TEMPLETON INCOME TRUST, 497, 1995-08-10

TEMPLETON INCOME TRUST
497, 1995-08-10

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<PAGE>

TEMPLETON PROSPECTUS -- MAY 1, 1995
INCOME FUND AS SUPPLEMENTED AUGUST 11, 1995
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INVESTMENT Templeton Income Fund (the "Fund") seeks current income with
OBJECTIVE capital appreciation and growth of income through a flexible
AND POLICIES policy of investing primarily in debt securities of companies,
governments and government agencies of various nations
throughout the world, as well as preferred stock, common
stocks which pay dividends, and income-producing securities
convertible into common stock of such companies. The Fund may
borrow money for investment purposes, which will exaggerate
any increase or decrease in the market value of the Fund's
portfolio and subject the money borrowed to interest and other
costs. The Fund is a series of Templeton Income Trust.
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PURCHASE OF Please complete and return the Shareholder Application. If you
SHARES need assistance in completing this form, please call our
Shareholder Services Department. The Fund offers two classes
to its investors: Templeton Income Fund--Class I ("Class I")
and Templeton Income Fund--Class II ("Class II"). Investors
can choose between Class I Shares, which generally bear a
higher front-end sales charge and lower ongoing Rule 12b-1
distribution fees ("Rule 12b-1 fees"), and Class II Shares,
which generally have a lower front-end sales charge and higher
ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of
sales charges and distribution fees, in choosing the more
suitable class given their anticipated investment amount and
time horizon. See "How to Buy Shares of the Fund--Differences
Between Class I and Class II." The minimum initial investment
is $100 ($25 minimum for subsequent investments).
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PROSPECTUS This Prospectus sets forth concisely information about the
INFORMATION Fund that a prospective investor ought to know before
investing. Investors are advised to read and retain this
Prospectus for future reference. A Statement of Additional
Information ("SAI") dated January 1, 1995, as supplemented
June 1, 1995, has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated in its entirety by
reference in and made a part of this Prospectus. This SAI is
available without charge upon request to Franklin Templeton
Distributors, Inc., P.O. Box 33030 , St. Petersburg, Florida
33733-8030 or by calling the Fund Information Department.
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FUND INFORMATION DEPARTMENT -- 1-800/DIAL BEN
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TEMPLETON "STAR" SERVICE (24 hours, seven days a week access to current
prices, shareholder account balances/values, last transaction and duplicate
account statements) -- 1-800-654-0123
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXPENSE TABLE........ 2
FINANCIAL HIGHLIGHTS. 3
GENERAL DESCRIPTION.. 4
Investment Objective
and Policies........ 4
INVESTMENT
TECHNIQUES.......... 5
Options on
Securities, Indices
and Futures
Contracts........... 5
Forward Foreign
Currency Contracts
and Options on
Foreign Currencies . 5
Futures Contracts.... 6
When-issued
Securities ......... 6
Borrowing ........... 6
Loans of Portfolio
Securities.......... 6
Collateralized
Mortgage Obligations
("CMOs") ........... 6
U.S. Government
Securities ......... 6
Commercial Paper .... 7
RISK FACTORS......... 7
HOW TO BUY SHARES OF
THE FUND............ 9
Differences Between
Class I and Class
II.................. 9
Deciding Which Class
to Purchase......... 9
Offering Price--Class
I................... 10
Offering Price--Class
II.................. 12
Net Asset Value
Purchases
(Both Classes)...... 13
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of
Special Net Asset
Value Purchases .... 14
Additional Dealer
Compensation
(Both Classes)...... 14
Purchasing Class I
and Class II Shares. 15
Automatic Investment
Plan................ 15
Institutional
Accounts............ 15
Account Statements... 15
Templeton STAR
Service............. 15
Retirement Plans..... 16
Net Asset Value...... 16
EXCHANGE PRIVILEGE... 16
Exchanges of Class I
Shares.............. 18
Exchanges of Class II
Shares.............. 18
Transfers............ 18
Conversion Rights.... 18
Exchanges by Timing
Accounts............ 18
HOW TO SELL SHARES OF
THE FUND............ 19
Reinstatement
Privilege........... 21
Systematic Withdrawal
Plan................ 21
Redemptions by
Telephone........... 22
Contingent Deferred
Sales Charge........ 22
TELEPHONE
TRANSACTIONS........ 23
Verification
Procedures.......... 23
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Restricted Accounts.. 24
General.............. 24
MANAGEMENT OF THE
FUND................ 24
Investment Manager... 24
Business Manager..... 25
Transfer Agent....... 25
Custodian............ 25
Plans of
Distributions....... 25
Expenses............. 26
Brokerage
Commissions......... 26
GENERAL INFORMATION.. 26
Description of
Shares/Share
Certificates........ 26
Voting Rights........ 27
Meetings of
Shareholders........ 27
Dividends and
Distributions....... 27
Federal Tax
Information......... 27
Inquiries............ 28
Performance
Information......... 28
Statements and
Reports............. 28
WITHHOLDING
INFORMATION......... 29
CORPORATE RESOLUTION. 30
AUTHORIZATION
AGREEMENT........... 31
THE FRANKLIN
TEMPLETON GROUP..... 32
</TABLE>
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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.

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.
<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. The figures are estimates of the
Fund's expenses for the current fiscal year, restated to reflect current sales
charges and Rule 12b-1 fees for each class.
<TABLE>
<CAPTION>
CLASS I CLASS II
------- --------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage
of Offering Price)........................................ 4.25% 1.00%/1/
Maximum Sales Charge Imposed on Reinvested Dividends....... None None
Deferred Sales Charge...................................... None/2/ 1.00%/3/
Redemption Fees............................................ None None
Exchange Fee (per transaction)............................. $5.00/4/ $5.00/4/
ANNUAL FUND OPERATING EXPENSES (as a percentage of average
net assets)
Management Fees............................................ 0.50% 0.50%
Rule 12b-1 Fees/5/......................................... 0.22% 0.65%
Other Expenses (audit, legal, business management, transfer
agent and custodian)...................................... 0.46% 0.46%
Total Fund Operating Expenses.............................. 1.18% 1.61%/1/
</TABLE>
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/1/ Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fee for Class II may cause Shareholders to pay more
for Class II Shares than for Class I Shares. Given the maximum front-end
sales charge and the rate of Rule 12b-1 fees for each class, it is estimated
that this would take less than six years for Shareholders who maintain total
Shares valued at less than $50,000 in the Franklin Templeton Funds.
Shareholders with larger investments in the Franklin Templeton Funds will
reach the cross-over point more quickly. (See "How to Buy Shares of the
Fund.")
/2/ Class I investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1%, is
generally imposed on certain redemptions within a "contingency period" of 12
months of the calendar month following such investments. See "How to Sell
Shares of the Fund--Contingent Deferred Sales Charge."
/3/ Class II Shares redeemed within a "contingency period" of 18 months of the
calendar month following such investments are subject to a 1% contingent
deferred sales charge. See "How to Sell Shares of the Fund--Contingent
Deferred Sales Charge."
/4/ $5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
/5/ Annual Rule 12b-1 fees may not exceed 0.25% of the Fund's average net assets
attributable to Class I Shares and .65% of the Fund's average net assets
attributable to Class II Shares. Consistent with the National Association of
Securities Dealers, Inc.'s rules, it is possible that the combination of
front-end sales charges and Rule 12b-1 fees could cause long-term
Shareholders to pay more than the economic equivalent of the maximum front-
end sales charges permitted under those same rules.

Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. The information in this table does not reflect the charge of up to
$15 per transaction if a Shareholder requests that redemption proceeds be sent
by express mail or wired to a commercial account. For a more detailed
discussion of these matters, investors should refer to the appropriate
sections of this Prospectus.

EXAMPLE

As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge and applicable
contingent deferred sales charge, that apply to a $1,000 investment in the
Fund over various time periods assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class I:.................................... $54 $78 $105 $180
Class II:................................... $36 $60 $ 97 $199
You would pay the following expenses on the
same investment in Class II Shares, assuming
no redemption................................ $26 $60 $ 97 $199
</TABLE>
For the purpose of this example, it is assumed that a contingent deferred
sales charge will not apply to Class I Shares.

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

2
<PAGE>

FINANCIAL HIGHLIGHTS

The following table of selected financial information has been audited by
McGladrey & Pullen, LLP, independent certified public accountants, whose
report thereon, which is incorporated by reference, appears in the Fund's 1994
Annual Report to Shareholders. This statement should be read in conjunction
with the other financial statements and notes thereto included in the Fund's
1994 Annual Report to Shareholders, which contains further information about
the Fund's performance, and which is available to Shareholders upon request
and without charge. Information regarding Class II Shares will be included in
the table after they have been offered to the public for a reasonable period
of time.

<TABLE>
<CAPTION>
PERIOD FROM
PER SHARE OPERATING YEAR ENDED AUGUST 31, SEPTEMBER 24,
PERFORMANCE --------------------------------------------------------------------- 1986**
(for a Share outstanding 1994++ 1993 1992 1991 1990 1989 1988 TO AUGUST 31, 1987
throughout the period) -------- -------- -------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 9.96 $ 10.55 $ 9.81 $ 9.95 $ 10.18 $ 9.89 $ 10.53 $10.00
Income from investment
operations
Net investment income... 0.72 0.82 0.83 0.91 0.94 0.88 0.74 0.61
Net realized and
unrealized gain (loss). (0.91) (0.35) 0.75 (0.11) (0.18) 0.26 (0.51) 0.55
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............. (0.19) 0.47 1.58 0.80 0.78 1.14 0.23 1.16
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends from net
investment income...... (0.53) (0.76) (0.84) (0.91) (0.96) (0.82) (0.75) (0.59)
Distributions from net
realized gains......... (0.07) (0.30) (0.00) (0.03) (0.03) (0.03) (0.12) (0.04)
Tax basis return of
capital................ (0.12) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions..... (0.72) (1.06) (0.84) (0.94) (0.99) (0.85) (0.87) (0.63)
-------- -------- -------- -------- -------- -------- -------- --------
Change in net asset
value for the year..... (0.91) (0.59) 0.74 (0.14) (0.23) 0.29 (0.64) 0.53
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year................... $ 9.05 $ 9.96 $ 10.55 $ 9.81 $ 9.95 $ 10.18 $ 9.89 $ 10.53
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN+........... (2.01)% 5.00% 16.75% 8.43% 8.08% 11.92% 2.25% 11.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000).................. $205,482 $206,667 $179,799 $127,888 $112,492 $117,655 $127,519 $123,203
Ratio to average net
assets of:
Expenses............... 1.18% 1.01% 0.98% 1.05% 1.04% 1.10% 1.10% 1.00%*
Net investment income.. 7.50% 8.45% 8.14% 9.23% 9.50% 8.63% 7.12% 6.68%*
Portfolio turnover rate. 139.23% 288.93% 233.93% 408.39% 86.09% 88.50% 158.15% 104.81%
</TABLE>
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+Does not reflect sales charges.
++Based on weighted average shares outstanding.
*Annualized.
**Commencement of Operations.

3
<PAGE>

GENERAL DESCRIPTION

Templeton Income Fund (the "Fund") is a series of Templeton Income Trust
(the "Trust"). The Trust was organized as a Massachusetts business trust on
June 16, 1986, and is registered under the Investment Company Act of 1940 (the
"1940 Act") as an open-end management investment company with two series of
Shares: Templeton Income Fund, a non-diversified fund, and Templeton Money
Fund. A prospectus for Templeton Money Fund is available upon request and
without charge from the Principal Underwriter. The Fund has two classes of
Common Shares of beneficial interest with a par value of $0.01 per Share:
Templeton Income Fund--Class I and Templeton Income-- Class II. All Fund
Shares outstanding before May 1, 1995 have been redesignated as Class I
Shares, and will retain their previous rights and privileges, except for
legally required modifications to Shareholder voting procedures, as discussed
in "General Information--Voting Rights."

Shares of the Fund may be purchased (minimum investment of $100 initially
and $25 thereafter) at the current public Offering Price. The current public
Offering Price of the Class I Shares is equal to the net asset value (see "How
to Buy Shares of the Fund--Net Asset Value"), plus a variable sales charge not
exceeding 4.25% of the Offering Price depending upon the amount invested. The
current public Offering Price of the Class II Shares is equal to the net asset
value, plus a sales charge of 1% of the amount invested. (See "How to Buy
Shares of the Fund.")

INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is
current income with capital appreciation and growth of income. The Fund seeks
to achieve its objective through a flexible policy of investing primarily in
debt securities of companies, governments and government agencies of various
nations throughout the world, as well as preferred stock, common stocks which
pay dividends and income-producing securities which are convertible into
common stock of such companies. The Fund's investments in common stocks will
emphasize companies, in various countries and industries, which pay dividends
and may offer prospects for further growth in dividend payments and capital
appreciation. There can be no assurance that the Fund's investment objective
will be achieved.

The Fund may invest in any debt security, including securities rated in any
category by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's") and securities which are unrated by any rating
agency. As an operating policy, the Fund will not invest more than 5% of its
total assets in debt securities rated lower than BBB by S&P or Baa by Moody's.
The average maturity of the debt securities in the Fund's portfolio will
fluctuate depending upon the Investment Manager's judgment as to future
interest rate changes. In addition, when the Investment Manager determines
that a temporary defensive strategy is warranted, the Fund may invest without
limit in U.S. Government securities maturing in 13 months or less, commercial
paper, bank time deposits with less than seven days remaining to maturity and
bankers' acceptances. See "Investment Objectives and Policies--Debt
Securities" in the SAI for descriptions of debt securities rated BBB by S&P
and Baa by Moody's.

The Fund may buy and sell financial futures contracts, stock and bond index
futures contracts and foreign currency forward and futures contracts. The Fund
also may write and buy put and call options on securities, indices, foreign
currencies and futures contracts. In addition, the Fund may invest in "when-
issued" securities and collateralized mortgage obligations, lend its portfolio
securities and borrow money for investment purposes (i.e., "leverage" its
portfolio). These investment techniques are described below and under the
heading "Investment Objective and Policies" in the SAI.

Although the Fund may invest up to 25% of its assets in a single industry,
there is no present intention of doing so. Under a non-fundamental policy
approved by the Board of Trustees, the Investment Manager will select
securities for purchase by the Fund from many industries that it believes to
be productive and beneficial.

