the minimum investment requirements. Investments may be made
in any one of the following ways:

1. BY WIRE

(a) First, call the Fund at 1-800/321-8563 or 1-415/312-3600 by 11:15 a.m.
Pacific time to advise of the intention to wire funds for investment.
Shareholders wishing to purchase shares in excess of $50,000 must first complete
an Institutional Telephone Privileges Request and Agreement, as described under
"Telephone Transactions." If notification is received by 11:15 a.m. Pacific time
and funds are received in accordance with the following paragraph (b), shares
will be purchased that day and will be eligible to receive that day's dividend,
if any (same day credit). If a request to begin the wire order process is not
made by 11:15 a.m., the order will not be in proper form for that day's purchase
and will receive credit on the next business day. The Fund will supply a wire
control number for the investment on that day. It is necessary to obtain a new
wire control number every time money is wired into an account in the Fund. Wire
control

<PAGE>
numbers are effective for one transaction only and may not be used more than
once. Wired money which is not properly identified with a currently effective
wire control number will be returned to the bank from which it was wired and
will not be credited to the shareholder's account.

(b) Next, wire funds to Bank of America, ABA routing number 121000358, for
credit to Institutional Fiduciary Trust - Franklin Cash Reserves Fund, A/C
1493304779. Be sure to include the wire control number, the Fund account number
and registration. Wired funds received by the bank and reported by the bank to
the Fund by the close of the Federal Reserve Wire System (currently 3:00 p.m.
Pacific time) are normally available to purchase Fund shares on that day,
provided the Fund is timely notified as described in (a) above. Wires received
after 3:00 p.m. Pacific time are credited the following business day. In order
to maximize efficient Fund management, investors are urged to place and wire
their investments as early in the day as possible.

(c) If the purchase is not to an existing account, send a completed Shareholder
Account Application to Institutional Fiduciary Trust, Franklin Cash Reserves
Fund, at the address shown on the cover of this Prospectus, to assure proper
credit.

2. BY MAIL

(a) For an initial investment, send a completed Shareholder Account Application.

(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
Institutional Fiduciary Trust - Franklin Cash Reserves Fund. Instruments drawn
on other investment companies may not be accepted.

(c) Next, send the check, Federal Reserve draft or negotiable bank draft to the
Trust at the address shown on the cover of this Prospectus.

(d) Shares of the Fund will be purchased at the net asset value next computed
after receipt of the order and payments, as described above.

RIGHTS OF ACCUMULATION/LETTER OF INTENT REGARDING OTHER FUNDS

The cost or current value (whichever is higher) of the shares in the Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds(R) and in the Templeton Group of Funds which are sold with a sales
charge. Included for these purposes are (a) the open-end investment companies in
the Franklin Group (except Franklin Valuemark II and Franklin Government
Securities Trust) (the "Franklin Group of 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) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group"), and (c) the open-end U.S. registered investment companies 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 Group").

For additional information regarding these programs, please contact Franklin's
Institutional Services Department by mail at the address listed on the cover of
this Prospectus or by telephone at 1-800/321-8563.

<PAGE>
HOW TO SELL SHARES OF THE FUND
- --------------------------------------------------------------------------------

1. BY TELEPHONE

A shareholder may redeem shares of the Fund, up to $50,000, by telephoning
Franklin's Institutional Services Department at 1-800/321-8563. Shareholders
wishing to redeem shares of the Fund in excess of $50,000 must complete an
Institutional Telephone Privileges Request and Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number, and security identification number. The requirements for
telephone transactions extend to transactions transmitted by facsimile or
computer, as well as those communicated directly to a customer representative.
Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in a Shareholder Account Application or Revision.
Telephone redemption privileges available to retirement plans are limited to
those that are provided under the plan. See "General Information - Certain
Requirements Applicable to Retirement Plans."

Telephone redemption orders may not be used to direct payments to another
person or to an account which was not previously designated by prior written
instructions. Written instructions will be required as set forth below.

2. BY MAIL

A shareholder may redeem shares by sending a letter requesting redemption to the
Fund. Redemption proceeds will be mailed to the registered address, or mailed or
wired to a preauthorized bank account as requested. Redemption proceeds may also
be sent to another party or account as requested; however, in such cases, the
signature(s) on the redemption request must be guaranteed.

