TEMPLETON INCOME TRUST, 485BPOS, 1999-12-29

TEMPLETON INCOME TRUST
485BPOS, 1999-12-29

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File Nos. 33-6510 and 811-4706

As filed with the Securities and Exchange Commission on December 29, 1999.

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. 22 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 23 [X]

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

500 EAST BROWARD BLVD., FT. LAUDERDALE, FLORIDA 33394
(Address of Principal Executive Offices) (Zip Code)

(954) 527-7500
(Registrant's Telephone Number, Including Area Code)

DEBORAH R. GATZEK, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)

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

[ ] immediately upon filing pursuant to paragraph (b)

[X] on JANUARY 1, 2000 pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[ ] on (date) pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (date) pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

PART A
TEMPLETON GLOBAL BOND FUND
CLASS A & C PROSPECTUS

Prospectus

Templeton
Global
Bond Fund
Templeton Income Trust
Class A & C

INVESTMENT STRATEGY

GLOBAL GROWTH
& INCOME

JANUARY 1, 2000

[LOGO (R)]
FRANKLIN (R) TEMPLETON(R)

THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

CONTENTS

THE FUND
- -------------------------------------------------------------------------------
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

2 Goal and Strategies

4 Main Risks

8 Performance

9 Fees and Expenses

11 Management

12 Distributions and Taxes

13 Financial Highlights

YOUR ACCOUNT
- -------------------------------------------------------------------------------
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

14 Choosing a Share Class

18 Buying Shares

20 Investor Services

23 Selling Shares

25 Account Policies

28 Questions

FOR MORE INFORMATION

- -------------------------------------------------------------------------------
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]

Back Cover

THE FUND

GOAL AND STRATEGIES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF BULLEYES AND ARROW]

GOAL The fund's investment goal is current income with capital appreciation and
growth of income.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund invests primarily
in the debt securities of companies, governments and government agencies located
anywhere in the world. At least 65% of its total assets will be invested in
issuers located in at least three countries (including the U.S.).

Debt securities represent an obligation of the issuer to repay a loan of money
to it, and generally provide for the payment of interest. These include bonds,
notes and debentures. While the fund may buy securities rated in any category,
it focuses on "investment grade" debt securities. These are issues rated in the
top four rating categories by independent rating agencies such as Standard &
Poor's Corporation (S&P) or Moody's Investors Services, Inc. (Moody's) or, if
unrated, determined by the fund's manager to be comparable. The fund may invest
up to 25% of its total assets in debt securities that are rated below investment
grade. Generally, lower rated securities pay higher yields than more highly
rated securities to compensate investors for the higher risk.

OTHER STRATEGIES The fund may also invest in equity securities and American,
European and Global Depositary Receipts. Equity securities generally entitle the
holder to participate in a company's general operating results. These include
common stocks and preferred stocks. Depositary receipts are certificates issued
typically by a bank or trust company that give their holders the right to
receive securities issued by a foreign or domestic company.

Begin callout]
The fund invests primarily in debt securities of companies and governments
located around the world.
[End callout]

PORTFOLIO SELECTION The manager allocates its assets based upon its assessment
of changing market, political and economic conditions. It will consider various
factors, including evaluation of interest and currency exchange rate changes and
credit risks.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economies of countries where
the fund invests are experiencing excessive volatility or a prolonged general
decline, or other adverse conditions exist. Under these circumstances, the fund
may be unable to pursue its investment goal, because it may not invest or may
invest substantially less in global debt securities.

MAIN RISKS
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN]

INTEREST RATE When interest rates rise, debt security prices fall. The opposite
is also true: debt security prices rise when interest rates fall. In general,
securities with longer maturities are more sensitive to these price changes.

[Begin callout]
Changes in global interest rates affect the prices of the fund's debt
securities. If rates rise, the value of the fund's debt securities will fall and
so too will the fund's share price. This means you could lose money.
[End callout]

FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in depositary receipts also involve some or all of the following
risks.

COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. These movements may affect the fund's share price and
fund performance.

The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency and other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.

The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of established legal, political, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than in the U.S. While
short-term volatility in these markets can be disconcerting, declines of more
than 50% are not unusual. The definition of developing or emerging markets or
countries as used by the fund's manager may differ from the definition of the
same terms as used in managing other Franklin Templeton funds.

COMPANY. Foreign companies are not subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies and
their securities may not be as liquid as securities of similar U.S. companies.
Foreign stock exchanges, trading systems, brokers and companies generally have
less government supervision and regulation than in the U.S. The fund may have
greater difficulty voting proxies, exercising shareholder rights, pursuing legal
remedies and obtaining judgments with respect to foreign investments in foreign
courts than with respect to U.S. companies in U.S. courts.

CURRENCY Many of the fund's investments are denominated in foreign currencies.
Changes in foreign currency exchange rates may affect the value of what the fund
owns and the fund's share price. Generally, when the U.S. dollar rises in value
against a foreign currency, an investment in that country loses value because
that currency is worth fewer U.S. dollars. Devaluation of a currency by a
country's government or banking authority also will have a significant impact on
the value of any securities denominated in that currency. Currency markets
generally are not as regulated as securities markets.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.

Because this change to a single currency is new and untested, it is not possible
to predict the impact of the euro on the business or financial condition of
European issuers which the fund may hold in its portfolio, and their impact on
fund performance. To the extent the fund holds non-U.S. dollar (euro or other)
denominated securities, it will still be exposed to currency risk due to
fluctuations in those currencies versus the U.S. dollar.

CREDIT There is the possibility that an issuer will be unable to make interest
payments and repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect a security's value and, thus, impact fund
performance.

LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes
called "junk bonds," generally have more credit risk than higher-rated
securities.

Companies issuing high yield, fixed-income securities are not as strong
financially as those issuing securities with higher credit ratings. These
companies are more likely to encounter financial difficulties and are more
vulnerable to changes in the economy, such as a recession or a sustained period
of rising interest rates, that could affect their ability to make interest and
principal payments. If an issuer stops making interest and/or principal
payments, payments on the securities may never resume. These securities may be
worthless and the fund could lose its entire investment.

The prices of high yield, fixed-income securities fluctuate more than
higher-quality securities. Prices are especially sensitive to developments
affecting the company's business and to changes in the ratings assigned by
rating agencies. Prices often are closely linked with the company's stock prices
and typically rise and fall in response to factors that affect stock prices. In
addition, the entire high yield securities market can experience sudden and
sharp price swings due to changes in economic conditions, stock market activity,
large sustained sales by major investors, a high- profile default, or other
factors.

High yield securities generally are less liquid than higher-quality securities.
Many of these securities do not trade frequently, and when they do their prices
may be significantly higher or lower than expected. At times, it may be
difficult to sell these securities promptly at an acceptable price, which may
limit the fund's ability to sell securities in response to specific economic
events or to meet redemption requests.

INCOME Since the fund can only distribute what it earns, the fund's
distributions to shareholders may decline when interest rates fall.

DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the securities of one issuer than a diversified fund.
The fund may be more sensitive to economic, business, political or other changes
affecting similar issuers or securities, which may result in greater fluctuation
in the value of the fund's shares. The fund, however, intends to meet certain
tax diversification requirements.

LIQUIDITY The fund may invest up to 10% of its total assets in restricted and
other securities that are not readily marketable. Reduced liquidity may have an
adverse impact on market price and the fund's ability to sell particular
securities when necessary to meet the fund's liquidity needs or in response to a
specific economic event. Reduced liquidity in the secondary market for certain
securities also may make it more difficult for the fund to obtain market
quotations based on actual trades for the purpose of valuing the fund's
portfolio.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the manager considers.

The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may be more susceptible to Year 2000 risks and
may not be required to make the same level of disclosure about Year 2000
readiness as is required in the U.S. The manager, of course, cannot audit each
company and its major suppliers to verify their Year 2000 readiness.

If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the fund's performance. Please see page
11 for more information.

PORTFOLIO TURNOVER The manager's attempt to keep the fund's portfolio of debt
securities at an optimum level of interest rate sensitivity, may cause the
fund's portfolio turnover rate to be high. High turnover will increase the
fund's transaction costs and may increase your tax liability.

More detailed information about the fund, its policies (including temporary
investments), risks and bond ratings can be found in the fund's Statement of
Additional Information (SAI).

[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal.
[End callout]

PERFORMANCE
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[INSERT GRAPHIC OF A BEAR AND BULL]

This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS/1/

[INSERT BAR GRAPH]

8.54% 9.89% 14.91% 3.12% 10.35% -3.58% 18.21% 11.20% 1.83% 5.40%
- --------------------------------------------------------------------------------
89 90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q2 `92
7.23%

WORST
QUARTER:
Q1 `94
- -3.51%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998

1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
Templeton Global Bond Fund - Class A/2/ 0.97% 5.43% 7.34%
Salomon Brothers WBGI Index/3/ 15.31% 7.85% 8.96%

SINCE
INCEPTION
1 YEAR (5/1/95)
- -------------------------------------------------------------------------------
Templeton Global Bond Fund - Class C/2/ 2.95% 7.66%
Salomon Brothers WBGI Index/3/ 15.31% 6.55%

1. Figures do not reflect sales charges. If they did, returns would be lower. As
of September 30, 1999 the fund's year-to-date return was -4.06% for Class A.

2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
January 1, 1993, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

3. Source: Standard & Poor's(R) Micropal. The unmanaged Salomon Brothers World
Government Bond Index (SB WGBI) tracks the performance of government bond
markets in 18 countries. It includes fixed-rate U.S. and foreign government
bonds with remaining maturities of one year or more. One cannot invest directly
in an index, nor is an index representative of the fund's portfolio.