The Fund may invest up to 5% of its total assets in securities that may not
be resold without registration under applicable law ("restricted securities").
There may be a lapse of time between the Fund's decision to sell any
restricted security and the registration of the security. During this period,
the price of the security will be subject to market fluctuations. The Fund may
invest up to 10% of its total assets in restricted securities and other
securities which are not restricted but which are not readily marketable
(i.e., trading in the security is suspended or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or offers).

The Fund does not intend to emphasize short-term trading profits and usually
expects to have a portfolio turnover rate not exceeding 200%.

4
<PAGE>

INVESTMENT TECHNIQUES

The Fund is authorized to use the various investment techniques described
below. Although these strategies are regularly used by some investment
companies and other institutional investors in various markets, some of these
strategies cannot at the present time be used to a significant extent by the
Fund in some of the markets in which the Fund will invest and may not be
available for extensive use in the future.

OPTIONS ON SECURITIES, INDICES AND FUTURES CONTRACTS. The Fund may write
(i.e., sell) covered put and call options and purchase put and call options on
securities, securities indices or futures contracts that are traded on United
States and foreign exchanges or in the over-the-counter markets. An option on
a security or futures contract is a contract that permits the purchaser of the
option, in return for the premium paid, the right to buy a specified security
or futures contract (in the case of a call option) or to sell a specified
security or futures contract (in the case of a put option) from or to the
writer of the option at a designated price during the term of the option. An
option on a securities index permits the purchaser of the option, in return
for the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of
the option. The Fund may write a call or put option only if the option is
"covered." This means that so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities or futures contracts
subject to the call, or hold a call at the same or lower exercise price, for
the same exercise period, and on the same securities or futures contracts as
the written call. A put is covered if the Fund maintains liquid assets with a
value equal to the exercise price in a segregated account, or holds a put on
the same underlying securities or futures contracts at an equal or greater
exercise price.

FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES. The
Fund will normally conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward contracts to
purchase or sell foreign currencies. The Fund will generally not enter into a
forward contract with a term of greater than one year. A forward contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers.

The Fund will generally enter into forward contracts only under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security in relation to another currency by
entering into a forward contract to buy the amount of foreign currency needed
to settle the transaction. Second, when the Investment Manager believes that
the currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, it may enter into a forward contract to
sell or buy the former foreign currency (or another currency which acts as a
proxy for that currency) approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging." The Fund's
forward transactions may call for the delivery of one foreign currency in
exchange for another foreign currency and may at times not involve currencies
in which its portfolio securities are then denominated. The Fund has no
specific limitation on the percentage of assets it may commit to forward
contracts, subject to its stated investment objective and policies, except
that the Fund will not enter a forward contract if the amount of assets set
aside to cover forward contracts would impede portfolio management or the
Fund's ability to meet redemption requests. Although forward contracts will be
used primarily to protect the Fund from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted.

The Fund may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the U.S. dollar value of
foreign currency denominated portfolio securities and against increases in the
U.S. dollar cost of such securities to be acquired. As in the case of other
kinds of options, however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received,
and the Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to be
written or purchased by the Fund are traded on U.S. and foreign exchanges or
over-the-counter.

5
<PAGE>

FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell
financial futures contracts, stock and bond index futures contracts and
foreign currency futures contracts. A financial futures contract is an
agreement between two parties to buy or sell a specified debt security at a
set price on a future date. An index futures contract is an agreement to take
or make delivery of an amount of cash based on the difference between the
value of the index at the beginning and at the end of the contract period. A
futures contract on a foreign currency is an agreement to buy or sell a
specified amount of a currency for a set price on a future date.

When the Fund enters into a futures contract, it must make an initial
deposit, known as "initial margin," as a partial guarantee of its performance
under the contract. As the value of the security, index or currency
fluctuates, either party to the contract is required to make additional margin
payments, known as "variation margin," to cover any additional obligation it
may have under the contract. In addition, when the Fund enters into a futures
contract, it will segregate assets or "cover" its position in accordance with
the 1940 Act. See "Investment Objectives and Policies -- Futures Contracts" in
the SAI. The Fund may not commit more than 5% of its total assets to initial
margin deposits on futures contracts.

WHEN-ISSUED SECURITIES. New issues of certain debt securities are often
offered on a when-issued basis, that is, the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment, but
delivery and payment for the securities normally take place after the date of
the commitment to purchase. The value of when-issued securities may vary prior
to and after delivery depending on market conditions and changes in interest
rate levels. However, the Fund will not accrue any income on these securities
prior to delivery. The Fund will maintain in a segregated account with its
Custodian an amount of cash or high quality debt securities equal (on a daily
marked-to-market basis) to the amount of its commitment to purchase the when-
issued securities.

BORROWING. The Board of Trustees has adopted a policy of limiting the Fund's
borrowing to 5% of the value of its net assets to increase its holdings of
portfolio securities. Under the 1940 Act, the Fund is required to maintain
continuous asset coverage of 300% with respect to such borrowings and to sell
(within three days) sufficient portfolio holdings to restore such coverage if
it should decline to less than 300% due to market fluctuations or otherwise,
even if disadvantageous from an investment standpoint. Leveraging by means of
borrowing will exaggerate the effect of any increase or decrease in the value
of portfolio securities on the Fund's net asset value, and money borrowed will
be subject to interest and other costs (which may include commitment fees
and/or the cost of maintaining minimum average balances) which may or may not
exceed the income received from the securities purchased with borrowed funds.

LOANS OF PORTFOLIO SECURITIES. The Fund may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of its total
assets. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. Government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. The Fund may terminate the
loans at any time and obtain the return of the securities. The Fund will
continue to receive any interest or dividends paid on the loaned securities
and will continue to have voting rights with respect to the securities.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are fixed-income
securities which are collateralized by pools of mortgage loans created by
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other issuers in the U.S. In effect, CMOs
"pass through" the monthly payments made by individual borrowers on their
mortgage loans. Timely payment of interest and principal (but not the market
value) of these pools is supported by various forms of insurance or guarantees
issued by U.S. Government agencies, private issuers and the mortgage poolers.
The Fund may buy CMOs without insurance or guarantees if, in the opinion of
the Investment Manager, the sponsor is creditworthy. Prepayments of the
mortgages included in the mortgage pool may influence the yield of the CMO. In
addition, prepayments usually increase when interest rates are decreasing,
thereby decreasing the life of the pool. As a result, reinvestment of
prepayments may be at a lower rate than that on the original CMO.

U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities, such as Treasury bills and bonds, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of
Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others are supported
only by the credit of the instrumentality.

6
<PAGE>

COMMERCIAL PAPER. Investments in commercial paper are limited to obligations
rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P,
issued by companies having an outstanding debt issue currently rated Aaa or Aa
by Moody's or AAA or AA by S&P. See the Appendix in the SAI for a description
of these ratings.

RISK FACTORS

Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions and market
factors. In addition to the factors which affect the value of individual
securities, a Shareholder may anticipate that the value of the Shares of the
Fund will fluctuate with movements in the broader equity and bond markets. A
decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the price of Shares of the Fund. Changes in
currency valuations will also affect the price of Shares of the Fund. History
reflects both decreases and increases in worldwide stock markets and currency
valuations, and these may reoccur unpredictably in the future. The value of
debt securities held by the Fund generally will vary inversely with changes in
prevailing interest rates. Additionally, investment decisions made by the
Investment Manager will not always be profitable or prove to have been
correct. The Fund is not intended as a complete investment program.

The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code of 1986, as amended (the "Code"), which generally
will relieve the Fund of any liability for Federal income tax to the extent
its earnings are distributed to Shareholders. See "Federal Tax Information."
To so qualify, among other requirements, the Fund will limit its investments
so that, at the close of each quarter of the taxable year, (i) not more than
25% of the market value of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer and the Fund will
not own more than 10% of the outstanding voting securities of a single issuer.
The Fund's investments in U.S. Government securities are not subject to these
limitations. Because the Fund, as a non-diversified investment company, may
invest in a smaller number of individual issuers than a diversified investment
company, and may be more susceptible to any single economic, political or
regulatory occurrence, an investment in the Fund may present greater risk to
an investor than an investment in a diversified company.

The Fund has the right to purchase securities in any foreign country,
developed or developing. Investors should consider carefully the substantial
risks involved in investing in securities issued by companies and governments
of foreign nations, which are in addition to the usual risks inherent in
domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes with respect to investments in foreign nations, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), foreign investment controls on daily stock
market movements, default in foreign government securities, political or
social instability or diplomatic developments which could affect investments
in securities of issuers in foreign nations. Some countries may withhold
portions of interest and dividends at the source. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the United States. Foreign companies
are not generally subject to uniform accounting and auditing and financial
reporting standards, and auditing practice and requirements may not be
comparable to those applicable to United States companies. Further, the Fund
may encounter difficulties or be unable to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts.
Commission rates in foreign countries, which are sometimes fixed rather than
subject to negotiation as in the United States, are likely to be higher.
Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return

7
<PAGE>

is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to
subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible
liability to the purchaser. In many foreign countries, there is less
government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States. There
is an increased risk, therefore, of uninsured loss due to lost, stolen, or
counterfeit stock certificates. In addition, the foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid, and subject to greater price volatility than those in the United
States. The Fund may invest in Eastern European countries, which involves
special risks that are described under "Risk Factors" in the SAI.

Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitation also may be imposed by the
charters of individual companies in developing countries to prevent, among
other concerns, violation of foreign investment limitations.

Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.

Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic
conditions in the countries with which they trade.

The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market.
However, some price spread on currency exchange (to cover service charges)
will be incurred when the Fund converts assets from one currency to another.

The Fund is authorized to invest in any debt security, including securities
rated in any category by S&P or Moody's and securities which are unrated by
any rating agency. As an operating policy, which may be changed by the Board
of Trustees without Shareholder approval, the Fund will not invest more than
5% of its total assets in debt securities rated lower than BBB by S&P or Baa
by Moody's. The Board may consider a change in this operating policy if, in
its judgment, economic conditions change such that a higher level of
investment in high-risk, lower quality debt securities would be consistent
with the interests of the Fund and its Shareholders. High-risk, lower quality
debt securities, commonly referred to as "junk bonds," are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation and may be in default. Unrated debt securities are not necessarily
of lower quality than rated securities but they may not be attractive to as
many buyers. Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed by the
Investment Manager to insure, to the extent possible, that the planned
investment is sound. The Fund may, from time to time, purchase defaulted debt
securities if, in the opinion of the Investment Manager, the issuer may resume
interest payments in the near future. The Fund will not invest more than 10%
of its total assets in defaulted debt securities, which may be illiquid.

Successful use of futures contracts and related options is subject to
special risk considerations. A liquid secondary market for any futures or
option contract may not be available when the Fund seeks to close a futures or
option position. In addition, there may be an imperfect correlation between
movements in the securities or foreign currency on which the futures or option
contract is based and movements in the securities or currency in the Fund's
portfolio. Successful use of futures or option contracts is further dependent
on

8
<PAGE>

the Investment Manager's ability to correctly predict movements in the
securities or foreign currency markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or indices
is subject to similar risk considerations.

There are further risk considerations, including possible losses through the
holding of securities in domestic and foreign custodian banks and
depositories, described in the SAI.

HOW TO BUY SHARES OF THE FUND

Shares of the Fund may be purchased at the Offering Price through any broker
which has a dealer agreement with Franklin Templeton Distributors, Inc.
("FTD"), the Principal Underwriter for Shares of the Fund, or directly from
FTD upon receipt by FTD of a completed Shareholder Application and check.
Shares of both classes of the Fund are offered at their respective public
Offering Prices, which are determined by adding the net asset value per Share
plus a front-end sales charge, next computed (i) after the Shareholder's
securities dealer receives the order which is promptly transmitted to the Fund
or (ii) after receipt of an order by mail from the Shareholder directly in
proper form (which generally means a completed Shareholder Application
accompanied by a negotiable check). The minimum initial investment is $100,
and subsequent investments must be $25 or more. These minimums may be waived
when the Shares are being purchased through retirement plans providing for
regular periodic investments, as described below under "Retirement Plans."

DIFFERENCES BETWEEN CLASS I AND CLASS II. The difference between Class I and
Class II Shares lies primarily in their front-end and contingent deferred
sales charges and Rule 12b-1 fees as described below.

Class I. All Fund Shares outstanding before the implementation of the
multiclass structure have been redesignated as Class I Shares, and will retain
their previous rights and privileges. Voting rights of each class will be the
same on matters affecting the Fund as a whole, but each will vote separately
on matters affecting its class. Class I Shares are generally subject to a
variable sales charge upon purchase and not subject to any sales charge upon
redemption. Class I Shares are subject to Rule 12b-1 fees of up to an annual
maximum of 0.25% of average daily net assets of such Shares. With this
multiclass structure, Class I Shares have higher front-end sales charges than
Class II Shares and comparatively lower Rule 12b-1 fees. Class I Shares may be
purchased at reduced front-end sales charges, or at net asset value if certain
conditions are met. In most circumstances, contingent deferred sales charges
will not be assessed against redemptions of Class I Shares. See "Management of
the Fund" and "How to Sell Shares of the Fund" for more information.

Class II. The current public Offering Price of Class II Shares is equal to
the net asset value, plus a front-end sales charge of 1% of the amount
invested. Class II Shares are also subject to a contingent deferred sales
charge of 1% if Shares are redeemed within 18 months of the calendar month
following purchase. In addition, Class II Shares are subject to Rule 12b-1
fees of up to a maximum of .65% per annum of average daily net assets of such
Shares, 0.50% of which will be retained by FTD during the first year of
investment. Class II Shares have lower front-end sales charges than Class I
Shares and comparatively higher Rule 12b-1 fees. See "How to Sell Shares of
the Fund--Contingent Deferred Sales Charge."

Purchases of Class II Shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
Shares, since that is more beneficial to investors. Such purchases, however,
may be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II Shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I Shares through a Letter of Intent instead of
purchasing Class II Shares.

DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which
class of Shares to purchase. Generally, an investor who expects to invest less
than $50,000 in the Franklin

9
<PAGE>

Templeton Funds and who expects to make substantial redemptions within
approximately six years or less of investment should consider purchasing Class
II Shares. However, the higher annual Rule 12b-1 fees on the Class II Shares
will result in slightly higher operating expenses and lower income dividends
for Class II Shares, which will accumulate over time to outweigh the
difference in front-end sales charges. For this reason, Class I Shares may be
more attractive to long-term investors even if no sales charge reductions are
available to them.

