TEMPLETON INCOME TRUST, 485BPOS, 1996-12-27

TEMPLETON INCOME TRUST
485BPOS, 1996-12-27

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Registration No. 33-6510

As filed with the Securities and Exchange Commission on December 27, 1996

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No.

Post-Effective Amendment No. 18 X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 19 X

(Check appropriate box or boxes)

TEMPLETON INCOME TRUST
(Exact Name of Registrant as Specified in Charter)

700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number: (813) 823-8712

Ellen F. Stoutamire
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box):

immediately upon filing pursuant to paragraph (b) of Rule 485

X on JANUARY 1, 1997 pursuant to paragraph (b) of Rule 485

60 days after filing pursuant to paragraph (a)(1) of Rule 485

on (date) pursuant to paragraph (a)(1) of Rule 485

75 days after filing pursuant to paragraph (a)(2) of Rule 485

on (DATE) pursuant to paragraph (a)(2) of Rule 485

this post-effective amendment designates a new effective
date for a previously filed post-effective amendment

- ---------------------------------------------------------------------------
The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and filed its Rule 24f-2 Notice for the fiscal
year ended August 31, 1996 on October 30, 1996.

PAGE

TEMPLETON INCOME TRUST
CROSS-REFERENCE SHEET

FORM N-1A

PART A

N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
1 Cover page Cover Page

2 Synopsis Expense Summary

3 Condensed Financial "Financial Highlights";
Information "How Does the Fund
Measure Performance?"

4 General Description "How Is the Trust Organized?";
of Registrant "How Does the Fund Invest Its
Assets?"; "What Are the Fund's
Potential Risks?"

5 Management of the Fund "Who Manages the Fund?"

5A Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders

6 Capital Stock and Other "How Is the Fund Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions Might
I Received From the Fund?"; "How
Taxation Affects You and the
Fund?"

7 Purchase of Securities "How Do I Buy Shares?"; "May I
Being Offered Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account"; "Who
Manages the Fund?" "Useful Terms
and Definitions"

8 Redemption or Repurchase "May I Exchange Shares for Shares of
Another Fund?"; "How Do I Sell
Shares?"; "Transaction Procedures
and Special Requirements"; Services
to Help You Manage Your Account"

9 Pending Legal Procedures Not Applicable

</TABLE>

PAGE

TEMPLETON INCOME TRUST
CROSS-REFERENCE SHEET

FORM N-1A

PART B

<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>

10 Cover Page Cover Page

11 Table of Contents Table of Contents

12 General Information and Not Applicable
History

13 Investment Objectives and "How Does the Fund Invest Its
Policies Assets?";"Investment Restrictions";
"What Are the Fund's Potential
Risks?"

14 Management of the "Officers and Trustees"; "Investment
Registrant Advisory and Other Services"

15 Control Persons and "Officers and Trustees"; "Investment
Principal Holders of Advisory and Other Services";
Securities "Miscellaneous Information?"

16 Investment Advisory and "Investment Advisory and Other
Other Services Services";"The Fund's Underwriter"

17 Brokerage Allocation and "How Does the Fund Buy Securities
Other Practices For Its Portfolio?"

18 Capital Stock and Other "Miscellaneous Information"; See
Securities Prospectus "How Is The Trust
Organized?"

19 Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Shares?"; "How Are Fund Shares
Being Offered Valued?"; "Financial Statements"

20 Tax Status "Additional Information on
Distributions and Taxes"

21 Underwriters "The Fund's Underwriter"

22 Calculation of Performance "How Does the Fund Measure
Data Performance?"

23 Financial Statements Financial Statements

</TABLE>

PAGE

PART A
PROSPECTUS

PAGE

PROSPECTUS

& APPLICATION

LOGO

TEMPLETON

GLOBAL

BOND FUND

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

JANUARY 1, 1997

INVESTMENT STRATEGY:

GLOBAL GROWTH AND INCOME

LOGO
- --------------------------------------------------------------------------------

This prospectus describes the Class I and Class II shares of Templeton
Global Bond Fund (the "Fund"). It contains information you should know
before investing in the Fund. Please keep it for future reference.

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 (the "Trust").

The Fund's Class I and Class II SAI, dated January 1, 1997, as may be
amended from time to time, includes more information about the Fund's
procedures and policies. It has been filed with the SEC and is
incorporated by reference into this prospectus. For a free copy or a
larger print version of this prospectus, call 1-800/DIAL BEN or write the
Fund at the address shown.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY OF THE U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

PAGE

TEMPLETON GLOBAL

BOND FUND

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This prospectus is not an offering of the securities herein

described in any state in which the offering is not authorized.

No sales representative, dealer, or other person is

authorized to give any information or make any representations

other than those contained in this prospectus. Further

information may be obtained from Distributors.

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

When reading this prospectus, you will see

certain terms beginning with capital letters.

This means the term is explained

in our glossary section.

PAGE

<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary ....................2
Financial
Highlights .................... 4
How Does the Fund Invest Its
Assets? ....... 5
What Are the Fund's Potential
Risks? ........ 11
Who Manages the
Fund? ................ 15
How Does the Fund Measure
Performance? ... 18
How Is the Fund
Organized? ............ 18
How Taxation Affects You and the
Fund ....... 19
ABOUT YOUR ACCOUNT
How Do I Buy
Shares? ................ 21
May I Exchange Shares for Shares of
TEMPLETON Another Fund? .. 27
GLOBAL How Do I Sell
BOND Shares? ................. 31
FUND What Distributions Might I Receive
- ------------------------ From the Fund? .. 33
January 1, 1997 Transaction Procedures and Special
Requirements ... 34
Services to Help You Manage Your
700 Central Avenue Account ..... 39
St. Petersburg, Florida GLOSSARY
33701 Useful Terms and
1-800/DIAL BEN Definitions .............. 42
</TABLE>

PAGE

ABOUT THE FUND

EXPENSE SUMMARY

This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of the Class I and Class II shares
for the fiscal year ended August 31, 1996. Your actual expenses may vary.

<TABLE>
<S> <C> <C> <C> <C>
Class
A. Shareholder Transaction Expenses(+) I Class II
Maximum Sales Charge (as a percentage
of Offering Price) 4.25% 1.99%
Paid at time of purchase 4.25%(++) 1.00% +)
Paid at redemption(++++) NONE 0.99%
Exchange Fee (per transaction) $5.00* $5.00 *
B. Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.50% 0.50 %
Rule 12b-1 Fees 0.22%** 0.65 **
Other Expenses 0.41% 0.41 %
------
------
Total Fund Operating Expenses 1.13% 1.56 %
------
------
C. Example
</TABLE>

Assume the annual return for each class is 5% and operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
CLASS I $54*** $77 $102 $174
CLASS
II $36 $59 $ 94 $194
</TABLE>

For the same Class II investment, you would pay projected expenses of $26
if you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.

(+)If your transaction is processed through your Securities Dealer you may be
charged a fee by your Securities Dealer for this service.

(++)There is no front-end sales charge if you invest $1 million or more in Class
I shares.

- Templeton Global Bond Fund

PAGE

(+++)Although Class II has a lower front-end sales charge than Class I, its
Rule 12b-1 fees are higher. Over time you may pay more for Class II shares.
Please see "How Do I Buy Shares? - Deciding Which Class to Buy."

(++++)A Contingent Deferred Sales Charge may apply to any Class II purchase if
you sell the shares within 18 months and to Class I purchases of $1 million or
more if you sell the shares within one year. The charge is 1% of the value of
the shares sold or the Net Asset Value at the time of purchase, whichever is
less. The number in the table shows the charge as a percentage of Offering
Price. While the percentage is different depending on whether the charge is
shown based on the Net Asset Value or the Offering Price, the dollar amount
paid by you would be the same. See "How Do I Sell Shares? - Contingent Deferred
Sales Charge" for details.

*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.

**These fees may not exceed 0.25% for Class I. The combination of front-end
sales charges and Rule 12b-1 fees could cause long-term shareholders to pay
more than the economic equivalent of the maximum front-end sales charge
permitted under the NASD's rules.

***Assumes a Contingent Deferred Sales Charge will not apply.

Templeton Global Bond Fund -

PAGE

FINANCIAL HIGHLIGHTS

This table summarizes the Fund's financial history. The information has been
audited by McGladrey & Pullen LLP, the Fund's independent auditors. Their audit
report covering each of the most recent five years appears in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1996. The Annual
Report to Shareholders also includes more information about the Fund's
performance. For a free copy, please call Fund Information.

Class I Shares

<TABLE>
<CAPTION>
Year Ended August 31 1996 1995 1994(1) 1993 1992 1991 1990 1989 1988 1987(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
Per Share Operating
Performance
(For a share outstanding throughout
the year)
Net asset value, beginning
of year $ 9.32 $ 9.05 $ 9.96 $ 10.55 $ 9.81 $ 9.95 $ 10.18 $ 9.89 $ 10.41 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income .69 .73 .72 .82 .83 .91 .94 .88 .74 .61
Net realized and
unrealized gain (loss) (.11) .35 .17 (.91) (.35) .75 (.18) .26 (.51) .55
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 1.04 .80 1.14 .90 (.19) .47 1.58 .78 .23 1.16
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions:
Dividends from net
investment income (.58) (.54) (.53) (.76) (.84) (.91) (.96) (.82) (.75) (.59)
Distributions from net
realized gains -- -- (.07) (.30) -- (.03) (.03) (.03) (.12) (.04)
Tax basis return of capital (.02) -- (.09) (.12) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (.60) (1.06 (.94) (.85) (.63) (.72) (.84) (.99) (.87) (.63)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Change in net asset value (.14) .44 .27 (.91) (.59) .74 (.23) .29 (.64) .53
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of year $ 9.76 $ 9.32 $ 9.96 $ 10.55 $ 9.81 $ 10.18 $ 9.89 $ 10.53 $ 9.05 $ 9.95
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return* 11.44% 10.43% (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) $185,596 $191,301 $205,482 $206,667 $179,799 $127,888 $112,492 $117,655 $127,519 $123,203
Ratio of expenses to
average net assets 1.13% 1.18% 1.18% 1.01% .98% 1.05% 1.04% 1.10% 1.10% 1.00%*
Ratio of net investment
income to average net
assets 7.09% 7.99% 7.50% 8.45% 8.14% 9.23% 9.50% 8.63% 7.12% 6.68%*
Portfolio turnover rate 109.40% 101.12% 139.23% 266.93% 233.93% 408.39% 86.09% 88.50% 158.15% 104.81%
</TABLE>

(1)Based on weighted average shares outstanding.

(2)For the period September 18, 1986 (commencement of operations) through August
31, 1987.

*Total return does not reflect sales commissions.

- Templeton Global Bond Fund

PAGE

Class II Shares

<TABLE>
<CAPTION>
Year Ended August 31 1996 1995(1)
<S> <C> <C>
- ---------------------------------------------------------------------------------
Per Share Operating Performance
(For a share outstanding throughout the year)
Net asset value, beginning of year $ 9.31 $ 9.05
------- -------
Income from investment operations:
Net investment income .61
Net realized and unrealized gain .41 .24
------- -------
Total from investment operations 1.02 .45
------- -------
Distributions:
Dividends from net investment income (.54) (.15)
Tax basis return of capital (.02) (.04)
------- -------
Total distributions (.56) (.19)
------- -------
Change in net asset value .46 .26
------- -------
Net asset value, end of period $ 9.77 $ 9.31
======= =======
Total Return* 11.20% 5.03%
Ratios/Supplemental Data
Net assets, end of period (000) $6,563 $2,043
Ratio of expenses to average net assets 1.56% 1.57%**
Ratio of net investment income to average net assets 6.69% 7.47%**
Portfolio turnover rate 109.40% 101.12%
</TABLE>

(1)For the period May 1, 1995 (commencement of sales) through August 31, 1995.

*Total return does not reflect sales commissions or the deferred contingent
sales charge. Not annualized for periods of less than one year.

**Annualized.

HOW DOES THE FUND INVEST ITS ASSETS?

The Fund's Investment Objective

The Fund's investment objective 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, income-producing securities
which are convertible into common stock of such companies and sponsored and
unsponsored American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts ("GDRs") (collectively, "depositary
receipts"). The objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. Under normal circumstances, the Fund will
invest at least 65% of its total assets in issuers domiciled in at least three
different nations (one of which may be the U.S.). 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

Templeton Global Bond Fund -

PAGE

in dividend payments and capital appreciation. Of course, there is no assurance
that the Fund's objective will be achieved.

The Fund may invest in any debt security (which may include structured
investments, as described in the SAI under "How Does the Fund Invest Its
Assets? - Structured Investments"), 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, 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 TGBM's judgment as to future interest rate changes. In addition, when TGBM
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 "How Does the Fund Invest Its Assets?
- - 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). The Fund may also invest in repurchase agreements. These investment
techniques are described below and under the heading "How Does the Fund Invest
Its Assets?" 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, TGBM 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).

- Templeton Global Bond Fund

PAGE

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

Types of Securities in which the Fund May Invest

The Fund is authorized to use the various securities and 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.

Repurchase Agreements. When the Fund acquires a security from a U.S. bank or a
registered broker-dealer, it may simultaneously enter into a repurchase
agreement, wherein the seller agrees to repurchase the security at a specified
time and price. The repurchase price is in excess of the purchase price by an
amount which reflects an agreed-upon rate of return, which is not tied to the
coupon rate of the underlying security. Under the 1940 Act, repurchase
agreements are considered to be loans collateralized by the underlying security
and therefore will be fully collateralized. However, if the seller should
default on its obligation to repurchase the underlying security, the Fund may
experience delay or difficulty in exercising its rights to realize upon the
security and might incur a loss if the value of the security declines, as well
as incur disposition costs in liquidating the security.

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 U.S. 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

Templeton Global Bond Fund -

PAGE

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 Exchange 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 TGBM 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

- Templeton Global Bond Fund

PAGE

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.

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
"How Does the Fund Invest Its Assets - 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.

Templeton Global Bond Fund -

PAGE

Borrowing. The Board 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
or gains 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.

Depositary Receipts. ADRs are depositary receipts typically used by a U.S. bank
or trust company which evidence ownership of underlying securities issued by a
foreign corporation. EDRs and GDRs are typically issued by foreign banks or
trust companies, although they also may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation. Generally, depositary receipts in registered form
are designed for use in the U.S. securities market and depositary receipts in
bearer form are designed for use in securities markets outside the U.S.
Depositary receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. Depositary receipts
may be issued pursuant to sponsored or unsponsored programs. In sponsored
programs, an issuer has made arrangements to have its securities traded in the
form of depositary receipts. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying

- Templeton Global Bond Fund

PAGE

unsponsored programs and there may not be a correlation between such
information and the market value of the depositary receipts. Depositary receipts
also involve the risks of other investments in foreign securities, as discussed
below. For purposes of the Fund's investment policies, the Fund's investments in
depositary receipts will be deemed to be investments in the underlying
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 TGBM, 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.

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.

WHAT ARE THE FUND'S POTENTIAL RISKS?

You 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

Templeton Global Bond Fund -

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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 the prevailing rates of interest
in any of the countries in which the Fund is invested in fixed income
securities will likely affect the value of such holdings and thus the value of
Fund shares. Increased rates of interest, which frequently accompany inflation
and/or a growing economy, are likely to have a negative effect on the value of
Fund shares. The value of debt securities held by the Fund generally will vary
inversely with changes in prevailing interest rates. In addition, changes in
currency valuations will affect the price of shares of the Fund. History
reflects both decreases and increases in stock markets and currency valuations,
and these may occur unpredictably in the future. Additionally, investment
decisions made by TGBM 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 "How Taxation Affects You and the Fund." 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.

- Templeton Global Bond Fund

PAGE

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. In addition, in many countries there is less publicly
available information about issuers than is available in reports about
companies in the U.S. Foreign companies are not generally subject to uniform
accounting or financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. companies. The
Fund may encounter difficulties or be unable to vote proxies, exercise
shareholder rights, pursue legal remedies, and obtain judgments in foreign
courts. Also, some countries may withhold portions of income and dividends at
the source. These considerations generally are more of a concern in developing
countries, where the possibility of political instability (including
revolution) and dependence on foreign economic assistance may be greater than
in developed countries. Investments in companies domiciled in developing
countries therefore may be subject to potentially higher risks than in
developed countries.

Brokerage commissions, custodial services, and other costs relating to
investments in foreign countries are generally more expensive than in the U.S.
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 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

Templeton Global Bond Fund -

PAGE

than in the U.S. 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 U.S. The Fund may invest in Eastern European countries, which
involves special risks that are described under "What Are the Fund's Potential
Risks?" in the SAI.

Prior governmental approval of non-domestic 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 limitations 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.

As a non-fundamental policy, the Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody. For more information on these risks and
other risks associated with Russian securities, please see "What Are the Fund's
Potential Risks?" in the SAI.

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

- Templeton Global Bond Fund

PAGE

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 known
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 TGBM 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 TGBM, 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 TGBM'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 securities 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.

WHO MANAGES THE FUND?

The Board. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist among the
classes of shares. While none is expected, the Board will act appropriately to
resolve any material conflict that may arise.

Investment Manager. TGBM manages the Fund's assets and makes its investment
decisions. TGBM also performs similar services for other funds. It is wholly

Templeton Global Bond Fund -

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owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, TGBM and its affiliates
manage over $172 billion in assets. The Templeton organization has been
investing globally since 1940. TGBM and its affiliates have offices in
Argentina, Australia, Bahamas, Canada, France, Germany, Hong Kong, India, Italy,
Luxembourg, Poland, Russia, Scotland, Singapore, South Africa, U.S., and
Vietnam. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the Fund's Code of Ethics.

Portfolio Management. The lead portfolio manager of the Fund since 1993 is
Thomas Latta. Mr. Latta is a vice president of TGBM. He attended the University
of Missouri and New York University. Before joining the Templeton organization
in 1991, Mr. Latta 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 part of an investment advisory team to the Saudi Arabian
Monetary Authority and then working in the structured products group in New
York. In that position he developed asset-liability management strategies for
large ERISA plans. Mr. Latta's current research responsibilities include the
core European markets.