FEES AND EXPENSES
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[INSERT GRAPHIC OF A PERCENTAGE SIGN]

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS C
- -------------------------------------------------------------------------------
Maximum sales charge (load) as a percentage of
offering price 4.25% 1.99%
Load imposed on purchases 4.25% 1.00%
Maximum deferred sales charge (load) None/1/ 0.99%/2/
Exchange fee/3/ $5.00 $5.00

Please see "Choosing a Share Class" on page 14 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS C
- -------------------------------------------------------------------------------
Management fees 0.50% 0.50%
Distribution and service (12b-1) fees 0.25% 0.65%
Other expenses 0.47% 0.47%
-------------------
Total annual fund operating expenses 1.22%/4/ 1.62%/4/
===================

1. Except for investments of $1 million or more (see page 14) and purchases by
certain retirement plans without an initial sales charge.

2. This is equivalent to a charge of 1% based on net asset value.

3. This fee is only for market timers (see page 26).

4. For the fiscal year ended August 31, 1999, the manager agreed in advance to
waive its fees. With this reduction, management fees were 0.65% and net annual
fund operating expenses were 1.22% for Class A and 1.62% for Class C. The
manager may end this arrangement at any time upon notice to the fund's Board of
Trustees.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown;

o Your investment has a 5% return each year; and

o The fund's operating expenses remain the same.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
If you sell your shares at the end of the period:
CLASS A $544/1/ $796 $1,067 $1,840
CLASS C $362 $606 $972 $2,003
If you do not sell your shares:
CLASS C $263 $606 $972 $2,003
</TABLE>

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

MANAGEMENT
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A BRIEFCASE]

Templeton Investment Counsel, Inc. (Investment Counsel), 500 East Broward Blvd.,
Ft. Lauderdale, FL 33394, through its Templeton Global Bond Managers division
(Global Bond Managers), is the fund's investment manager. A team from Global
Bond managers is responsible for the day-to-day management of the fund.
Together, Templeton Investment Counsel, Inc. and its affiliates manage over $218
billion in assets.

The fund pays Global Bond Managers a fee for managing the fund's assets and
making its investment decisions. For the fiscal year ended August 31, 1999, the
fund paid 0.50% of its average net assets to the manager.

YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a leap year may
create difficulties for some systems.

When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker-dealers or foreign markets are not ready for
Year 2000.

The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.

DISTRIBUTIONS AND TAXES
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[INSERT GRAPHIC OF DOLLAR SIGN AND STACKS OF COINS]

INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least monthly representing its net investment income. Capital gains, if any, may
be distributed annually. The amount of these distributions will vary and there
is no guarantee the fund will pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that if
you invest in the fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call 1-800/DIAL BEN(R).

TAX CONSIDERATIONS In general, fund distributions are taxable to you as either
ordinary income or capital gains. This is true whether you reinvest your
distributions in additional fund shares or receive them in cash. Any capital
gains the fund distributes are taxable to you as long-term capital gains no
matter how long you have owned your shares.

[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct social security or taxpayer identification
number, or if the IRS instructs the fund to do so.
[End callout]

Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.

When you sell your shares of the fund, you may have a capital gain or loss. For
tax purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale.

Fund distributions and gains from the sale or exchange of your shares generally
will be subject to state and local income tax. Non-U.S. investors may be subject
to U.S. withholding and estate tax. You should consult your tax advisor about
the federal, state, local or foreign tax consequences of your investment in the
fund.

FINANCIAL HIGHLIGHTS
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[INSERT GRAPHIC OF A DOLLAR BILL]

This table presents the fund's financial performance for the past five years.
The information for the year ended August 31, 1999 has been audited by
PricewaterhouseCoopers LLP. The information for the remaining years was audited
by McGladrey & Pullen, LLP, the fund's former auditor.

CLASS A YEAR ENDED AUGUST 31,
- ----------------------------------------------------------------------------------------
1999/3/ 1998 1997 1996 1995/2/
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

PER SHARE DATA ($)
Net asset value, beginning of year 9.49 9.82 9.76 9.32 9.05
------------------------------------------------
Net investment income .58 .60 .63 .69 .73
Net realized and unrealized
gains (losses) (.66) (.32) .03 .35 .17
------------------------------------------------
Total from investment operations (.08) .28 .66 1.04 .90
------------------------------------------------
Dividends from net investment income (.55) (.55) (.60) (.58) (.54)
Distributions from net realized gains (.05) (.06) -- -- --
Tax return of capital -- -- -- (.02) (.09)
------------------------------------------------
Total distributions (.60) (.61) (.60) (.60) (.63)
------------------------------------------------
Net asset value, end of year 8.81 9.49 9.82 9.76 9.32
================================================
Total return (%)/1/ (1.02) 2.82 6.87 11.44 10.43

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 146,753 189,898 198,131 185,596 191,301
Ratios to average net assets: (%)
Expenses 1.22 1.17 1.15 1.13 1.18
Net investment income 6.20 6.12 6.41 7.09 7.99
Portfolio turnover rate (%) 74.60 75.95 166.69 109.40 101.12

CLASS C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 9.50 9.83 9.77 9.31 9.05
------------------------------------------------
Net investment income .54 .56 .57 .61 .21
Net realized and unrealized
gains (losses) (.66) (.32) .05 .41 .24
------------------------------------------------
Total from investment operations (.12) .24 .62 1.02 .45
Dividends from net investment income (.51) (.51) (.56) (.54) (.15)
Distributions from net realized gains (.05) (.06) -- -- --
Tax basis return of capital -- -- -- (.02) (.04)
------------------------------------------------
Total distributions (.56) (.57) (.56) (.56) (.19)
------------------------------------------------
Net asset value, end of year 8.82 9.50 9.83 9.77 9.31
------------------------------------------------
Total return (%)/1/ (1.41) 2.46 6.44 11.20 5.03

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 17,386 20,404 16,629 6,563 2,043
Ratios to average net assets: (%)
Expenses 1.62 1.56 1.54 1.56 1.57/4/
Net investment income 5.80 5.73 5.96 6.69 7.47/4/
Portfolio turnover rate (%) 74.60 75.95 166.69 109.40 101.12
</TABLE>

1. Total return does not include sales charges, and is not annualized.

2. For the period May 1, 1995 (effective date) to August 31, 1995 for Class C
shares.

3. Based on average weighted shares outstanding.

4. Annualized.

YOUR ACCOUNT

CHOOSING A SHARE CLASS
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF PENCIL MARKING AN "X"]

Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment representative
can help you decide.

CLASS A CLASS C
- ---------------------------------------------------------------------------------------------
<S> <C>
o Initial sales charge of 4.25% or less o Initial sales charge of 1%

o Deferred sales charge of 1% on purchases o Deferred sales charge of 1% on
of $1 million or more sold within 12 months shares you sell within 18 months

o Lower annual expenses than Class C due to o Higher annual expenses than Class A
lower distribution fees due to higher distribution fees.

</TABLE>

SALES CHARGES - CLASS A

THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING PRICE OF YOUR NET INVESTMENT
- ----------------------------------------------------------------------------------
<S> <C> <C>
Under $100,000 4.25 4.44
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04
</TABLE>

INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as a
lump sum or through our cumulative quantity discount or letter of intent
programs (see page 16), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC is
the same for each class (please see page 15).

DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution fees of up
to 0.25% per year to those who sell and distribute Class A shares and provide
other services to shareholders. Because these fees are paid out of Class A's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

SALES CHARGES - CLASS C

WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE IS
NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.

CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C shares
you sell within 18 months of purchase. The way we calculate the CDSC is the same
for each class (please see below).

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the fund to pay distribution and other
fees of up to 0.65% per year for the sale of Class C shares and for services
provided to shareholders. Because these fees are paid out of Class C's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A & C The CDSC for each class is
based on the current value of the shares being sold or their net asset value
when purchased, whichever is less. There is no CDSC on shares you acquire by
reinvesting your dividends or capital gains distributions.

[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.

For example, if you buy shares on the 18th of the month, they will age one month
on the 18th day of the next month and each following month.
[End callout]

To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to a
CDSC. If there are not enough of these to meet your request, we will sell the
shares in the order they were purchased. We will use this same method if you
exchange your shares into another Franklin Templeton Fund (please see page 21
for exchange information).

SALES CHARGE REDUCTIONS AND WAIVERS If you qualify for any of the sales charge
reductions or waivers below, please let us know at the time you make your
investment to help ensure you receive the lower sales charge.

QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A shares.

[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance Products
Trust, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund.
[End callout]

o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in the
Franklin Templeton Funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.

o LETTER OF INTENT (LOI)- expresse your intent to buy a stated dollar amount
of shares over a 13-month period and lets you receive the same sales charge
as if all shares had been purchased at one time. We will reserve a portion
of your shares to cover any additional sales charge that may apply if you
do not buy the amount stated in your LOI.

TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE
SECTION OF YOUR ACCOUNT APPLICATION.

REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you may
reinvest some or all of the proceeds within 365 days without an initial sales
charge. The proceeds must be reinvested within the same share class, except
proceeds from the sale of Class B shares will be reinvested in Class A shares.

If you paid a CDSC when you sold your Class A or C shares, we will credit your
account with the amount of the CDSC paid but a new CDSC will apply. For Class B
shares reinvested in Class A, a new CDSC will not apply, although your account
will not be credited with the amount of any CDSC paid when you sold your Class B
shares.

Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD) also
may be reinvested without an initial sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.

This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject to
a sales charge.

SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or by
investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales charge.
The CDSC for each class may be waived for certain redemptions and distributions.
If you would like information about available sales charge waivers, call your
investment representative or call Shareholder Services at 1-800/632-2301. For
information about retirement plans, you may call Retirement Plan Services at
1-800/527-2020. A list of available sales charge waivers also may be found in
the Statement of Additional Information (SAI).

GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are added
together. There are certain other requirements and the group must have a purpose
other than buying fund shares at a discount.