Investors who qualify to purchase Class I Shares at reduced sales charges
definitely should consider purchasing Class I Shares, especially if they
intend to hold their Shares approximately six years or more. Investors who
qualify to purchase Class I Shares at reduced sales charges but who intend to
hold their Shares less than approximately six years should evaluate whether it
is more economical to purchase Class I Shares through a Letter of Intent or
under Cumulative Quantity Discount rather than purchasing Class II Shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED
FROM PURCHASING CLASS II SHARES.

Each class represents the same interest in the investment portfolio of the
Fund and has the same rights, except that each class has a different sales
charge, bears the separate expenses of its Rule 12b-1 distribution plan, and
has exclusive voting rights with respect to such plan. The two classes also
have separate exchange privileges.

In determining which Shares are more appropriate for a Shareholder's
investment objectives and income needs, a Shareholder should also consider
that the higher Rule 12b-1 fees for Class II will generally result in lower
dividends and consequently lower yields for Class II Shares as compared to
Class I Shares.

Each class also has a separate schedule for compensating securities dealers
for selling Fund Shares. Investors should take all of the factors regarding an
investment in each class into account before deciding which class of Shares to
purchase.

OFFERING PRICE--CLASS I. The sales charge for Class I Shares is a variable
percentage of the Offering Price depending upon the amount of the sale. A
description of the method of calculating net asset value per Share is included
under the caption "Net Asset Value" below.

The price to the public on purchases of Class I Shares made by a single
purchaser, by an individual, his or her spouse and their children under age
21, or by a single trust or fiduciary account other than an employee benefit
plan holding Shares of the Fund on or before February 1, 1995, is the net
asset value per Share plus a sales charge not exceeding 4.25% of the Offering
Price (equivalent to 4.44% of the net asset value), which is reduced on larger
sales as shown below:

<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-----------------------------------------------
AS A PERCENTAGE OF AS A PERCENTAGE OF PORTION OF TOTAL
AMOUNT OF SALE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
AT OFFERING PRICE OF THE SHARES PURCHASED OF THE SHARES PURCHASED RETAINED BY DEALERS/1/,/3/
----------------- ----------------------- ----------------------- --------------------------
<S> <C> <C> <C>
Less than $100,000...... 4.25% 4.44% 4.00%
$100,000 but less than
$250,000............... 3.50% 3.63% 3.25%
$250,000 but less than
$500,000............... 2.75% 2.83% 2.50%
$500,000 but less than
$1,000,000............. 2.15% 2.20% 2.00%
$1,000,000 or more...... none none (see below)/2/
</TABLE>
-------
/1/ Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
/2/ The following commissions will be paid by FTD, from its own resources, to
securities dealers who initiate and are responsible for purchases of $1
million or more: 0.75% on sales of $1 million but less than $2 million, plus
0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million
but less than $100 million,

10
<PAGE>

plus 0.15% on sales of $100 million or more. Dealer concession breakpoints
are reset every 12 months for purposes of additional purchases.
/3/ At the discretion of FTD, all sales charges may at times be reallowed to the
securities dealer. If 90% or more of the sales commission is reallowed, such
securities dealer may be deemed to be an underwriter as that term is defined
in the Securities Act of 1933.

No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of investments of $1 million or more within 12 months of the
calendar month following such investments ("contingency period"). See "How to
Sell Shares of the Fund--Contingent Deferred Sales Charge."

The size of a transaction which determines the applicable sales charge on the
purchase of Class I Shares is determined by adding the amount of the
Shareholder's current purchase plus the cost or current value (whichever is
higher) of a Shareholder's existing investment in one or more of the funds in
the Franklin Group of Funds(R) and the Templeton Family of Funds. Included for
these aggregation purposes are (i) the mutual funds in the Franklin Group(R) of
Funds except Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Funds"); (ii) other investment products underwritten by FTD or
its affiliates (although certain investments may not have the same schedule of
sales charges and/or may not be subject to reduction); and (iii) the U.S.-
registered mutual funds in the Templeton Family of Funds except Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds and
Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate holdings of (i), (ii) and
(iii) above ("Franklin Templeton Investments") may be effective only after
notification to FTD that the investment qualifies for a discount.

Other Payments to Securities Dealers. FTD, or one of its affiliates, may make
payments, from its own resources, of up to .75% of the amount purchased to
securities dealers who initiate and are responsible for purchases made at net
asset value by certain non-designated retirement plans (as defined below), and
up to 1% of the amount purchased to securities dealers who initiate and are
responsible for purchases made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers) nondesignated plans (as
defined below), certain trust companies and trust departments of banks and
certain retirement plans of organizations with collective retirement plan
assets of $10 million or more. See definitions under "Description of Special
Net Asset Value Purchases" below and as set forth in the SAI.

A sales charge of 4% of the Offering Price (4.17% of the net asset value) is
applicable to all purchases of Shares made for any qualified or non-qualified
employee benefit plan account which is a Shareholder in the Fund on or before
February 1, 1995. Of the 4% sales commission applicable to such purchases,
3.20% of the Offering Price will be retained by dealers.

Cumulative Quantity Discount. The schedule of reduced sales charges also may
be applied to qualifying sales of Class I Shares on a cumulative basis. For
this purpose, the dollar amount of the sale is added to the higher of (i) the
value (calculated at the applicable Offering Price) or (ii) the purchase price,
of Franklin Templeton Investments. The cumulative quantity discount applies to
Franklin Templeton Investments owned at the time of purchase by the purchaser,
his or her spouse, and their children under age 21 and grandchildren under age
21. In addition, the aggregate investments of a trustee or other fiduciary
account (for an account under exclusive investment authority) may be considered
in determining whether a reduced sales charge is available, even though there
may be a number of beneficiaries of the account. For example, if the investor
held Class I Shares valued at $90,000 (or, if valued at less than $90,000, had
been purchased for $90,000) and purchased an additional $10,000 of the Fund's
Class I Shares, the sales charge for the $10,000 purchase would be at the rate
of 3.50%. It is FTD's policy to give investors the best sales charge rate
possible; however, there can be no assurance that an investor will receive the
appropriate discount unless, at the time of placing the purchase order, the
investor or the dealer makes a request for the discount and gives FTD
sufficient information to determine whether the purchase will qualify for the
discount. On telephone orders from dealers for the purchase of Class I Shares
to be registered in "street name," FTD will accept the dealer's instructions
with respect to the applicable sales charge rate to be applied. The cumulative
quantity discount may be amended or terminated at any time.

Letter of Intent. Investors may also reduce sales charges on all investments
in Class I Shares by means of a Letter of Intent ("LOI") which expresses the
investor's intention to invest a certain amount within a 13-month period in
Class I Shares of the Fund or any other

11
<PAGE>

Franklin Templeton Fund. See the Shareholder Application. Except for certain
employee benefit plans, the minimum initial investment under an LOI is 5% of
the total LOI amount. Except for Shares purchased by certain employee benefit
plans, Shares purchased with the first 5% of such amount will be held in
escrow to secure payment of the higher sales charge applicable to the Shares
actually purchased if the full amount indicated is not purchased, and such
escrowed Shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. A purchase not originally made pursuant to an LOI may be
included under a subsequent LOI executed within 90 days of the purchase. Any
redemptions made by Shareholders, other than by certain employee benefit
plans, during the 13-month period will be subtracted from the amount of the
purchases for purposes of determining whether the terms of the LOI have been
completed. For a further description of the LOI, see "Purchase, Redemption and
Pricing of Shares--Letter of Intent" in the SAI.

Group Purchases. An individual who is a member of a qualified group may also
purchase Class I Shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class I Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if members of the group
had previously invested and still held $90,000 of Class I Shares and now were
investing $10,000, the sales charge would be 3.50%. Information concerning the
current sales charge applicable to a group may be obtained by contacting FTD.

A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund Shares at a discount, and
(iii) satisfies uniform criteria which enable FTD to realize economies of
scale in its costs of distributing Shares. A qualified group must have more
than 10 members, must be available to arrange for group meetings between
representatives of the Fund or FTD and the members, must agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to FTD, and must seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.

If an investor selects a payroll deduction plan, subsequent investments will
be automatic and will continue until such time as the investor notifies the
Fund and the investor's employer to discontinue further investments. Due to
the varying procedures to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the Offering Price per Share determined on the day that both
the check and payroll deduction data are received in required form by the
Fund.

OFFERING PRICE--CLASS II. Unlike Class I Shares, the front-end sales charges
and dealer concessions for Class II Shares do not vary depending on the amount
of purchase. The total sales charges or underwriting commissions and dealer
concessions for Class II Shares are set forth below.

Class II Shares redeemed within 18 months of their purchase will be assessed
a contingent deferred sales charge of 1% on the lesser of the then-current net
asset value or the net asset value of such Shares at the time of purchase,
unless such charge is waived as described under "How To Sell Shares of the
Fund--Contingent Deferred Sales Charge."

12
<PAGE>

NET ASSET VALUE PURCHASES (BOTH CLASSES). Class I Shares may be purchased
without the imposition of either a front-end sales charge ("net asset value")
or a contingent deferred sales charge by (i) officers, trustees, directors,
and full-time employees of the Fund, any of the Franklin Templeton Funds, or
of Franklin Resources, Inc. and its subsidiaries (the "Franklin Templeton
Group"), and their spouses and family members, including any subsequent
payments made by such parties after cessation of employment; (ii) companies
exchanging Shares with or selling assets pursuant to a merger, acquisition or
exchange offer; (iii) insurance company separate accounts for pension plan
contracts; (iv) accounts managed by the Franklin Templeton Group; (v)
shareholders of Templeton Institutional Funds, Inc. reinvesting redemption
proceeds from that fund under an employee benefit plan qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the "Code"), in Shares
of the Fund; (vi) certain unit investment trusts and unit holders of such
trusts reinvesting their distributions from the trusts in the Fund; (vii)
registered securities dealers and their affiliates, for their investment
account only; and (viii) registered personnel and employees of securities
dealers, and their spouses and family members, in accordance with the internal
policies and procedures of the employing securities dealer.

For either Class I or Class II, the same class of Shares of the Fund may be
purchased at net asset value with the proceeds from (i) a redemption of Shares
of the Fund or Shares of any other Franklin Templeton Fund which were
purchased with an initial sales charge or assessed a contingent deferred sales
charge on redemption, or (ii) a dividend or distribution paid by any of the
Franklin Templeton Funds, within 365 days after the date of the redemption or
dividend or distribution. See "How to Sell Shares of the Fund--Reinstatement
Privilege."

Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds and which was subject to a front-end sales charge
or a contingent deferred sales charge and which has investment objectives
similar to those of the Fund.

Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers who have
entered into a supplemental agreement with FTD, or by registered investment
advisers affiliated with such broker-dealers, on behalf of their clients who
are participating in a comprehensive fee program (also known as a wrap fee
program).

Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former
participants of the Franklin Templeton Profit Sharing 401(k) plan), to the
extent of such distribution. In order to exercise this privilege, a written
order for the purchase of Shares of the Fund must be received by Franklin
Templeton Trust Company ("FTTC"), the Fund, or Franklin Templeton Investor
Services, Inc. (the "Transfer Agent") within 365 days after the plan
distribution.

Class I Shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISERS 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 or arbitrage
rebate calculations. If an investment by an eligible governmental authority at
net asset value is made through a securities dealer who has executed a dealer
agreement with FTD, FTD or one of its affiliates may make a payment, out of
its own resources, to such securities dealer in an amount not to exceed 0.25%
of the amount invested. Contact Franklin Templeton Institutional Services for
additional information.

13
<PAGE>

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES. Class I Shares may also be
purchased at net asset value and without the imposition of a contingent
deferred sales charge by certain designated retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with respect to number
of employees or amount of purchase, which may be established by FTD.
Currently, those criteria require that the employer establishing the plan have
200 or more employees or that the amount invested or to be invested during the
subsequent 13-month period in the Fund or in any of the Franklin Templeton
Investments totals at least $1 million. Employee benefit plans not designated
above or qualified under Section 401 of the Code ("non-designated plans") may
be afforded the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described under "Group
Purchases," which enable FTD to realize economies of scale in its sales
efforts and sales-related expenses.

Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Fund or any of the
Franklin Templeton Investments must total at least $1 million. Orders for such
accounts will be accepted by mail accompanied by a check, or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order.

Class I Shares may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
without regard to where such assets are currently invested.

Refer to the SAI for further information regarding net asset value purchases
of Class I Shares.

ADDITIONAL DEALER COMPENSATION (BOTH CLASSES). FTD, or one of its
affiliates, from its own resources, may also provide additional compensation
to securities dealers in connection with sales of shares of the Franklin
Templeton Funds. Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding one or more of the Franklin
Templeton Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain
securities dealers whose representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton Funds. Compensation
may include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives and members
of their families to locations within or outside of the United States for
meetings or seminars of a business nature. Securities dealers may not use
sales of the Fund's Shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. In addition, FTD or
its affiliates may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its Shareholders.

Ongoing payments will be made to qualifying dealers at the annual rate of
0.25% of the average daily net asset value of Class I Shares, and 1% of the
average daily net asset value of Class II Shares, registered in the name of
that broker-dealer as nominee or held in a Shareholder account that designates
that broker-dealer as dealer of record. These payments are made in order to
promote selling efforts and to compensate dealers for providing certain
services, including processing purchase and redemption transactions,
establishing Shareholder accounts and providing certain information and
assistance with respect to the Fund. For purchases of Class I Shares on or
after February 1, 1995 for which FTD advanced a commission to a securities
dealer, the dealer will receive ongoing payments beginning in the thirteenth
month after the date of purchase. For purchases of Class II Shares, the dealer
will receive

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<PAGE>

payments representing a service fee (0.25% of average daily net asset value of
the Shares) beginning in the first month after the date of the purchase, and
will receive additional payments representing compensation for distribution
(0.75% of average daily net asset value of the Shares) beginning in the
thirteenth month after the date of the purchase, and beginning May 1, 1997 for
exchanges from Templeton American Trust, Inc. if the exchanged shares were
purchased prior to May 1, 1995.

PURCHASING CLASS I AND CLASS II SHARES. When placing purchase orders,
investors should clearly indicate which class of Shares they intend to
purchase. A purchase order that fails to specify a class will automatically be
invested in Class I Shares. Purchases of $1 million or more in a single
payment will be invested in Class I Shares. There are no conversion features
attached to either class of Shares.

Investors who qualify to purchase Class I Shares at net asset value should
purchase Class I rather than Class II Shares. See the section "Net Asset Value
Purchases (Both Classes)" and "Description of Special Net Asset Value
Purchases" above for a discussion of when Shares may be purchased at net asset
value.