Neil S. Devlin and Thomas J. Dickson exercise secondary portfolio management
responsibilities for the Fund. Mr. Devlin is the chief investment officer and
executive vice president of TGBM. He holds a BA in economics and philosophy
from Brandeis University and is a Chartered Financial Analyst. Before joining
the Templeton organization in 1987, he 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. Prior to that, Mr. Devlin was a bond trader and research
analyst for the Bank of New England. Mr. Dickson holds a BS in managerial
economics from the University of California at Davis. He joined the Templeton
organization in 1994 as a fixed income analyst. Prior to joining Templeton, Mr.
Dickson worked as a money market trader and securities analyst at Resources.
His current research responsibilities include non-dollar money market and
currency analysis, and country coverage of Japan, Denmark, Sweden, Greece and
Korea.

Management Fees. For the fiscal year ended August 31, 1996, the Fund paid 0.50%
of its average daily net assets in management fees.

- Templeton Global Bond Fund

PAGE

Portfolio Transactions. TGBM tries to obtain the best execution on all
transactions. If TGBM believes more than one broker or dealer can provide the
best execution, consistent with internal policies it may consider research and
related services and the sale of Fund shares, as well as shares of other funds
in the Franklin Templeton Group of Funds, when selecting a broker or dealer.
Please see "How Does the Fund Buy Securities For Its Portfolio?" in the SAI for
more information.

Administrative Services. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Fund. During the fiscal year ended August 31, 1996, administration fees
totaling 0.14% of the average daily net assets of the Fund were paid to
Templeton Global Investors, Inc. Please see "Investment Management and Other
Services" in the SAI for more information.

Total Expenses. For the fiscal year ended August 31, 1996, the total Fund
operating expenses were 1.13% and 1.56% of average daily net assets of Class I
shares and Class II shares, respectively.

The Rule 12b-1 Plans

The Fund's Class I and Class II shares each have a distribution plan or "Rule
12b-1 Plan" under which it may reimburse Distributors or others for activities
primarily intended to sell shares of the class. These expenses may include,
among others, distribution or service fees paid to Securities Dealers or others
who have executed a servicing agreement with the Fund, Distributors or its
affiliates, printing prospectuses and reports used for sales purposes,
preparing and distributing sales literature and advertisements, and a prorated
portion of Distributors' overhead expenses.

Payments by the Fund under the Class I plan may not exceed 0.25% per year of
Class I's average daily net assets. Under the plan, costs and expenses not
reimbursed in any quarter (including costs and expenses not reimbursed because
they exceed the applicable limit of the plan) may be reimbursed in subsequent
quarters or years. Distributors has informed the Fund that costs and expenses of
Class I shares that may be reimbursable in future quarters or years were $3,416
(0.002% of its net assets) at August 31, 1996. During the first year after
certain Class I purchases made without a sales charge, Distributors may keep the
Rule 12b-1 fees associated with the purchase.

Under the Class II plan, the Fund may pay Distributors up to 0.50% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All

Templeton Global Bond Fund -

PAGE

distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Distributors
may keep this portion of the Rule 12b-1 fees associated with the purchase.

The Fund may also pay a servicing fee of up to 0.15% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the Fund on behalf of customers, and similar servicing and account
maintenance activities.

The Rule 12b-1 fees charged to Class I and Class II are based only on the fees
attributable to that particular class. For more information, please see "The
Fund's Underwriter" in the SAI.

HOW DOES THE FUND MEASURE PERFORMANCE?

From time to time, each class of the Fund advertises its performance. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Performance figures are usually calculated using the
maximum sales charge, but certain figures may not include the sales charge.

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Offering Price of the
class. Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.

The investment results of each class will vary. Performance figures are always
based on past performance and do not indicate future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How Does the Fund Measure Performance?" in the SAI.

HOW IS THE FUND ORGANIZED?

The Fund is a non-diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. It was organized as a
Massachusetts business trust on June 16, 1986, and is registered with the SEC

- Templeton Global Bond Fund

PAGE

under the 1940 Act. Prior to May 15, 1996, the Fund's name was Templeton Income
Fund. The Fund began offering two classes of shares on May 1, 1995: Templeton
Global Bond Fund - Class I and Templeton Global Bond Fund - Class II. All
shares purchased before that time are considered Class I shares. Additional
classes and series of shares may be offered in the future.

Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters (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. Shares of each class of a series have the same
voting and other rights and preferences as the other classes and series of the
Trust for matters that affect the Trust as a whole.

The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.

The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. The Trust will call a special meeting of shareholders for
the purpose of considering the removal of a Board member if requested in writing
to do so by shareholders holding at least 10% of the outstanding shares. The
1940 Act requires that we help you communicate with other shareholders in
connection with removing members of the Board.

HOW TAXATION AFFECTS YOU AND THE FUND

The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.

The Fund intends to elect to be treated and to qualify each year as a regulated
investment company under Subchapter M of the Code. 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
net realized capital gains, which generally will be taxable income or capital
gains in their hands. Distributions declared in October, November or December to

Templeton Global Bond Fund -

PAGE

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 you 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.

- Templeton Global Bond Fund

PAGE

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

Opening Your Account

To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check. Please indicate which class of shares you want to buy. If you do not
specify a class, your purchase will be automatically invested in Class I shares.

<TABLE>
<CAPTION>
MINIMUM
INVESTMENTS*
<S> <C>
- --------------------------------------
To Open Your Account... $100
To Add to Your
Account.............. $ 25
</TABLE>

*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.

Deciding Which Class to Buy

You should consider a number of factors when deciding which class of shares to
buy. If you plan to buy $1 million or more in a single payment or you qualify
to buy Class I shares without a sales charge, you may not buy Class II shares.

Generally, you should consider buying Class I shares if:

- - you expect to invest in the Fund over the long term;

- - you qualify to buy Class I shares at a reduced sales charge; or

- - you plan to buy $1 million or more over time.

You should consider Class II shares if:

- - you expect to invest less than $50,000 in the Franklin Templeton Funds; and

- - you plan to sell a substantial number of your shares within approximately six
years or less of your investment.

Class I shares are generally more attractive for long-term investors because of
Class II's higher Rule 12b-1 fees. These may accumulate over time to outweigh
the lower Class II front-end sales charge and result in lower income dividends
for Class II shareholders. If you qualify to buy Class I shares at a reduced
sales charge based upon the size of your purchase or through our Letter of
Intent or cumulative quantity discount programs, but plan to hold your shares
less than approximately six years, you should evaluate whether it is more
economical for you to buy Class I or Class II shares.

Templeton Global Bond Fund -

PAGE

For purchases of $1 million or more, it is considered more beneficial for you to
buy Class I shares since there is no front-end sales charge, even though these
purchases may be subject to a Contingent Deferred Sales Charge. Any purchase of
$1 million or more is therefore automatically invested in Class I shares. You
may accumulate more than $1 million in Class II shares through purchases over
time, but if you plan to do this you should determine whether it would be more
beneficial for you to buy Class I shares through a Letter of Intent.

Please consider all of these factors before deciding which class of shares to
buy. There are no conversion features attached to either class of shares.

Purchase Price of Fund Shares

For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is 1%
and, unlike Class I, does not vary based on the size of your purchase.

<TABLE>
<CAPTION>
TOTAL SALES CHARGE
AS A PERCENTAGE OF AMOUNT PAID
--------------------- TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
CLASS I
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 None
CLASS II
Under $1,000,000*.................. 1.00% 1.01% 1.00%
</TABLE>

*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more and any Class II purchase. Please see "How Do I Sell
Shares? - Contingent Deferred Sales Charge." Please also see "Other Payments to
Securities Dealers" below for a discussion of payments Distributors may make
out of its own resources to Securities Dealers for certain purchases. Purchases
of Class II shares are limited to purchases below $1 million. Please see
"Deciding Which Class to Buy."

Sales Charge Reductions and Waivers

] IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't include
this statement, we cannot guarantee that you will receive the sales charge
reduction or waiver.

- Templeton Global Bond Fund

PAGE

Cumulative Quantity Discounts - Class I Only. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your Class I and Class II
shares in other Franklin Templeton Funds, as well as those of your spouse,
children under the age of 21 and grandchildren under the age of 21. If you are
the sole owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.

Letter of Intent - Class I Only. You may buy Class I shares at a reduced sales
charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.

BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:

- - You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.

- - You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

- - Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

- - Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.

Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct. Our policy of reserving shares does not apply to
certain retirement plans.

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.

Group Purchases - Class I Only. If you are a member of a qualified group, you
may buy Class I shares at the reduced sales charge that applies to the group as
a whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.

Templeton Global Bond Fund -

PAGE

A qualified group is one that:

- - Was formed at least six months ago,

- - Has a purpose other than buying Fund shares at a discount,

- - Has more than 10 members,

- - Can arrange for meetings between our representatives and group members,

- - Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to
Distributors,

- - Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and

- - Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

Sales Charge Waivers. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1, 2 or 3
below: (i) the distributions or payments must be reinvested within 365 days of
their payment date, and (ii) Class II distributions may be reinvested in either
Class I or Class II shares. Class I distributions may only be reinvested in
Class I shares.

The Fund's sales charges will not apply if you are buying Class I shares with
money from the following sources or Class II shares with money from the sources
in waiver categories 1 or 4:

1. Dividend and capital gain distributions from any Franklin Templeton Fund
or a REIT sponsored or advised by Franklin Properties, Inc.

2. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds

3. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds, the Templeton Variable Annuity Fund,
the Templeton Variable Products Series Fund, or the Franklin Government
Securities Trust. You should contact your tax advisor for information on
any tax consequences that may apply.

4. Redemptions from any Franklin Templeton Fund if you:

- Originally paid a sales charge on the shares,

- Reinvest the money within 365 days of the redemption date, and

- Templeton Global Bond Fund

PAGE

- Reinvest the money in the same class of shares.

An exchange is not considered a redemption for this privilege. The Contingent
Deferred Sales Charge will not be waived if the shares reinvested were subject
to a Contingent Deferred Sales Charge when sold. We will credit your account in
shares, at the current value, in proportion to the amount reinvested for any
Contingent Deferred Sales Charge paid in connection with the earlier
redemption, but a new Contingency Period will begin.

If you immediately placed your redemption proceeds in a Franklin Bank CD, you
may reinvest them as described above. The proceeds must be reinvested within 365
days from the date the CD matures, including any rollover.

5. Redemptions from other mutual funds
If you sold shares of a fund that is not a Franklin Templeton Fund within
the past 60 days, you may invest the proceeds without any sales charge if
(a) the investment objectives were similar to the Fund's, and (b) your
shares in that fund were subject to any front-end or contingent deferred
sales charges at the time of purchase. You must provide a copy of the
statement showing your redemption.

The Fund's sales charges will also not apply to Class I purchases by:

6. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a thirteen month period at least $1 million of
assets held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust departments or
other plan fiduciaries or participants, in the case of certain retirement
plans, have full or shared investment discretion. We will accept orders
for these accounts by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business
on the next business day following the order.

7. Group annuity separate accounts offered to retirement plans

8. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (ii) have plan assets of $1 million or more, or (iii) agree to
invest at least $500,000 in the Franklin Templeton Funds over a 13 month
period. Retirement plans that are not Qualified Retirement Plans or SEPS,
such as 403(b) or 457 plans, must also meet the requirements described
under "Group Purchases - Class I Only" above. However, any Qualified or
non-Qualified Retirement Plan account which was a shareholder in the Fund
on or before February 1, 1995, and which does not meet the other

Templeton Global Bond Fund -

PAGE

requirements of this section, may purchase shares subject to a sales
charge of 4% of the Offering Price, 3.2% of which will be retained by
Securities Dealers.

9. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the Fund is
permissible and suitable for you and the effect, if any, of payments by
the Fund on arbitrage rebate calculations.

10. Broker-dealers, registered investment advisors or certified financial
planners who have entered into a supplemental agreement with Distributors
for clients participating in comprehensive fee programs

11. Registered Securities Dealers and their affiliates, for their investment
accounts only

12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

13. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies

14. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer

15. Accounts managed by the Franklin Templeton Group

16. Certain unit investment trusts and their holders reinvesting distributions
from the trusts

How Do I Buy Shares in Connection with Retirement Plans?

Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.

Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, please call our Retirement Plans Department.

Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.

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PAGE

Other Payments to Securities Dealers

The payments below apply to Securities Dealers who initiate and are responsible
for Class II purchases and certain Class I purchases made without a sales
charge. A Securities Dealer may only receive one of these payments for each
qualifying purchase. Securities Dealers who receive payments under items 1, 2
or 3 below will earn the Rule 12b-1 fee associated with the purchase starting
in the thirteenth calendar month after the purchase. The payments described
below are paid by Distributors or one of its affiliates, at its own expense,
and not by the Fund or its shareholders.

1. Securities Dealers may receive up to 1% of the purchase price for Class II
purchases.

2. Securities Dealers will receive up to 0.75% of the purchase price for Class I
purchases of $1 million or more.

3. Securities Dealers may, in the sole discretion of Distributors, receive up
to 1% of the purchase price for Class I purchases made under waiver category
8 above.

4. Securities Dealers may receive up to 0.25% of the purchase price for Class I
purchases made under waiver categories 6, 9 and 10 above.

PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI FOR ANY BREAKPOINTS THAT MAY APPLY.

Securities Dealers may receive additional compensation from Distributors or an
affiliated company in connection with selling shares of the Franklin Templeton
Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales or training programs, or promotional
activities. Registered representatives and their families may be reimbursed for
travel expenses, including lodging, in connection with business meetings or
seminars. In some cases, this compensation may only be available to Securities
Dealers whose representatives have sold or are expected to sell significant
amounts of shares. Securities Dealers may not use sales of the Fund's shares to
qualify for this compensation if prohibited by the laws of any state or
self-regulatory agency, such as the NASD.

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.

Templeton Global Bond Fund -

PAGE

If you own Class I shares, you may exchange into any of our money funds except
Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only
money fund exchange option available to Class II shareholders. Unlike our other
money funds, shares of Money Fund II may not be purchased directly and no
drafts (checks) may be written on Money Fund II accounts.

Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. Some
Franklin Templeton Funds do not offer Class II shares.

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.

Will Sales Charges Apply to My Exchange?

You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the Fund's applicable sales charge no matter how long you have held your
shares. These charges may not apply if you qualify to buy shares without a sales
charge.

We will not impose a Contingent Deferred Sales Charge when you exchange shares.
Any shares subject to a Contingent Deferred Sales Charge at the time of
exchange, however, will remain so in the new fund. See the discussion on
Contingent Deferred Sales Charges below and under "How Do I Sell Shares?"

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Contingent Deferred Sales Charge - Class I. For accounts with Class I shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the
new fund in the order they were purchased. If you exchange Class I shares into
one of our money funds, the time your shares are held in that fund will not
count towards the completion of any Contingency Period.

Contingent Deferred Sales Charge - Class II. For accounts with Class II shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the
new fund proportionately based on the amount of shares subject to a Contingent
Deferred Sales Charge and the length of time the shares have been held. For
example, suppose you own $1,000 in shares that have never been subject to a
Contingent Deferred Sales Charge, such as shares from the reinvestment of
dividends and capital gains ("free shares"), $2,000 in shares that are no longer
subject to a Contingent Deferred Sales Charge because you have held them for
longer than 18 months ("matured shares"), and $3,000 in shares that are still
subject to a Contingent Deferred Sales Charge ("CDSC liable shares"). If you
exchange $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.

Likewise, CDSC liable shares purchased at different times will be exchanged into
a new fund proportionately. For example, assume you purchased $1,000 in shares
3 months ago, 6 months ago, and 9 months ago. If you exchange $1,500 into a new
fund, $500 will be exchanged from shares purchased at each of these three
different times.

While Class II shares are exchanged proportionately, they are redeemed in the
order purchased. In some cases, this means exchanged shares may be CDSC liable
even though they would not be subject to a Contingent Deferred Sales Charge if
they were sold. We believe the proportional method of exchanging Class II
shares more closely reflects the expectations of Class II shareholders if
shares are sold during the Contingency Period. The tax consequences of a sale or
exchange are determined by the Code and not by the method used by the Fund to
transfer shares.

If you exchange your Class II shares for shares of Money Fund II, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.

Templeton Global Bond Fund -

PAGE

Exchange Restrictions

Please be aware that the following restrictions apply to exchanges:

- - You may only exchange shares within the SAME CLASS.

- - The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. Please
notify us in writing if you do not want this option to be available on your
account(s). Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."

- - Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.

- - The fund you are exchanging into must be eligible for sale in your state.

- - We may modify or discontinue our exchange policy if we give you 60 days'
written notice.

- - Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii)
exchange shares equal to at least $5 million, or more than 1% of the Fund's
net assets. Shares under common ownership or control are combined for these
limits. If you exchange shares as described in this paragraph, you will be
considered a Market Timer. Each exchange by a Market Timer, if accepted, will
be charged $5.00. Some of our funds do not allow investments by Market Timers.

Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.

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PAGE

HOW DO I SELL SHARES?

You may sell (redeem) your shares at any time.

<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
<S> <C>
- ----------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by all
account owners
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
additional requirements.
- ----------------------------------------------------------------------
BY PHONE Call Shareholder Services
(Only available if you have completed and sent to us the telephone
redemption agreement included with this prospectus)
Telephone requests will be accepted:
- If the request is $50,000 or less.
Institutional accounts may exceed $50,000 by
completing a separate agreement. Call
Institutional Services to receive a copy.
- If there are no share certificates issued
for the shares you want to sell or you have
already returned them to the Fund
- Unless you are selling shares in a Trust
Company retirement plan account
- Unless the address on your account was
changed by phone within the last 30 days
- ----------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ----------------------------------------------------------------------
</TABLE>

We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.

If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.

Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.

Templeton Global Bond Fund -

PAGE

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.

Trust Company Retirement Plan Accounts

To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.