BUYING SHARES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF PAPER WITH LINES AND SOMEONE WRITING]

<TABLE>
<CAPTION>
MINIMUM INVESTMENTS
- --------------------------------------------------------------------------------------------
INITIAL ADDITIONAL
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Regular accounts $1,000 $50
- --------------------------------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- --------------------------------------------------------------------------------------------
Retirement accounts
(other than IRAs, IRA rollovers, Education IRAs or Roth IRAs) no minimum no minimum
- --------------------------------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or Roth IRAs $250 $50
- --------------------------------------------------------------------------------------------
Broker-dealer sponsored wrap account programs $250 $50
- --------------------------------------------------------------------------------------------
Full-time employees, officers, trustees and directors of
Franklin Templeton entities, and their immediate family members $100 $50
- --------------------------------------------------------------------------------------------
</TABLE>

PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND
ELIGIBLE FOR SALE IN YOUR STATE OR JURISDICTION.

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. Make sure you indicate the share class you
have chosen. If you do not indicate a class, we will place your purchase in
Class A shares. To save time, you can sign up now for services you may want on
your account by completing the appropriate sections of the application (see the
next page).

BUYING SHARES
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------
[Graphic Shaking
Hands]
THROUGH YOUR Contact your investment Contact your investment
INVESTMENT representative representative
REPRESENTATIVE

- --------------------------------------------------------------------------------
[Graphic Envelope]
BY MAIL Make your check payable Make your check payable to
to Templeton Global Bond Templeton Global Bond Fund.
Fund. Include your account number
on the check.
Mail the check and your
signed application to Fill out the deposit slip
Investor Services. from your account statement.
If you do not have a slip,
include a note with your
name, the fund name, and
your account number.

Mail the check and deposit
slip or note to Investor
Services.

- --------------------------------------------------------------------------------
[Graphic Lightning]
BY WIRE Call to receive a wire Call to receive a wire
control number and wire control number and wire
1-800/632-2301 instructions. instructions.
(or 1-650/312-2000
collect) Wire the funds and mail To make a same day wire
your signed application investment, please call us
to Investor Services. by 1:00 p.m. Pacific time and
Please include the wire make sure your wire arrives
control number or your by 3:00 p.m.
new account number on the
application.

To make a same day wire
investment, please call us
by 1:00 p.m. Pacific time
and make sure your wire
arrives by 3:00 p.m.

- --------------------------------------------------------------------------------
[Graphic Arrows]
BY EXCHANGE Call Shareholder Services Call Shareholder Services
at the number below, or at the number below or our
TeleFACTS(R) send signed written automated TeleFACTS system,
1-800/247-1753 instructions. The TeleFACTS or send signed written
(around-the-clock system cannot be used to instructions.
access) open a new account.
(Please see page 21 for
(Please see page 21 for information on exchanges.)
information on exchanges.)
- -------------------------------------------------------------------------------

FRANKLIN TEMPLETON INVESTOR SERVICES
P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301

(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

INVESTOR SERVICES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A PERSON WITH HEADSET]

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares. The minimum investment to open an account with
an automatic investment plan is $50($25 for an Education IRA). To sign up,
complete the appropriate section of your account application.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account in the same share class* of the fund or another Franklin
Templeton Fund. Initial sales charges and CDSCs will not apply if you reinvest
your distributions within 365 days. You can also have your distributions
deposited in a bank account, or mailed by check. Deposits to a bank account may
be made by electronic funds transfer.

[Begin callout
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.

*Class C shareholders may reinvest their distributions in Class A shares of any
Franklin Templeton money fund.

RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and their
policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure or
application, please call Retirement Plan Services at 1-800/527-2020.

TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.

TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.

For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.

As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class*, generally without paying any additional sales charges.
If you exchange shares held for less than six months, however, you may be
charged the difference between the initial sales charge of the two funds if the
difference is more than 0.25%. If you exchange shares from a money fund, a sales
charge may apply no matter how long you have held the shares.

[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequences as ordinary sales and purchases.
[End callout]

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC will
continue to be calculated from the date of your initial investment and will not
be charged at the time of the exchange. The purchase price for determining a
CDSC on exchanged shares will be the price you paid for the original shares. If
you exchange shares subject to a CDSC into a Class A money fund, the time your
shares are held in the money fund will not count towards the CDSC holding
period.

Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
26).

*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange
into Class A without any sales charge.

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.

SELLING SHARES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A CERTIFICATE]

You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.

SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:

[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[End callout]

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of record, or
preauthorized bank or brokerage firm account

We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the fund
against potential claims based on the instructions received.

SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.

REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.

RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Trust Company retirement plan. For participants under age 59
1/2, tax penalties may apply. Call Retirement Plan Services at 1-800/527-2020
for details.

<TABLE>
<CAPTION>
SELLING SHARES

- ------------------------------------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ------------------------------------------------------------------------------------------------------
<S> <C>
[GRAPHIC OF HANDSHAKE]

THROUGH YOUR INVESTMENT Contact your investment representative
REPRESENTATIVE

- ------------------------------------------------------------------------------------------------------
[GRAPHIC OF ENVELOPE] Send written instructions and endorsed share certificates (if you hold
share certificates) to Investor Services. Corporate, partnership or
BY MAIL trust accounts may need to send additional documents.

Specify the fund, the account number and the dollar value or number of
shares you wish to sell. Be sure to include all necessary signatures
and any additional documents, as well as signature guarantees if required.

A check will be mailed to the name(s) and address on the account, or
otherwise according to your written instructions.
- ------------------------------------------------------------------------------------------------------
[GRAPHIC OF TELEPHONE]
BY PHONE As long as your transaction is for $100,000 or less, you do not hold
share certificates and you have not changed your address by phone
1-800/632-2301 within the last 15 days, you can sell your shares by phone.

A check will be mailed to the name(s) and address on the account.
Written instructions, with a signature guarantee, are required to send
the check to another address or to make it payable to another person.
- ------------------------------------------------------------------------------------------------------

[GRAPHIC OF THREE
LIGHTNING BOLTS]
BY ELECTRONIC FUNDS You can call or write to have redemption proceeds sent to a bank
TRANSFER (ACH) account. See the policies above for selling shares by mail or phone.

Before requesting to have redemption proceeds sent to a bank account,
please make sure we have your bank account information on file. If
we do not have this information, you will need to send written
instructions with your bank's name and address, a voided check or
savings account deposit slip, and a signature guarantee if the
ownership of the bank and fund accounts is different.

If we recevie your requests received in proper form by 1:00 p.m.
Pacific time, porceeds sent by ACH generally will be available within
two to three business days.
- ------------------------------------------------------------------------------------------------------
[GRAPHIC OF ARROWS]
BY EXCHANGE Obtain a current prospectus for the fund you are considering.

TeleFACTS(R) Call Shareholder Services at the number below or our automated
1-800/247-1753 TeleFACTS system, or send signed written instructions. See the
(around-the-clock access) policies above for selling shares by mail or phone.

If you hold share certificates, you will need to return them to the
fund before your exchange can be processed.
- ------------------------------------------------------------------------------------------------------
</TABLE>

FRANKLIN TEMPLETON INVESTOR SERVICES
P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301

(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

ACCOUNT POLICIES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF PEN AND PAPER]

CALCULATING SHARE PRICE The fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. Pacific time). Each class's NAV is calculated by dividing
its net assets by the number of its shares outstanding.

[Begin callout]
When you buy shares, you pay the offering price. The offering price is the NAV
plus any applicable sales charge.

When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]

The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record. You will not
be charged a CDSC if your account is closed for this reason.

STATEMENTS AND REPORTS You will receive quarterly account statements that show
all your account transactions during the quarter. You also will receive written
notification after each transaction affecting your account (except for
distributions and transactions made through automatic investment or withdrawal
programs, which will be reported on your quarterly statement). You also will
receive the fund's financial reports every six months. To reduce fund expenses,
we try to identify related shareholders in a household and send only one copy of
the financial reports. If you need additional copies, please call 1-800/DIAL
BEN.

If there is a dealer or other investment representative of record on your
account, he or she also will receive confirmations, account statements and other
information about your account directly from the fund.

STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.

JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.

MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. You will
be considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (ii) exchanged shares
out of the fund more than twice in a calendar quarter, or (iii) exchanged shares
equal to at least $5 million, or more than 1% of the fund's net assets, or (iv)
otherwise seem to follow a timing pattern. Shares under common ownership or
control are combined for these limits.

ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:

o The fund may refuse any order to buy shares, including any purchase under the
exchange privilege.

o At any time, the fund may change its investment minimums or waive or lower its
minimums for certain purchases.

o The fund may modify or discontinue the exchange privilege on 60 days' notice.

o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.

o For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer would
be harmful to existing shareholders.

o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the fund promptly.

DEALER COMPENSATION Qualifying dealers who sell fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and service
(12b-1) fees and its other resources.

Class A Class C
- -------------------------------------------------------------------------------
Commission (%) -- 2.00
Investment under $100,000 4.00 --
$100,000 but under $250,000 3.25 --
$250,000 but under $500,000 2.25 --
$500,000 but under $1 million 1.85 --
$1 million or more up to 0.75/1/ --
12b-1 fee to dealer 0.25 0.65/2/

A dealer commission of up to 1% may be paid on Class A NAV purchases by certain
retirement plans/1/ and on Class C NAV purchases. A dealer commission of up to
0.25% may be paid on Class A NAV purchases by certain trust companies and bank
trust departments, eligible governmental authorities, and broker-dealers or
others on behalf of clients participating in comprehensive fee programs. For
certain retirement plans that do not qualify to buy Class A shares at NAV but
that qualify to buy Class A shares with a maximum initial sales charge of 4%, a
dealer commission of 3.2% may be paid.

1. During the first year after purchase, dealers may not be eligible to receive
the 12b-1 fee.

2. Dealers may be eligible to receive up to 0.15% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the 13th
month.

QUESTIONS
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A QUESTION MARK]

If you have any questions about the fund or your account, you can write to us at
P.O. Box 33030, St. Petersburg, FL 33733-8030. You can also call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.

HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
</TABLE>

For More Information

You can learn more about the fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com

You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.