As to telephone orders placed with FTD by dealers, the dealer must receive
the investor's order before the close of the New York Stock Exchange ("NYSE")
and transmit it to FTD by 5:00 p.m., New York time, for the investor to
receive that day's Offering Price. Payment for such orders must be by check in
U.S. currency and must be promptly submitted to FTD. Orders mailed to FTD by
dealers or individual investors are effected at the net asset value of the
Fund's Shares next computed after the purchase order accompanied by payment
has been received by FTD. Such payment must be by check in U.S. currency drawn
on a commercial bank in the United States and, if over $100,000, may not be
deemed to have been received until the proceeds have been collected unless the
check is certified or issued by such bank. Any subscription may be rejected by
FTD or by the Fund.

The Fund may impose a $10 charge against a Shareholder account in the event
that a check or draft submitted for the purchase of Fund Shares is returned
unpaid to the Fund.

Investors should promptly check the confirmation advice that is mailed after
each purchase (or redemption) in order to ensure that it has been accurately
recorded in the investor's account.

AUTOMATIC INVESTMENT PLAN. Investors may accumulate Fund Shares regularly
each month by means of automatic debits to their checking accounts ($25
minimum). Forms for this purpose are in the Shareholder Application in this
Prospectus. Such a plan is voluntary
and may be discontinued by written notice to FTD, which must be received at
least 10 days prior to the collection date, or by FTD upon written notice to
the investor at least 30 days prior to the collection date.

INSTITUTIONAL ACCOUNTS. Institutional investors will likely be required to
complete an institutional account application. There may be additional methods
of opening accounts, purchasing, redeeming or exchanging Shares of the Fund
available for institutional accounts. To obtain an institutional account
application or additional information regarding institutional accounts,
contact Franklin Templeton Institutional Services at 1-800-321-8563.

ACCOUNT STATEMENTS. Shareholder accounts are opened in accordance with the
Shareholder's registration instructions. Transactions in the account, such as
additional investments and dividend reinvestments, will be reflected on
regular confirmation statements from the Transfer Agent.

TEMPLETON STAR SERVICE. From a touch-tone phone, Templeton and Franklin
shareholders may access an automated system (day or night) which offers the
following features:

By calling the Templeton STAR Service, shareholders may obtain current price
and yield information specific to a Templeton Fund, regardless of class, or
Franklin Class II shares; obtain account information; and request duplicate
confirmation or year-end statements and money fund checks, if applicable.

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<PAGE>

By calling the Franklin TeleFACTS(R) system, Class I shareholders may obtain
current price, yield or other performance information specific to a Franklin
Fund; process an exchange into an identically registered Franklin account;
obtain account information; and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.

Share prices and account information specific to Templeton Class I or II
shares and Franklin Class II shares may also be accessed on TeleFACTS by
Franklin Class I and Class II shareholders.

The Templeton STAR Service is accessible by calling 1-800-654-0123. The
TeleFACTS system is accessible by calling 1-800-247-1753. Templeton Class I
and Class II Share codes for the Fund, which will be needed to access system
information, are 406 and 506, respectively. The system's automated operator
will prompt the caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.

RETIREMENT PLANS. Shares of the Fund may be purchased through various
retirement plans including the following plans for which FTTC or its affiliate
acts as trustee or custodian: IRAs, Simplified Employee Pensions, 403(b)
plans, qualified plans for corporations, self-employed individuals and
partnerships, and 401(k) plans. A plan document must be adopted in order for a
retirement plan to be in existence. For further information about any of the
plans, agreements, applications and annual fees, contact Franklin Templeton
Distributors, Inc. To determine which retirement plan is appropriate, an
investor should contact his or her tax adviser.

NET ASSET VALUE. The net asset value per Share of each class of the Fund is
determined as of the scheduled closing time of the NYSE (generally 4:00 p.m.,
New York time) each day the NYSE is open for trading, by dividing the value of
the Fund's securities plus any cash and other assets (including accrued
interest and dividends receivable) less all liabilities (including accrued
expenses) by the number of Shares outstanding, adjusted to the nearest whole
cent. A security listed or traded on a recognized stock exchange or NASDAQ is
valued at its last sale price on the principal exchange on which the security
is traded. The value of a foreign security is determined in its national
currency as of the close of trading on the foreign exchange on which it is
traded, or as of the scheduled closing time of the NYSE (generally 4:00 p.m.,
New York time), if that is earlier, and that value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at noon, New
York time, on the day the value of the foreign security is determined. If no
sale is reported at that time, the mean between the current bid and asked
price is used. Occasionally, events which affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the NYSE, and will therefore not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at fair value as determined by the
management and approved in good faith by the Board of Trustees. All other
securities for which over-the-counter market quotations are readily available
are valued at the mean between the current bid and asked price. Securities for
which market quotations are not readily available and other assets are valued
at fair value as determined by the management and approved in good faith by
the Board of Trustees.

Each of the Fund's classes will bear, pro-rata, all of the common expenses
of the Fund. The net asset value of all outstanding Shares of each class of
the Fund will be computed on a pro-rata basis for each outstanding Share based
on the proportionate participation in the Fund represented by the value of
Shares of such classes, except that the Class I and Class II Shares will bear
the Rule 12b-1 expenses payable under their respective plans. Due to the
specific distribution expenses and other costs that will be allocable to each
class, the dividends paid to each class of the Fund may vary.

EXCHANGE PRIVILEGE

A Shareholder may exchange Shares for the same class of shares of other
Franklin Templeton Funds which are eligible for sale in the Shareholder's
state of residence and in conformity with such fund's stated eligibility
requirements and investment minimums. Some funds, however, may not offer Class
II shares. Class I Shares may be exchanged for Class I shares of any Franklin
Templeton Funds.

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<PAGE>

Class II Shares may be exchanged for Class II shares of any Franklin Templeton
Funds. No exchanges between different classes of shares will be allowed. A
contingent deferred sales charge will not be imposed on exchanges. If the
exchanged Shares were subject to a contingent deferred sales charge in the
original fund purchased, and Shares are subsequently redeemed within 12 months
(Class I Shares) or 18 months (Class II Shares) of the calendar month
following the original purchase date, a contingent deferred sales charge will
be imposed. The period will be tolled (or stopped) for the period Class I
Shares are exchanged into and held in a Franklin or Templeton money market
fund. See also "How to Sell Shares of the Fund--Contingent Deferred Sales
Charge."

Exchange purchases are subject to the minimum investment requirements of the
fund purchased and no sales charge generally applies. Exchanges of the same
class of shares are made on the basis of the net asset values of the class
involved, except as set forth below. Exchanges of shares of a class which were
originally purchased without a sales charge will be charged a sales charge in
accordance with the terms of the prospectus of the fund and the class of
shares being purchased, unless the original investment on which no sales
charge was paid was transferred in from a fund on which the investor paid a
sales charge. Exchanges of shares from the Franklin Templeton Money Funds are
subject to applicable sales charges on the funds being purchased, unless the
Franklin Templeton Money Fund shares were acquired by an exchange from a fund
having a sales charge, or by reinvestment of dividends or capital gains
distributions. Exchanges of Class I Shares of the Fund which were purchased
with a lower sales charge to a fund which has a higher sales charge will be
charged the difference, unless the shares were held in the original fund for
at least six months prior to executing the exchange. All exchanges are
permitted only after at least 15 days have elapsed from the date of the
purchase of the Shares to be exchanged.

A Shareholder may exchange Shares by writing to the Transfer Agent (see "How
to Sell Shares of the Fund"), by contacting his or her investment dealer or--
if the Shareholder Application indicates that the Shareholder has not declined
the option--by telephoning 1-800-632-2301. Telephone exchange instructions
must be received by FTD by the scheduled closing time of the NYSE (generally
4:00 p.m., New York time). Telephonic exchanges can involve only Shares in
non-certificated form. Shares held in certificate form are not eligible, but
may be returned and qualify for these services. All accounts involved in a
telephonic exchange must have the same registration and dividend option as the
account from which the Shares are being exchanged. The Fund and the Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone
Transactions--Verification Procedures." Forms for declining the telephone
exchange privilege and prospectuses of the other funds in
the Franklin Templeton Group may be obtained from FTD. Exchange redemptions
and purchases are processed simultaneously at the Share prices next determined
after the exchange order is received. (See "How to Buy Shares of the Fund--
Offering Price.") A gain or loss for tax purposes generally will be realized
upon the exchange, depending on the tax basis of the Shares redeemed.

This exchange privilege is available only in states where shares of the fund
being acquired may legally be sold and may be modified, limited or terminated
at any time by the Fund upon 60 days' written notice. A Shareholder who wishes
to make an exchange should first obtain and review a current prospectus of the
fund into which he or she wishes to exchange. Broker-dealers who process
exchange orders on behalf of their customers may charge a fee for their
services. Such fee may be avoided by making requests for exchange directly to
the Transfer Agent.

If a substantial portion of the Fund's Shareholders should, within a short
period, elect to redeem their Shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money
market instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.

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<PAGE>

EXCHANGES OF CLASS I SHARES. The contingency period of Class I Shares will
be tolled (or stopped) for the period such Shares are exchanged into and held
in a Franklin or Templeton Class I money market fund. If a Class I account has
Shares subject to a contingent deferred sale charge, Class I Shares will be
exchanged into the new account on a "first-in, first-out" basis. See also "How
to Sell Shares of the Fund--Contingent Deferred Sales Charge."

EXCHANGES OF CLASS II SHARES. When an account is composed of Class II Shares
subject to the contingent deferred sales charge, and Shares that are not, the
Shares will be transferred proportionately into the new fund. Shares received
from reinvestment of dividends and capital gains are referred to as "free
Shares," Shares which were originally subject to a contingent deferred sales
charge but to which the contingent deferred sales charge no longer applies are
called "matured Shares," and Shares still subject to the contingent deferred
sales charge are referred to as "CDSC liable Shares." CDSC liable Shares held
for different periods of time are considered different types of CDSC liable
Shares. For instance, if a Shareholder has $1,000 in free Shares, $2,000 in
matured Shares, and $3,000 in CDSC liable Shares, and the Shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from free Shares,
$1,000 from matured Shares, and $1,500 from CDSC liable Shares. Similarly, if
CDSC liable Shares have been purchased at different periods, a proportionate
amount will be taken from Shares held for each period. If, for example, the
Shareholder holds $1,000 in Shares bought three months ago, $1,000 bought six
months ago, and $1,000 bought nine months ago, and the Shareholder exchanges
$1,500 into a new fund, $500 from each of these Shares will be exchanged into
the new fund.

The only money market fund exchange option available to Class II
Shareholders is the Franklin Templeton Money Fund II ("Money Fund II"), a
series of the Franklin Templeton Money Fund Trust. No drafts (checks) may be
written on Money Fund II accounts, nor may Shareholders purchase shares of
Money Fund II directly. Class II Shares exchanged for shares of Money Fund II
will continue to age and a contingent deferred sales charge will be assessed
if CDSC liable Shares are redeemed. No other money market funds are available
for Class II Shareholders for exchange purposes. Class I Shares may be
exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these money market funds as described in their
respective prospectuses.

To the extent Shares are exchanged proportionately, as opposed to another
method, such as "first-in, first-out," or free Shares followed by CDSC liable
Shares, the exchanged Shares may, in some instances, be CDSC liable even
though a redemption of such Shares, as discussed elsewhere herein, may no
longer be subject to a CDSC. The proportional method is believed by management
to
more closely meet and reflect the expectations of Class II Shareholders in the
event Shares are redeemed during the contingency period. For federal income
tax purposes, the cost basis of Shares redeemed or exchanged is determined
under the Code without regard to the method of transferring Shares chosen by
the Fund for purposes of exchanging or redeeming Shares.

TRANSFERS. Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable events, and are not
subject to a contingent deferred sales charge. The transferred Shares will
continue to age from the date of original purchase. Shares of each class will
be transferred on the same basis as described above for exchanges.

CONVERSION RIGHTS. It is not presently anticipated that Class II Shares will
be converted to Class I Shares at this time. A Shareholder may, however, sell
Class II Shares and use the proceeds to purchase Class I Shares, subject to
all applicable sales charges.

EXCHANGES BY TIMING ACCOUNTS. In the case of market timing or allocation
services ("Timing Accounts"), FTD will deduct an administrative service fee of
$5.00 per exchange. Timing Accounts generally include accounts administered so
as to redeem or purchase Shares based upon certain predetermined market
indicators. In accordance with the terms of their respective prospectuses,
certain funds in the Franklin Templeton Group do not accept or may place
differing limitations than those described below on exchanges by Timing
Accounts.

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<PAGE>

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) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges Shares equal in value to at
least $5 million, or more than 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to redeem
or purchase Shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.

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
Investment Manager's judgment, the Fund would be unable to invest effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. A Shareholder's exchanges into the Fund 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 coincides with a "market timing" strategy may be
disruptive to the Fund and therefore may be refused.

Finally, as indicated above, the Fund and FTD reserve the right to refuse
any order for the purchase of Shares.