Contingent Deferred Sales Charge

For Class I purchases, if you did not pay a front-end sales charge because you
invested $1 million or more or agreed to invest $1 million or more under a
Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell all
or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class I investments you make
without a sales charge may also be subject to a Contingent Deferred Sales
Charge if they are sold within the Contingency Period. For any Class II
purchase, a Contingent Deferred Sales Charge may apply if you sell the share
within the Contingency Period. The charge is 1% of the value of the shares sold
or the Net Asset Value at the time of purchase, whichever is less.

We will first redeem shares not subject to the charge in the following order:

1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,

2) Shares purchased with reinvested dividends and capital gain distributions,
and

3) Shares held longer than the Contingency Period.

We then redeem shares subject to the charge in the order they were purchased.

Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.

Waivers. We waive the Contingent Deferred Sales Charge for:

- - Exchanges

- - Account fees

- - Sales of shares purchased pursuant to a sales charge waiver

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PAGE

- - Redemptions by the Fund when an account falls below the minimum required
account size

- - Redemptions following the death of the shareholder or beneficial owner

- - Redemptions through a systematic withdrawal plan set up before February 1,
1995

- - Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% a month of an account's Net Asset Value (3% quarterly, 6%
semiannually or 12% annually). For example, if you maintain an annual balance
of $1 million in Class I shares, you can withdraw up to $120,000 annually
through a systematic withdrawal plan free of charge. Likewise, if you
maintain an annual balance of $10,000 in Class II shares, $1,200 may be
withdrawn annually free of charge.

- - Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy

- - Tax-free returns of excess contributions from employee benefit plans

- - Distributions from employee benefit plans, including those due to termination
or plan transfer

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the Rule 12b-1 fees of each class.

The Fund intends to pay a monthly dividend representing substantially all of its
net investment income and to distribute annually any net realized capital gains.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.

If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution.

Distribution Options

You may receive your distributions from the Fund in any of these ways:

1. Buy additional shares of the Fund - You may buy additional shares of the same
class of the Fund (without a sales charge or imposition of a Contingent Deferred
Sales Charge) by reinvesting capital gain distributions, dividend
distributions, or

Templeton Global Bond Fund -

PAGE

both. If you own Class II shares, you may also reinvest your distributions in
Class I shares of the Fund. This is a convenient way to accumulate additional
shares and maintain or increase your earnings base.

2. Buy shares of other Franklin Templeton Funds - You may direct your
distributions to buy the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a Contingent Deferred Sales
Charge). If you own Class II shares, you may also direct your distributions to
buy Class I shares of another Franklin Templeton Fund. Many shareholders find
this a convenient way to diversify their investments.

3. Receive distributions in cash - You may receive capital gain distributions,
dividend distributions, or both in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee.

TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE THE SHAREHOLDER APPLICATION
INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT REPRESENTATIVE WHICH
OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL AUTOMATICALLY
REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS OF THE FUND.
For Trust Company retirement plans, special forms are required to receive
distributions in cash. You may change your distribution option at any time by
notifying us by mail or phone. Please allow at least seven days prior to the
record date for us to process the new option.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

How and When Shares Are Priced

The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the scheduled close of the NYSE,
generally 4:00 p.m. Eastern time. You can find the prior day's closing Net Asset
Value and Offering Price for each class in many newspapers.

The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. Each class, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How Are Fund Shares Valued?" in the SAI.

- Templeton Global Bond Fund

PAGE

The Price We Use When You Buy or Sell Shares

You buy shares at the Offering Price of the class you wish to purchase, unless
you qualify to buy shares at a reduced sales charge or with no sales charge. The
Offering Price of each class is based on the Net Asset Value per share of the
class and includes the maximum sales charge. We calculate it to two decimal
places using standard rounding criteria. You sell shares at Net Asset Value.

We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest
between the time we receive the order from your dealer and the time we receive
any required documents.

Proper Form

An order to buy shares is in proper form when we receive your signed
shareholder application and check. Written requests to sell or exchange shares
are in proper form when we receive written instructions signed by all registered
owners, with a signature guarantee if necessary. We must also receive any
outstanding share certificates for those shares.

Written Instructions

Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:

- - Your name,

- - The Fund's name,

- - The class of shares,

- - A description of the request,

- - For exchanges, the name of the fund you're exchanging into,

- - Your account number,

- - The dollar amount or number of shares, and

- - A telephone number where we may reach you during the day, or in the evening
if preferred.

Templeton Global Bond Fund -

PAGE

Signature Guarantees

For our mutual protection, we require a signature guarantee in the following
situations:

1) You wish to sell over $50,000 worth of shares,

2) You want the proceeds to be paid to someone other than the registered owners,

3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,

4) We receive instructions from an agent, not the registered owners,

5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.

A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. YOU SHOULD
VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR PRIOR TO SIGNING. A
NOTARIZED SIGNATURE IS NOT SUFFICIENT.

Share Certificates

We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost, stolen or destroyed, you may have to pay an insurance premium of up to
2% of the value of the certificate to replace it.

Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.

Telephone Transactions

You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.

- Templeton Global Bond Fund

PAGE

When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. For your protection, we may delay a transaction or not
implement one if we are not reasonably satisfied that the instructions are
genuine. If this occurs, we will not be liable for any loss.

If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are
unable to execute a transaction by telephone, we will not be liable for any
loss.

Trust Company Retirement Plan Accounts. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.

To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.

Account Registrations and Required Documents

When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.

Joint Ownership. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or
more owners, all owners must sign instructions to process transactions and
changes to the account. Even if the law in your state says otherwise, you will
not be able to change owners on the account unless all owners agree in writing.
If you would like another person or owner to sign for you, please send us a
current power of attorney.

Gifts and Transfers to Minors. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.

Templeton Global Bond Fund -

PAGE

Trusts. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.

Required Documents. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.

<TABLE>
<CAPTION>
TYPE OF ACCOUNT DOCUMENTS REQUIRED
<S> <C>
- -----------------------------------------------------------------------
CORPORATION Corporate Resolution
- -----------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- -----------------------------------------------------------------------
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
- -----------------------------------------------------------------------
</TABLE>

Street or Nominee Accounts. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both
dealers must have an agreement with Distributors or we will not process the
transfer. Contact your Securities Dealer to initiate the transfer. We will
process the transfer after we receive authorization in proper form from your
delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.

Electronic Instructions. If there is a Securities Dealer or other
representative of record on your account, we are authorized to use and execute
electronic instructions. We can accept electronic instructions directly from
your dealer or representative without further inquiry. Electronic instructions
may be processed through the services of the NSCC, which currently include the
NSCC's "Networking," "Fund/SERV," and "ACATS" systems, or through
Franklin/Templeton's PCTrades II(TM) System.

Tax Identification Number

For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if

- Templeton Global Bond Fund

PAGE

(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.

We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.

Keeping Your Account Open

Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

Automatic Investment Plan

Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the account application included with this
prospectus or contact your investment representative. The market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may discontinue the program
at any time by notifying Investor Services by mail or phone.

Systematic Withdrawal Plan

Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum
payment amount for each withdrawal must be at least $50. For retirement plans
subject to mandatory distribution requirements, the $50 minimum will not apply.

If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with

Templeton Global Bond Fund -

PAGE

this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account.

You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.

Because of the front-end sales charge, you may not want to set up a systematic
withdrawal plan if you plan to buy shares on a regular basis. Shares sold under
the plan may also be subject to a Contingent Deferred Sales Charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"

You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us in
writing at least seven business days before the end of the month preceding a
scheduled payment. Please see "How Do I Buy, Sell and Exchange Shares? -
Systematic Withdrawal Plan" in the SAI for more information.

TeleFACTS(R)

From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:

- - obtain information about your account;

- - obtain price and performance information about any Franklin Templeton Fund;

- - exchange shares between identically registered Franklin accounts; and

- - request duplicate statements and deposit slips for Franklin accounts.

You will need the code number for each class to use TeleFACTS. The code numbers
for Class I and Class II are 406 and 506, respectively.

Statements and Reports to Shareholders

We will send you the following statements and reports on a regular basis:

- - Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.

- - Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an

- Templeton Global Bond Fund

PAGE

additional free copy of the Fund's financial reports or an interim quarterly
report.

Institutional Accounts

Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further information, call Institutional
Services.

Availability of These Services

The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.

What If I Have Questions About My Account?

If you have any questions about your account, you may write to Investor
Services, P.O. Box 33030, St. Petersburg, FL 33733-8030. The Fund and
Distributors are also located at this address. You may also contact us by phone
at one of the numbers listed below.

<TABLE>
<CAPTION>
HOURS OF OPERATION (EASTERN
TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
<S> <C> <C>
- ------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>

Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.

Templeton Global Bond Fund -

PAGE

GLOSSARY

USEFUL TERMS AND DEFINITIONS

1940 Act - Investment Company Act of 1940, as amended.

Board - The Board of Trustees of the Trust.

CD - Certificate of deposit.

Class I and Class II - The Fund offers two classes of shares, designated "Class
I" and "Class II." The two classes have proportionate interests in the Fund's
portfolio. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans.

Code - Internal Revenue Code of 1986, as amended.

Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the
contingency period is 18 months. Regardless of when during the month you
purchased shares, they will age one month on the last day of that month and
each following month.

Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply
if you sell your shares within the Contingency Period.

Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."

Eligible Governmental Authority - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
the Fund is a legally permissible investment and that can only buy shares of
the Fund without paying sales charges.

Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.

Franklin Templeton Funds - The Franklin Funds and the Templeton Funds.

Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.

Franklin Templeton Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds.

FT Services - Franklin Templeton Services, Inc., the Fund's administrator.

- Templeton Global Bond Fund

PAGE

Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent.

IRS - Internal Revenue Service.

Letter - Letter of Intent.

Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.

Moody's - Moody's Investors Service, Inc.

NASD - National Association of Securities Dealers, Inc.

Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.

NSCC - National Securities Clearing Corporation.

NYSE - New York Stock Exchange, Inc.

Offering Price - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum front-
end sales charge is 4.25% for Class I and 1% for Class II.

Qualified Retirement Plan(s) - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.

REIT - Real Estate Investment Trust.

Resources - Franklin Resources, Inc.

SAI - Statement of Additional Information.

S&P - Standard & Poor's Corporation.

SEC - U.S. Securities and Exchange Commission.

Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.

SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code.

Templeton Global Bond Fund -

PAGE

TeleFACTS(@) - Franklin Templeton's automated customer servicing system.

Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.

TGBM - Templeton Global Bond Managers, a division of Templeton Investment
Counsel, Inc., the Fund's investment manager, is located at Broward Financial
Centre, Fort Lauderdale, FL 33394-3091.

Trust Company - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.

U.S. - United States.

We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.

- Templeton Global Bond Fund

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 or you do not know your SSN/TIN, 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 EMPLOYER ID # OF
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
- -Individual Individual -Trust, Estate, or Trust, Estate, or
Pension Plan Trust Pension Plan Trust
- -------------------------------------------------------------------------------
- -Joint Individual Owner who will -Corporation, Corporation,
be paying tax Partnership, or Partnership, or
or first-named other organization other organization
individual
- -------------------------------------------------------------------------------
- -Unif. Gift/ Minor -Broker nominee Broker nominee
Transfer to Minor
- -------------------------------------------------------------------------------
- -Sole Proprietor Owner of
business
- -------------------------------------------------------------------------------
- -Legal Guardian Ward, Minor,
or Incompetent
- -------------------------------------------------------------------------------
</TABLE>

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

A corporation

A financial institution

An organization exempt from tax under section 501(a), or an individual
retirement plan

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

A real estate investment trust

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

Templeton Global Bond Fund -

PAGE

An exempt charitable remainder trust or a non-exempt trust described in section
4947(a)(1)

An entity registered at all times under the Investment Company Act of 1940

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%. 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 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.
(or your transactions are exempt from U.S. taxes under a tax treaty).

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

- Templeton Global Bond Fund

PAGE

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 taxpayer 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.

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.

Templeton Global Bond Fund -

PAGE

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- Templeton Global Bond Fund

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
Type of Organization
___________________ and that the following is a true and correct copy
State
of a resolution adopted by the Board of Directors at a meeting duly called and
held on __________________________
Date

RESOLVED, that the ____________________________________________________

Officers' Titles
of this 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 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

Templeton Global Bond Fund -

PAGE

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)

- Templeton Global Bond Fund

PAGE

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 Funds' 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 now automatically available to
Franklin Templeton Fund shareholders, please sign and return this authorization
to Franklin/Templeton Investor Services, Inc. ("Investor 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
Franklin Templeton (a "Franklin Templeton Fund" or a "Fund"), now open or
opened at a later date, holding shares registered as follows:

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

Print name(s) as shown in registration (called "Shareholder")

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

Account number(s)

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

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

Signature(s) of all registered owners and date

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

Printed name (and title/capacity, if applicable)

Verification Procedures: I/We understand and agree that: (1) each Fund and
Investor 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 Investor 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

Templeton Global Bond Fund -

PAGE

initiated by telephone; and (3) as long as the Fund and Investor 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 authorize each Fund and Investor 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
Investor 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
Investor Services by registered mail, return receipt requested, or by a Fund or
Investor Services upon receipt of any information that causes a Fund or
Investor 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 Investor
Services immediately upon the death of any of the undersigned.

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 Investor Services that the Shareholder has the
authority to enter into this agreement and that each of us are 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
Investor Services may honor a telephone redemption request given by ANY officer/
partner/member/administrator or agent of Shareholder ACTING ALONE.

Restricted Accounts: Telephone redemptions and dividend option changes may not
be accepted on Franklin Templeton Trust Company retirement accounts.

PLEASE RETURN THIS FORM TO:

Franklin/Templeton Investor Services, Inc.
P.O. Box 33030
St. Petersburg, FL 33733-8030

- Templeton Global Bond Fund

PAGE

This page intentionally left blank.

Templeton Global Bond Fund -

PAGE

FRANKLIN TEMPLETON GROUP OF FUNDS

LITERATURE REQUEST E Call 1-800/DIAL BEN (1-800/342-5236) 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.

INTERNATIONAL GROWTH

Franklin Global Health Care Fund

Franklin International Equity Fund

Franklin Templeton Japan Fund

Templeton Developing Markets Trust

Templeton Foreign Fund

Templeton Global Infrastructure Fund

Templeton Global

Opportunities Trust

Templeton Global Real Estate Fund

Templeton Global Smaller

Companies Fund

Templeton Greater European Fund

Templeton Growth Fund

Templeton Latin America Fund

Templeton Pacific Growth Fund

Templeton World Fund

INTERNATIONAL GROWTH

AND INCOME

Franklin Global Utilities Fund

Franklin Templeton German

Government Bond Fund

Franklin Templeton

Global Currency Fund

Mutual European Fund

Templeton Global Bond Fund

Templeton Growth and Income Fund

INTERNATIONAL INCOME

Franklin Global Government

Income Fund

Franklin Templeton Hard

Currency Fund

Franklin Templeton High

Income Currency Fund

Templeton Americas

Government Securities Fund

GROWTH

Franklin Blue Chip Fund

Franklin California Growth Fund

Franklin DynaTech Fund

Franklin Equity Fund

Franklin Gold Fund

Franklin Growth Fund

Franklin MidCap Growth Fund

Franklin Small Cap Growth Fund

Mutual Discovery Fund

GROWTH AND INCOME

Franklin Asset Allocation Fund

Franklin Balance Sheet

Investment Fund

Franklin Convertible Securities Fund

Franklin Equity Income Fund

Franklin Income Fund

Franklin MicroCap Value Fund

Franklin Natural Resources Fund

Franklin Real Estate Securities Fund

Franklin Rising Dividends Fund

Franklin Strategic Income Fund

Franklin Utilities Fund

Franklin Value Fund

Mutual Beacon Fund

Mutual Qualified Fund

Mutual Shares Fund

Templeton American Trust, Inc.

INCOME

Franklin Adjustable Rate

Securities Fund

Franklin Adjustable U.S.

Government Securities Fund

Franklin AGE High Income Fund

Franklin Investment

Grade Income Fund

Franklin Short-Intermediate U.S.

Government Securities Fund

Franklin U.S. Government

Securities Fund

Franklin Money Fund

Franklin Federal Money Fund

FOR NON-U.S. INVESTORS:

Franklin Tax-Advantaged

High Yield Securities Fund

Franklin Tax-Advantaged

International Bond Fund

Franklin Tax-Advantaged U.S.

Government Securities Fund

FOR CORPORATIONS:

Franklin Corporate Qualified

Dividend 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

Tax-Exempt Money 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**

VARIABLE ANNUITIES

Franklin Valuemark(SM)

Franklin Templeton Valuemark

Income Plus (an immediate annuity)

*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).

**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.

TL406 P 01/97

PAGE

TEMPLETON GLOBAL
BOND FUND

P.O. Box 33031

St. Petersburg, FL 33733-8031

- ---------------------------------
ADDRESS CORRECTION REQUESTED

TL406 P 01/97 (LOGO) Printed on recycled paper

PAGE

Logo Appears Here
FRANKLIN TEMPLETON

TEMPLETON
FUNDS

P.O. Box 33031
St. Petersburg, FL
33733-8031
1-800-393-3001

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.

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
- ------------------
CLASS
I II Templeton
[ ] [ ] $______American Trust
[ ] ______Americas Government Securities Fund
[ ] [ ] ______Developing Markets Trust
[ ] [ ] ______Foreign Fund
[ ] [ ] ______Global Bond Fund

CLASS
I II Templeton
[ ] [ ]$______Global Infrastructure Fund
[ ] [ ] ______Global Opportunities Trust
[ ] [ ] ______Global Real Estate Fund
[ ] [ ] ______Global Smaller Companies Fund
[ ] [ ] ______Greater European Fund

CLASS
I II Templeton
[ ] [ ]$______Growth Fund
[ ] [ ] ______Growth and Income Fund
[ ] ______Japan Fund
[ ] [ ] ______Latin America Fund
[ ] [ ] ______World Fund

CLASS
I II
[ ] [ ] Other:$______
(except for Class II Money Fund)

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

1 ACCOUNT REGISTRATION - PLEASE PRINT

n INDIVIDUAL OR JOINT ACCOUNT

- -------------------------------------------------------------------------------
First name Middle initial Last name Social Security number(SSN)

- -------------------------------------------------------------------------------
Joint owner(s) Joint ownership means Social Security number (SSN)
"joint tenants with rights of
survivorship" unless otherwise specified.)
ALL OWNERS MUST SIGN SECTION 4.