Investment Company Act file #811-4706 406 P 01/00

PART A
TEMPLETON GLOBAL BOND FUND
ADVISOR CLASS PROSPECTUS

Prospectus

Templeton
Global
Bond Fund

Templeton Income Trust
Advisor Class

INVESTMENT STRATEGY

GLOBAL GROWTH & INCOME

JANUARY 1, 2000

[LOGO (R)]
FRANKLIN (R) TEMPLETON (R)

THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

CONTENTS

THE FUND
- -------------------------------------------------------------------------------
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

2 Goal and Strategies

4 Main Risks

8 Performance

9 Fees and Expenses

10 Management

11 Distributions and Taxes

12 Financial Highlights

YOUR ACCOUNT
- -------------------------------------------------------------------------------
[Begin callout]
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

13 Qualified Investors

15 Buying Shares

16 Investor Services

18 Selling Shares

20 Account Policies

22 Questions

FOR MORE INFORMATION
- -------------------------------------------------------------------------------
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]

Back Cover

THE FUND

GOAL AND STRATEGIES
- -------------------------------------------------------------------------------
INSERT GRAPHIC OF A BULLEYES AND ARROW]

GOAL The fund's investment goal is current income with capital appreciation and
growth of income.

[Begin callout]
The fund invests primarily in debt securities of companies and governments
located around the world.
[End callout]

MAIN RISKS
- --------------------------------------------------------------------------------
[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN]

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.

LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes
called "junk bonds," generally have more credit risk than higher-rated
securities.

INCOME Since the fund can only distribute what it earns, the fund's
distributions to shareholders may decline when interest rates fall.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the manager considers.

More detailed information about the fund, its policies (including temporary
investments), risks and bond ratings can be found in the fund's Statement of
Additional Information (SAI).

PERFORMANCE
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A BEAR AND A BULL]

ADVISOR CLASS ANNUAL TOTAL RETURNS/1/,/2/

[INSERT BAR GRAPH]

8.54% 9.89% 14.91% 3.12% 10.35% -3.58% 18.21% 11.20% 2.09% 5.68%
- --------------------------------------------------------------------------------
89 90 91 92 93 94 95 96 97 98
YEAR

[Begin callout]
BEST
QUARTER:
Q2' 92
7.23%

WORST
QUARTER:
Q1 `94
- -3.51%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998

1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
Templeton Global Bond Fund - Advisor Class/2/ 5.68% 6.46% 7.87%
Salomon Brothers WGBI Index/3/ 15.31% 7.85% 8.96%

1. As of September 30, 1999, the fund's year-to-date return was -3.98%.

2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.

FEES AND EXPENSES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A PERCENTAGE SIGN]

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
- -------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None
Exchange fee/1/ $5.00

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
ADVISOR CLASS
- -------------------------------------------------------------------------------
Management fees 0.50%
Distribution and service (12b-1) fees None
Other expenses 0.47%
----------
Total annual fund operating expenses 0.97%/2/
==========
1. This fee is only for market timers (see page 21).

2. For the fiscal year ended August 31, 1999, the manager agreed in advance to
waive its fees. With this reduction, management fees were 0.65% and net annual
operating expenses were 0.97%. The manager may end this arrangement at any time
upon notice to the fund's Board of Trustees.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown;

o Your investment has a 5% return each year;

o The fund's operating expenses remain the same; and

o You sell your shares at the end of the periods shown.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
$99 $309 $536 $1,190

MANAGEMENT
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A BRIEFCASE]

DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF DOLLAR SIGN AND STACKS OF COINS]

When you sell your shares of the fund, you may have a capital gain or loss. For
tax purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
[INSERT GRAPHIC OF DOLLAR BILL]

This table presents the financial performance for Advisor Class since its
inception. The information for the year ended August 31, 1999 has been audited
by PricewaterhouseCoopers LLP. The information for the remaining years was
audited by McGladrey & Pullen, LLP, the fund's former auditor.

ADVISOR CLASS YEAR ENDED AUGUST 31,
- -------------------------------------------------------------------------------
1999/3/ 1998 1997/2/
- -------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 9.49 9.82 10.16
------------------------------
Net investment income .61 .62 .42
Net realized and unrealized gains (losses) (.67) (.32) (.34)
------------------------------
Total from investment operations (.06) .30 .08
------------------------------
Distributions from net investment income (.57) (.57) (.42)
Distributions from net realized gains (.05) (.06) --
------------------------------
Total distributions (.62) (.63) (.42)
------------------------------
Net asset value, end of year 8.81 9.49 9.82
=============================
Total return (%)/1/ (.77) 3.08 .80

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 1,261 11,330 12,742
Ratios to average net assets: (%)
Expenses .97 .91 .88/4/
Net investment income 6.42 6.38 6.76/4/
Portfolio turnover rate (%) 74.60 75.95 166.69

1. Total return is not annualized.

2. For the period January 2, 1997 (effective date) to August 31, 1997.

3. Based on average weighted shares outstanding.

4. Annualized.

YOUR ACCOUNT

QUALIFIED INVESTORS
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF OF PENCIL MARKING AN "X"]

The following investors may qualify to buy Advisor Class shares of the fund.

o Broker-dealers, registered investment advisors or certified financial planners
who have an agreement with Distributors for clients participating in
comprehensive fee programs. Minimum investments: $250,000 initial ($100,000
initial for an individual client) and $50 additional.

o Officers, trustees, directors and full-time employees of Franklin Templeton
and their immediate family members. Minimum investments: $100 initial ($50 for
accounts with an automatic investment plan) and $50 additional.

o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.

o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue Code.
Minimum investments: $1 million initial investment in Advisor Class or Class Z
shares of any of the Franklin Templeton Funds and $50 additional.

o Accounts managed by the Franklin Templeton Group. Minimum investments: No
initial minimum and $50 additional.

o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments: No
initial or additional minimums.

o Defined contribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section 401
of the Internal Revenue Code, including salary reduction plans qualified under
section 401(k) of the Internal Revenue Code, and that are sponsored by an
employer (i) with at least 10,000 employees, or (ii) with retirement plan
assets of $100 million or more. Minimum investments: No initial or additional
minimums.

o Trust companies and bank trust departments initially investing in the Franklin
Templeton Funds 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.
Minimum investments: No initial or additional minimums.

o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in the Franklin Templeton Funds
for purposes of determining whether you meet the $5 million minimum, as long
as $1 million is in Advisor Class or Class Z shares of any of the Franklin
Templeton Funds.

o Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of an established group of 11 or more
investors. Minimum investments: $5 million initial and $50 additional. For
minimum investment purposes, the group's investments are added together. The
group may combine all of its shares in the Franklin Templeton Funds for
purposes of determining whether it meets the $5 million minimum, as long as $1
million is in Advisor Class or Class Z shares of any of the Franklin Templeton
Funds. There are certain other requirements and the group must have a purpose
other than buying fund shares without a sales charge.

Please note that Advisor Class shares of the fund generally are not available to
retirement plans through Franklin Templeton's ValuSelect(R) program. Retirement
plans in the ValuSelect program before January 1, 1998, however, may invest in
the fund's Advisor Class shares.

BUYING SHARES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF PAPER WITH LINES AND SOMEONE WRITING]

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. To save time, you can sign up now for services
you may want on your account by completing the appropriate sections of the
application (see the next page).

<TABLE>
<CAPTION>
BUYING SHARES
- ----------------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ------------------------------ ------------------------------------------- -------------------------------------------
<S> <C> <C>
[INSERT GRAPHIC OF HANDS
SHAKING]
Contact your investment representative Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
- ------------------------------ ------------------------------------------- -------------------------------------------
Make your check payable to the Templeton Make your check payable to Templeton Global
[INSERT GRAPHIC OF ENVELOPE] Global Bond Fund. Bond Fund. Include your account number on
the check.

BY MAIL Mail the check and your signed
application to Investor Services. Fill out the deposit slip from your
account statement. If you do not have
a slip, include a note with your name,
the fund name, and your account number.

Mail the check and deposit slip or
note toI nvestor Services.
- ------------------------------ ------------------------------------------- -------------------------------------------
[INSERT GRAPHIC OF THREE Call to receive a wire control number Call to receive a wire control number and
LIGHTNING BOLTS] and wire instructions. wire instructions.

Wire the funds and mail your signed To make a same day wire investment,
application to Investor Services. Please please call us by 1:00 p.m. Pacific time
BY WIRE include the wire control number or your and make sure your wire arrives by 3:00
new account number on the application. p.m.

1-800/632-2301
(or 1-650/312-2000 collect) To make a same day wire investment,
please call us by 1:00 p.m. Pacific time
and make sure your wire arrives by 3:00
p.m.

- ------------------------------ ------------------------------------------- -------------------------------------------
[INSERT GRAPHIC OF TWO Call Shareholder Services at the number Call Shareholder Services at the number
ARROWS POINTING IN below or send signed written below, send signed written instructions.
OPPOSITE DIRECTIONS] instructions. (Please see page 17 (Please see page 17 for information on
for information on exchanges.) exchanges.)

BY EXCHANGE
- ----------------------------------------------------------- ----------------------------------------------------------
</TABLE>

FRANKLIN TEMPLETON INVESTOR SERVICES
P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

INVESTOR SERVICES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC A PERSON WITH HEADSET]

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account in the same share class of the fund or in Advisor Class or
Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial sales
charges and contingent deferred sales charges (CDSCs) will not apply if you
reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class. You also may exchange your Advisor Class shares for Class
A shares of a fund that does not currently offer an Advisor Class (without any
sales charge)* or for Class Z shares of Franklin Mutual Series Fund Inc.

If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust or Templeton Foreign Fund, you also may exchange your shares for
Class A shares of those funds (without any sales charge)* or for shares of
Templeton Institutional Funds, Inc.

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.

*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your Class A
shares for Advisor Class shares if you otherwise qualify to buy the fund's
Advisor Class shares.

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.

SELLING SHARES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A CERTIFICATE]

You can sell your shares at any time.

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of record, or
preauthorized bank or brokerage firm account

[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[End callout]

RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Trust Company retirement plan. For participants under age
59 1/2, tax penalties may apply. Call Retirement Plan Services at 1-800/527-2020
for details.