HOW TO SELL SHARES OF THE FUND

Shares will be redeemed, without charge, on request of the Shareholder in
"Proper Order" to the Transfer Agent. "PROPER ORDER" MEANS THAT THE REQUEST TO
REDEEM MUST MEET ALL OF THE FOLLOWING REQUIREMENTS:

1. Except as provided below under "Redemptions by Telephone," it must be in
writing, signed by the Shareholder(s) exactly in the manner as the Shares are
registered, and must specify either the number of Shares, or the dollar amount
of Shares, to be redeemed and sent to Franklin Templeton Investor Services,
Inc., P.O. Box 33030, St. Petersburg, Florida 33733-8030;

2. The signature(s) of the redeeming Shareholder(s) must be guaranteed by an
"eligible guarantor," including (a) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (b) national securities
exchanges, registered securities associations and clearing agencies; (c)
securities broker-dealers which are members of a national securities exchange
or a clearing agency or which have minimum net capital of $100,000; or (d)
institutions that participate in the Securities Transfer Agent Medallion
Program ("STAMP") or other recognized signature medallion program. A
notarized signature will not be sufficient for the request to be in Proper
Order. If the Shares are registered in more than one name, the signature of
each of the redeeming Shareholders must be guaranteed. A signature guarantee
is not required for redemptions of $50,000 or less, requested by and payable
to all Shareholders of record, to be sent to the address of record for that
account. However, the Fund reserves the right to require signature guarantees
on all redemptions. A signature guarantee is required in connection with any
written request for transfer of Shares. Also, a signature guarantee is
required if the Fund or the Transfer Agent believes that a signature guarantee
would protect against potential claims based on the transfer instructions,
including, for example, when (i) the current address of one or more joint
owners of an account cannot be confirmed; (ii) multiple owners have a dispute
or give inconsistent instructions to the Fund; (iii) the Fund has been
notified of an adverse claim; (iv) the instructions received by the Fund are
given by an agent, not the actual registered owner; (v) the Fund determines
that joint owners who are married to each other are separated or may be the
subject of divorce proceedings; or (vi) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund;

3. Any outstanding certificates must accompany the request together with a
stock power signed by the Shareholder(s), with signature(s) guaranteed as
described in Item 2 above;

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<PAGE>

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

. Corporation--(i) Signature guaranteed letter of instruction from the
authorized officer(s) of the corporation, and (ii) a corporate
resolution in a form satisfactory to the Transfer Agent;

. Partnership--(i) Signature guaranteed letter of instruction from a
general partner and, if necessary, (ii) pertinent pages from the
partnership agreement identifying the general partners or other
documentation in a form satisfactory to the Transfer Agent;

. Trust--(i) Signature guaranteed letter of instruction from the
trustee(s), and (ii) a copy of the pertinent pages of the trust
document listing the trustee(s) or a certificate of incumbency 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; and

5. Redemption of Shares held in a retirement plan for which FTTC or its
affiliate acts as trustee or custodian, must conform to the distribution
requirements of the plan and the Fund's redemption requirements above.
Distributions from such plans are subject to additional requirements under the
Code, and certain documents (available from the Transfer Agent) must be
completed before the distribution may be made. For example, distributions from
retirement plans are subject to withholding requirements under the Code, and
the IRS Form W-4P (available from the Transfer Agent) may be required to be
submitted to the Transfer Agent with the distribution request, or the
distribution will be delayed. Franklin Templeton Investor Services, Inc. and
its affiliates assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws and will not be responsible
for any penalties assessed.

To avoid delay in redemption or transfer, Shareholders having questions
about these requirements should contact the Shareholder Services Department by
calling 1-800-632-2301 or 813-823-8712.

The redemption price will be the net asset value of the Shares next computed
after the redemption request in Proper Order is received by the Transfer
Agent. A gain or loss for tax purposes generally will be realized upon the
redemption, depending on the tax basis of the Shares redeemed. Payment of the
redemption price ordinarily will be made by check (or by wire at the sole
discretion of the Transfer Agent if wire transfer is requested, including name
and address of the bank and the Shareholder's account number to which payment
of the redemption proceeds is to be wired) within seven days after receipt of
the redemption request in Proper Order. However,
if Shares have been purchased by check, the Fund will make redemption proceeds
available when a Shareholder's check received for the Shares purchased has
been cleared for payment by the Shareholder's bank, which, depending upon the
location of the Shareholder's bank, could take up to 15 days or more. The
check will be mailed by first-class mail to the Shareholder's registered
address (or as otherwise directed). Remittance by wire (to a commercial bank
account in the same name(s) as the Shares are registered) or express mail, if
requested, are subject to a handling charge of $15, which will be deducted
from the redemption proceeds.

The Fund, through FTD, also repurchases Shares (whether in certificate or
book-entry form) through securities dealers. The Fund normally will accept
orders to repurchase such Shares by wire or telephone from dealers for their
customers at the net asset value next computed after the dealer has received
the certificate holder's request for repurchase, if the dealer received such
request before closing time of the NYSE on that day. Dealers have the
responsibility of submitting such repurchase requests by calling not later
than 5:00 p.m., New York time, on such day in order to obtain that day's
applicable redemption price. Repurchase of Shares is for the convenience of
Shareholders and does not involve a charge by the Fund; however, securities
dealers may impose a charge on the Shareholder for transmitting the notice of
repurchase to the Fund. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect Shareholders
seeking redemption through the repurchase procedure. Ordinarily, payment will
be made to the securities dealer within seven days after receipt of a
repurchase order and Share certificate (if any) in "Proper Order" as set forth
above.

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<PAGE>

The Fund also will accept, from member firms of the NYSE, orders to repurchase
Shares for which no certificates have been issued by wire or telephone without
a redemption request signed by the Shareholder, provided the member firm
indemnifies the Fund and FTD from any liability resulting from the absence of
the Shareholder's signature. Forms for such indemnity agreement can be
obtained from FTD.

The Fund may involuntarily redeem an investor's Shares if the net asset
value of such Shares is less than $100, except that involuntary redemptions
will not result from fluctuations in the value of an investor's Shares. In
addition, the Fund may involuntarily redeem the Shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date, and Shares will be
redeemed at net asset value at the close of business on that date, unless
sufficient additional Shares are purchased to bring the aggregate account
value up to $100 or more, or unless a certified taxpayer identification number
(or such other information as the Fund has requested) has been provided, as
the case may be. A check for the redemption proceeds will be mailed to the
investor at the address of record.

REINSTATEMENT PRIVILEGE. For either Class I or Class II, the same class of
Shares of the Fund may be purchased at net asset value with the proceeds from
(i) a redemption of Shares of the Fund or Shares of any other Franklin
Templeton Fund which were purchased with an initial sales charge or assessed a
contingent deferred sales charge on redemption, or (ii) a dividend or
distribution paid by any of the Franklin Templeton Funds, within 365 days
after the date of the redemption or dividend or distribution. However, if a
Shareholder's original investment was in Class I shares of a fund with a lower
sales charge, or no sales charge, the Shareholder must pay the difference. An
investor may reinvest an amount not exceeding the proceeds of the redemption
or the dividend or distribution. While credit will be given for any contingent
deferred sales charge paid on the Shares redeemed, a new contingency period
will begin. Matured Shares will be reinvested at net asset value and will not
be subject to a new contingent deferred sales charge. Shares of the Fund
redeemed in connection with an exchange into another fund (see "Exchange
Privilege") are not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of Shares of the
Fund must be received by the Fund or the Fund's Transfer Agent within 365 days
after the redemption or the payment date of the distribution. The 365 days,
however, do not begin to run on redemption proceeds placed immediately after
redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset value may also be
handled by a securities dealer or other financial institution, who may charge
the Shareholder a fee for this service. The redemption is a taxable
transaction but reinvestment without a sales charge may affect the tax basis
of the Shares reinvested, and the amount of gain or loss resulting from a
redemption may be affected by exercise of the reinstatement privilege if the
Shares redeemed were held for 90 days or less, or if a Shareholder reinvests
in the same fund within 30 days. Reinvestment will be at the next calculated
net asset value after receipt.

SYSTEMATIC WITHDRAWAL PLAN. A Shareholder may establish a Systematic
Withdrawal Plan ("Plan") and receive periodic payments from the account
provided that the net asset value of the Shares held by the Shareholder is at
least $5,000. There are no service charges for establishing or maintaining a
Plan. The minimum amount which the Shareholder may withdraw is $50 per
withdrawal transaction although this is merely the minimum amount allowed
under the Plan and should not be mistaken for a recommended amount.
Retirement plans subject to mandatory distribution requirements are not
subject to the $50 minimum. The Plan may be established on a monthly,
quarterly, semiannual or annual basis. If the Shareholder establishes a Plan,
any capital gain distributions and income dividends paid by the Fund to the
Shareholder's account must be reinvested for the Shareholder's account in
additional Shares at net asset value. Payments are then made from the
liquidation of Shares at net asset value on the day of the liquidation (which
is generally on or about the 25th of the month) to meet the specified
withdrawals. Payments are generally received three to five days after the date
of liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included with this
Prospectus, a Shareholder may direct the selected withdrawals to another of
the Franklin Templeton Funds, to another person, or directly to a checking
account. Liquidation of Shares may reduce or possibly exhaust the Shares in
the Shareholder's account, to the extent withdrawals exceed Shares earned
through dividends and distributions, particularly in the event of a market
decline. If the withdrawal

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<PAGE>

amount exceeds the total Plan balance, the account will be closed and the
remaining balance will be sent to the Shareholder. As with other redemptions,
a liquidation to make a withdrawal payment is a sale for federal income tax
purposes. Because the amount withdrawn under the Plan may be more than the
Shareholder's actual yield or income, part of such a Plan payment may be a
return of the Shareholder's investment.

Maintaining a Plan concurrently with purchases of additional Shares of the
Fund would be disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I Shares and Class II Shares may be
subject to a contingent deferred sales charge if the Shares are redeemed
within 12 months (Class I Shares) or 18 months (Class II Shares) of the
calendar month of the original purchase date. The Shareholder should
ordinarily not make additional investments of less than $5,000 or three times
the annual withdrawals under the Plan during the time such a Plan is in
effect.

With respect to Class I Shares, the contingent deferred sales charge is
waived for redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set up on or
after February 1, 1995, the applicable contingent deferred sales charge is
waived for Class I and Class II Share redemptions of up to 1% monthly of an
account's net asset value (12% annually, 6% semiannually, 3% quarterly). For
example, if a Class I account maintained an annual balance of $1,000,000, only
$120,000 could be withdrawn through a once-yearly Systematic Withdrawal Plan
free of charge; any amount over that $120,000 would be assessed a 1% (or
applicable) contingent deferred sales charge. Likewise, if a Class II account
maintained an annual balance of $10,000, only $1,200 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge.

A Plan may be terminated on written notice by the Shareholder or the Fund,
and it will terminate automatically if all Shares are liquidated or withdrawn
from the account, or upon the Fund's receipt of notification of the death or
incapacity of the Shareholder. Shareholders may change the amount (but not
below $50) and schedule of withdrawal payments or suspend one such payment by
giving written notice to the Transfer Agent at least seven business days prior
to the end of the month preceding a scheduled payment. Share certificates may
not be issued while a Plan is in effect.

REDEMPTIONS BY TELEPHONE. Shareholders who file a Telephone Redemption
Authorization Agreement (the "Agreement") (a copy of which is included in this
Prospectus) may redeem Shares of the Fund by telephone, subject to the
Restricted Account exception noted under "Telephone Transactions--Restricted
Accounts." The Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions--Verification Procedures."

For Shareholder accounts with a completed Agreement on file, redemptions of
uncertificated Shares or Shares which have previously been deposited with the
Fund or the Transfer Agent may be made for up to $50,000 per day per Fund
account. Telephone redemption request received before the scheduled closing
time of the NYSE (generally 4:00 p.m., New York time), on any business day
will be processed that same day. The redemption check will be sent within
seven days, made payable to all the registered owners on the account, and will
be sent only to the address of record. Redemption requests by telephone will
not be accepted within 30 days following an address change by telephone. In
that case, a Shareholder should follow the other redemption procedures set
forth in this Prospectus. Institutional accounts which wish to execute
redemptions in excess of $50,000 must complete an Institutional Telephone
Privileges Agreement which is available from Franklin Templeton Institutional
Services by telephoning 1-800-321-8563.

CONTINGENT DEFERRED SALES CHARGE. In order to recover commissions paid to
securities dealers, Class I investments of $1 million or more, and any Class
II investments, redeemed within the contingency period of 12 months (Class I)
or 18 months (Class II) of the calendar month following their purchase will be
assessed a contingent deferred sales charge, unless one of the exceptions
described below applies. The charge is 1% of the lesser of the net asset value
of the Shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such Shares,
and is retained by FTD. The contingent deferred sales charge is waived in
certain instances.

22
<PAGE>

In determining if a contingent deferred sales charge applies, Shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of Shares representing amounts
attributable to capital appreciation of those Shares held less than the
contingency period (12 months in the case of Class I Shares and 18 months in
the case of Class II Shares); (ii) Shares purchased with reinvested dividends
and capital gain distributions; and (iii) other Shares held longer than the
contingency period, and followed by any Shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds
or an adjustment to the cost basis of the Shares redeemed.

The contingent deferred sales charge on each class of Shares is waived, as
applicable, for: exchanges; any account fees; distributions to participants or
beneficiaries in FTTC individual retirement plan accounts due to death,
disability or attainment of age 59 1/2; tax-free returns of excess
contributions from employee benefit plans; distributions from employee benefit
plans, including those due to plan termination or plan transfer; redemptions
through a Systematic Withdrawal Plan set up for Shares prior to February 1,
1995 and, for Systematic Withdrawal Plans set up thereafter, redemptions of up
to 1% monthly of an account's net asset value (3% quarterly, 6% semiannually
or 12% annually); redemptions initiated by the Fund due to a Shareholder's
account falling below the minimum specified account size; and redemptions
following the death of the Shareholder or the beneficial owner.

All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month and each subsequent month.

Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional Shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of
a SPECIFIC NUMBER of Shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.

TELEPHONE TRANSACTIONS

Shareholders of the Fund and their and their investment representative of
record, if any, may be able to execute various transactions by calling
Shareholder Services at 1-800-632-2301.

All Shareholders will be able to: (i) effect a change in address, (ii)
change a dividend option (see "Restricted Accounts" below), (iii) transfer
Fund Shares in one account to another identically registered account in the
Fund, (iv) request the issuance of certificates (to be sent to the address of
record only) and (v) exchange Fund Shares by telephone as described in this
Prospectus. In addition, Shareholders who complete and file an Agreement as
described under "How to Sell Shares of the Fund--Redemptions by Telephone"
will be able to redeem Shares of the Fund.

VERIFICATION PROCEDURES. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These will include: recording all telephone calls requesting
account activity by telephone, requiring that the caller provide certain
personal and/or account information requested by the telephone service agent
at the time of the call for the purpose of establishing the caller's
identification, and sending a confirmation statement on redemptions to the
address of record each time account activity is initiated by telephone. So
long as the Fund and the Transfer Agent follow instructions communicated by
telephone which were reasonably believed to be genuine at the time of their
receipt, neither they nor their affiliates will be liable for any loss to the
Shareholder caused by an unauthorized transaction. Shareholders are, of
course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or the Transfer Agent is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed and neither the Fund, the Transfer
Agent, nor their affiliates will be liable for any losses which may occur
because of a delay in implementing a transaction.

23
<PAGE>

RESTRICTED ACCOUNTS. Telephone redemptions and dividend option changes may
not be accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are required for any
distribution, redemption, or dividend payment. While the telephone exchange
privilege is extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.

To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account Shareholders may call to
speak to a Retirement Plan Specialist at 1-800-527-2020 (toll free).

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 dealer for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.

Neither the Fund nor the Transfer Agent 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.

MANAGEMENT OF THE FUND

The Trust is managed by its Board of Trustees and all powers are exercised
by or under authority of the Board. Information relating to the Trustees and
Executive Officers is set forth under the heading "Management of the Trust" in
the SAI.