[] GIFTS/TRANSFERS TO A MINOR

- ----------------------------------------- As Custodian For -----------------
Name of custodian (one only) Minor's name (one only)

- ----------------------------------------- Uniform Gifts/
Transfers to Minors Act-------------

State (minor's or custodian's state Minor's Social Security number
of residence)
Please Note: Custodian's signature, not minor's, is required in Section 4.

- ------------------------------------------------------------------------------
[ ] TRUST, CORPORATION, PARTNERSHIP, RETIREMENTPLAN, 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 Telephone(---)-----------------
Street address (P.O. Box acceptable if Area code
street address is given)

- --------------------------------------- Evening Telephone(---)---------------
City State Zip code Area code

I am a citizen of: [ ] U.S. or [ ]_________________________________________
===============================================================================
3 INITIAL INVESTMENT - $100 minimum initial investment

Enclosed is a check payable to the Fund indicated above for $__________________.
===============================================================================
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"), Social Security
number ("SSN"), 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 not subject to backup withholding because I have not
been notified by the IRS that I am subject to backup withholding as a result of
a failure to report all interest or dividends or because the IRShas notified me
that I am 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 correct TIN or SSN, or that of the minor
named in section 1.
[ ] Awaiting TIN. I am waiting for a number to be issued to me. I understand
that if I do not provide a TIN to the Fund within 60 days, the Fund is
required to commence 31% backup withholding until I provide a certified TIN.
[ ] Exempt Recipient. Individuals cannot be exempt. Check this box only after
reading the instructions, found in the back of the Fund's prospectus,
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 neither a citizen nor a resident of the United States. I
certify to the best of my knowledge and belief, I qualify as an exempt
foreign person and/or entity as described in the instructions, found in
the back of the Fund's prospectus."

Permanent address for income
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
fund shares involves risks, including the possible loss of the principal amount
invested.
X X
- ------------------------------------------------------------------------------
Signature Signature
X X
- -------------------------------------------------------------------------------
Signature Signature Please make a photocopy of this application for your
records.
=============================================================================
5 BROKER/DEALER USE ONLY - Please print
Franklin Templeton Dealer #
We hereby submit this application for the purchase of shares of the Fund(s)
and class(es) indicated in accordance with the terms of our selling agreement
with Franklin/Templeton Distributors, Inc.("FTD"), and with the prospectus(es)
for the Funds. 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 # ___________Representative # ______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.
This application must be preceded or accompanied by a prospectus for the
Fund(s) being purchased.

TLGOF APP 08/96

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 and capital gains. [ ] Pay all dividends in cash
and reinvest capital gains.
[ ] Pay capital gains in cash and reinvest [ ] Pay all dividends and
dividends. capital gains in cash.
===============================================================================
7 OPTIONAL SHAREHOLDER PRIVILEGES
A. Special Payment Instructions for Distributions (Check one box)
[ ] Invest distributions, as noted in Section 6, or l withdrawals, as noted in
Section 7B, in 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

OR
[ ] Send my distributions, as noted in Section 6, to the person, named below,
instead of as registered and addressed in Sections 1 and 2.
Name ___________________________________ Street Address____________________
City____________________________________ State _____________ ZipCode_______

- ------------------------------------------------------------------------------
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 withdrawals to: [ ] address of
record OR [ ] the Franklin or Templeton Fund, or person specified in
Section 7A - 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 NOTwish 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)-- Not Applicable to Purchases of Class II
[ ]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>
<CAPTION>

<S> <C> <C> <C> <C>
[ ]$50,000-99,999(except for Global Bond Fund [ ] $100,000-249,999 []$250,000-499,999 [] $500,000-999,999 []$1,000,000 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.
However, certain employee benefit plans are subject to different rules.
Please write in your account number(s)
----------- ------------ ------------
- -------------------------------------------------------------------------------
F. Cumulative Quantity Discount--Not Applicable to Purchases of Class II Shares
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 or grandchildren under age 21,
of Class I and/or Class II shares of funds in Franklin Templeton, as well as
other holdings of Franklin Templeton Investments, as that term is defined in the
prospectus. In order for this cumulative quantity discount to be made available,
the shareholder or his or her securities dealer must notify FTIor FTD of the
total holdings in Franklin Templeton 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 Franklin Templeton 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
(Section 1), or wish to have distribution income sent to an address other than
the address on your existing account's registration (Section 7A), a signature
guarantee is required. Signatures of all registered owners must be guaranteed by
an "eligible guarantor institution" 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.

PAGE

PART B
STATEMENT OF ADDITIONAL INFORMATION

PAGE

TEMPLETON INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION

JANUARY 1, 1997
700 CENTRAL AVENUE

ST. PETERSBURG, FL 33701 1-800/DIAL BEN

TABLE OF CONTENTS

How does the Fund Invest its Assets?.........................
What are the Fund's Potential Risks?.........................
Investment Restrictions......................................
Officers and Trustees........................................
Investment Management and Other Services.....................
How does the Fund Buy Securities for its Portfolio?..........
How Do I Buy, Sell and Exchange Shares?......................
How are Fund Shares Valued?..................................
Additional Information on Distributions and Taxes............
The Fund's Underwriter.......................................
How does the Fund Measure Performance?.......................
Miscellaneous Information....................................
Financial Statements.........................................
Useful Terms and Definitions.................................
Appendices...................................................

- -------------------------------------------------------------------------------
When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and
Definitions."

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

The Templeton Global Bond Fund (the "Fund") is a non-diversified series of
Templeton Income Trust (the "Trust"), an open-end management investment company.
The Fund's investment objective 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, income-producing securities
which are convertible into common stock of such companies and sponsored and
unsponsored American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts ("GDRs") (collectively, "depositary
receipts").

The Prospectus, dated January 1, 1997, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.

THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.

MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;

ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;

ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

HOW DOES THE FUND INVEST ITS ASSETS?

The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Prospectus entitled "How does the Fund Invest its Assets?"

REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which the buyer
of a security simultaneously commits to resell the security to the seller at an
agreed upon price and date. Under a repurchase agreement, the seller is required
to maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. TGBM will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price. Repurchase agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Board, I.E., banks or broker-dealers which have been determined
by TGBM to present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.

DEBT SECURITIES. The Fund may invest in debt securities which are rated in any
category by S&P or Moody's. See "Appendices - Corporate Bond Ratings" for a
description of the S&P and Moody's ratings. As an operating policy, the Fund
will invest no more than 5% of its assets in debt securities rated lower than
Baa by Moody's or BBB by S&P. The market value of debt securities generally
varies in response to changes in interest rates and the financial condition of
each issuer. During periods of declining interest rates, the value of debt
securities generally increases. Conversely, during periods of rising interest
rates, the value of such securities generally declines. These changes in market
value will be reflected in the Fund's Net Asset Value.

Although they may offer higher yields than do higher rated securities, high
risk, low rated debt securities (commonly known as junk bonds) and unrated debt
securities generally involve greater volatility of price and risk of principal
and income, including the possibility of default by, or bankruptcy of, the
issuers of the securities. In addition, the markets in which low rated and
unrated debt securities are traded are more limited than those in which higher
rated securities are traded. The existence of limited markets for particular
securities may diminish the Fund's ability to sell the securities at fair value
either to meet redemption requests or to respond to a specific economic event
such as a deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain low rated or unrated debt securities may also make
it more difficult for the Fund to obtain accurate market quotations for the
purposes of valuing the Fund's portfolio. Market quotations are generally
available on many low rated or unrated securities only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales.

Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of the Fund to achieve its investment
objective may, to the extent of investment in low rated debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the Fund
were investing in higher rated securities.

Low rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated debt securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in low rated debt securities prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of low
rated debt securities defaults, the Fund may incur additional expenses seeking
recovery.

The Fund may accrue and report interest income on high yield bonds, such as zero
coupon bonds or pay-in-kind securities, even though it receives no cash interest
until the security's maturity or payment date. In order to qualify for
beneficial tax treatment afforded regulated investment companies, and to be
relieved of federal tax liabilities, the Fund must distribute substantially all
of its net income and gains to shareholders (see "Additional Information on
Distributions and Taxes") generally on an annual basis. The Fund may have to
dispose of portfolio securities under disadvantageous circumstances to generate
cash or leverage itself by borrowing cash in order to satisfy the distribution
requirement.

STRUCTURED INVESTMENTS. Included among the issuers of debt securities in which
the Fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or purchase
by an entity, such as a corporation or trust, of specified instruments and the
issuance by that entity of one or more classes of securities ("structured
investments") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured investments to create securities with
different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow
on the underlying instruments. Because structured investments of the type in
which the Fund anticipates investing typically involve no credit enhancement,
their credit risk will generally be equivalent to that of the underlying
instruments.

The Fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the Fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase
will not be deemed to be leverage for purposes of the limitations placed on the
extent of the Fund's assets that may be used for borrowing activities.

Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investment in
these structured investments may be limited by the restrictions contained in
the 1940 Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments. To the extent such investments are illiquid, they will be subject
to the Fund's restrictions on investments in illiquid securities.

FUTURES CONTRACTS. The Fund may purchase and sell financial futures contracts.
Currently, futures contracts are available on several types of fixed-income
securities including: U.S. Treasury bonds, notes and bills, commercial paper
and certificates of deposit.

Although some financial futures contracts call for making or taking delivery of
the underlying securities, in most cases these obligations are closed out
before the settlement date. The closing of a contractual obligation is
accomplished by purchasing or selling an identical offsetting futures contract.
Other financial futures contracts by their terms call for cash settlements.

The Fund may also buy and sell index futures contracts with respect to any stock
or bond index traded on a recognized stock exchange or board of trade. An index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.

At the time the Fund purchases a futures contract, an amount of cash, U.S.
government securities, or other highly liquid debt securities equal to the
market value of the contract will be deposited in a segregated account with the
Fund's custodian. When selling a stock index futures contract, the Fund will
maintain with its custodian liquid assets that, when added to the amounts
deposited with a futures commission merchant or broker as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, the
Fund may "cover" its position by owning the instruments underlying the contract
or, in the case of a stock index futures contract, owning a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based, or holding a call option permitting the Fund to purchase the
same futures contract at a price no higher than the price of the contract
written by the Fund (or at a higher price if the difference is maintained in
liquid assets with the Fund's custodian).

OPTIONS ON SECURITIES, INDICES AND FUTURES. The Fund may write covered put and
call options and purchase put and call options on securities, securities indices
and futures contracts that are traded on U.S. and foreign exchanges and in the
over-the-counter markets.

An option on a security or a futures contract is a contract that gives 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 gives 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 ption only if the option is "covered." A call
option on a security or futures contract written by the Fund is "covered" if the
Fund owns the underlying security or futures contract covered by the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security or futures contract is also covered if
the Fund holds a call on the same security or futures contract and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or high grade U.S. government securities in a
segregated account with its custodian. A put option on a security or futures
contract written by the Fund is "covered" if the Fund maintains cash or fixed
income securities with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same security or futures
contract and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.

The Fund will cover call options on securities indices that it writes by owning
securities whose price changes, in the opinion of TGBM, are expected to be
similar to those of the index, or in such other manner as may be in accordance
with the rules of the exchange on which the option is traded and applicable laws
and regulations. Nevertheless, where the Fund covers a call option on a
securities index through ownership of securities, such securities may not match
the composition of the index. In that event, the Fund will not be fully covered
and could be subject to risk of loss in the event of adverse changes in the
value of the index. The Fund will cover put options on securities indices that
it writes by segregating assets equal to the option's exercise price, or in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations.

The Fund will receive a premium from writing a put or call option, which
increases its gross income in the event the option expires unexercised or is
closed out at a profit. If the value of a security, index or futures contract on
which the Fund has written a call option falls or remains the same, the Fund
will realize a profit in the form of the premium received (less transaction
costs) that could offset all or a portion of any decline in the value of the
portfolio securities being hedged. If the value of the underlying security,
index or futures contract rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in its investments. By writing a put option, the Fund assumes the
risk of a decline in the underlying security, index or futures contract. To the
extent that the price changes of the portfolio securities being hedged correlate
with changes in the value of the underlying security, index or futures contract,
writing covered put options will increase the Fund's losses in the event of a
market decline, although such losses will be offset in part by the premium
received for writing the option.

The Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, its
loss will be limited to the premium paid for the option plus related transaction
costs. The success of this strategy will depend, in part, on the accuracy of the
correlation between the changes in value of the underlying security, index or
futures contract and the changes in value of the Fund's security holdings being
hedged.

The Fund may purchase call options on individual securities or futures contracts
to hedge against an increase in the price of securities or futures contracts
that it anticipates purchasing in the future. Similarly, the Fund may purchase
call options on a securities index to attempt to reduce the risk of missing a
broad market advance, or an advance in an industry or market segment, at a time
when the Fund holds uninvested cash or short-term debt securities awaiting
investment. When purchasing call options, the Fund will bear the risk of losing
all or a portion of the premium paid if the value of the underlying security,
index or futures contract does not rise.

There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, it may experience losses in some cases as a result of such
inability. The value of over-the-counter options purchased by the Fund, as well
as the cover for options written by the Fund, are considered not readily
marketable and are subject to the Trust's limitation on investments in
securities that are not readily marketable. See "Investment Restrictions."

FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against foreign
currency exchange rate risks, the Fund may enter into forward foreign currency
exchange contracts and foreign currency futures contracts, as well as purchase
put or call options on foreign currencies, as described below. The Fund may also
conduct its foreign currency exchange transactions on a spot (I.E., cash) basis
at the spot rate prevailing in the foreign currency exchange market.

The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when the Fund believes
that a foreign currency may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell an amount of the
former foreign currency approximating the value of some or all of its portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as "cross-hedging." Because in connection with the
Fund's forward contracts, an amount of its assets equal to the amount of the
purchase will be held aside or segregated to be used to pay for the commitment,
the Fund will always have cash, cash equivalents or high quality debt securities
available in an amount sufficient to cover any commitments under these contracts
or to limit any potential risk. The segregated account will be marked-to-market
on a daily basis. While these contracts are not presently regulated by the CFTC,
the CFTC may in the future assert authority to regulate forward contracts. In
such event, the Fund's ability to utilize forward contracts in the manner set
forth above may be restricted. Forward contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not engaged in such contracts.

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

The Fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of foreign
currency futures will usually depend on TGBM's ability to forecast currency
exchange rate movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.

WHAT ARE THE FUND'S POTENTIAL RISKS?

The Fund has an unlimited right to purchase securities in any foreign country,
developed or developing, if they are listed on an exchange, as well as a limited
right to purchase such securities if they are unlisted. Investors should
consider carefully the substantial risks involved in securities of companies and
governments of foreign nations, which are in addition to the usual risks
inherent in domestic investments. There may be less publicly available
information about foreign companies comparable to the reports and ratings
published about companies in the U.S. Foreign companies are not generally
subject to uniform accounting or financial reporting standards, and auditing
practices and requirements may not be comparable to those applicable to U.S.
companies. The Fund, therefore, may encounter difficulty in obtaining market
quotations for purposes of valuing its portfolio and calculating its Net Asset
Value. Foreign markets have substantially less volume than the NYSE and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Commission rates in foreign countries,
which are generally fixed rather than subject to negotiation as in the U.S., are
likely to be higher. In many foreign countries there is less government
supervision and regulation of stock exchanges, brokers and listed companies than
in the U.S.

Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries.

In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.

Investments in Eastern European countries may involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of Eastern European countries expropriated large amounts of private property in
the past, in many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future. In the event of
such expropriation, the Fund could lose a substantial portion of any investments
it has made in the affected countries. Further, no accounting standards exist in
Eastern European countries. Finally, even though certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the Fund
shareholders.

Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include: (a)
delays in settling portfolio transactions and risk of loss arising out of
Russia's system of share registration and custody; (b) the risk that it may be
impossible or more difficult than in other countries to obtain and/or enforce a
judgment; (c) pervasiveness of corruption and crime in the Russian economic
system; (d) currency exchange rate volatility and the lack of available currency
hedging instruments; (e) higher rates of inflation (including the risk of social
unrest associated with periods of hyper-inflation); (f) controls on foreign
investment and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on the Fund's
ability to exchange local currencies for U.S. dollars; (g) the risk that the
government of Russia or other executive or legislative bodies may decide not to
continue to support the economic reform programs implemented since the
dissolution of the Soviet Union and could follow radically different political
and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (h) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (i)
dependency on exports and the corresponding importance of international trade;
(j) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (k) possible
difficulty in identifying a purchaser of securities held by the Fund due to the
underdeveloped nature of the securities markets.

There is little historical data on Russian securities markets because they are
relatively new and a substantial proportion of securities transactions in Russia
are privately negotiated outside of stock exchanges. Because of the recent
formation of the securities markets as well as the underdeveloped state of the
banking and telecommunications systems, settlement, clearing and registration of
securities transactions are subject to significant risks. Ownership of shares
(except where shares are held through depositories that meet the requirements of
the 1940 Act) is defined according to entries in the company's share register
and normally evidenced by extracts from the register or by formal share
certificates. However, there is no central registration system for shareholders
and these services are carried out by the companies themselves or by registrars
located throughout Russia. These registrars are not necessarily subject to
effective state supervision and it is possible for the Fund to lose its
registration through fraud, negligence or even mere oversight. While the Fund
will endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent inspecting the share
register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent the Fund from
investing in the securities of certain Russian companies deemed suitable by
TGBM. Further, this also could cause a delay in the sale of Russian company
securities by the Fund if a potential purchaser is deemed unsuitable, which may
expose the Fund to potential loss on the investment.

The Fund endeavors to buy and sell foreign currencies on as favorable a basis as
practicable. Some price spread on currency exchange (to cover service charges)
may be incurred, particularly when the Fund changes investments from one country
to another or when proceeds of the sale of shares in U.S. dollars are used for
the purchase of securities in foreign countries. Also, some countries may adopt
policies which would prevent the Fund from transferring cash out of the country
or withhold portions of interest and dividends at the source. There is the
possibility of cessation of trading on national exchanges, expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or other amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations.

The Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund. Through
the Fund's flexible policy, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time it places the Fund's investments.

The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.

The Board considers at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Board also considers the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories (see "Investment Management and Other Services -
Shareholder Servicing Agent and Custodian"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of TGBM, any losses
resulting from the holding of the Fund's portfolio securities in foreign
countries and/or with securities depositories will be at the risk of the
shareholders. No assurance can be given that the Board's appraisal of the risks
will always be correct or that such exchange control restrictions or political
acts of foreign governments might not occur.

The Fund's ability to reduce or eliminate its futures and related options
positions will depend upon the liquidity of the secondary markets for such
futures and options. The Fund intends to purchase or sell futures and related
options only on exchanges or boards of trade where there appears to be an active
secondary market, but there is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. Use of futures and
options for hedging may involve risks because of imperfect correlations between
movements in the prices of the futures or options and movements in the prices of
the securities being hedged. Successful use of futures and related options by
the Fund for hedging purposes also depends upon TGBM's ability to predict
correctly movements in the direction of the market, as to which no assurance can
be given.

Additional risks may be involved with the Fund's special investment techniques,
including loans of portfolio securities and borrowing for investment purposes.
These risks are described under the heading "How does the Fund Invest its
Assets? - Types of Securities in which the Fund May Invest" in the Prospectus.

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less.

The Fund MAY NOT:

1. Invest in real estate or mortgages on real estate (although
the Fund may invest in marketable securities secured by real
estate or interests therein); invest in other open-end
investment companies (except in connection with a merger,
consolidation, acquisition or reorganization); invest in
interests (other than publicly issued debentures or equity
stock interests) in oil, gas or other mineral exploration or
development programs; purchase or sell commodity contracts
(except futures contracts as described in the Fund's
Prospectus).

2. Purchase or retain securities of any company in which trustees
or officers of the Trust or of TGBM, individually owning more
than 1/2 of 1% of the securities of such company, in the
aggregate own more than 5% of the securities of such company.

3. Invest in any company for the purpose of exercising control
or management.

4. Act as an underwriter; issue senior securities; or purchase on
margin or sell short, except hat the Fund may make margin
payments in connection with futures, options and currency
transactions.

5. Loan money, except that the Fund may purchase a portion of an
issue of publicly distributed bonds, debentures, notes and
other evidences of indebtedness.

6. Invest more than 5% of the value of its total assets in
securities of issuers which have been in continuous operation
less than three years.

7. Invest more than 15% of its total assets in securities of
foreign companies that are not listed on a recognized U.S. or
foreign securities exchange, including no more than 5% of its
total assets in restricted securities and no more than 10% of
its total assets in restricted securities and other securities
(including repurchase agreements having more than seven days
remaining to maturity) 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).

8. Invest more than 25% of its total assets in a single industry.

9. Borrow money, except that the Fund may borrow money in amounts
up to 30% of the value of the Fund's net assets. In addition,
the Fund may not pledge, mortgage or hypothecate its assets
for any purpose, except that the Fund may do so to secure such
borrowings and then only to an extent not greater than 15% of
its total assets. Arrangements with respect to margin for
futures contracts are not deemed to be a pledge of assets.

10. Participate on a joint or a joint and several basis in any
trading account in securities. (See "How does the Fund Buy
Securities for its Portfolio?" as to transactions in the same
securities for the Fund, other clients and/or other mutual
funds within the Franklin Templeton Group of Funds.)

11. Invest more than 5% of its net assets in warrants whether or
not listed on the NYSE or AMEX, and more than 2% of its net
assets in warrants that are not listed on those exchanges.
Warrants acquired in units or attached to securities are not
included in this restriction.

The investment restrictions do not preclude the Fund from purchasing the
securities of any issuer pursuant to the exercise of subscription rights
distributed to the Fund by the issuer, unless such purchase would result in a
violation of restrictions 7 or 8.

If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.

OFFICERS AND TRUSTEES

The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Trust under the 1940 Act are indicated by an asterisk ("*").

POSITIONS AND OFFICES

WITH THE Trust PRINCIPAL OCCUPATION DURING THE PAST FIVE

NAME, ADDRESS AND YEARS
AGE
<S> <C> <C>

HARRIS J. ASHTON Trustee Chairman of the board, president and chief
Metro Center executive officer of General Host
1 Station Place Corporation (nursery and craft centers);
Stamford, Connecticut director of RBC Holdings (U.S.A.) Inc. (a
Age 64 bank holding company) and Bar-S Foods; and
director or trustee of 55 of the investment
companies in the Franklin Templeton Group of
Funds.

PAGE

NICHOLAS F. BRADY* Trustee Chairman of Templeton Emerging Markets
The Bullitt House Investment Trust PLC; chairman of Templeton
102 East Dover Street Latin America Investment Trust PLC; chairman
Easton, Maryland of Darby Overseas Investments, Ltd. (an
Age 66 investment firm) (1994-present); chairman
and director of Templeton Central and Eastern
European Fund; director of the Amerada Hess
Corporation, Christiana Companies, and the
H.J. Heinz Company; formerly, Secretary of the
United States Department of the Treasury
(1988-1993) and chairman of the board of
Dillon, Read & Co. Inc.(investment banking)
prior to 1988; and director or trustee
of 23 of the investment companies in the
Franklin Templeton Group of Funds.

S. JOSEPH FORTUNATO Trustee Member of the law firm of Pitney, Hardin,
200 Campus Drive Kipp & Szuch; director of General Host
Florham Park, New Jersey Corporation (nursery and craft centers); and
Age 64 director or trustee of 57 of the investment
companies in the Franklin Templeton Group of
Funds.

JOHN Wm. GALBRAITH Trustee President of Galbraith Properties, Inc.
360 Central Avenue (personal investment company); director of
Suite 1300 Gulf West Banks, Inc. (bank holding company)
St. Petersburg, Florida (1995-present); formerly, director of
Age 75 Mercantile Bank (1991-1995), vice chairman
of Templeton, Galbraith & Hansberger Ltd.
(1986-1992), and chairman of Templeton Funds
Management, Inc. (1974-1991); and director
or trustee of 22 of the investment companies
in the Franklin Templeton Group of Funds.

ANDREW H. HINES, JR. Trustee Consultant for the Triangle Consulting
150 2nd Avenue N. Group; chairman and director of Precise
St. Petersburg, Florida Power Corporation; executive-in-residence of
Age 73 Eckerd College (1991-present); director of
Checkers Drive-In Restaurants, Inc.; formerly,
chairman of the board and chief executive
officer of Florida Progress Corporation
(1982-1990) and director of various of its
subsidiaries; and director or trustee
of 24 of the investment companies in the
Franklin Templeton Group of Funds.

CHARLES B. JOHNSON* Chairman of the President, chief executive officer, and
777 Mariners Island Blvd. Board and Vice President director of Franklin Resources, Inc.;
San Mateo, California chairman of the board and director of
Age 63 Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; director of
General Host Corporation (nursery and craft
centers) and Franklin Templeton Investor
Services, Inc.; and officer and/or director,
trustee or managing general partner, as the
case may be, of most other subsidiaries of
Franklin Resources, Inc. and 56 of the
investment companies in the Franklin
Templeton Group of Funds.

PAGE

BETTY P. KRAHMER Trustee Director or trustee of various civic
2201 Kentmere Parkway associations; formerly, economic analyst,
Wilmington, Delaware U.S. government; and director or trustee of
Age 67 23 of the investment companies in the

Franklin Templeton Group of Funds.

GORDON S. MACKLIN Trustee Chairman of White River Corporation
8212 Burning Tree Road (information services); director of Fund
Bethesda, Maryland America Enterprises Holdings, Inc., MCI
Age 68 Communications Corporation, Fusion Systems
Corporation, Infovest Corporation, MedImmune,
Inc., Source One Mortgage Services Corporation,
and Shoppers Express, Inc.(on-line shopping
service); formerly, chairman of Hambrecht
and Quist Group, director of H&Q Healthcare
Investors and Lockheed Martin Corporation,
and president of the National Association
of Securities Dealers, Inc.; and director
or trustee of 52 of the investment companies
in the Franklin Templeton Group of Funds

FRED R. MILLSAPS Trustee Manager of personal investments
2665 N.E. 37th Drive (1978-present); director of various business
Fort Lauderdale, Florida and nonprofit organizations; formerly,
Age 67 chairman and chief executive officer of
Landmark Banking Corporation (1969-1978),
financial vice president of Florida
Power and Light (1965-1969), and vice
president of The Federal Reserve Bank of
Atlanta (1958-1965); and director or
trustee of 24 of the investment companies
in the Franklin Templeton Group of Funds.

GREG MCGOWAN President Director and executive vice president of
500 East Broward Blvd. Templeton Investment Counsel, Inc.;
Fort Lauderale executive vice president-international
Age 47 development and chief international general
counsel of Templeton Worldwide, Inc.,
executive vice president, director and
general counsel of Templeton International,
Inc.; executive vice president and
secretary of Templeton Global Advisors
Limited; president of other Templeton
Funds; formerly, senior attorney for the
U.S. Securities and Exchange Commission;
and an officer of 4 of the investment
companies in the Franklin Templeton
Group of Funds.

SAMUEL J. FORESTER, JR. Vice President President of the Templeton Global Bond
500 East Broward Blvd. Managers Division of Templeton Investment
Fort Lauderale Counsel, Inc.; formerly, partner (and
Age 48 founder) of Forester, Hairston Investment
Management (1989-1990), managing director
(Mid-East Region) of Merrill Lynch, Pierce,
Fenner & Smith Inc. (1987-1988) and advisor
for Saudi Arabian Monetary Agency (1982-
1987); and officer of 10 of the investment
companies in the Franklin Templeton
Group of Funds.

RUPERT H. JOHNSON, JR. Vice President Executive vice president and director of
777 Mariners Island Blvd. Franklin Resources, Inc. and Franklin
San Mateo, California Templeton Distributors, Inc.; president and
Age 56 director of Franklin Advisers, Inc.;
director of Franklin Templeton Investor
Services, Inc.; and officer and/or director,
trustee or managing general partner, as the
case may be, of most other subsidiaries
of Franklin Resources, Inc. and 60 of the
investment companies in the Franklin
Templeton Group of Funds.

HARMON E. BURNS Vice President Executive vice president, secretary and
777 Mariners Island Blvd. director of Franklin Resources, Inc.;
San Mateo, California executive vice president and director of
Age 51 Franklin Templeton Distributors, Inc.;
executive vice president of Franklin
Advisers, Inc.; officer and/or director,
as the case may be, of other subsidiaries
of Franklin Resources, Inc.; and officer
and/or director or trustee of 60 of
the investment companies in the Franklin
Templeton Group of Funds.

PAGE

CHARLES E. JOHNSON Vice President Senior vice president and director of
500 East Broward Blvd. Franklin Resources, Inc.; senior vice
Fort Lauderdale, Florida president of Franklin Templeton
Age 40 Distributors, Inc.; president and chief
executive officer of Templeton Worldwide,
Inc.; president and director of Franklin
Institutional Services Corporation;
chairman of the board of Templeton
Investment Counsel, Inc.; officer
and/or director, as the case may
be, of other subsidiaries of Franklin
Resources, Inc.; and officer and/or
director or trustee of 39 of the
investment companies in the Franklin
Templeton Group of Funds.

DEBORAH R. GATZEK Vice President Senior vice president and general counsel
777 Mariners Island Blvd. of Franklin Resources, Inc.; senior vice
San Mateo, California president of Franklin Templeton
Age 47 Distributors, Inc.; vice president of
Franklin Advisers, Inc.; and officer
of 60 of the investment companies
in the Franklin Templeton Group of
Funds.

MARK G. HOLOWESKO Vice PresVicetPresident President and director of Templeton Global
Lyford Cay Advisors Limited; chief investment officer
Nassau, Bahamas of global equity research for Templeton
Age 36 Worldwide, Inc.; president or vice president
of the Templeton Funds; formerly, investment
administrator with Roy West Trust Corporation
(Bahamas) Limited (1984-1985); and officer
of 23 of the investment companies in the
Franklin Templeton Group of Funds.

MARTIN L. FLANAGAN Vice President Senior vice president, treasurer and chief
President financial officer of Franklin Resources,
777 Mariners Island Blvd. Inc.; director and executive vice president
San Mateo, California of Templeton Investment Counsel, Inc.; a
Age 36 member of the International Society of
Financial Analysts and the American
Institute of Certified Public Accountants;
formerly, with Arthur Andersen & Company
(1982-1983); officer and/or director,
as the case may be, of other subsidiaries
of Franklin Resources, Inc.; and officer
and/or director or trustee of 60 of
the investment companies in the Franklin
Templeton Group of Funds.

PAGE

JOHN R. KAY Vice President Vice president and treasurer of Templeton
500 East Broward Blvd. Global Investors, Inc. and Templeton
Fort Lauderdale, Florida Worldwide, Inc.; assistant vice president of
Age 56 Franklin Templeton Distributors, Inc.;
formerly, vice president and controller
of the Keystone Group, Inc.; and officer
of 27 of the investment companies in the
Franklin Templeton Group of Funds.

PAGE

NEIL S. DEVLIN Vice President Senior vice president, Portfolio
500 East Broward Blvd. Management/Research, of the Templeton Global
Fort Lauderdale, Florida Bond Managers division of Templeton
Age 39 Investment Counsel, Inc.; formerly,
portfolio manager and bond analyst for
Constitutional Capital Management
(1985-1987), and a bond trader and
research analyst for Bank of New
England (1982-1985); and officer of 4 of
the investment companies in the
Franklin Templeton Group of Funds.

THOMAS LATTA Vice President Vice President of the Tempelton Global Bond
500 East Broward Blvd. Managers division of Tempelton Investment
Fort Lauderdale, Florida Counsel, Inc., formerly, portfolio manager
Age 36 at Forester & Hairston (1988-1991) and
investment advisor at Merrill, Lynch,
Pierce, Fenner & Smith, Inc. (1981-1988).

ELIZABETH M. KNOBLOCK Vice President- Compliance General counsel, secretary and a senior vice
500 East Broward Blvd. president of Templeton Investment Counsel,
Fort Lauderdale, Florida Inc.; formerly, vice president and associate
Age 41 general counsel of Kidder Peabody & Co. Inc.
(1989-1990), assistant general counsel of
Gruntal & Co., Inc. (1988), vice president
and associate general counsel of Shearson
Lehman Hutton Inc. (1988), vice president
and assistant general counsel of E.F. Hutton
& Co. Inc. (1986-1988), and special counsel
of the division of investment management of
the Securities and Exchange Commission
(1984-1986); and officer of 23 of the
investment companies in the Franklin
Templeton Group of Funds.

PAGE

JAMES R. BAIO Treasurer Certified public accountant; senior vice
500 East Broward Blvd. president of Templeton Worldwide, Inc., and
Fort Lauderdale, Florida Templeton Funds Trust Company; formerly,
Age 42 senior tax manager with Ernst & Young
(certified public accountants) (1977-1989);
and treasurer of 23 of the investment
companies in the Franklin Templeton
Group of Funds.

BARBARA J. GREEN Secretary Senior vice president of Templeton
500 East Broward Blvd. Worldwide, Inc. and an officer of other
Fort Lauderdale, Florida subsidiaries of Templeton Worldwide, Inc.;
Age 49 formerly, deputy director of the Division of
Investment Management, executive assistant
and senior advisor to the chairman,
counsellor to the chairman, special counsel
and attorney fellow, U.S. Securities and
Exchange Commission (1986-1995), attorney,
Rogers & Wells, and judicial clerk, U.S.
District Court (District of Massachusetts);
and secretary of 23 of the investment
companies in the Franklin Templeton
Group of Funds.

</TABLE>

The table above shows the officers and Board members who are affiliated with
Distributors and TGBM. Nonaffiliated members of the Board and Mr. Brady are
currently paid an annual retainer and/or fees for attendance at Board and
Committee meetings, the amount of which is based on the level of assets in the
Fund. Accordingly, the Trust currently pays the independent members of the Board
and Mr. Brady an annual retainer of $2,500 and a fee of $200 per meeting of the
Board and its portion of a flat fee of $2,000 for each Audit Committee meeting
and/or Nominating and Compensation Committee meeting attended. As shown above,
some of the nonaffiliated Board members also serve as directors, trustees or
managing general partners of other investment companies in the Franklin
Templeton Group of Funds. They may receive fees from these funds for their
services. The following table provides the total fees paid to nonaffiliated
Board members and Mr. Brady by the Trust and by other funds in the Franklin
Templeton Group of Funds.

PAGE

NUMBER OF BOARDS IN THE

TOTAL FEES RECEIVED FROM
TOTAL FEES RECEIVED FRANKLIN TEMPLETON GROUP THE FRANKLIN TEMPLETON
FROM THE TRUS /A/ OF FUNDS /B/ GROUP OF FUNDS ON WHICH
EACH SERVES/C/
NAME

Harris J.Ashton $3,400 $339,592 55

Nicholas F. Brady $3,400 119,275 23

F. Bruce Clarke /D/ $3,686 69,500 0

Hasso-G von Diergardt-Naglo /E/ $3,400 66,375 0

S. Joseph Fortunato $3,400 356,412 57

John Wm. Galbraith $3,386 102,475 22

Andrew H. Hines, Jr. $3,820 130,525 24

Betty P. Krahmer $3,400 119,275 23

Gordon S. Macklin $3,534 331,542 52

Fred R. Millsaps $3,686 130,525 24

</TABLE>

A For the fiscal year ended August 31, 1996.
B For the calendar year ended December 31, 1996.
C We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, with approximately 171 U.S. based
funds or series.
D Mr. Clarke resigned as a director on October 20, 1996.
E Mr. Von Diergardt resigned as a director on December 31, 1996.

Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, and paid pro rata by each
fund in the Franklin Templeton Group of Funds for which they serve as director,
trustee or managing general partner. No officer or Board member received any
other compensation, including pension or retirement benefits, directly or
indirectly from the Trust or other funds in the Franklin Templeton Group of
Funds. Certain officers or Board members who are shareholders of Resources may
be deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.