TO BE CONSIDERED IN PROPER FORM, THE SIGNATURE(S) OF ALL REGISTERED OWNERS OR
PREVIOUSLY DESIGNATED SIGNERS 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 a party other than the
registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to other than the address of
record, preauthorized bank account or brokerage firm account; or

<PAGE>
other entity has not been established to the satisfaction of the Fund.

Liquidation requests of corporate, partnership and trust accounts 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.

For any information required about a proposed liquidation, a shareholder may
call Franklin's Institutional Services Department.

GENERAL

Payment for written redemption requests will be sent within seven days after
receipt of a request in proper form, except that the Fund may delay the mailing
of the redemption check, or a portion thereof, until the clearance of the check
used to purchase the 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. 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 on redemption may be more or less than the amount paid for the
shares, depending upon the fluctuations in the market value of the securities
owned by the Fund. Redemptions may be made in kind, under certain limited
conditions as discussed in the Statement of Additional Information.

Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Fund nor its agent shall be
liable to any shareholder or other person for a redemption payment which for any
reason may not be processed in the expedited manner described in this section.

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

The Franklin Group of Funds(R) and the Templeton Group consist of a number of
investment compa-

<PAGE>
nies with various investment objectives and policies. The shares of many of
these investment companies are offered to the public with a sales charge. If a
shareholder's investment objective or outlook for the securities markets
changes, Fund shares may be exchanged for shares of any of the other investment
companies in the Franklin Group of Funds or the Templeton Group (as defined
under "Rights of Accumulation/Letter of Intent Regarding Other 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.

Shares of the Fund (other than those acquired pursuant to the Exchange
Privilege from a fund on which a sales charge was assessed or the reinvestment
of dividends with respect to such shares) may be exchanged at the offering price
of one of the other funds in the Franklin Group of Funds or the Templeton Group.
Such offering price includes the applicable sales charge of the fund into which
the shares are being exchanged. The prospectuses for all investment companies in
the Franklin Group of Funds and the Templeton Group which are normally sold with
a sales charge allow certain institutional investors to acquire shares at net
asset value (without a sales charge). These institutional investors include
government entities, employee benefit plans, trust companies and bank trust
departments. Such exchanges will be effected as follows:

(a) From the Fund into any other series of the Trust. Exchange requests received
prior to 11:15 a.m. Pacific time will be effected at the next computed net asset
value, with payment for the purchased shares processed on the following business
day when the funds are made available from the Fund.

(b) From the Fund into another fund in the Franklin Group of Funds or the
Templeton Group. Exchange requests received in proper form prior to 11:15 a.m.
Pacific time will be effected at the next computed respective net asset values
or offering price of the funds involved. Requests received after 11:15 a.m. will
be effective at the price next computed on the following business day.

(c) From another fund in the Franklin Group of Funds or the Templeton Group into
the Fund. In order to avoid dilution of the Fund, such transactions will be
handled as a liquidation from the other fund at its net asset value next
computed on the day the exchange request is received in proper form prior to the
time the valuation of shares for that fund is effected (generally 3:00 p.m.
Pacific time for money market funds, excluding the money market funds in the
Trust, and 1:00 p.m. Pacific time for non-money market funds), and a purchase of
the Fund's shares on the following business day when the funds for the purchase
are available and the purchase order is in all respects deemed to be in proper
form.

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

<PAGE>
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement. In this event,
shareholders should follow the other exchange procedures discussed in this
section.

RETIREMENT PLANS

MISCELLANEOUS INFORMATION

There are differences among the funds in the Franklin Group of Funds and the
Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
invest from Distributors or from the shareholder's securities dealer. By
requesting an exchange, a shareholder represents to the fund that the
shareholder has done so.

The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------

Shareholders of the Fund may be able to execute various transactions by calling
Franklin's Institutional Services Department at 1-800/321-8563. 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) purchase, redeem or
exchange Fund shares by telephone as described in this Prospectus. Shareholders
who do not wish these privileges extended to a particular account should notify
the Fund or Franklin's Institutional Services Department.

Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Request and
Agreement included in the Fund's application or which may be obtained by calling
the number above. The Telephone Transaction options available to retirement
plans are limited to those that are provided under the plan. See "General
Information - Certain Requirements Applicable to Retirement Plans."

VERIFICATION PROCEDURES

<PAGE>
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 Trust Company ("FTC") or Templeton Funds Trust Company ("TFTC")
retirement accounts. To assure compliance with all applicable regulations,
special forms are required for any distribution, redemption, or dividend
payment. Although the telephone exchange privilege is extended to these
retirement accounts, a Franklin/Templeton Transfer Authorization Form must be on
file in order to transfer retirement plan assets between a Franklin fund and a
Templeton fund within the same plan type. Changes to dividend options must also
be made in writing.

To obtain further information regarding distribution or transfer procedures,
including any required forms, FTC retirement account shareholders may call
1-800/527-2020 (toll free), and TFTC retirement account shareholders may call
1-800/354-9191 (press "2") (also toll free).

GENERAL

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 offering price is the net asset value (without a sales charge) next computed
following receipt of an order by the Fund in proper form.

The net asset value of shares of the Fund is computed at 3:00 p.m. Pacific time
each day that the Exchange is open for trading.

SPECIAL SERVICES
- --------------------------------------------------------------------------------

<PAGE>
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- --------------------------------------------------------------------------------

From a touch-tone telephone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS(R) system (day or night) at
1-800/247-1753. Yield information may be accessed by entering Code 49 for the
Fund followed by the # sign, when requested to do so by the automated operator.
This service is not available when calling from a rotary-dial telephone.

ValuSelect plan participants may obtain current price, yield, and performance
information regarding the funds in the Franklin Group of Funds included in their
plan by calling KeyFACTSsm at 1-800/Key-2110.

PERFORMANCE
- --------------------------------------------------------------------------------

Advertisements, sales literature and communications to shareholders may contain
information regarding the Fund's performance, including quotations of its
current and effective yield.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

<PAGE>
holders of more than 50% of the shares voting in any election of trustees can,
if they choose to do so, elect all of the trustees. The Trust does not intend to
hold annual shareholders' meetings. The Trust may, however, hold a special
shareholders' 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. Whenever the
Fund, as an investor in the Portfolio, is asked to vote on a fundamental policy
matter relating to the Portfolio, the Trust, on behalf of the Fund, will hold a
meeting of the Fund's shareholders and will cast its votes in the same
proportions as the Fund's shareholders have voted. A meeting may also be called
by the trustees at their discretion or by shareholders holding at least ten
percent of the outstanding shares of any series of the Trust. 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.

The Board of Trustees may from time to time issue other series of the Trust, the
assets and liabilities of which will likewise be separate and distinct from any
other series of the Trust. The Trust currently consists of nine separate series,
including the Fund, the AEA Cash Management Fund, the Franklin U.S. Government
Agency Money Market Fund, the Money Market Portfolio, the Franklin Late Day
Money Market Portfolio, the Franklin U.S. Government Securities Money Market
Portfolio, the Franklin U.S. Treasury Money Market Portfolio, the Franklin
Institutional Adjustable U.S. Government Securities Fund and the Franklin
Institutional Adjustable Rate Securities Fund, each of which maintains a totally
separate and distinct investment portfolio.

CERTAIN REQUIREMENTS APPLICABLE TO RETIREMENT PLANS

Certain of the programs and privileges described in this Prospectus 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 to
participants in qualified retirement plans which have invested in the Fund. In
particular, qualified retirement plans that use the services of Franklin's
ValuSelect or another administrative service should follow their standard
procedures. Otherwise, retirement plans will be provided with detailed
instructions on how to access or make use of the various options offered by the
Fund in connection with purchases, redemptions, exchanges or other account
transactions.

CONFIRMATIONS

SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT
BE ISSUED.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- --------------------------------------------------------------------------------

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the

<PAGE>
Internal Revenue Service ("IRS") any taxable dividend or other reportable
payment 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 Account Application. A shareholder may also be subject to backup
withholding if the IRS or a securities dealer notifies the Fund that the TIN
furnished by the shareholder is incorrect or that the shareholder is subject to
backup withholding for previous under-reporting of interest or dividend income.

<PAGE>