The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of Shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.

In developing the multiclass structure, the Fund has retained the authority
to establish additional classes of Shares. It is the Fund's present intention
to offer only two classes of Shares, but new classes may be offered in the
future.

INVESTMENT MANAGER. Templeton Global Bond Managers, a division of Templeton
Investment Counsel, Inc., Broward Financial Centre, Ft. Lauderdale, Florida
33394-3091, serves as the Investment Manager of the Fund. The Investment
Manager manages the investment and reinvestment of the Fund's assets. The
Investment Manager is an indirect wholly owned subsidiary of Franklin
Resources, Inc. ("Franklin"). Through its subsidiaries, Franklin is engaged in
various aspects of the financial services industry. The Investment Manager and
its affiliates serve as advisers for a wide variety of public investment
mutual funds and private clients in many nations. The Templeton organization
has been investing globally over the past 52 years and, with its affiliates,
provides investment management and advisory services to a worldwide client
base, including over 4.3 million mutual fund shareholders, foundations,
endowments, employee benefit plans and individuals. The Investment Manager and
its affiliates have approximately 4,100 employees in the United States,
Australia, Scotland, Germany, Hong Kong, Luxembourg, Bahamas, Singapore,
Canada and Russia.

The Investment Manager uses a disciplined, long-term approach to global and
international investing. It has an extensive global network of investment
research sources. Securities are selected for the Fund's portfolio on the
basis of fundamental company-by-company analysis. Many different selection
methods are used for different funds and clients and these methods are changed
and improved by the Investment Manager's research on superior selection
methods.

24
<PAGE>

The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee which, during the most recent fiscal year,
represented 0.50% of its average daily net assets.

The lead portfolio manager for the Fund is Thomas Latta. Prior to joining
the Templeton organization in 1991, Mr. Latta, a Vice President of the
Investment Manager, worked as a portfolio manager with Forester & Hairston, a
Houston based global fixed income investment management firm. Prior to that,
Mr. Latta spent seven years with Merrill Lynch, Pierce, Fenner & Smith
Incorporated, first as an investment adviser to a large Mid-East central bank
and then working in the structured products group in New York. In that
position he developed asset-liability management strategies for large ERISA
plans. Neil S. Devlin and Tom Wilkinson also exercise secondary portfolio
management responsibilities with respect to the Fund. Prior to joining the
Templeton organization in 1987, Mr. Devlin, a Senior Vice President of the
Investment Manager, was a portfolio manager and bond analyst with
Constitutional Capital Management of Boston. While there, he managed a portion
of the Bank of New England's pension money, a number of trust and corporate
pension accounts, and began and managed a mortgage-backed securities fund for
the bank. Before that, Mr. Devlin was a bond trader and research analyst for
the Bank of New England. Mr. Wilkinson, a Vice President of the Investment
Manager, joined the Templeton organization in 1985 as Director of Information
Services and later as a securities analyst. Further information concerning the
Investment Manager is included under the heading "Investment Management and
Other Services" in the SAI.

BUSINESS MANAGER. Templeton Global Investors, Inc. provides certain
administrative facilities and services for the Fund, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns, preparation of financial reports, monitoring
compliance with regulatory requirements and monitoring tax-deferred retirement
plans. For its services, the Business Manager receives a monthly fee
equivalent on an annual basis to 0.15% of the combined average daily net
assets of the Funds included in the Trust (the Fund and Templeton Money Fund),
reduced to 0.135% of such assets in excess of $200 million, to 0.10% of such
assets in excess of $700 million, and to 0.075% of such assets in excess of
$1,200 million.

TRANSFER AGENT. Franklin Templeton Investor Services, Inc. serves as
transfer agent and dividend disbursing agent for the Fund.

CUSTODIAN. The Chase Manhattan Bank, N.A. serves as custodian of the Fund's
assets.

PLANS OF DISTRIBUTIONS. A separate Plan of Distribution has been approved
and adopted for each class ("Class I Plan" and "Class II Plan," respectively,
or "Plans") pursuant to Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees
charged to each class will be based solely on the distribution and servicing
fees attributable to that particular class. Any portion of fees remaining from
either Plan after distribution to securities dealers of up to the maximum
amount permitted under each Plan may be used by the class to reimburse FTD for
routine ongoing promotion and distribution expenses incurred with respect to
such class. 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 FTD's overhead
expenses attributable to the distribution of Fund Shares, as well as any
distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, FTD or its
affiliates.

The maximum amount which the Fund may pay to FTD or others under the Class I
Plan for such distribution expenses is 0.25% per annum of Class I'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 FTD, or others who
have incurred them, without reimbursement from the Fund. Under the Class I
Plan, costs and expenses not reimbursed in any one given quarter (including
costs and expenses not reimbursed because they exceed the applicable limit of
the Plan) may be reimbursed in subsequent quarters or years, subject to
applicable law. FTD has informed the Fund that it had no unreimbursed expenses
under the Class I Plan at August 31, 1994.

25
<PAGE>

Under the Class II Plan, the maximum amount which the Fund is permitted to
pay to FTD or others for distribution expenses and related expenses is 0.50%
per annum of Class II's average daily net assets, payable quarterly. All
expenses of distribution, marketing and related services over that amount will
be borne by FTD, or others who have incurred them, without reimbursement by
the Fund. In addition, the Class II Plan provides for an additional payment by
the Fund of up to 0.15% per annum of Class II's average daily net assets as a
servicing fee, payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in establishing and
maintaining customer accounts and records; assisting with purchase and
redemption requests; receiving and answering correspondence; monitoring
dividend payments from the Fund on behalf of the customers; or similar
activities related to furnishing personal services and/or maintaining
Shareholder accounts.

During the first year following the purchase of Class II Shares, FTD will
retain 0.50% per annum of Class II's average daily net assets to partially
recoup fees FTD pays to securities dealers. FTD, or its affiliates, may pay,
from its own resources, a commission of up to 1% of the amount invested to
securities dealers who initiate and are responsible for purchases of Class II
Shares.

Both Plans also cover any payments to or by the Fund, the Investment
Manager, FTD, or other parties on behalf of the Fund, the Investment Manager
or FTD, to the extent such payments are deemed to be for the financing of any
activity primarily intended to result in the sale of Shares issued by the Fund
within the context of Rule 12b-1. The payments under the Plans are included in
the maximum operating expenses which may be borne by each class of the Fund.
For more information including a discussion of the Board's policies with
regard to the amount of each Plan's fees, please see the SAI.

EXPENSES. For the fiscal year ended August 31, 1994, expenses borne by Class
I Shares of the Fund amounted to 1.18% of the average net assets of such
class. See the Expense Table for information regarding estimated expenses for
the current fiscal year.

BROKERAGE COMMISSIONS. The Fund's brokerage policies are described under the
heading "Brokerage Allocation" in the SAI. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Shares by a broker are factors which may be taken into account in allocating
securities transactions, so long as the prices and execution provided by the
broker equal the best available within the scope of the Fund's brokerage
policies.

GENERAL INFORMATION

DESCRIPTION OF SHARES/SHARE CERTIFICATES. The capitalization of the Trust
consists of an unlimited number of Shares of beneficial interest, par value
$0.01 per Share. The Board of Trustees is authorized, in its discretion, to
classify and allocate the unissued Shares of the Trust. Each Share entitles
the holder to one vote.

Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the Shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust. The Declaration of Trust
provides for indemnification out of Trust property for all loss and expense of
any Shareholder held personally liable for the obligations of the Trust. The
risk of a Shareholder incurring financial loss on account of Shareholder
liability is limited to circumstances in which the Trust itself would be
unable to meet its obligations and, thus, should be considered remote.

Shares for an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gain distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. No charge is made for the issuance of one
certificate for all or some of the Shares purchased in a single order. A lost,
stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is generally borne
by the shareholder, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by the
shareholder or by the securities dealer.

26
<PAGE>

VOTING RIGHTS. Shares of each class represent proportionate interests in the
assets of the Fund and have the same voting and other rights and preferences
as the other class of the Fund for matters that affect the Fund as a whole.
For matters that only affect a certain class of the Fund's Shares, however,
only Shareholders of that class will be entitled to vote. Therefore, each
class of Shares will vote separately on matters (1) affecting only that class,
(2) expressly required to be voted on separately by state law, or (3) required
to be voted on separately by the 1940 Act or the rules adopted thereunder. For
instance, if a change to the Rule 12b-1 plan relating to Class I Shares
requires Shareholder approval, only Shareholders of Class I may vote on
changes to the Rule 12b-1 plan affecting that class. Similarly, if a change to
the Rule 12b-1 plan relating to Class II Shares requires Shareholder approval,
only Shareholders of Class II may vote on the change to such plan. On the
other hand, if there is a proposed change to the investment objective of the
Fund, this affects all Shareholders, regardless of which class of Shares they
hold, and therefore, each Share has the same voting rights.

MEETINGS OF SHAREHOLDERS. The Trust is not required to hold regular annual
meetings of Shareholders and may elect not to do so. The Trust will call a
special meeting of Shareholders when requested to do so by Shareholders
holding at least 10% of the Trust's outstanding Shares. In addition, the Trust
is required to assist Shareholder communications in connection with the
calling of Shareholder meetings to consider removal of a Trustee or Trustees.

DIVIDENDS AND DISTRIBUTIONS. The Fund intends normally to pay a monthly
dividend representing substantially all of its net investment income and to
distribute annually any net realized capital gains. According to the
requirements of the Code, dividends and capital gains will be calculated and
distributed in the same manner for Class I and Class II Shares. The per share
amount of any income dividends will generally differ only to the extent that
each class is subject to different Rule 12b-1 fees. Unless otherwise
requested, income dividends and capital gain distributions paid by the Fund,
other than on those Shares whose owners keep them registered in the name of a
broker-dealer, are automatically reinvested on the payment date in whole or
fractional Shares at net asset value as of the ex-dividend date, unless a
Shareholder makes a written or telephonic request for payments in cash.
Dividend and capital gain distributions are only eligible for reinvestment at
net asset value in the same class of Shares of the Fund or the same class of
another of the Franklin Templeton Funds. The processing date for the
reinvestment of dividends may vary from time to time, and does not affect the
amount or value of the Shares acquired. Income dividends and capital gain
distributions will be paid in cash on Shares during the time their owners keep
them registered in the name of a broker-dealer, unless the broker-dealer has
made arrangements with the Transfer Agent for reinvestment.

Prior to purchasing Shares of the Fund, the impact of dividends or capital
gain distributions which have been declared but not yet paid should be
carefully considered. Any dividend or capital gain distribution paid shortly
after a purchase by a Shareholder prior to the record date will have the
effect of reducing the per Share net asset value of the Shares by the amount
of the dividend or distribution. All or a portion of such dividend or
distribution, although in effect a return of capital, will generally be
subject to tax.

Checks are forwarded by first-class mail to the address of record. The
proceeds of any such checks which are not accepted by the addressee and
returned to the Fund will be reinvested in the Shareholder's account in whole
or fractional Shares at net asset value next computed after the check has been
received by the Transfer Agent. Subsequent distributions will be reinvested
automatically at net asset value as of the ex-dividend date in additional
whole or fractional Shares.

FEDERAL TAX INFORMATION. The Fund intends to elect to be treated and to
qualify each year as a regulated investment company under Subchapter M of the
Code. See the SAI for a summary of the requirements that must be satisfied to
so qualify. A regulated investment company generally is not subject to federal
income tax on income and gains distributed in a timely manner to its
shareholders. The Fund intends to distribute to Shareholders substantially all
of its net investment income and realized capital gains, which generally will
be taxable income or capital gains in their hands. Distributions declared in
October, November or December to Shareholders of record on a date in such
month and paid during the following January will be treated as having been
received by Shareholders on December 31 in the year such distributions were
declared. The Fund will inform Shareholders each year of the amount and nature
of such income or gains. Sales or other dispositions of Fund Shares generally
will give rise to taxable gain or loss. A more detailed description of tax
consequences to Shareholders is contained in the SAI under the heading "Tax
Status."

27
<PAGE>

The Fund may be required to withhold Federal income tax at the rate of 31%
of all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholder's federal income tax liability.

INQUIRIES. Shareholders' inquiries will be answered promptly. They should be
addressed to Franklin Templeton Investor Services, Inc., P.O. Box 33030, St.
Petersburg, Florida 33733-8030 -- telephone 1-800-632-2301 or 813-823-8712.
Transcripts of Shareholder accounts less than three years old are provided on
request without charge; requests for transcripts going back more than three
years from the date the request is received by the Transfer Agent are subject
to a fee of up to $15 per account.

PERFORMANCE INFORMATION. The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
a period of 1, 5 and 10 years (or up to the life of the Fund), will reflect
the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see the SAI.

Because Class II Shares were not offered prior to May 1, 1995, no
performance data is available for these Shares. After a sufficient period of
time has passed, Class II performance data will be available.

STATEMENTS AND REPORTS. The Fund's fiscal year ends on August 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semiannual
reports (containing unaudited financial statements) are sent to Shareholders
each year. To reduce the volume of mail sent to one household as well as to
reduce Fund expenses, the Transfer Agent, when legally permissible, will
attempt to identify related shareholders within a household, and send only one
copy of the report. Additional copies may be obtained, without charge, upon
request to the Fund Information Department--telephone 1-800/DIAL BEN. The Fund
also sends to each Shareholder a confirmation statement after every
transaction that affects the Shareholder's account and a year-end historical
confirmation statement.

28
<PAGE>

INSTRUCTIONS AND IMPORTANT NOTICE

SUBSTITUTE W-9 INSTRUCTIONS INFORMATION

GENERAL. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the IRS.

OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number, you must obtain Form SS-5 or Form SS-4 from your local
Social Security or IRS office and apply for one. If you have checked the
"Awaiting TIN" box and signed the certification, withholding will apply to
payments relating to your account unless you provide a certified TIN within 60
days.

WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:

<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE TAXPAYER ID # OF
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Individual Individual . Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
------------------------------------------------------------------------------------------
. Joint Actual owner of . Corporation, Corporation,
Individual account, or if Partnership, or other Partnership, or other
combined funds, the organization organization
first-named
individual
------------------------------------------------------------------------------------------
. Unif. Minor . Broker nominee Broker nominee
Gift/Transfer
to Minor
------------------------------------------------------------------------------------------
. Sole Owner of business
Proprietor
-----------------------------------------------------------------------------------
. Legal Ward, Minor, or
Guardian Incompetent
-----------------------------------------------------------------------------------
</TABLE>

EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient"
box if you are an exempt recipient. Exempt recipients generally include:

A corporation A real estate investment trust

A financial institution A common trust fund operated by a bank
under section 584(a)

An organization exempt from tax An entity registered at all times
under section 501(a), or an under the Investment Company Act of
individual retirement plan 1940

A registered dealer in securities or
commodities registered in the U.S.
or a U.S. possession

IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject
to an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income
tax return, you will be treated as negligent and subject to an IRS 20% penalty
on any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith.
If you falsify information on this form or make any other false statement
resulting in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and certain
criminal penalties including fines and imprisonment.

SUBSTITUTE W-8 INSTRUCTIONS INFORMATION

EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as
a non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. Generally, you are an
"Exempt Foreign Person" if you are not (1) a citizen or resident of the U.S.,
or (2) a U.S. corporation, partnership, estate, or trust. In the case of an
individual, an "Exempt Foreign Person" is one who has been physically present
in the U.S. for less than 31 days during the current calendar year. An
individual who is physically present in the U.S. for at least 31 days during
the current calendar year will still be treated as an "Exempt Foreign Person,"
provided that the total number of days physically present in the current
calendar year and the two preceding calendar years does not equal or exceed
183 days (counting all of the days in the current calendar year, only one-
third of the days in the first preceding calendar year and only one-sixth of
the days in the second preceding calendar year). In addition, lawful permanent
residents or green card holders may not be treated as "Exempt Foreign
Persons." If you are an individual or an entity, you must not now be, or at
this time expect to be, engaged in a U.S. trade or business with respect to
which any gain derived from transactions effected by the Fund/Payer during the
calendar year is effectively connected to the U.S.

PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual,
provide your permanent address. If you are a partnership or corporation,
provide the address of your principal office. If you are an estate or trust,
provide the address of your permanent residence or the principal office of any
fiduciary.

NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and
backup withholding may also begin unless you certify to the Fund/Payer that
(1) the tax payer identification number you have given is correct, and (2) the
Internal Revenue Service has not notified you that you are subject to backup
withholding because you failed to report certain interest or dividend income.
You may use Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer
active, you do not have to notify a Fund/Payer or broker of your change in
status unless you also have another account with the same Fund/Payer that is
still active. If you receive interest from more than one Fund/Payer or have
dealings with more than one broker or barter exchange, file a certificate with
each. If you have more than one account with the same Fund/Payer, the
Fund/Payer may require you to file a separate certificate for each account.

WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years. Only certifications that are in proper order will be treated
as having been filed with the Fund.

HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for
three calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.

29
<PAGE>

FOR CORPORATE SHAREHOLDERS--FORM OF RESOLUTION

It will be necessary for corporate shareholders to provide a certified copy of
a resolution or other certificate of authority to authorize the purchase as
well as sale (redemption) of shares and withdrawals by checks or drafts. You
may use the following form of resolution or you may prefer to use your own. It
is understood that the Fund, Franklin Templeton Distributors, Inc., Franklin
Templeton Investor Services, Inc., the custodian bank and their affiliates may
rely upon these authorizations until revoked or amended by written notice
delivered by registered or certified mail to the Fund.

CERTIFIED COPY OF RESOLUTION (Corporation or Association)

The undersigned hereby certifies and affirms that he/she is the duly elected
of
-------------------------- -----------------------------------------------
TITLE CORPORATE NAME
a organized under the laws of the State of and
---------------------- ---------
TYPE OF ORGANIZATION STATE
that the following is a true and correct copy of a resolution adopted by the
Board of Directors at a meeting duly called and held on
----------------------
DATE

RESOLVED, that the of this
------------------------------------------------
OFFICERS' TITLES
Corporation or Association are authorized to open an account in the name of
the Corporation or Association with one or more of the Franklin Group of
Funds (R) or Templeton Family of Funds (collectively, the "Funds") and to
deposit such funds of this Corporation or Association in this account as
they deem necessary or desirable; that the persons authorized below may
endorse checks and other instruments for deposit to said account or
accounts; and

FURTHER RESOLVED, that any of the following officers are
-----------------
NUMBER
authorized to sign any share assignment on behalf of this Corporation or
Association and to take any other actions as may be necessary to sell or
redeem its shares in the Funds or to sign checks or drafts withdrawing
funds from the account; and

FURTHER RESOLVED, that this Corporation or Association shall hold harmless,
indemnify, and defend the Funds, their custodian bank, Franklin Templeton
Distributors, Inc., Franklin Templeton Investor Services, Inc., and their
affiliates, from any claim, loss or liability resulting in whole or in
part, directly or indirectly, from their reliance from time to time upon
any certifications by the secretary or any assistant secretary of this
Corporation or Association as to the names of the individuals occupying
such offices and their acting in reliance upon these resolutions until
actual receipt by them of a certified copy of a resolution of the Board of
Directors of the Corporation or Association modifying or revoking any or
all such resolutions.

The undersigned further certifies that the below named persons, whose
signatures appear opposite their names and office titles, are duly elected
officers of the Corporation or Association. (Attach additional list if
necessary)

-------------------------------------- ---------------------------------------
NAME/TITLE (PLEASE PRINT OR TYPE) SIGNATURE

-------------------------------------- ---------------------------------------
NAME OF CORPORATION OR ASSOCIATION DATE

Certified from minutes
-------------------------------------------------------
NAME AND TITLE
CORPORATE SEAL (if appropriate)

30
<PAGE>

THE FRANKLIN TEMPLETON TELEPHONE REDEMPTION AUTHORIZATION AGREEMENT

You may use Franklin Templeton's telephone redemption privilege to redeem
uncertificated Franklin Templeton Fund shares for up to $50,000 (or your
Shareholder account balance, whichever is less) per day, per fund account in
accordance with the terms of the Fund's Prospectus.

The telephone redemption privilege is available only to Shareholders who
specifically request it. If you would like to add this redemption privilege to
the other telephone transaction privileges automatically available to Franklin
Templeton Fund shareholders, please sign and return this authorization to
Franklin Templeton Investor Services, Inc. ("Services"), transfer agent and
shareholder servicing agent for the Franklin Templeton Funds.

SHAREHOLDER AUTHORIZATION: I/We request the telephone redemption privilege
under the terms described below and in the prospectus for each investment
company in the Franklin Templeton Group (a "Franklin Templeton Fund" or a
"Fund"), now opened or opened at a later date, holding shares registered as
follows:

------------------------------------- ---------------------------------------
PRINT NAME(S) AS SHOWN IN YOUR ACCOUNT REGISTRATION ("SHAREHOLDER")

------------------------------------- ---------------------------------------
ACCOUNT NUMBER(S)

I/We authorize each Fund and Services to honor and act upon telephone requests
given as provided in this agreement to redeem shares from any
Shareholder account:

------------------------------------- ---------------------------------------
SIGNATURE(S) AND DATE

------------------------------------- ---------------------------------------
PRINT NAME(S) (AND TITLE/CAPACITY, IF APPLICABLE)

VERIFICATION PROCEDURES: I/We understand and agree that: (1) each Fund and
Services will employ reasonable procedures to confirm that redemption
instructions communicated by telephone are genuine and that if these
confirmation procedures are not followed, the Fund or Services may be liable
for any losses due to unauthorized or fraudulent telephone instructions;
(2) the confirmation procedures will include the recording of telephone calls
requesting redemptions, requiring that the caller provide certain personal
and/or account information requested by the telephone service agent at the
time of the call for the purpose of establishing the caller's identification,
and the sending of confirmation statements to the address of record each time
a redemption is initiated by telephone; and (3) so long as the Fund and
Services follow the confirmation procedures in acting on instructions
communicated by telephone which were reasonably believed to be genuine at the
time of receipt, neither they, nor their parent or affiliates, will be liable
for any loss, damages or expenses caused by an unauthorized or fraudulent
redemption request.

JOINTLY OWNED/CO-TRUSTEE ACCOUNTS: Each of us signing this agreement as either
joint owners or co-trustees authorizes each Fund and Services to honor
telephone redemption requests given by ANY ONE of the signers, or our
investment representative of record, if any, ACTING ALONE.

APPOINTMENT OF ATTORNEY-IN-FACT: In order to issue telephone redemption
requests acting alone, each of us individually makes the following
appointment: I hereby appoint the other joint owner(s)/co-trustee(s) as my
agent(s) (attorney[s]-in-fact) with full power and authority to individually
act for me in any lawful way with respect to the issuance of instructions to a
Fund or Services in accordance with the telephone redemption privilege we have
requested by signing this agreement. This appointment shall not be affected by
my subsequent disability or incompetency and shall remain in effect until it
is revoked by either written notice from any one of us delivered to a Fund or
Services by registered mail, return receipt requested or by a Fund or Services
upon receipt of any information that causes a Fund or Services to believe in
good faith that there is or that there may be a dispute among any of us with
respect to the Franklin Templeton Fund account(s) covered by this agreement.
Each of us agrees to notify the Fund or Services immediately upon the death of
any of the signers.

CORPORATE/PARTNERSHIP/TRUST/RETIREMENT ACCOUNTS: The Shareholder and each of
us signing this agreement on behalf of the Shareholder represent and warrant
to each Franklin Templeton Fund and Services that the Shareholder has the
authority to enter into this agreement and that each of us is duly authorized
to execute this agreement on behalf of the Shareholder. The Shareholder agrees
that its election of the telephone redemption privilege means that a Fund or
Services may honor a telephone redemption request given by ANY
officer/partner/member/administrator/or agent of the Shareholder ACTING ALONE.

RESTRICTED ACCOUNTS: Telephone redemptions may not be accepted on Franklin
Trust Company or Templeton Funds Trust Company retirement accounts.

PLEASE RETURN THIS FORM TO:
Franklin Templeton Investor Services, Inc., Attn.: Telephone Redemptions
Dept., 700 Central Avenue, St. Petersburg, Florida 33701-3628.

31
<PAGE>

The Franklin Templeton Group

Literature Request -- Call today for a free descriptive brochure and
prospectus on any of the funds listed below. The prospectus contains more
complete information, including fees, charges and expenses, and should be read
carefully before investing or sending money.

TEMPLETON FUNDS
American Trust
Americas Government Securities Fund
Developing Markets Trust
Foreign Fund
Global Infrastructure Fund
Global Opportunities Trust
Greater European Fund
Growth Fund
Growth and Income Fund
Income Fund
Japan Fund
Latin America Fund
Money Fund
Real Estate Securities Fund
Smaller Companies Growth Fund
World Fund

FRANKLIN FUNDS
SEEKING TAX-FREE INCOME
Federal Intermediate Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund***
Puerto Rico Tax-Free Income Fund

FRANKLIN STATE-SPECIFIC FUNDS
SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan***
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**

FRANKLIN FUNDS
SEEKING CAPITAL GROWTH
California Growth Fund
DynaTech Fund
Equity Fund
Global Health Care Fund
Gold Fund
Growth Fund
International Equity Fund
Pacific Growth Fund
Real Estate Securities Fund
Small Cap Growth Fund

FRANKLIN FUNDS SEEKING
GROWTH AND INCOME
Balance Sheet Investment Fund
Convertible Securities Fund
Equity Income Fund
Global Utilities Fund
Income Fund
Premier Return Fund
Rising Dividends Fund
Strategic Income Fund
Utilities Fund

FRANKLIN FUNDS SEEKING
HIGH CURRENT INCOME
AGE High Income Fund
German Government Bond Fund
Global Government Income Fund
Investment Grade Income Fund
U.S. Government Securities Fund

FRANKLIN FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF PRINCIPAL
Adjustable Rate Securities Fund
Adjustable U.S. Government Securities Fund
Short-Intermediate U.S. Government Securities Fund

FRANKLIN FUNDS FOR NON-U.S. INVESTORS
Tax-Advantaged High Yield Securities Fund
Tax-Advantaged International Bond Fund
Tax-Advantaged U.S. Government Securities Fund

FRANKLIN TEMPLETON INTERNATIONAL
CURRENCY FUNDS
Global Currency Fund
Hard Currency Fund
High Income Currency Fund

FRANKLIN MONEY MARKET FUNDS
California Tax-Exempt Money Fund
Federal Money Fund
IFT U.S. Treasury Money Market Portfolio
Money Fund
New York Tax-Exempt Money Fund
Tax-Exempt Money Fund

FRANKLIN FUND FOR CORPORATIONS
Corporate Qualified Dividend Fund

FRANKLIN TEMPLETON VARIABLE ANNUITIES
Franklin Valuemark
Franklin Templeton Valuemark Income
Plus (an immediate annuity)

Toll-free 1-800-DIAL BEN (1-800-342-5236)

* Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of municipal securities, and a high yield portfolio
(CA).
** The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
*** Portfolio of insured municipal securities.

32
<PAGE>

NOTES
----

33
<PAGE>

NOTES
----

34
<PAGE>

NOTES
----

35
<PAGE>

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

TEMPLETON INCOME FUND

PRINCIPAL UNDERWRITER:

Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628

Shareholder Services
1-800-632-2301

Fund Information
1-800/DIAL BEN

Institutional Services
1-800-321-8563

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
Principal Underwriter.

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

[RECYCLED PAPER LOGO APPEARS HERE] TL406 P 08/95

TEMPLETON

INCOME

FUND

Prospectus
May 1, 1995

as supplemented
August 11, 1995

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

<PAGE>

[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]

Mail to: FRANKLIN TEMPLETON DISTRIBUTORS, INC.
P.O. Box 33031 St. Petersburg, Florida 33733-8031 (800) 393-3001

Please do not use this form for any Retirement Plan for which Franklin Templeton
Trust Company serves as custodian or trustee, or for Templeton Money Fund,
Templeton Institutional Funds or Templeton Capital Accumulator Fund. Request
separate Applications and/or Prospectuses.

--------------------------------------------------------------------------------
SHAREHOLDER APPLICATION OR REVISION
[_] Please check the box if this is a revision and see Section 8
--------------------------------------------------------------------------------

Please check Class I or Class II, if applicable, next to your Fund selection.
Class I and Class II shares have different sales charges and operating expenses,
among other differences, as described in each Fund's prospectus.