As of December 1, 1996, the officers and Board members, as a group, owned of
record and beneficially approximately 1,896 shares, or less than 1% of the
Fund's total outstanding shares. Many of the Board members also own shares in
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.

INVESTMENT MANAGEMENT AND OTHER SERVICES

INVESTMENT MANAGER AND SERVICES PROVIDED. The Fund's investment manager is TGBM.
TGBM provides investment research and portfolio management services, including
the selection of securities for the Fund to buy, hold or sell and the selection
of brokers through whom the Fund's portfolio transactions are executed. TGBM's
activities are subject to the review and supervision of the Board to whom TGBM
renders periodic reports of the Fund's investment activities. TGBM is covered by
fidelity insurance on its officers, directors and employees for the protection
of the Fund.

TGBM and its affiliates act as investment manager to numerous other investment
companies and accounts. TGBM may give advice and take action with respect to any
of the other funds it manages, or for its own account, that may differ from
action taken by TGBM on behalf of the Fund. Similarly, with respect to the Fund,
TGBM is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that TGBM and access persons, as
defined by the 1940 Act, may buy or sell for its or their own account or for the
accounts of any other fund. TGBM is not obligated to refrain from investing in
securities held by the Fund or other funds that it manages. Of course, any
transactions for the accounts of TGBM and other access persons will be made in
compliance with the Fund's Code of Ethics. Please see "Miscellaneous Information
- - Summary of Code of Ethics."

MANAGEMENT FEES. Under its management agreement, the Fund pays TGBM a monthly
management fee equal to an annual rate of 0.50% of its average daily net assets,
reduced to 0.45% of such net assets in excess of $200,000,000 and further
reduced to 0.40% of such net assets in excess of $1,300,000,000. Each class pays
its proportionate share of the management fee.

For the fiscal years ended August 31, 1996, 1995 and 1994, management fees, were
as follows:

Year Ended August 31 1996 1995 1994
<S> <C> <C> <C>
- ----------------------- --------------------- --------------------- ---------------
Management Fees $968,182 $989,493 $1,040,324

</TABLE>

MANAGEMENT AGREEMENT. The management agreement may continue in effect for
successive annual periods if its continuance is specifically approved at least
annually by a vote of the Board or by a vote of the holders of a majority of the
Fund's outstanding voting securities, and in either event by a majority vote of
the Board members who are not parties to the management agreement or interested
persons of any such party (other than as members of the Board), cast in person
at a meeting called for that purpose. The management agreement may be terminated
without penalty at any time by the Board or by a vote of the holders of a
majority of the Fund's outstanding voting securities, or by TGBM on 60 days'
written notice, and will automatically terminate in the event of its assignment,
as defined in the 1940 Act.

ADMINISTRATIVE SERVICES. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Fund. These include preparing and maintaining books, records, and tax
and financial reports, and monitoring compliance with regulatory requirements.
FT Services is a wholly owned subsidiary of Resources.

Under its administration agreement, the Trust pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Trust's average daily
net assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700 million
up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion.
The fee is allocated between the two series of shares of the Trust, the Fund and
Templeton Money Fund, according to their respective average daily net assets.
During the fiscal years ended August 31, 1996, 1995, and 1994, the Fund paid to
Templeton Global Investors, Inc.

administration fees totaling $278,143, $282,007 and $300,111, respectively.

SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.

CUSTODIAN. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of the Fund's assets. The custodian does
not participate in decisions relating to the purchase and sale of portfolio
securities.

AUDITORS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, are the
Fund's independent auditors. During the fiscal year ended August 31, 1996, their
auditing services consisted of rendering an opinion on the financial statements
of the Fund included in the Fund's Annual Report to Shareholders for the fiscal
year ended August 31, 1996, and review of the Fund's filings with the SEC and
the IRS.

HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?

The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by TGBM in accordance with criteria set forth in the
investment management agreement and any directions that the Board may give.

When placing a portfolio transaction, TGBM seeks to obtain prompt execution of
orders at the most favorable net price. When portfolio transactions are done on
a securities exchange, the amount of commission paid by the Fund is negotiated
between TGBM and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and review of the
transactions. These opinions are based on the experience of these individuals in
the securities industry and information available to them about the level of
commissions being paid by other institutional investors of comparable size. TGBM
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of TGBM, a better price and execution can otherwise be obtained.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price.

The amountof commission is not the only factor TGBM considers in the selection
of a broker to execute a trade. If TGBM believes it is in the Fund's best
interest, it may place portfolio transactions with brokers who provide the
types of services described below, even if it means the Fund will pay a higher
commission than if no weight were given to the broker's furnishing of these
services. This will be done only if, in the opinion of TGBM, the amount of any
additional commission is reasonable in relation to the value of the services.
Higher commissions will be paid only when the brokerage and research services
received are bona fide and produce a direct benefit to the Fund or assist TGBM
in carrying out its responsibilities to the Fund, or when it is otherwise in
the best interest of the Fund to do so, whether or not such services may
also be useful to TGBM in advising other clients.

When TGBM believes several brokers are equally able to provide the best net
price and execution, it may decide to execute transactions through brokers who
provide quotations and other services to the Fund, in an amount of total
brokerage as may reasonably be required in light of these services.
Specifically, these services may include providing the quotations necessary to
determine the Fund's Net Asset Value, as well as research, statistical and
other data.

It is not possible to place a dollar value on the special executions or on the
research services received by TGBM from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits TGBM to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, TGBM and its affiliates may use this research and data in
their investment advisory capacities with other clients. If the Fund's officers
are satisfied that the best execution is obtained, consistent with internal
policies the sale of Fund shares, as well as shares of other funds in the
Franklin Templeton Group of Funds, may also be considered a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.

Because Distributors is a member of the NASD, it may sometimes receive certain
fees when the Fund tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next investment
management fee payable to TGBM will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses incurred in
connection with the tender.

If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by TGBM are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by TGBM,
taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.

Sale or purchase of securities, without payment of brokerage commissions, fees
(except customary transfer fees) or other remuneration in connection therewith,
may be effected between any of these funds, or between funds and private
clients, under procedures adopted pursuant to Rule 17a-7 under the 1940 Act.

During the fiscal years ended August 31, 1996, 1995 and 1994, he Fund paid
brokerage commissions totaling $0, $0 and $32,000, respectively.

As of August 31, 1996, the Fund did not own securities of its regular broker-
dealers.

HOW DO I BUY, SELL AND EXCHANGE SHARES?

ADDITIONAL INFORMATION ON BUYING SHARES

The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities Dealers may at times receive the entire
sales charge. A Securities Dealer who receives 90% or more of the sales charge
may be deemed an underwriter under the 1933 Act.

Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required by state law to register as Securities Dealers. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the table under "How Do I Buy Shares? - Purchase
Price of Fund Shares" in the Prospectus.

When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.

Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to these banks' trust accounts without a sales charge. The
banks may charge service fees to their customers who participate in the trusts.
A portion of these service fees may be paid to Distributors or one of its
affiliates to help defray expenses of maintaining a service office in Taiwan,
including expenses related to local literature fulfillment and communication
facilities.

Class I shares of the Fund may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class I
shares may be offered with the following schedule of sales charges:

SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE
- ------------------------------- ------------
<S> <C>
Under $30,000 3%
$30,000 but less than $100,000 2%
$100,000 but less than $400,000 1%
$400,000 or more 0%

</TABLE>

OTHER PAYMENTS TO SECURITIES DEALERS. Distributors will pay the following
commissions out of its own resources, to Securities Dealers who initiate and
are responsible for purchases of Class I shares of $1 million or more: 0.75% on
sales of $1 million to $2 million, plus 0.60% on sales over $2 million to $3
million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on sales
over $50 million to $100 million, plus 0.15% on sales over $100 million.

Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to Securities Dealers who initiate and are responsible for
purchases of Class I shares by certain retirement plans pursuant to a sales
charge waiver, as discussed in the Prospectus: 1% on sales of $500,000 to $2
million, plus 0.80% on sales over $2 million to $3 million, plus 0.50% on sales
over $3 million to $50 million, plus 0.25% on sales over $50 million to $100
million, plus 0.15% on sales over $100 million. Distributors may make these
payments in the form of contingent advance payments, which may be recovered from
the Securities Dealer or set off against other payments due to the dealer if
shares are sold within 12 months of the calendar month of purchase. Other
conditions may apply. All terms and conditions may be imposed by an agreement
between Distributors, or one of its affiliates, and the Securities Dealer.

These breakpoints are reset every 12 months for purposes of additional
purchases.

LETTER OF INTENT. You may qualify for a reduced sales charge when you buy Class
I shares, as described in the Prospectus. At any time within 90 days after the
first investment that you want to qualify for a reduced sales charge, you may
file with the Fund a signed shareholder application with the Letter of Intent
section completed. After the Letter is filed, each additional investment will be
entitled to the sales charge applicable to the level of investment indicated on
the Letter. Sales charge reductions based on purchases in more than one Franklin
Templeton Fund will be effective only after notification to Distributors that
the investment qualifies for a discount. Your holdings in the Franklin Templeton
Funds, including Class II shares, acquired more than 90 days before the Letter
is filed, will be counted towards completion of the Letter but will not be
entitled to a retroactive downward adjustment in the sales charge. Any
redemptions you make during the 13 month period, except in the case of certain
retirement plans, will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter have been completed. If
the Letter is not completed within the 13 month period, there will be an upward
adjustment of the sales charge, depending on the amount actually purchased (less
redemptions) during the period. The upward adjustment does not apply to certain
retirement plans. If you execute a Letter prior to a change in the sales charge
structure of the Fund, you may complete the Letter at the lower of the new sales
charge structure or the sales charge structure in effect at the time the Letter
was filed.

As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in Class I shares of the Fund registered in
your name until you fulfill the Letter. This policy of reserving shares does not
apply to certain retirement plans. If total purchases, less redemptions, equal
the amount specified under the Letter, the reserved shares will be deposited to
an account in your name or delivered to you or as you direct. If total
purchases, less redemptions, exceed the amount specified under the Letter and is
an amount that would qualify for a further quantity discount, a retroactive
price adjustment will be made by Distributors and the Securities Dealer through
whom purchases were made pursuant to the Letter (to reflect such further
quantity discount) on purchases made within 90 days before and on those made
after filing the Letter. The resulting difference in Offering Price will be
applied to the purchase of additional shares at the Offering Price applicable to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the
Letter, you will remit to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount of sales charge that
would have applied to the aggregate purchases if the total of the purchases had
been made at a single time. Upon remittance, the reserved shares held for your
account will be deposited to an account in your name or delivered to you or as
you direct. If within 20 days after written request the difference in sales
charge is not paid, the redemption of an appropriate number of reserved shares
to realize the difference will be made. In the event of a total redemption of
the account prior to fulfillment of the Letter, the additional sales charge due
will be deducted from the proceeds of the redemption, and the balance will be
forwarded to you.

If a Letter is executed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.

REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.

ADDITIONAL INFORMATION ON EXCHANGING SHARES

If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.

If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell 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 occurs, it is
the Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment objective exist
immediately. This money will then be withdrawn from the short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.

The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.

ADDITIONAL INFORMATION ON SELLING SHARES

SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled.

Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.

The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.

THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.

REDEMPTIONS IN KIND. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.

GENERAL INFORMATION

If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.

If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.

All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.

SPECIAL SERVICES. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by the Fund.

Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.

Certain shareholder servicing agents may be authorized to accept your
transaction request.

HOW ARE FUND SHARES VALUED?

We calculate the Net Asset Value per share of each class as of the scheduled
close of the NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is
open for trading. As of the date of this SAI, the Fund is informed that the NYSE
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

For the purpose of determining the aggregate net assets of the Fund, cash and
receivable are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by TGBM.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the Net Asset Value of each class is not calculated. Thus, the calculation
of the Net Asset Value of each class does not take place contemporaneously with
the determination of the prices of many of the portfolio securities used in the
calculation and, if events materially affecting the values of these foreign
securities occur, the securities will be valued at fair value as determined by
management and approved in good faith by the Board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value of each class is determined as of such times. Occasionally,
events affecting the values of these securities may occur between the times at
which they are determined and the scheduled close of the NYSE that will not be
reflected in the computation of the Net Asset Value of each class. If events
materially affecting the values of these securities occur during this period,
the securities will be valued at their fair value as determined in good faith by
the Board.

Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, the
Fund may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.

ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES

DISTRIBUTIONS

You may receive two types of distributions from the Fund:

1. INCOME DIVIDENDS. The Fund receives income generally in the form of interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.

2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or post October
loss deferral) may generally be made once a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.

TAXES

As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Fund intends
normally to pay a monthly dividend representing its net investment income and to
distribute at least annually any net realized capital gain. The status of the
Fund as a regulated investment company does not involve government supervision
of management or of its investment practices or policies. As a regulated
investment company, the Fund generally will be relieved of liability for U.S.
federal income tax on that portion of its net investment income and net realized
capital gains which it distributes to its shareholders. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are also subject to a nondeductible 4% excise tax. To avoid application of the
excise tax, the Fund intends to distribute in accordance with the calendar year
distribution requirement.

The Board reserves the right not to maintain the qualification of the Fund as a
regulated investment company if it determines this course of action to be
beneficial to shareholders. In that case, the Fund will be subject to federal
and possibly state corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxable to the extent of the Fund's
available earnings and profits.

Dividends from net investment income and distributions from short-term capital
gains (the excess of net short-term capital gains over net long-term capital
losses) are taxable to shareholders as ordinary income. Distributions from net
investment income may be eligible for the corporate dividends received deduction
to the extent attributable to the Fund's qualifying dividend income. However,
the alternative minimum tax applicable to corporations may reduce the benefit of
the dividends received deduction. Distributions from net long-term capital gains
(the excess of net long-term capital gains over net short-term capital losses)
designated by the Fund as capital gain dividends are taxable to shareholders as
long-term capital gains, regardless of the length of time the Fund's shares have
been held by a shareholder, and are not eligible for the dividends received
deduction. Generally, dividends and distributions are taxable to shareholders,
whether received in cash or reinvested in shares of the Fund. Any distributions
that are not from the Fund's investment company taxable income or net capital
gain may be characterized as a return of capital to shareholders or, in some
cases, as capital gain. Shareholders will be notified annually as to the federal
tax status of dividends and distributions they received and any tax withheld
thereon.

Debt securities purchased by the Fund may be treated for federal income tax
purposes as having original issue discount. Original issue discount essentially
represents interest for federal tax purposes and can be defined generally as the
excess of the stated redemption price at maturity over the issue price. Original
issue discount, whether or not any income is actually received by the Fund, is
treated for U.S. federal income tax purposes as income earned by the Fund, and
therefore is subject to the distribution requirements of the Code. Generally,
the amount of original issue discount included in the income of the Fund each
year is determined on the basis of a constant yield to maturity which takes into
account the compounding of accrued but unpaid interest.

In addition, debt securities may be purchased by the Fund at a discount which
exceeds the original issue discount remaining on the securities, if any, at the
time the Fund purchased the securities. This additional discount represents
market discount for federal income tax purposes. In the case of any debt
security having a fixed maturity date of more than one year from the date of
issue and having market discount, the gain realized on disposition will be
treated as interest for most purposes of the Code to the extent it does not
exceed the accrued market discount on the security (unless the Fund elects for
all its debt securities having a fixed maturity date of more than one year from
the date of issue to include market discount in income in tax years to which it
is attributable). Generally, market discount accrues on a daily basis. In the
case of any debt security having a fixed maturity date of not more than one year
from the date of issue, the gain realized on disposition will be treated as
short-term capital gain. Market discount on securities with a fixed maturity
date not exceeding one year from the date of issue generally is included in
income on a ratable basis.

The Fund may invest in shares of foreign corporations which may be classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign corporation is classified as a PFIC for a taxable year if at least
one-half of its assets constitute investment-type assets or 75% or more of its
gross income is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.

The Fund may be eligible to elect alternative tax treatment with respect to PFIC
shares. Under an election that currently is available in some circumstances, the
Fund generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether distributions are
received from the PFIC in a given year. If this election were made, the special
rules, discussed above, relating to the taxation of excess distributions, would
not apply. In addition, another election may be available that would involve
marking to market the Fund's PFIC shares at the end of each taxable year (and on
certain other dates prescribed in the Code), with the result that unrealized
gains are treated as though they were realized. If this election were made, tax
at the fund level under the PFIC rules would generally be eliminated, but the
Fund could, in limited circumstances, incur nondeductible interest charges. The
Fund's intention to qualify annually as a regulated investment company may limit
its elections with respect to PFIC shares.

Certain of the options, futures contracts and forward contracts in which the
Fund may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"); however, foreign currency gains or losses (as
discussed below) arising from certain section 1256 contracts may be treated as
ordinary income or loss. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and, with certain exceptions, for purposes of the 4%
excise tax, on October 31 of each year) are "marked-to-market" with the result
that unrealized gains or losses are treated as though they were realized.

Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to shareholders.

The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
elections made. The rules applicable under certain of the elections may operate
to accelerate the recognition of gains or losses from the affected straddle
positions.

Because application of the straddle rules may affect the character of gains or
losses, efer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to the Fund
that did not engage in such hedging transactions.

Requirements relating to the Fund's tax status as a regulated investment
company may limit the extent to which the Fund will be able to engage in such
transactions in options, futures and forward contracts.

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain nancial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of
the Fund's net investment income to be distributed to its shareholders as
ordinary income. For example, fluctuations in exchange rates may increase the
amount of income that the Fund must distribute in order to qualify for treatment
as a regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available fo distribution. If section 988 losses exceed
other net investment income during a taxable year, the Fund would not be able to
make ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders
for federal income tax purposes, rather than as an ordinary dividend, reducing
each shareholder's basis in his Fund shares, or as a capital gain.