SELLING SHARES
- ----------------------------------- --------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ----------------------------------- --------------------------------------------
<S> <C>
[INSERT GRAPHIC OF HANDS SHAKING]

THROUGH YOUR INVESTMENT Contact your investment representative
REPRESENTATIVE
- ----------------------------------- --------------------------------------------
[INSERT GRAPHIC OF ENVELOPE] Send written instructions and endorsed share
certificates (if you hold share
certificates) to Investor Services.
Corporate, partnership or trust accounts
BY MAIL may need to send additional documents.

Specify the fund, the account number and the
dollar value or number of shares you wish to
sell. Be sure to include all necessary
signatures and any additional documents, as
well as signature guarantees if required.

A check will be mailed to the name(s) and
address on the account, or otherwise
according to your written instructions.
- ----------------------------------- -------------------------------------------
[INSERT GRAPHIC OF PHONE] As long as your transaction is for $100,000
or less, you do not hold share certificates
and you have not changed your address by
BY PHONE phone within the last 15 days, you can sell
your shares by phone.

1-800/632-2301 A check will be mailed to the name(s) and
address on the account. Written instructions,
with a signature guarantee, are required to
send the check to another address or to make
it payable to another person.
- ----------------------------------- -------------------------------------------

[INSERT GRAPHIC OF THREE
LIGHTNING BOLTS]

BY ELECTRONIC You can call or write to have redemption
FUNDS TRANSFER proceeds sent to a bank account. See the
(ACH) policies above for selling shares by mail
or phone.

Before requesting to have redemption
proceeds sent to bank account, please make
sure we have your bank account information
on file. If we do not have this information,
you will need to send written instructions
with your bank's name and address, a voided
check or saving account deposit slip, and a
signature guarantee if the ownership of the
bank and fund accounts is different.

If we receive your request in proper form
by 1:00 p.m. Pacific time, proceeds sent
by ACH generally will be available within
two to three business days.
- ----------------------------------- --------------------------------------------

[INSERT GRAPHIC OF TWO ARROWS Obtain a current prospectus for the fund you
POINTING IN OPPOSITE DIRECTIONS] are considering.

Call Shareholder Services at the number below
or send signed written instructions. See
BY EXCHANGE the policies above for selling shares by
mail or phone.

If you hold share certificates, you will
need to return them to the fund before your
exchange can be processed.
- ----------------------------------- -------------------------------------------
</TABLE>

ACCOUNT POLICIES
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF PAPER AND PEN]

CALCULATING SHARE PRICE The fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. Pacific time). The NAV for Advisor Class is calculated by
dividing its net assets by the number of its shares outstanding.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee accounts) because you sell some of your shares, we may mail you a
notice asking you to bring the account back up to its applicable minimum
investment amount. If you choose not to do so within 30 days, we may close your
account and mail the proceeds to the address of record.

ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:

o The fund may refuse any order to buy shares, including any purchase under the
exchange privilege.

o At any time, the fund may change its investment minimums or waive or lower its
minimums for certain purchases.

o The fund may modify or discontinue the exchange privilege on 60 days' notice.

o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.

o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.

o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may receive
up to 0.25% of the amount invested. This amount is paid by Franklin Templeton
Distributors, Inc. from its own resources.

QUESTIONS
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF A QUESTION MARK]

FOR MORE INFORMATION

You can learn more about the fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com

Investment Company Act file #811-4706 406 PA 01/00

PART B
CLASS A & C
STATEMENT OF ADDITIONAL INFORMATION

TEMPLETON
GLOBAL BOND FUND

TEMPLETON INCOME TRUST

CLASS A & C

STATEMENT OF ADDITIONAL INFORMATION

JANUARY 1, 2000P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN(R)
- -------------------------------------------------------------------------------

This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectus. The fund's
prospectus, dated January 1, 2000, which we may amend from time to time,
contains the basic information you should know before investing in the fund. You
should read this SAI together with the fund's prospectus.

The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended August 31, 1999, are
incorporated by reference (are legally a part of this SAI).

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goal and Strategies ............................. 2
Risks ........................................... 7
Officers and Trustees ........................... 11
Management and Other Services ................... 14
Portfolio Transactions .......................... 15
Distributions and Taxes ......................... 16
Organization, Voting Rights
and Principal Holders .......................... 18
Buying and Selling Shares ....................... 18
Pricing Shares .................................. 24
The Underwriter ................................. 25
Performance ..................................... 27
Miscellaneous Information ....................... 29
Description of Ratings .......................... 30

- -------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

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

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

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

406 SAI 01/00

Goal and Strategies
- -------------------------------------------------------------------------------
The fund's investment goal is current income with capital appreciation and
growth of income. This goal is fundamental, which means it may not be changed
without shareholder approval.

The fund tries to achieve its goal by investing primarily in the debt securities
of companies, governments and their agencies located anywhere in the world,
including emerging markets.

Although the fund's principal investments are in debt securities, it may also
invest in equity securities, including preferred stock and common stocks which
pay dividends; income-producing securities convertible into common stock; and
American, European and Global Depositary Receipts.

The fund may invest in any industry although it will not concentrate (invest
more than 25% of its total assets) in any one industry. As a non-fundamental
policy approved by the fund's board of trustees, the fund's manager will select
securities for purchase by the fund from any industry 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 (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 securities which are not otherwise readily
marketable.

The fund may invest up to 100% of its total assets in emerging markets,
including up to 5% of its total assets in Russian securities.

Below is a description of the various types of securities the fund may buy.

DEBT SECURITIES represent an obligation of the issuer to repay a loan of money
to it, and generally, provide for the payment of interest. These include bonds,
notes and debentures; commercial paper; time deposits; bankers' acceptances; and
structured investments. A debt security typically has a fixed payment schedule
that obligates the issuer to pay interest to the lender and to return the
lender's money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.

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.

Independent rating organizations rate debt securities based upon their
assessment of the financial soundness of the issuer. Generally, a lower rating
indicates higher risk. See "Fundamental investment policies and restrictions"
for limitations with respect to the fund's investments in debt securities.

The average maturity of the debt securities in the fund's portfolio will
fluctuate depending upon the manager's judgment as to future interest rate
changes.

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

U.S. GOVERNMENT SECURITIES 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 Investors Service, Inc. (Moody's) or A-1 by Standard &
Poor's Corporation (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.

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 Investment Company Act of 1940, as amended (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.

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.

EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock; preferred stock;
convertible securities; warrants or rights. The purchaser of an equity security
typically receives an ownership interest in the company as well as certain
voting rights. The owner of an equity security may participate in a company's
success through the receipt of dividends which are distributions of earnings by
the company to its owners. Equity security owners may also participate in a
company's success or lack of success through increases or decreases in the value
of the company's shares as traded in the public trading market for such shares.
Equity securities generally take the form of common stock or preferred stock.
Preferred stockholders typically receive greater dividends but may receive less
appreciation than common stockholders and may have greater voting rights as
well. Equity securities may also include convertible securities, warrants or
rights. Convertible securities typically are debt securities or preferred stocks
which are convertible into common stock after certain time periods or under
certain circumstances. Warrants or rights give the holder the right to purchase
a common stock at a given time for a specified price.

DEPOSITARY RECEIPTS are certificates that give their holders the right to
receive securities (a) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary Receipts,
"GDRs" or European Depositary Receipts, "EDRs").

REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements. Under
a repurchase agreement, the fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the fund in each repurchase agreement. The manager 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 bank or broker-dealer, including possible delays or restrictions upon the
fund's ability to sell the underlying securities. The fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.

LOANS OF PORTFOLIO SECURITIES The fund may lend certain of its portfolio
securities to qualified banks and broker-dealers. These loans may not exceed
331/3% of the value of the fund's total assets, measured at the time of the most
recent loan. For each loan, the borrower must maintain with the fund's custodian
collateral (consisting of any combination of cash, securities issued by the U.S.
government and its agencies and instrumentalities, or irrevocable letters of
credit) with a value at least equal to 102% (for loaned securities issued in the
U.S.) or 105% (for loaned securities issued outside the U.S.) of the current
market value of the loaned securities. The fund retains all or a portion of the
interest received on investment of the cash collateral or receives a fee from
the borrower. The fund also continues to receive any distributions paid on the
loaned securities. The fund may terminate a loan at any time and obtain the
return of the securities loaned within the normal settlement period for the
security involved.

Where voting rights with respect to the loaned securities pass with the lending
of the securities, the manager intends to call the loaned securities to vote
proxies, or to use other practicable and legally enforceable means to obtain
voting rights, when the manager has knowledge that, in its opinion, a material
event affecting the loaned securities will occur or the manager otherwise
believes it necessary to vote. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral in the event of
default or insolvency of the borrower. The fund will loan its securities only to
parties who meet creditworthiness standards approved by the fund's board of
directors, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the loan.

FUTURES CONTRACTS Although the fund has the authority to buy and sell financial
futures contracts, it does not currently intend to enter into such transactions.
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. 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). The fund may not commit more than 5%
of its total assets to initial margin deposits on futures contracts.

OPTIONS ON SECURITIES, INDICES AND FUTURES Although the fund has the authority
to sell covered put and call options and buy 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, it does not currently intend to
enter into such transactions.

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 option 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 the manager, 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 buy 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 buy
call options on individual securities or futures contracts to hedge against an
increase in the price of securities or futures contracts that it anticipates
buying in the future. Similarly, the fund may buy 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 buying
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 fund'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 reduce 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
Commodity Futures Trading Commission, it 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 the manager'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.

TEMPORARY INVESTMENTS When the manager believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the fund's
portfolio in a temporary defensive manner. Under such circumstances, the fund
may invest up to 100% of its assets in (1) U.S. government securities maturing
in 13 months or less; (2) commercial paper; (3) bank time deposits with less
than seven days remaining to maturity; and (4) bankers' acceptances.

INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50% of
the fund's outstanding shares 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 the manager, 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 that 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) that 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 "Portfolio Transactions" 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 New York Stock Exchange (NYSE) or American Stock Exchange, 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 fund presently has the following additional restrictions, which are not
fundamental and may be changed without shareholder approval. The fund may not
invest more than 25% of its total assets in non-investment grade securities
(rated lower than BBB by S&P or Baa by Moody's).

The fund also may be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.

If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.

Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities or the amount of assets will not be considered a violation
of any of the foregoing restrictions.

RISKS
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INTEREST RATE Because the fund invests primarily in debt securities, changes in
interest rates in any country where the fund is invested will affect the value
of the fund's portfolio and, consequently, its share price. Rising interest
rates, which often occur during times of inflation or a growing economy, are
likely to cause the face value of a debt security to decrease, having a negative
effect on the value of the fund's shares. Of course, interest rates have
increased and decreased, sometimes very dramatically, in the past. These changes
are likely to occur again in the future at unpredictable times.

FOREIGN SECURITIES 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.

EMERGING MARKETS. 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 many developing countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent favorable
economic developments in some developing countries 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 developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, 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 expropriation, the fund could lose a substantial portion of any
investments it has made in the affected countries. Further, no accounting
standards exist in certain developing countries. Finally, even though the
currencies of some developing countries, such as certain Eastern European
countries 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.

RUSSIAN SECURITIES. 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, together with Russia's continuing political and economic instability
and the slow-paced development of its market economy, the following: (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, insider trading, 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, a return to the centrally planned economy
that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with substantially less liquidity and in issuers having significantly
smaller market capitalizations, when compared to securities and issuers in more
developed markets; (i) the difficulties associated with obtaining accurate
market valuations of many Russian securities, based partly on the limited amount
of publicly available information; (j) the financial condition of Russian
companies, including large amounts of inter-company debt which may create a
payments crisis on a national scale; (k) dependency on exports and the
corresponding importance of international trade; (l) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (m) possible difficulty in identifying a purchaser of securities held by
the fund due to the underdeveloped nature of the securities markets; (n) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (o) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.

There is little long-term 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 nor are they licensed with any
governmental entity 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 by
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
500 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. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the fund from
investing in the securities of certain Russian companies deemed suitable by the
manager. 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.

CURRENCY The fund's management 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 buy 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.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.

While the implementation of the euro could have a negative effect on the fund,
the fund's manager and its affiliated services providers are taking steps they
believe are reasonably designed to address the euro issue.

DIVERSIFICATION. 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, which generally will relieve the fund of any
liablility for federal income tax to the extent its earnings are distributed to
shareholders. See "Distributions and Taxes". 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 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.

LOWER-RATED SECURITIES Although they may offer higher yields than do higher
rated securities, high risk, low rated 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
goal 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 "Distributions and Taxes")
generally on an annual basis. Thus, 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.

DERIVATIVE SECURITIES are those whose values are dependent upon the performance
of one or more other securities or investments or indices; in contrast to common
stock, for example, whose value is dependent upon the operations of the issuer.
Stock index futures contracts and options on securities indices are considered
derivative investments. To the extent the fund enters into these transactions,
their success will depend upon the manager's ability to predict pertinent market
movements.

Some of the risks involved in stock index futures transactions relate to the
fund's ability to reduce or eliminate its futures positions, which will depend
upon the liquidity of the secondary markets for such futures. The fund intends
to purchase or sell futures 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 at any particular
time. Use of stock index futures for hedging may involve risks because of
imperfect correlations between movements in the prices of the stock index
futures on the one hand and movements in the prices of the securities being
hedged or of the underlying stock index on the other. Successful use of stock
index futures by the fund for hedging purposes also depends upon the manager's
ability to predict correctly movements in the direction of the market, as to
which no assurance can be given.

There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when the fund seeks to close out an
option position. If the fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by the fund, it would not be able to close out
the option. If restrictions on exercise were imposed, the fund might be unable
to exercise an option it has purchased. Except to the extent that a call option
on an index written by the fund is covered by an option on the same index
purchased by the fund, movements in the index may result in a loss to the fund;
however, such losses may be mitigated by changes in the value of the fund's
securities during the period the option was outstanding.

OFFICERS AND TRUSTEES
- -------------------------------------------------------------------------------

The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of the fund's
investment activities. The board, in turn, elects the officers of the trust who
are responsible for administering the trust's day-to-day operations. The board
also monitors the fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.

The name, age and address of the officers and board members, as well as their
affiliations, positions held with the trust, and principal occupations during
the past five years are shown below.

Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE

Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).

*Nicholas F. Brady (69)
16 North Washington Street, Easton, MD 21601
TRUSTEE

Chairman, Templeton Emerging Markets Investment Trust PLC, Templeton Latin
America Investment Trust PLC, Darby Overseas Investments, Ltd. and Darby
Emerging Markets Investments LDC (investment firms) (1994-present); Director,
Templeton Global Strategy Funds, Amerada Hess Corporation (exploration and
refining of natural gas), Christiana Companies, Inc. (operating and investment
companies), and H.J. Heinz Company (processed foods and allied products);
director or trustee, as the case may be, of 19 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Secretary of the United
States Department of the Treasury (1988-1993) and Chairman of the Board, Dillon,
Read & Co., Inc. (investment banking) (until 1988).

S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE

Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 49 of the investment companies in the Franklin Templeton
Group of Funds.

John Wm. Galbraith (78)
360 Central Avenue, Suite 1300, St. Petersburg, FL 33701
TRUSTEE

President, Galbraith Properties, Inc. (personal investment company); Director
Emeritus, Gulf West Banks, Inc. (bank holding company) (1995-present); director
or trustee, as the case may be, of 18 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, Mercantile Bank
(1991-1995), Vice Chairman, Templeton, Galbraith & Hansberger Ltd. (1986-1992),
and Chairman, Templeton Funds Management, Inc. (1974-1991).

Andrew H. Hines, Jr. (76)
One Progress Plaza, Suite 290, St. Petersburg, FL 33701
TRUSTEE

Consultant, Triangle Consulting Group; Executive-in-Residence, Eckerd College
(1991-present); director or trustee, as the case may be, of 20 of the investment
companies in the Franklin Templeton Group of Funds; and FORMERLY, Chairman and
Director, Precise Power Corporation (1990-1997), Director, Checkers Drive-In
Restaurant, Inc. (1994-1997), and Chairman of the Board and Chief Executive
Officer, Florida Progress Corporation (holding company in the energy area)
(1982-1990) and director of various of its subsidiaries.

*Charles B. Johnson (66)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE

Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Chairman of the Board and Director,
Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Vice
President, Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton
Investor Services, Inc. and Franklin Templeton Services, Inc.; officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 48 of the investment companies in the Franklin
Templeton Group of Funds.

Betty P. Krahmer (70)
2201 Kentmere Parkway, Wilmington, DE 19806
TRUSTEE

Director or trustee of various civic associations; director or trustee, as the
case may be, of 19 of the investment companies in the Franklin Templeton Group
of Funds; and FORMERLY, Economic Analyst, U.S. government.

Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE

Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology) and Spacehab, Inc. (aerospace services); director or trustee, as
the case may be, of 47 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Chairman, White River Corporation (financial
services) and Hambrecht and Quist Group (investment banking), and President,
National Association of Securities Dealers, Inc. and Director, Real 3D
(software).

Fred R. Millsaps (70)
2665 NE 37th Drive, Fort Lauderdale, FL 33308
TRUSTEE

Manager of personal investments (1978-present); director of various business and
nonprofit organizations; director or trustee, as the case may be, of 20 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Chief Executive Officer, Landmark Banking Corporation (1969-1978),
Financial Vice President, Florida Power and Light (1965-1969), and Vice
President, Federal Reserve Bank of Atlanta (1958-1965).

James R. Baio (45)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
TREASURER

Certified Public Accountant; Senior Vice President, Templeton Worldwide, Inc.,
Templeton Global Investors, Inc. and Templeton Funds Trust Company; officer of
20 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Senior Tax Manager, Ernst & Young (certified public accountants)
(1977-1989).

Harmon E. Burns (54)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc., Franklin Templeton Distributors, Inc. and Franklin Templeton Services,
Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin
Investment Advisory Services, Inc. and Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in the Franklin Templeton Group of Funds.

Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

President and Member - Office of the President, Franklin Resources, Inc.; Senior
Vice President, Chief Financial Officer and Director, Franklin/Templeton
Investor Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer
and Director, Templeton Worldwide, Inc.; Executive Vice President, Chief
Operating Officer and Director, Templeton Investment Counsel, Inc.; Executive
Vice President and Chief Financial Officer, Franklin Advisers, Inc.; Chief
Financial Officer, Franklin Advisory Services, LLC and Franklin Investment
Advisory Services, Inc.; President and Director, Franklin Templeton Services,
Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee, as the case may be, of
51 of the investment companies in the Franklin Templeton Group of Funds.

Samuel J. Forester, Jr. (51)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT

Managing Director, Templeton Worldwide, Inc.; Vice President and Director,
Templeton Global Income Portfolio Ltd.; Director, Closed Joint-Stock Company
Templeton and Templeton Trust Services Pvt. Ltd.; officer of 10 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Templeton Global Bond Managers, a division of Templeton Investment
Counsel, Inc., Founder and Partner, Forester, Hairston Investment Management,
Inc. (1989-1990), Managing Director (Mid-East Region), Merrill Lynch, Pierce,
Fenner & Smith Inc. (1987-1988), and Advisor for Saudi Arabian Monetary Agency
(1982-1987).

Deborah R. Gatzek (51)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC;
Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 52 of the investment
companies in the Franklin Templeton Group of Funds.

Barbara J. Green (52)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
SECRETARY

Senior Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 19 of the investment companies in the Franklin Templeton Group
of Funds; and FORMERLY, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor 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).

Mark G. Holowesko (39)
Lyford Cay, Nassau, Bahamas
VICE PRESIDENT

President, Templeton Global Advisors Limited; Chief Investment Officer, Global
Equity Group; Executive Vice President and Director, Templeton Worldwide, Inc.;
officer of 19 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Investment Administrator, RoyWest Trust Corporation
(Bahamas) Limited (1984-1985).