Date __________________

<TABLE>
<CAPTION>
CLASS CLASS
I II I II
<S> <C> <C> <C>
[_] [_]$______ AMERICAN TRUST [_] [_]$______ GLOBAL OPPORTUNITIES TRUST
[_] ______ AMERICAS GOVERNMENT SECURITIES FUND [_] [_] ______ GREATER EUROPEAN FUND
[_] [_] ______ DEVELOPING MARKETS TRUST [_] [_] ______ GROWTH FUND
[_] [_] ______ FOREIGN FUND [_] [_] ______ GROWTH AND INCOME FUND
[_] [_] ______ GLOBAL INFRASTRUCTURE FUND [_] [_] ______ INCOME FUND

<CAPTION>
CLASS CLASS
I II I II
<S> <C> <C>
[_] $______ JAPAN FUND [_] [_] OTHER: $___________
[_] [_] ______ LATIN AMERICA FUND (Except for Class II Money Fund)
[_] [_] ______ REAL ESTATE SECURITIES FUND _______________________________
[_] [_] ______ SMALLER COMPANIES GROWTH FUND _______________________________
[_] [_] ______ WORLD FUND _______________________________
</TABLE>

--------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION (PLEASE PRINT)
--------------------------------------------------------------------------------

[_] INDIVIDUAL OR JOINT ACCOUNT

__________________________________________________ ________-________-__________
First Name Middle Initial Last Name Social Security Number (SSN)

__________________________________________________ ________-________-__________
Joint Owner(s) (Joint ownership means "Joint Social Security Number (SSN)
Tenants With Rights of Survivorship" unless
otherwise specified) All owners must sign Section 4.

--------------------------------------------------------------------------------
[_] GIFT/TRANSFER TO A MINOR

_______________________________ As Custodian For________________________________
Name of Custodian (one only) Minor's Name (one only)

_____________Uniform Gifts/Transfers to Minors Act________-________-____________
State of Residence Minor's Social Security Number

Please Note: Custodian's Signature, not Minor's, is required in Section 4.

--------------------------------------------------------------------------------
[_] TRUST, CORPORATION, PARTNERSHIP, RETIREMENT PLAN, OR OTHER ENTITY

__________________________________________ ____________-_______________________
Name Taxpayer Identification Number (TIN)

__________________________________________ ____________________________________
Name of Beneficiary (if to be included in Date of Trust Document (must be
the Registration) completed for registration)

________________________________________________________________________________
Name of Each Trustee (if to be included in the Registration)

--------------------------------------------------------------------------------
2 ADDRESS
--------------------------------------------------------------------------------

___________________________________________ Daytime Phone (___)________________
Street Address Area Code

____________________________________-______ Evening Phone (___)________________
City State Zip Code Area Code

I am a Citizen of: [_] U.S. or [_]______________________________
Country of Residence

--------------------------------------------------------------------------------
3 INITIAL INVESTMENT ($100 minimum initial investment)
--------------------------------------------------------------------------------

Check(s) enclosed for $___________________ . (Payable to Franklin Templeton
Distributors, Inc. or the Fund(s)
indicated above.)

--------------------------------------------------------------------------------
4 SIGNATURE AND TAX CERTIFICATIONS
(All registered owners must sign application)
--------------------------------------------------------------------------------
See "Important Notice Regarding Taxpayer IRS Certifications" in back of
prospectus. The Fund reserves the right to refuse to open an account without
either a certified Taxpayer Identification Number ("TIN") or a certification of
foreign status. Failure to provide tax certifications in this section may result
in backup withholding on payments relating to your account and/or in your
inability to qualify for treaty withholding rates.

I am(We are) not subject to backup withholding because I(we) have not been
notified by the IRS that I am(we are) subject to backup withholding as a result
of a failure to report all interest or dividends or because the IRS has notified
me(us) that I am(we are) no longer subject to backup withholding. (If you are
currently subject to backup withholding as a result of a failure to report all
interest or dividends, please cross out the preceding statement.)

[_] The number shown above is my(our) correct TIN, or that of the Minor named in
Section 1.

[_] AWAITING TIN. I am(We are) waiting for a number to be issued to me(us).
I(We) understand that if I(we) do not provide a TIN to the Fund within 60
days, the Fund is required to commence 31% backup withholding until I(we)
provide a certified TIN.

[_] EXEMPT RECIPIENT. Individuals cannot be exempt. Check this box only after
reading the instructions to see whether you qualify as an exempt recipient.
(You should still provide a TIN.)

[_] EXEMPT FOREIGN PERSON. Check this box only if the following statement
applies: "I am(we are) neither a citizen nor a resident of the United
States. I(we) certify to the best of my(our) knowledge and belief, I(we)
qualify as an exempt foreign person and/or entity as described in the
instructions."

Permanent address for tax purposes:

________________________________________________________________________________
Street Address City State Country Postal Code

PLEASE NOTE: The IRS only allows one TIN to be listed on an account. On joint
accounts, it is preferred that the primary account owner (or person listed first
on the account) list his/her number as requested above.

CERTIFICATION - Under the penalties of perjury, I(we) certify that (1) the
information provided on this application is true, correct and complete, (2)
I(we) have read the prospectus(es) for the Fund(s) in which I am(we are)
investing and agree to the terms thereof, and (3) I am(we are) of legal age or
an emancipated minor. I (we) acknowledge that Shares of the Fund(s) are not
insured or guaranteed by any agency or institution and that an investment in the
Shares involves risks, including the possible loss of principal.

X X
---------------------------------------- ---------------------------------------
Signature Signature

X X
---------------------------------------- ---------------------------------------

--------------------------------------------------------------------------------
5 BROKER/DEALER USE ONLY (PLEASE PRINT)
--------------------------------------------------------------------------------

-----------------------
We hereby submit this application for the purchase of Templeton Dealer Number
shares of the Fund indicated above in accordance with
the terms of our selling agreement with Franklin -----------------------
Templeton Distributors, Inc. ("FTD"), and with the
Prospectus for the Fund. We agree to notify FTD of any
purchases of Class I shares which may be eligible for
reduced or eliminated sales charges.

-----------------------------------------------------------------------------
WIRE ORDER ONLY: The attached check for $_______ should be applied against
Wire Order
Confirmation Number ___________ Dated___________ For__________ Shares
-----------------------------------------------------------------------------

Securities Dealer Name__________________________________________________________

Main Office Address________________ Main Office Telephone Number (___)__________

Branch Number________ Representative Number ________ Representative Name________

Branch Address_________________________ Branch Telephone Number (___)___________

Authorized Signature, Securities Dealer______________________ Title_____________

--------------------------------------------------------------------------------
ACCEPTED: Franklin Templeton Distributors, Inc. By___________ Date______________
--------------------------------------------------------------------------------

Please see reverse side for Shareholder Account Privileges:

[_] Distribution Options [_] Special Instructions for Distributions
[_] Systematic Withdrawal Plan [_] Automatic Investment Plan

[_] Telephone Exchange Service [_] Letter of Intent
[_] Cumulative Quantity Discount

This application must be preceded or accompanied by a prospectus for
the Fund(s) being purchased.

<PAGE>

--------------------------------------------------------------------------------
6 DISTRIBUTION OPTIONS (Check one)
--------------------------------------------------------------------------------

Check one - if no box is checked, all dividends and capital gains will be
reinvested in additional shares of the Fund.

[_] Reinvest all dividends [_] Pay all dividends in cash
and capital gains. and reinvest capital gains.

[_] Pay capital gains in cash [_] Pay all dividends and
and reinvest dividends. capital gains in cash.

--------------------------------------------------------------------------------
7 OPTIONAL SHAREHOLDER PRIVILEGES
--------------------------------------------------------------------------------

A. SPECIAL PAYMENT INSTRUCTIONS FOR DISTRIBUTIONS (Check one box)

[_] Pay Distributions, as noted in Section 6, or [_] withdrawals, as noted in
section 7(B), to purchase shares of another Franklin or Templeton Fund.
Restrictions may apply to purchases of shares of a different class. See
the prospectus for details.

Fund Name______________________ Existing Account Number___________________
[_] Send my Distributions to the person, named below, instead of as registered
in Section 1.
Name___________________________ Street Address____________________________

City___________________________ State____________________Zip Code_________

--------------------------------------------------------------------------------
B. SYSTEMATIC WITHDRAWAL PLAN

Please withdraw from my Franklin Templeton account $_____($50 minimum)
[_]Monthly [_]Quarterly [_]Semi-Annually or [_]Annually as set forth in the
Prospectus, starting in ______________(Month). The net asset value of the
shares held must be at least $5,000 at the time the plan is established.
Additional restrictions may apply to Class II or other shares subject to
contingent deferred sales charge, as described in the prospectus. Send the
proceeds to: [_]Address of Record OR [_]the Franklin Templeton Fund or person
specified in Section 7(A) - Special Payment Instructions for Distributions.

--------------------------------------------------------------------------------
C. TELEPHONE TRANSACTIONS

TELEPHONE EXCHANGE PRIVILEGE: If the Fund does not receive specific
instructions from the shareholder, either in writing or by telephone, the
Telephone Exchange Privilege (see the prospectus) is automatically extended
to each account. The shareholder should understand, however, that the Fund
and Franklin Templeton Investor Services, Inc. ("FTI") or Franklin Templeton
Trust Company and their agents will not be liable for any loss, injury,
damage or expense as a result of acting upon instructions communicated by
telephone reasonably believed to be genuine. The shareholder agrees to hold
the Fund and its agents harmless from any loss, claims, or liability arising
from its or their compliance with such instructions. The shareholder
understands that this option is subject to the terms and conditions set forth
in the prospectus of the fund to be acquired.

[_]No, I do NOT wish to participate in the Telephone Exchange Privilege or
authorize the Fund or its agents, including FTI or Templeton Funds Trust
Company, to act upon instructions received by telephone to exchange shares
for shares of any other account(s) within the Franklin Templeton Group of
Funds.

Telephone Redemption Privilege: This is available to shareholders who
specifically request it and who complete the Franklin Templeton Telephone
Redemption Authorization Agreement in the back of the Fund's prospectus.

--------------------------------------------------------------------------------
D. AUTOMATIC INVESTMENT PLAN

IMPORTANT: ATTACH AN UNSIGNED, VOIDED CHECK (FOR CHECKING ACCOUNTS) OR A
SAVINGS ACCOUNT DEPOSIT SLIP HERE, AND COMPLETE THE INFORMATION BELOW. I(We)
would like to establish an Automatic Investment Plan (the "Plan") as
described in the Prospectus. I(We) agree to reimburse FTI and/or FTD for any
expenses or losses that they may incur in connection with my(our) plan,
including any caused by my(our) bank's failure to act in accordance with
my(our) request. If my(our) bank makes any erroneous payment or fails to make
a payment after shares are purchased on my(our) behalf, any such purchase may
be cancelled and I(we) hereby authorize redemptions and/or deductions from
my(our) account for that purpose.

Debit my (circle one) savings, checking, other ________ account monthly for
$__________($25 minimum) on or about the [_]1st [_]5th [_]15th or [_]20th day
starting_______(month), to be invested in (name of
Fund)___________________Account Number (if known)_______

INSTRUCTIONS TO BANK - AUTOMATIC INVESTMENT PLAN AUTHORIZATION

To:__________________________________ ______________________________________
Name of Your Bank ABA Number

___________________________ _________________ ____________ ______________
Street Address City State Zip Code

I(We) authorize you to charge my(our) Checking/Savings Account and to make
payment to FTD, upon instructions from FTD. I(We) agree that in making payment
for such charges your rights shall be the same as if each were a charge made and
signed personally by me(us). This authority shall remain in effect until you
receive written notice from me(us) changing its terms or revoking it. Until you
actually receive such notice, I(we) agree that you shall be fully protected in
paying any charge under this authority. I(we) further agree that if any such
charge is not made, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.

X_________________________________________________ ___________________________
Signature(s) EXACTLY as shown on your bank records Date

______________________________________ _______________________________________
Print Name(s) Account Number

______________________________ _________________ ____________ ______________
Your Street Address City State Zip Code

--------------------------------------------------------------------------------
E. LETTER OF INTENT (LOI)

[_]I(We) agree to the terms of the LOI and provisions for reservations of
Class I shares and grant FTD the security interest set forth in the
Prospectus. Although I am(we are) not obligated to do so, it is my(our)
intention to invest over a 13 month period in Class I and/or Class II shares
of one or more Franklin or Templeton Funds (including all money market funds
in the Franklin Templeton Group) an aggregate amount at least equal to that
which is checked below. I understand that reduced sales charges will apply
only to purchases of Class I shares.

<TABLE>
<S> <C> <C> <C> <C>
[_]$50,000-99,999 (except for Income Fund [_]$100,000-249,999 [_]$250,000-499,999 [_]$500,000-999,999 [_]$1,000,0000 or more
and Americas Government Securities Fund)
</TABLE>
Purchases of Class I Shares under LOI of $1,000,000 or more are made at net
asset value and may be subject to a contingent deferred sales charge as
described in the prospectus.

Purchases made within the last 90 days will be included as part of your LOI.

Please write in your Account Number(s)____________ ____________ ____________

--------------------------------------------------------------------------------
F. CUMULATIVE QUANTITY DISCOUNT -- APPLICABLE TO CLASS I SHARES ONLY

Class I shares may be purchased at the offering price applicable to the total
of (a) the dollar amount then being purchased plus (b) the amount equal to
the cost or current value (whichever is higher) of the combined holdings of
the purchaser, his or her spouse, and their children under age 21, of Class I
and Class II shares of funds in the Franklin Templeton Group as stated in the
prospectus. In order for this cumulative quantity discount to be made
available, the shareholder or his or her securities dealer must notify FTI or
FTD of the total holdings in the Franklin Templeton Group each time an order
is placed. I understand that reduced sales charges will apply only to
purchases of Class I shares.

[_]I(We) own shares of more than one Fund in the Franklin Templeton Group and
qualify for the Cumulative Quantity Discount described above and in the
Prospectus.

My(Our) other Account Number(s) are ___________ ___________ _______________

--------------------------------------------------------------------------------
8 ACCOUNT REVISION (If Applicable)
--------------------------------------------------------------------------------

If you are using this application to revise your Account Registration, or wish
to have Distributions sent to an address other than the address on your existing
Account's Registration, a Signature Guarantee is required. Signatures of all
registered owners must be guaranteed by an "eligible guarantor" as defined in
the "How to Sell Shares of the Fund" section in the Fund's Prospectus. A Notary
Public is not an acceptable guarantor.

X________________________________________ ____________________________________
Signature(s) of Registered Account Owners Account Number(s)

X________________________________________ ____________________________________

X________________________________________

X________________________________________ ____________________________________
Signature Guarantee Stamp

NOTE: For any change in registration, please send us any outstanding
Certificates by Registered Mail.

--------------------------------------------------------------------------------
TLGOF APP 07/95