Income received by the Fund from sources within foreign countries may be subject
to withholding and other income or similar taxes imposed by such countries. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible and intends to elect to "pass through" to the Fund's shareholders the
amount of foreign taxes paid by the Fund. Pursuant to this election, a
shareholder will be required to include in gross income (in addition to taxable
dividends actually received) his pro rata share of the foreign taxes paid by the
Fund, and will be entitled either to deduct (as an itemized deduction) his pro
rata share of foreign income and similar taxes in computing his taxable income
or to use it as a foreign tax credit against his U.S. federal income tax
liability, subject to limitations. No deduction for foreign taxes may be claimed
by a shareholder who does not itemize deductions, but such a shareholder may be
eligible to claim the foreign tax credit (see below). Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year.

Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his foreign source taxable
income. For this purpose, if the pass-through election is made, the source of
the Fund's income flows through to its shareholders. With respect to the Fund,
gains from the sale of securities will be treated as derived from U.S. sources
and certain currency fluctuation gains, including fluctuation gains from foreign
currency denominated debt securities, receivables and payables, will be treated
as ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit), including the foreign source passive income
passed through by the Fund. Shareholders may be unable to claim a credit for the
full amount of their proportionate share of the foreign taxes paid by the Fund.
Foreign taxes may not be deducted in computing alternative minimum taxable
income and the foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If the Fund is not eligible
to make the election to "pass through" to its shareholders its foreign taxes,
the foreign income taxes it pays generally will reduce investment company
taxable income and the distributions by the Fund will be treated as U.S. source
income.

Upon the sale or exchange of the Fund shares, a shareholder will realize a
taxable gain or loss depending upon his basis in the shares. Such gain or loss
generally will be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands, and will be long-term if the shareholder's
holding period for the shares is more than one year and generally otherwise will
be short-term. Any loss realized on a sale or exchange will be disallowed to the
extent that the shares disposed of are replaced (including replacement through
the reinvesting of dividends and capital gain distributions in the Fund) within
a period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of the Fund shares held by the shareholder for 6 months or less will
be treated for federal income tax purposes as a long-term capital loss to the
extent of any distributions of capital gain dividends received by the
shareholder with respect to such shares. It is not anticipated that gain or loss
will be realized from a disposition of the Fund shares since the Fund intends to
maintain a share price of $1.

In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of stock. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.

The Fund generally will be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid, capital gain distributions and
redemption proceeds (except redemptions from the Fund), to a shareholder if (1)
the shareholder fails to furnish the Fund with the shareholder's correct
taxpayer identification number or social security number, (2) the IRS notifies
the shareholder or the Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he is not subject to backup withholding.

Ordinary dividends and taxable capital gain distributions declared in October,
November, or December with a record date in such a month and paid during the
following January will be treated as having been paid by the Fund and received
by shareholders on December 31 of the calendar year in which declared, rather
than the calendar year in which the dividends are actually received.

U.S. tax rules applicable to foreign investors may differ significantly from
those outlined above. Distributions also may be subject to state, local and
foreign taxes. Shareholders should consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.

THE FUND'S UNDERWRITER

Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for both classes of the Fund's
shares. The underwriting agreement will continue in effect for successive annual
periods if its continuance is specifically approved at least annually by a vote
of the Board or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority vote of the Board members
who are not parties to the underwriting agreement or interested persons of any
such party (other than as members of the Board), cast in person at a meeting
called for that purpose. The underwriting agreement terminates automatically in
the event of its assignment and may be terminated by either party on 90 days'
written notice.

Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.

In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscal years ended August 31, 1996, 1995 and 1994, were
$453,128, $527,619 and $[ ], respectively. After allowances to dealers,
Distributors retained $21,650, $(5,380) and $[ ] in net underwriting discounts,
commissions and compensation received in connection with redemptions or
repurchases of shares, for the respective years. Distributors may be entitled to
reimbursement under the Rule 12b-1 plan for each class, as discussed below.
Except as noted, Distributors received no other compensation from the Fund for
acting as underwriter.

THE RULE 12B-1 PLANS

The Fund has adopted a distribution plan or "Rule 12b-1 plan" with respect to
each class of shares pursuant to Rule 12b-1 of the 1940 Act.

THE CLASS I PLAN. Under the Class I plan the Fund may reimburse Distributors or
others up to a maximum of 0.25% per year of Class I's average daily net assets,
payable quarterly, for costs and expenses incurred in connection with any
activity which is primarily intended to result in the sale of the Fund's shares.
Under the Class I plan, the costs and expenses not reimbursed in any one given
quarter (including costs and expenses not reimbursed because they exceed 0.25%
of the Fund's average daily net assets attributable to Class I shares) may be
reimbursed in subsequent quarters or years.

THE CLASS II PLAN. Under the Class II plan, the Fund pays Distributors up to
0.50% per year of Class II's average daily net assets, payable quarterly, for
costs and expenses incurred by Distributors or others in connection with any
activity which is primarily intended to result in the sale of the Fund's shares.
Up to 0.15% of such net assets may be paid to dealers for personal service
and/or maintenance of shareholder accounts.

THE CLASS I AND CLASS II PLANS. For both the Class I and Class II plans,
payments to Distributors or others could be for various types of activities,
including (i) payments to broker-dealers who provide certain services of value
to the Fund's shareholders (sometimes referred to as a "trail fee"); (ii)
reimbursement of expenses relating to selling and servicing efforts or of
organizing and conducting sales seminars; (iii) payments to employees or agents
of the Distributors who engage in or support distribution of shares; (iv)
payments of the costs of preparing, printing and distributing prospectuses and
reports to prospective investors and of printing and advertising expenses; (v)
payment of dealer commissions and wholesaler compensation in connection with
sales of the Fund's shares and interest or carrying charges in connection
therewith; and (vi) such other similar services as the Board determines to be
reasonably calculated to result in the sale of shares.

In no event shall the aggregate asset-based sales charges, which include
payments made under each plan, plus any other payments deemed to be made
pursuant to a plan, exceed the amount permitted to be paid under the rules of
the NASD.

To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.

Each plan has been approved in accordance with the provisions of Rule 12b-1. The
plans are renewable annually by a vote of the Board, including a majority vote
of the Board members who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such Board members be done by the non-interested
members of the Board. The plans and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an assignment of the
investment management agreement with TGBM, or by vote of a majority of the
outstanding shares of the class. Distributors or any dealer or other firm may
also terminate their respective distribution or service agreement at any time
upon written notice.

The plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the class, and all material amendments to the plans
or any related agreements shall be approved by a vote of the non-interested
members of the Board, cast in person at a meeting called for the purpose of
voting on any such amendment.

Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the plans should be continued.

For the fiscal year ended August 31, 1996, the total amounts paid by the Fund
pursuant to the Class I and Class II plans were $418,096 and $25,585,
respectively, which were used for the following purposes:

CLASS I CLASS II

<S> <C> <C>
Advertising $ 6,969 $ 59
Printing and mailing of prospectuses
other than to current shareholders 53,219 446
Payments to underwriters 9,100 21,247
Payments to broker-dealers 348,113 3,829
Other 695 4

</TABLE>

HOW DOES THE FUND MEASURE PERFORMANCE?

Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and average annual total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the Fund to compute or express performance for each class follows. Regardless of
the method used, past performance is not necessarily indicative of future
results, but is an indication of the return to shareholders only for the limited
historical period used.

TOTAL RETURN

AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year
periods, or fractional portion thereof, that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes the maximum front-end sales charge is deducted from the initial $1,000
purchase, and income dividends and capital gain distributions are reinvested at
Net Asset Value. The quotation assumes the account was completely redeemed at
the end of each one-, five- and ten-year period and the deduction of all
applicable charges and fees. If a change is made to the sales charge structure,
historical performance information will be restated to reflect the maximum
front-end sales charge currently in effect.

When considering the average annual total return quotations, you should keep in
mind that the maximum front-end sales charge reflected in each quotation is a
one time fee charged on all direct purchases, which will have its greatest
impact during the early stages of your investment. This charge will affect
actual performance less the longer you retain your investment in the Fund. The
average annual total return for Class I for the one- and five-year periods ended
August 31, 1996 was 6.74% and 7.18%, and for the period from commencement of
operations on September 18, 1986 through August 31, 1996, was 7.86%. The average
annual total return for Class II for the one-year period ended August 31, 1996
was 9.14%, and for the period from commencement of operations on May 1, 1995 to
August 31, 1996, was 10.59%.

These figures were calculated according to the SEC formula:

P(1+T)n = ERV

where:

P =a hypothetical initial payment of $1,000
T =average annual total return
n =number of years

ERV =ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five- or ten-year
periods at the end of the one-, five- or ten-
year periods (or fractional portion thereof)

CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes the maximum front-end sales charge is deducted from the initial
$1,000 purchase, and income dividends and capital gain distributions are
reinvested at Net Asset Value. Cumulative total return, however, will be based
on the actual return for each class for a specified period rather than on the
average return over one-, five- and ten-year periods, or fractional portion
thereof. The cumulative total return for Class I for the one- and five-year
periods ended August 31, 1996 was 6.74% and 46.09%, and for the period from
commencement of operations on September 18, 1986 through August 31, 1996, was
112.47%. The cumulative total return for Class II for the one-year period ended
August 31, 1996 was 9.14%, and for the period from commencement of operations
on May 1, 1995 to August 31, 1996, was 14.44%.

YIELD

CURRENT YIELD. Current yield of each class shows the income per share earned by
the Fund. It is calculated by dividing the net investment income per share of
each class earned during a 30-day base period by the applicable maximum Offering
Price per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all shareholders of
the class during the base period. The yield for each class for the 30-day period
ended August 31, 1996, was 7.50% for Class I and 7.06% for Class II.

These figures were obtained using the following SEC formula:

Yield = 2 [(A-B + 1)6 - 1]
cd

where:

a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum Offering Price per share on the last day of the period

CURRENT DISTRIBUTION RATE

Current yield, which is calculated according to a formula prescribed by the SEC,
is not indicative of the amounts which were or will be paid to shareholders of a
class. Amounts paid to shareholders are reflected in the quoted current
distribution rate. The current distribution rate is usually computed by
annualizing the dividends paid per share by a class during a certain period and
dividing that amount by the current maximum Offering Price. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gains and is calculated over a different period of time. The current
distribution rate for each class for the 30-day period ended August 31, 1996,
was 6.15% for Class I and 5.69% for Class II.

VOLATILITY

Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.

OTHER PERFORMANCE QUOTATIONS

For investors who are permitted to buy Class I shares without a sales charge,
sales literature about Class I may quote a current distribution rate, yield,
cumulative total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of Net
Asset Value for the public Offering Price.

Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.

The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.

COMPARISONS

From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.

Advertisements or information may also compare a class' performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, if any, as well as the value of its shares that are
based upon the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.

In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.

Performance information for the Fund may be compared, in reports and promotional
literature, to: (i) unmanaged indices so that investors may compare the Fund's
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities market in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm which ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.

Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objective and policies, characteristics and
quality of the portfolio and the market conditions during the given time period,
and should not be considered as a representation of what may be achieved in the
future.

From time to time, the Fund and TGBM may also refer to the following
information:

(1) TGBM's and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or a
similar statistical organization.

(2) The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital International
or a similar financial organization.

(3) The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization.

(4) The geographic and industry distribution of the Fund's portfolio and
the Fund's top ten holdings.

(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to
a liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, of various countries
as published by various statistical organizations.

(6) To assist investors in understanding the different returns and risk
characteristics of various investments, the Fund may show historical
returns of various investments and published indices (E.G., Ibbotson
Associates, Inc. Charts and Morgan Stanley EAFE - Index).

(7) The major industries located in various jurisdictions as published by
the Morgan Stanley Index.

(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.

(9) Allegorical stories illustrating the importance of persistent long-
term investing.

(10) Each Fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical Services, Inc. or
Morningstar, Inc.

(11) A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued
or "bargain" securities and its diversification by industry, nation and
type of stocks or other securities.

(12) The number of shareholders in the Fund or the aggregate number of
shareholders of the open-end investment companies in the Franklin
Templeton Group of Funds or the dollar amount of fund and private
account assets under management.

(13) Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.

(14) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing, including the following:

(infinity) "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."

(infinity) "Diversify by company, by industry and by country."

(infinity) "Always maintain a long-term perspective."

(infinity) "Invest for maximum total real return."

(infinity) "Invest - don't trade or speculate."

(infinity) "Remain flexible and open-minded about types of
investment."

(infinity) "Buy low."

(infinity) "When buying stocks, search for bargains among
quality stocks."

(infinity) "Buy value, not market trends or the economic
outlook."

(infinity) "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."

(infinity) "Do your homework or hire wise experts to help you."

(infinity) "Aggressively monitor your investments."

(infinity) "Don't panic."

(infinity) "Learn from your mistakes."

(infinity) "Outperforming the market is a difficult task."

(infinity) "An investor who has all the answers doesn't even
understand all the questions."

(infinity) "There's no free lunch."

(infinity) "And now the last principle: Do not be fearful or
negative too often."

MISCELLANEOUS INFORMATION

The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.

The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $152
billion in assets under management for more than 4.2 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 121 U.S. based open-end investment companies to the public. The Fund may
identify itself by its NASDAQ symbol or CUSIP number.

The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past eight years.

From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.

As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.

In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.

SUMMARY OF CODE OF ETHICS. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.

FINANCIAL STATEMENTS

The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended August 31, 1996, including the auditors'
report, are incorporated herein by reference.

USEFUL TERMS AND DEFINITIONS

1933 ACT - SECURITIES ACT OF 1933, AS AMENDED

1940 ACT - Investment Company Act of 1940, as amended

BOARD - The Board of Trustees of the Trust

CD - Certificate of deposit

CFTC - Commodity Futures Trading Commission

CLASS I AND CLASS II - The Fund offers two classes of shares, designated "Class
I" and "Class II." The two classes have proportionate interests in the Fund's
portfolio. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans.

CODE - Internal Revenue Code of 1986, as amended

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter

FRANKLIN FUNDS - the mutual funds in the Franklin Group of Funds (TRADEMARK)
except Franklin Valuemark Funds and the Franklin Government Securities Trust

FRANKLIN TEMPLETON FUNDS - the Franklin Funds and the Templeton Funds

FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries

FRANKLIN TEMPLETON GROUP OF FUNDS - all U.S. registered investment companies in
the Franklin Group of Funds (TRADEMARK) and the Templeton Group of Funds

FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator

INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent

IRS - Internal Revenue Service

LETTER - Letter of Intent

MOODY'S - Moody's Investors Service, Inc.

NASD - National Association of Securities Dealers, Inc.

NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.

NYSE - New York Stock Exchange, Inc.

OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 4.25% for Class I and 1% for Class II.

PROSPECTUS - the prospectus for the Fund dated January 1, 1997, as may be
amended from time to time

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

SECURITIES DEALER - a financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.

TEMPLETON FUNDS - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., the Templeton Variable
Annuity Fund, and the Templeton Variable Products Series Fund

TGBM - Templeton Global Bond managers, a division of Templeton Investment
Counsel, Inc., the Fund's investment manager, is located at Broward Financial
Centre, Fort Lauderdale, FL 33394-3091.

U.S. - United States

WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.

APPENDICES

DESCRIPTION OF RATINGS

CORPORATE BOND RATINGS

MOODY'S

AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to s
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.

A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.

BAA - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.

BA - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

CAA - Bonds rated Caa are of poor tanding. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

S&P

AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.

A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BB, B, CCC, CC - Bonds rated BB, B, CCC and CC 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 obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds wil likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.

D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

COMMERCIAL PAPER RATINGS

MOODY'S

Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:

P-1 (PRIME-1): Superior capacity for repayment.

P-2 (PRIME-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

TL406 STMT 01/97

- --------
* Sir John Templeton sold the Templeton organization to Resources in
October, 1992 and resigned from the Fund's Board on April 16, 1995. He
is no longer involved with the investment management process.

PAGE

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements: Incorporated by reference from the
1996 Annual Reports to Shareholders of Templeton Global Bond Fund:

Independent Auditors' Report

Investment Portfolio as of August 31, 1996

Statement of Assets and Liabilities as of August 31, 1996

Statement of Operations for the year ended August 31, 1996

Statements of Changes in Net Assets for the years ended
August 31, 1996 and 1995

Notes to Financial Statements

(B) EXHIBITS:

(1) (A) Amended and Restated Declaration of Trust*
(B) Establishment and Designation of Series of
Shares of Beneficial Interest*
(C) First Amendment to Declaration of Trust*
(D) Second Amendment to Declaration of Trust*
(E) Establishment and Designation of Classes*
(F) Amendment to Declaration of Trust

(2) By-Laws*

(3) Not applicable

(4) Specimen security of Templeton Income Fund*

(5) Amended and Restated Investment Management
Agreement - Templeton Income Fund*

(6) (A) Distribution Agreement*
(B) Dealer Agreement*

(7) Not applicable

(8) (A) Custody Agreement - Templeton Income Fund*

(9) (A) Fund Administration Agreement
(B) Form of Transfer Agent Agreement*
(C) Form of Sub-Transfer Agent Services
Agreement*
(D) Form of Sub-Accounting Services Agreement*

(10) Opinion and consent of counsel (Included in Rule
24f-2 notice)*

(11) Consent of independent public accountants

(12) Not applicable

(13) Initial capital agreement*

(14) Model retirement plans*

(15) (A)(1) Distribution Plan - Templeton Income Fund
Class I Shares*
(2) Distribution Plan - Templeton Income Fund
Class II Shares*

(17) Assistant Secretary's Certificate pursuant to
Rule 483(b)*

(18) Form of Multi-class Plan*

(27) Financial Data Schedule

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

* Previously filed with Registration No. 33-6510 and incorporated by
reference herein.

PAGE

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

ITEM 26. NUMBER OF RECORD HOLDERS

Shares of Beneficial Interest, par value $0.01 per share -
Templeton Global Bond Fund Class I: 10,859 Shareholders as
of November 30, 1996

Shares of Beneficial Interest, par value $0.01 per share -
Templeton Global Bond Fund Class II: 658 Shareholders as
of November 30, 1996

ITEM 27. INDEMNIFICATION

Reference is made to Article IV of the Registrant's
Declaration of Trust, which is filed herewith.

Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Registrant by the
Registrant pursuant to the Declaration of Trust
or otherwise, the Registrant is aware that in the opinion
of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in
the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by the Registran of expenses
incurred or paid by trustees, officers or controlling
persons of the Registrant in connection with the successful
defense of any act, suit or proceeding) is asserted by
such trustees, officers or controlling persons in con-
nection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication
of such issues.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND ITS
OFFICERS AND DIRECTORS

The business and other connections of Registrant's investment adviser,
the Templeton Global Bond Managers division of Templeton Investment
Counsel, Inc., are described in Parts A and B.

For information relating to the investment adviser's officers and
directors, reference is made to Form ADV filed under the Investment
Advisers Act of 1940 by Templeton Investment Counsel, Inc.

PAGE

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of:

Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies, Inc.
Templeton Growth Fund, Inc.
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund

Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust
Franklin High Income Trust
Franklin Managed Trust Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Premier Return Fund
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust

(b) The directors and officers of FTD, located at 777 Mariners Island,
Blvd. San, Mateo, California are as follows:

POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
NAME UNDERWRITER REGISTRANT

Charles B. Johnson Chairman of the Board and Chairman, Vice President
Director and Trustee

Gregory E. Johnson President None

Rupert H. Johnson, Jr. Executive Vice President Vice President
and Director

Harmon E. Burns Executive Vice President Vice President
and Director

Edward V. McVey Senior Vice President None

Kenneth V. Domingues Senior Vice President None

William J. Lippman Senior Vice President None

Richard C. Stoker Senior Vice President None

Peter Jones Senior Vice President None
700 Central Avenue
St. Petersburg, FL

Charles E. Johnson Senior Vice President Vice President
500 E. Broward Blvd.
Ft. Lauderdale, FL

Deborah R. Gatzek Senior Vice President Vice President
and Assistant Secretary

Daniel T. O'Lear Senior Vice President None

Richard O. Conboy Vice President None

James A. Escobedo Vice President None

Loretta Fry Vice President None

Robert N. Geppner Vice President None

Mike Hackett Vice President None

James K. Blinn Vice President None

Philip J. Kearns Vice President None

Ken Leder Vice President None

Jack Lemein Vice President None

John R. McGee Vice President None

Harry G. Mumford Vice President None

Vivian J. Palmieri Vice President None

Bert W. Feuss Vice President None

Kent P. Strazza Vice President None

Francie Arnone Vice President None

Alison Hawksley Vice President None

Sarah Stypa Vice President None

John R. Kay Assistant Vice President Vice President
500 E. Broward Blvd.
Ft. Lauderdale, FL

Andrea Dover Assistant Vice President None

Laura Komar Assistant Vice President None

Virgina Marans Assistant Vice President None

Bernadetti Marino Howard Assistant Vice President None

Susan Thompson Assistant Vice President None

Kenneth A. Lewis Treasurer None

Leslie M. Kratter Secretary None

Karen DeBellis Assistant Treasurer Assistant Treasurer
700 Central Avenue
St. Petersburg, FL
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and rules promulgated thereunder are in the possession of
Franklin Templeton Services, Inc., 500 East Broward Blvd., Fort
Lauderdale, Florida 33394.

ITEM 31. MANAGEMENT SERVICES

Not applicable.

ITEM 32. UNDERTAKINGS

(a) Not applicable.

(b) Not applicable.

(c) Registrant undertakes to furnish to each person to whom
a Prospectus for Templeton Global Bond Fund Fund is
provided a copy of such Fund's latest Annual Report,
upon request and without charge.

PAGE

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, the Registrant, as amended, the
Registrant certifies that it meets all the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of St Petesburg, Florida on the 27th day of December,
1996.

Templeton Income Trust
(REGISTRANT)

By:
Gregory E. McGowan*
President

*By:/s/JOHN K.CARTER
John K. Carter
attorney-in-fact**

Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:

Signature Title Date

____________________ President (Chief December 27, 1996
Gregory E. McGowan* Executive Officer)

____________________ Trustee, Chairman, December 27, 1996
Charles B. Johnson* and Vice President

____________________ Trustee December 27, 1996
Betty P. Krahmer*

___________________ Trustee December 27, 1996
Fred R. Millsaps*

____________________ Trustee December 27, 1996
Harris J. Ashton*

____________________ Trustee December 27, 1996
S. Joseph Fortunato*

____________________ Trustee December 27, 1996
Andrew H. Hines, Jr.*

____________________ Trustee December 27, 1996
Hasso-G Von Diergardt*

____________________ Trustee December 27, 1996
John Wm. Galbraith*

____________________ Trustee December 27, 1996
Gordon S. Macklin*

____________________ Trustee December 27, 1996
Nicholas F. Brady*

____________________ Treasurer (Chief December 27, 1996
James R. Baio* Financial and
Accounting Officer)

</TABLE>

*By:/s/JOHN K. CARTER
John K. Carter
Attorney-in-fact**

** Powers of Attorney were previously filed with Registration Statement
No. 33-6510 and are incorporated herein by reference, or are contained
herewith.

PAGE

POWER OF ATTORNEY

The undersigned officers and Trustees of TEMPLETON INCOME
TRUST (the "Registrant") hereby appoint Allan S. Mostoff, Jeffrey L. Steele,
William J. Kotapish, Deborah R. Gatzek, Barbara J. Green, Larry L. Greene, and
John K. Carter (with full power to each of them to act alone) his
attorney-in-fact and agent, in all capacities, to execute, and to file any of
the documents referred to below relating to Post-Effective Amendments to the
Registrant's registration statement on Form N-1A under the Investment Company
Act of 1940, as amended, and under the Securities Act of 1933 covering the sale
of shares by the Registrant under prospectuses becoming effective after this
date, including any amendment or amendments increasing or decreasing the amount
of securities for which registration is being sought, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority. Each of the undersigned grants to each of said attorneys, full
authority to do every act necessary to be done in order to effectuate the same
as fully, to all intents and purposes as he could do if personally present,
thereby ratifying all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.

The undersigned officers and Trustees hereby execute this
Power of Attorney as of this 12th day of December, 1996.

<S> <C>
/s/HARRIS J. ASHTON /s/CHARLES B. JOHNSON
Harris J. Ashton, Trustee Charles B. Johnson, Trustee

/s/NICHOLAS F. BRADY /s/BETTY P. KRAHMER
Nicholas F. Brady, Trustee Betty P. Krahmer, Trustee

/s/S. JOSEPH FORTUNATO /s/GORDON S. MACKLIN
S. Joseph Fortunato, Trustee Gordon S. Macklin, Trustee

/s/JOHN WM. GALBRAITH /s/FRED R.MILLSAPS
John Wm. Galbraith, Trustee Fred R. Millsaps, Trustee

/s/ANDREW H. HINES, JR. /s/HASSO-G VON DIERGARDT-NAGLO
Andrew H. Hines, Jr., Trustee Hasso-G Von Diergardt-
Naglo, Trustee

/s/GREGORY E. MCGOWAN /s/JAMES R. BAIO
Gregory E. McGowan, President James R. Baio, Treasurer

</TABLE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

EXHIBITS
FILED
WITH

POST-EFFECTIVE AMENDMENT NO. 18 TO
REGISTRATION STATEMENT
ON
FORM N-1A
TEMPLETON INCOME TRUST

PAGE

EXHIBIT LIST

EXHIBIT NUMBER NAME OF EXHIBIT

1(F) Amendment to the Declaration of Trust

9(A) Fund Administration Agreement

11 Consent of Independent Public Accountants

27 Financial Data Schedules

PAGE

TEMPLETON INCOME TRUST

AMENDMENT TO DECLARATION OF TRUST TO REDESIGNATE SHARES
OF THE TEMPLETON INCOME FUND SERIES AND CLASSES THEREOF

This Amendment to the Declaration of Trust ("Declaration") of Templeton
Income Trust (the "Trust") is made this 22 day of February, 1996 by the parties
signatory hereto, as Trustees of the Trust (the "Trustees").

WITNESSETH

WHEREAS, the Declaration was made on June 16, 1986 and amended on
October 1, 1987 and April 25, 1995 and the Trustees now desire to further amend
the Declaration and change the name of the Templeton Income Fund series of
Shares of the Trust and classes thereof; and

WHEREAS, Article V, Section 5.13(e) of the Declaration provides that
the Trustees may amend the Declaration, without Shareholder action, so as to
change the designation of any series of Shares, provided that before adopting
any such amendment without Shareholder approval the Trustees shall determine
that it is consistent with the fair and equitable treatment of all Shareholders
or that Shareholder approval is not otherwise required by the Investment Company
Act of 1940 (the "1940 Act" ) or other applicable law; and

WHEREAS, the Declaration, as amended pursuant to the Establishment and
Designation of Classes of Shares of Beneficial Interest, Par Value $0.01 Per
Share dated April 25, 1995 provides that the Trustees shall have the right at
any time to change the designation of any class of Shares, provided that such
change shall not adversely affect the rights of Shareholders of such class; and

WHEREAS, the Trustees have determined that the following amendment to
the Declaration is consistent with the fair and equitable treatment of all
Shareholders and shall not adversely affect the rights of the Shareholders of
any classes of Shares, and that Shareholder approval is not otherwise required
by the 1940 Act or other applicable law;

NOW, THEREFORE, effective on or about May 15, 1996, the Trustees hereby
redesignate the series of Shares previously designated the "Templeton Income
Fund" series of Shares pursuant to an Establishment and Designation of Series of
Shares of Beneficial Interest, Par Value $0.01 Per Share dated October 1, 1987
as the "Templeton Global Bond Fund" series of Shares, and redesignate the
classes of Shares previously designated the "Templeton Income Fund Class I" and
"Templeton Income Fund Class II" Shares pursuant to an Establishment and
Designation of Classes of Shares of Beneficial Interest, Par Value $0.01 Per
Share dated April 25, 1995 as the "Templeton Global Bond Fund Class I" and
"Templeton Global Bond Fund Class II" Shares, respectively.

PAGE

IN WITNESS WHEREOF, the undersigned have executed this instrument this
22 day of February, 1996.

Charles B. Johnson

Nicholas F. Brady

/s/HASSO-G VON DIERGARDT-NAGLO
Hasso-G Von Diergardt-Naglo

/s/F. BRUCE CLARKE
F. Bruce Clarke

/s/ ANDREW H. HINES, JR.
Andrew H. Hines, Jr.

/s/BETTY P. KRAHMER
Betty P. Krahmer

/s/FRED R. MILLSAPS
Fred R. Millsaps

/s/HARRIS J. ASHTON
Harris J. Ashton

/s/S. JOSEPH FORTUNATO
S. Joseph Fortunato

/s/GORDON S. MACKLIN
Gordon S. Macklin

John Wm. Galbraith

PAGE

CERTIFICATE

Pursuant to Section 10.1 of the Declaration of Trust, the
undersigned Trustee hereby acknowledges and certifies that this Amendment to the
Declaration of Trust of Templeton Income Trust is made in accordance with the
provisions of the Declaration of Trust and shall become effective on or about
May 15, 1996.

IN WITNESS WHEREOF, the undersigned has executed this
instrument this 22 day of February, 1996.

/s/ANDREW H. HINES, JR.
Andrew H. Hines, Jr.

FUND ADMINISTRATION AGREEMENT BETWEEN

TEMPLETON INCOME TRUST
AND
FRANKLIN TEMPLETON SERVICES, INC.

AGREEMENT dated as of October 1, 1996, between Templeton
Income Trust (the "Investment Company"), an investment company registered under
the Investment Company Act of 1940 ("1940 Act"), on behalf of Templeton Global
Bond Fund and Templeton Money Fund (each a "Fund"), separate series of the
Investment Company, and Franklin Templeton Services, Inc. ("FTS" or
"Administrator").

In consideration of the mutual promises herein made, the
parties hereby agree as follows:

(1) The Administrator agrees, during the life of this Agreement, to
provide the following services to each Fund:

(a) providing office space, telephone, office equipment
and supplies for the Fund;

(b) providing trading desk facilities for the Fund, unless
these facilities are provided by the Fund's investment adviser;

(d) supervising preparation of periodic reports to
shareholders, notices of dividends, capital gains distributions and tax
credits; and attending to routine correspondence and other communications with
individual shareholders when asked to do so by the Fund's shareholder servicing
agent or other agents of the Fund;

(e) coordinating the daily pricing of the Fund's investment
portfolio, including collecting quotations from pricing services engaged by the
Fund; providing fund accounting services, including preparing and supervising
publication of daily net asset value quotations, periodic earnings reports and
other financial data; and coordinating trade settlements;

(f) monitoring relationships with organizations serving the
Fund, including custodians, transfer agents, public accounting firms, law firms,
printers and other third party service providers;

(g) supervising compliance by the Fund with recordkeeping
requirements under the federal securities laws, including the 1940 Act and the
rules and regulations thereunder, and under other applicable state and federal
laws; and maintaining books and records for the Fund (other than those
maintained by the custodian and transfer agent);

(h) preparing and filing of tax reports including the Fund's
income tax returns, and monitoring the Fund's compliance with subchapter M of
the Internal Revenue Code, as amended, and other applicable tax laws and
regulations;

(i) monitoring the Fund's compliance with: 1940 Act and other
federal securities laws, and rules and regulations thereunder; state and foreign
laws and regulations applicable to the operation of investment companies; the
Fund's investment objectives, policies and restrictions; and the Code of Ethics
and other policies adopted by the Investment Company's Board of Trustees
("Board") or by the Fund's investment adviser and applicable to the Fund;

(j) providing executive, clerical and secretarial
personnel needed to carry out the above responsibilities;

(k) preparing and filing regulatory reports, including
without limitation Forms N-1A and N-SAR, proxy statements, information
statements and U.S. and foreign ownership reports; and

(l) providing support services incidental to carrying
out these duties.

Nothing in this Agreement shall obligate the Investment Company or any Fund to
pay any compensation to the officers of the Investment Company. Nothing in this
Agreement shall obligate FTS to pay for the services of third parties, including
attorneys, auditors, printers, pricing services or others, engaged directly by
the Fund to perform services on behalf of the Fund.

(2) The Investment Company agrees, during the life of this
Agreement, to pay to FTS as compensation for the foregoing a monthly fee equal
on an annual basis to 0.15% of the first $200 million of the average daily net
assets of each Fund during the month preceding each payment, reduced as
follows: on such net assets in excess of $200 million up to $700 million, a
monthly fee equal on an annual basis to 0.135%; on such net assets in excess of
$700 million up to $1.2 billion, a monthly fee equal on an annual basis to
0.10%; and on such net assets in excess of $1.2 billion, a monthly fee
equal on an annual basis to 0.075%.

From time to time, FTS may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in the purchase price
of its services. FTS shall be contractually bound hereunder by the terms of any
publicly announced waiver of its fee, or any limitation of each affected Fund's
expenses, as if such waiver or limitation were fully set forth herein.

(3) This Agreement shall remain in full force and effect through for
one year after its execution and thereafter from year to year to the extent
continuance is approved annually by the Board of the Investment Company.

(4) This Agreement may be terminated by the Investment Company at any
time on sixty (60) days' written notice withou payment of penalty, provided
that such termination by the Investment Company shall be directed or approved
by the vote of a majority of the Board of the Investment Company in office at
the time or by the vote of a majority of the outstanding voting securities of
the Investment Company (as defined by the 1940 Act); and shall automatically
and immediately terminate in the event of its assignment (as defined by the
1940 Act).

(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of FTS, or of reckless disregard of its duties and
obligations hereunder, FTS shall not be subject to liability for any act or
omission in the course of, or connected with, rendering services hereunder.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers.

FRANKLIN TEMPLETON SERVICES, INC.

By:/s/MARTIN L. FLANAGAN
Martin L. Flanagan
President

TEMPLETON INCOME TRUST

By:/s/JOHN R. KAY
John R. Kay
Vice President

McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use of our report dated September 27,
1996 on the financial statements of Templeton Global Bond Fund,
seriesTempleton Income Trust, referred to therein, which appears in
the 1996 Annual Report to Shareholders, and which is incorporated
herein by reference, in Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A, File No. 33-6510, as filed with
the Securities and Exchange Commission.

We also consent to the reference to our firm in the Prospectus
under the caption "Financial Highlights" and in the Statement of
Additional Information under the caption "Auditors."

/s/MCGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP

New York, New York
December 17, 1996

<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE TEMPLETON GLOBAL BOND FUND AUGUST 31, 1996 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000795402
<NAME> TEMPLETON GLOBAL BOND FUND CLASS I
<SERIES>
<NUMBER> 011
<NAME> TEMPLETON INCOME TRUST

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 188921736
<INVESTMENTS-AT-VALUE> 187307554
<RECEIVABLES> 5237477
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 84341
<TOTAL-ASSETS> 192629372
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 470430
<TOTAL-LIABILITIES> 470430
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197078835
<SHARES-COMMON-STOCK> 19015037
<SHARES-COMMON-PRIOR> 20536570
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3351051)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1568842)
<NET-ASSETS> 192158942
<DIVIDEND-INCOME> 725468
<INTEREST-INCOME> 15184186
<OTHER-INCOME> 0
<EXPENSES-NET> 2198625
<NET-INVESTMENT-INCOME> 13711029
<REALIZED-GAINS-CURRENT> (163615)
<APPREC-INCREASE-CURRENT> 7528543
<NET-CHANGE-FROM-OPS> 21075957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11385814)
<DISTRIBUTIONS-OF-GAINS> (377284)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3539465
<NUMBER-OF-SHARES-REDEEMED> (5902799)
<SHARES-REINVESTED> 841801
<NET-CHANGE-IN-ASSETS> (1184795)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5288377)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 968182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2198625
<AVERAGE-NET-ASSETS> 189732836
<PER-SHARE-NAV-BEGIN> 9.32
<PER-SHARE-NII> .69
<PER-SHARE-GAIN-APPREC> .35
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.02)
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>TEMPLETON GLOBAL TRUST FORMERLY TEMPLETON INCOME FUND.
</FN>

</TABLE>