Charles E. Johnson (43)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT

President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc.; Chairman and Director, Templeton
Investment Counsel, Inc.; Vice President, Franklin Advisers, Inc.; officer
and/or director of some of the other subsidiaries of Franklin Resources, Inc.;
and officer and/or director or trustee, as the case may be, of 32 of the
investment companies in the Franklin Templeton Group of Funds.

Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Executive Vice President and Director, Franklin Templeton Distributors,
Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory
Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 51 of the investment companies in the Franklin
Templeton Group of Funds.

John R. Kay (59)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT

Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; officer of 24 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Vice President and Controller,
Keystone Group, Inc.

Elizabeth M. Knoblock (44)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT - COMPLIANCE

General Counsel, Secretary and Senior Vice President, Templeton Investment
Counsel, Inc.; Senior Vice President, Templeton Global Investors, Inc.; officer
of 23 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Vice President and Associate General Counsel, Kidder Peabody & Co.
Inc. (1989-1990), Assistant General Counsel, Gruntal & Co., Inc. (1988), Vice
President and Associate General Counsel, Shearson Lehman Hutton Inc. (1988),
Vice President and Assistant General Counsel, E.F. Hutton & Co. Inc.
(1986-1988), and Special Counsel, Division of Investment Management, U.S.
Securities and Exchange Commission (1984-1986).

Gregory E. McGowan (50)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
PRESIDENT

Director and Executive Vice President, Templeton Investment Counsel, Inc.;
Executive Vice President-International Development and Chief International
General Counsel, Templeton Worldwide, Inc.; Executive Vice President, Director
and General Counsel, Templeton International, Inc.; Executive Vice President and
Secretary, Templeton Global Advisors Limited; officer of certain off-shore
Templeton funds; officer of four of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Senior Attorney, U.S. Securities and
Exchange Commission.

*This board member is considered an "interested person" under federal securities
laws. Mr. Brady's status as an interested person results from his business
affiliations with Franklin Resources, Inc. and Templeton Global Advisors
Limited. Mr. Brady and Franklin Resources, Inc. are both limited partners of
Darby Overseas Partners, L.P. (Darby Overseas). In addition, Darby Overseas and
Templeton Global Advisors Limited are limited partners of Darby Emerging Markets
Fund, L.P.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father
and uncle, respectively, of Charles E. Johnson.

The trust pays noninterested board members and Mr. Brady an annual retainer of
$2,000 and a fee of $200 per board meeting attended. Board members who serve on
the audit committee of the trust and other funds in the Franklin Templeton Group
of Funds receive a flat fee of $2,000 per committee meeting attended, a portion
of which is allocated to the trust. Members of a committee are not compensated
for any committee meeting held on the day of a board meeting. Noninterested
board members also may serve as directors or trustees of other funds in the
Franklin Templeton Group of Funds and may receive fees from these funds for
their services. The following table provides the total fees paid to
noninterested board members and Mr. Brady by the trust and by the Franklin
Templeton Group of Funds.

NUMBER OF
BOARDS IN
TOTAL FEES THE FRANKLIN
RECEIVED FROM TEMPLETON
TOTAL FEES THE FRANKLIN GROUP
RECEIVED TEMPLETON OF FUNDS
FROM GROUP ON WHICH
NAME THE FUND/1/ OF FUNDS/2/ EACH SERVES/3/
- -------------------------------------------------------------------------------
Harris J. Ashton $10,000 $363,165 47
Nicholas F. Brady 10,000 138,700 19
S. Joseph Fortunato 10,000 363,238 49
John Wm. Galbraith 10,218 144,200 18
Andrew H. Hines, Jr. 10,214 203,700 20
Betty P. Krahmer 10,000 138,700 19
Gordon S. Macklin 10,000 363,165 47
Fred R. Millsaps 10,203 201,700 20

1. For the fiscal year ended August 31, 1999.

2. For the calendar year ended December 31, 1999.

3. 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 53 registered investment companies, with approximately 155 U.S. based
funds or series.

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

Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.

MANAGEMENT AND OTHER SERVICES
- -------------------------------------------------------------------------------

MANAGER AND SERVICES PROVIDED The fund's manager is Templeton Investment
Counsel, Inc., through its Global Bond Managers division. The manager is a
wholly owned subsidiary of Franklin Resources, Inc. (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.

The manager provides investment research and portfolio management services, and
selects the securities for the fund to buy, hold or sell. The manager also
selects the brokers who execute the fund's portfolio transactions. The manager
provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.

The Templeton organization has been investing globally since 1940. The manager
and its affiliates have offices in Argentina, Australia, Bahamas, Belgium,
Bermuda, Brazil, Canada, China, Cyprus, France, Germany, Hong Kong, India,
Italy, Japan, Korea, Luxembourg, Mauritius, the Netherlands, Poland, Russia,
Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, United Kingdom,
Venezuela and the U.S.

The manager and its affiliates manage numerous other investment companies and
accounts. The manager 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 the manager on behalf of the fund. Similarly, with respect to the fund,
the manager is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the fund or other
funds it manages. Of course, any transactions for the accounts of the manager
and other access persons will be made in compliance with the fund's code of
ethics.

Under the fund's code of ethics, employees of the Franklin Templeton Group who
are access persons may 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 by the close
of the business day following the day clearance is granted; (ii) copies of all
brokerage confirmations and statements must be sent to a compliance officer;
(iii) all brokerage accounts must be disclosed on an annual basis; and (iv)
access persons involved in preparing and making investment decisions must, in
addition to (i), (ii) and (iii) 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.

MANAGEMENT FEES The fund pays the manager a fee equal to an annual rate of:

o 0.50% of the value of net assets up to and including $200 million;

o 0.45% of the value of net assets over $200 million and not over $1.3 billion;
and

o 0.40% of the value of net assets in excess of $1.3 billion.

The fee is computed according to the terms of the management agreement. Each
class of the fund's shares pays its proportionate share of the fee.

For the last three fiscal years ended August 31, the fund paid the following
management fees:

MANAGEMENT
FEES PAID ($)
- -------------------------------------------------------------------------------
1999 975,877
1998 1,139,351
1997 1,046,390

ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the trust to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by Resources
and is an affiliate of the fund's manager and principal underwriter.

The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.

ADMINISTRATION FEES The fund pays FT Services a fee equal to an annual rate of:

o 0.15% of the fund's average daily net assets up to $200 million;

o 0.135% of average daily net assets over $200 million up to $700 million;

o 0.10% of average daily net assets over $700 million up to $1.2 billion; and

o 0.075% of average daily net assets over $1.2 billion.

During the last three fiscal years ended August 31, the fund paid the following
administration fees:

ADMINISTRATION
FEES PAID ($)
- -------------------------------------------------------------------------------
1999 292,763
1998 340,429
1997 309,301

Before October 1, 1996, Templeton Global Investors, Inc. provided administrative
services to the fund.

SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 100 Fountain Parkway, St. Petersburg, FL 33733-8030. Please send all
correspondence to Investor Services to P.O. Box 33030, St. Petersburg, FL
33733-8030.

For its services, Investor Services receives a fixed fee per account. The fund
also will reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the fund. The amount of reimbursements
for these services per benefit plan participant fund account per year will not
exceed the per account fee payable by the fund to Investor Services in
connection with maintaining shareholder accounts.

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. As foreign custody manager,
the bank selects and monitors foreign sub-custodian banks, selects and evaluates
non-compulsory foreign depositories, and furnishes information relevant to the
selection of compulsory depositories.

AUDITOR PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY
10036, is the fund's independent auditor. The auditor gives an opinion on the
financial statements included in the trust's Annual Report to Shareholders and
reviews the trust's registration statement filed with the U.S. Securities and
Exchange Commission (SEC).

PORTFOLIO TRANSACTIONS
- -------------------------------------------------------------------------------

Since most purchases by the fund are principal transactions at net prices, the
fund incurs little or no brokerage costs. The fund deals directly with the
selling or buying principal or market maker without incurring charges for the
services of a broker on its behalf, unless it is determined that a better price
or execution may be obtained by using the services of a broker. 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 prices. The fund seeks to obtain prompt execution
of orders at the most favorable net price. Transactions may be directed to
dealers in return for research and statistical information, as well as for
special services provided by the dealers in the execution of orders.

It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions to obtain additional
research services allows the manager to supplement its own research and analysis
activities and to receive the views and information of individuals and research
staffs of other securities firms. As long as it is lawful and appropriate to do
so, the manager 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, the sale of fund shares, as well
as shares of other funds in the Franklin Templeton Group of Funds, also may be
considered a factor in the selection of broker-dealers to execute the fund's
portfolio transactions.

If purchases or sales of securities of the fund and one or more other investment
companies or clients supervised by the manager 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 the
manager, 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 may improve execution and reduce transaction costs to the
fund.

During the last three fiscal years ended August 31, the fund paid the following
brokerage commissions:

BROKERAGE
COMMISSIONS ($)
- -------------------------------------------------------------------------------
1999 4,024
1998 5,681
1997 14,015

As of August 31, 1999, the fund did not own securities of its regular
broker-dealers.

DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------

The fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
the difference in the distribution and service (Rule 12b-1) fees of each class.
Distributions are subject to approval by the board. The fund does not pay
"interest" or guarantee any fixed rate of return on an investment in its shares.

DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in the
form of dividends and interest on its investments. This income, less expenses
incurred in the operation of the fund, constitutes the fund's net investment
income from which dividends may be paid to you. Any distributions by the fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or in additional shares.

DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the fund. Any net capital gains realized by the fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, to reduce or eliminate excise or income taxes on the fund.

EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized by the fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the fund's ordinary income otherwise available for
distribution to you. This treatment could increase or decrease the fund's
ordinary income distributions to you, and may cause some or all of the fund's
previously distributed income to be classified as a return of capital.

The fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the fund. If this election is made, the year-end statement you receive from the
fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. The fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.

INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held fund shares for a full year, the fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the fund.

ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code, has qualified as such for its most recent fiscal year, and intends
to so qualify during the current fiscal year. As a regulated investment company,
the fund generally pays no federal income tax on the income and gains it
distributes to you. The board reserves the right not to maintain the
qualification of the fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be taxed as ordinary dividend
income to the extent of the fund's earnings and profits.

EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these distributions in
December (or to pay them in January, in which case you must treat them as
received in December) but can give no assurances that its distributions will be
sufficient to eliminate all taxes.

REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of fund shares are taxable transactions for federal and state income
tax purposes. If you redeem your fund shares, or exchange your fund shares for
shares of a different Franklin Templeton Fund, the IRS will require that you
report a gain or loss on your redemption or exchange. If you hold your shares as
a capital asset, the gain or loss that you realize will be capital gain or loss
and will be long-term or short-term, generally depending on how long you hold
your shares. Any loss incurred on the redemption or exchange of shares held for
six months or less will be treated as a long-term capital loss to the extent of
any long-term capital gains distributed to you by the fund on those shares.

Beginning after the year 2000, certain shareholders may be subject to a reduced
rate of tax on gains from the fund's sale of securities held for more than five
years. Other shareholders will not benefit from a reduced rate until after the
year 2005.

All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you buy other shares in the fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.

DEFERRAL OF BASIS If you redeem some or all of your shares in the fund, and then
reinvest the sales proceeds in the fund or in another Franklin Templeton Fund
within 90 days of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. The IRS will
require you to report gain or loss on the redemption of your original shares in
the fund. In doing so, all or a portion of the sales charge that you paid for
your original shares in the fund will be excluded from your tax basis in the
shares sold (for the purpose of determining gain or loss upon the sale of such
shares). The portion of the sales charge excluded will equal the amount that the
sales charge is reduced on your reinvestment. Any portion of the sales charge
excluded from your tax basis in the shares sold will be added to the tax basis
of the shares you acquire from your reinvestment.

U.S. GOVERNMENT OBLIGATIONS States grant tax-free status to dividends paid to
you from interest earned on direct obligations of the U.S. government, subject
in some states to minimum investment or reporting requirements that must be met
by the fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.

DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that only a small percentage of the dividends paid
by the fund for the most recent fiscal year qualified for the dividends-received
deduction. You may be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these dividends.
The dividends-received deduction will be available only with respect to
dividends designated by the fund as eligible for such treatment. All dividends
(including the deducted portion) must be included in your alternative minimum
taxable income calculation.

INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the fund (possibly causing the fund to sell securities to raise the cash for
necessary distributions) and/or defer the fund's ability to recognize losses,
and, in limited cases, subject the fund to U.S. federal income tax on income
from certain of its foreign securities. In turn, these rules may affect the
amount, timing or character of the income distributed to you by the fund.

ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- -------------------------------------------------------------------------------

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

As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
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 that you would incur financial loss on
account of shareholder liability is limited to the unlikely circumstance in
which both inadequate insurance exists and the fund itself is unable to meet its
obligations.

The fund currently offers three classes of shares, Class A, Class C and Advisor
Class. The fund may offer additional classes of shares in the future. The full
title of each class is:

o Templeton Income Trust, Templeton Global Bond Fund - Class A

o Templeton Income Trust, Templeton Global Bond Fund - Class C

o Templeton Income Trust, Templeton Global Bond Fund - Advisor Class

Shares of each class represent proportionate interests in the fund's assets. On
matters that affect the fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only one
class, only shareholders of that class may vote. Each class votes separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law.

The trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all of
the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.

The trust does not intend to hold annual shareholder meetings. The trust or a
series of the trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are required
to help you communicate with other shareholders about the removal of a board
member. A special meeting also may be called by the board in its discretion.

As of December 1, 1999, the principal shareholders of the fund, beneficial or of
record, were:

PERCENTAGE
NAME AND ADDRESS SHARE CLASS (%)
- -------------------------------------------------------------------------------
Templeton Investment Counsel Inc. Advisor 27
ACNA Class
1880 Gateway Drive, 6th Fl
San Mateo, CA 94404-2467

FTTC TTEE For ValuSelect Advisor 57
Franklin-Templeton 401k/1/ Class
P.O. Box 2338
Rancho Cordova, CA 95741-2438

1. Franklin Templeton Trust Company is a California corporation and is wholly
owned by Franklin Resources, Inc. Franklin Resources, Inc. is a Delaware
corporation.

Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and
trustees of the trust, serve on the administrative committee of the Franklin
Templeton Profit Sharing 401(k) Plan, which owns shares of the fund. In that
capacity, they participate in the voting of such shares. Charles B. Johnson and
Rupert H. Johnson, Jr. disclaim beneficial ownership of any share of the fund
owned by the Franklin Templeton Profit Sharing 401(k) Plan.

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.

As of December 1, 1999, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in the Franklin Templeton Group
of Funds.

BUYING AND SELLING SHARES
- -------------------------------------------------------------------------------

The fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any 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. Banks and financial institutions that
sell shares of the fund may be required by state law to register as securities
dealers.

For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.

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. We may deduct any applicable banking charges
imposed by the bank from your account.

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.

If you buy shares through the reinvestment of dividends, the shares 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.

INITIAL SALES CHARGES The maximum initial sales charge is 4.25% for Class A and
1% for Class C.

The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in the Franklin Templeton Funds to take advantage of the
lower sales charges for large purchases. The Franklin Templeton Funds include
the U.S. registered mutual funds in the Franklin Group of Funds(R) and the
Templeton Group of Funds except Franklin Templeton Variable Insurance Products
Trust, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund.

CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds. You also may combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you also may 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 (LOI). You may buy Class A shares at a reduced sales charge by
completing the letter of intent section of your account 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. By completing the letter of intent section of the application, you
acknowledge and agree to the following:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class A shares registered in your name until you fulfill your LOI. Your periodic
statements will include the reserved shares in the total shares you own, and we
will pay or reinvest dividend and capital gain distributions on the reserved
shares according to the distribution option you have chosen.

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

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

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

After you file your LOI with the fund, you may buy Class A shares at the sales
charge applicable to the amount specified in your LOI. 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. Any Class A purchases you made within 90 days before you filed your
LOI also may qualify for a retroactive reduction in the sales charge. If you
file your LOI with the fund before a change in the fund's sales charge, you may
complete the LOI at the lower of the new sales charge or the sales charge in
effect when the LOI was filed.

Your holdings in the Franklin Templeton Funds acquired more than 90 days before
you filed your LOI will be counted towards the completion of the LOI, but they
will not be entitled to a retroactive reduction 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 LOI have been completed.

If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of your
total purchases, less redemptions, is more than the amount specified in your LOI
and is an amount that would qualify for a further sales charge reduction, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made. The price adjustment will be made on
purchases made within 90 days before and on those made after you filed your LOI
and will be applied towards the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases.

If the amount of your total purchases, less redemptions, is less than the amount
specified in your LOI, the sales charge will be adjusted upward, depending on
the actual amount purchased (less redemptions) during the period. You will need
to send Distributors an amount equal to the difference in the actual dollar
amount of sales charge paid and the amount of sales charge that would have
applied to the total purchases if the total of the purchases had been made at
one time. Upon payment of this amount, 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, we will redeem an appropriate number of reserved shares to realize
the difference. If you redeem the total amount in your account before you
fulfill your LOI, we will deduct the additional sales charge due from the sale
proceeds and forward the balance to you.

For LOIs filed 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 LOI. These plans are not subject to the requirement to reserve 5% of
the total intended purchase or to the policy on upward adjustments in sales
charges described above, 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 LOI.

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

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying fund shares at a discount,

o Has more than 10 members,

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

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

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and

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

A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased the fund's
Class A shares at a reduced sales charge under the group purchase privilege
before February 1, 1998, may continue to do so.

WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be purchased
without an initial sales charge or contingent deferred sales charge (CDSC) by
investors who reinvest within 365 days:

o Dividend and capital gain distributions from any Franklin Templeton Fund. The
distributions generally must be reinvested in the same share class. Certain
exceptions apply, however, to Class C shareholders who chose to reinvest their
distributions in Class A shares of the fund before November 17, 1997, and to
Advisor Class or Class Z shareholders of a Franklin Templeton Fund who may
reinvest their distributions in the fund's Class A shares. This waiver category
also applies to Class C shares.

o Dividend or capital gain distributions from a real estate investment trust
(REIT) sponsored or advised by Franklin Properties, Inc.

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

o Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.

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

o Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.

If you paid a CDSC when you redeemed your Class A shares from a Templeton Global
Strategy Fund, a new CDSC will apply to your purchase of fund shares and the
CDSC holding period will begin again. We will, however, credit your fund account
with additional shares based on the CDSC you previously paid and the amount of
the redemption proceeds that you reinvest.

If you immediately placed your redemption proceeds in a Franklin Templeton money
fund, you may reinvest them as described above. The proceeds must be reinvested
within 365 days from the date they are redeemed from the money fund.

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

WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without an
initial sales charge or CDSC by various individuals and institutions due to
anticipated economies in sales efforts and expenses, including:

o Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We will accept orders for these accounts by mail
accompanied by a check or by telephone or other means of electronic data
transfer directly from the bank or trust company, with payment by federal funds
received by the close of business on the next business day following the order.

o 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 fund shares without paying sales charges. 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.

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

o Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors

o Registered securities dealers and their affiliates, for their investment
accounts only

o Current employees of securities dealers and their affiliates and their family
members, as allowed by the internal policies of their employer

o 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

o Any investor who is currently a Class Z shareholder of Franklin Mutual Series
Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z shareholder
who had an account in any Mutual Series fund on October 31, 1996, or who sold
his or her shares of Mutual Series Class Z within the past 365 days

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

o Accounts managed by the Franklin Templeton Group

o Certain unit investment trusts and their holders reinvesting distributions
from the trusts

o Group annuity separate accounts offered to retirement plans

o Chilean retirement plans that meet the requirements described under
"Retirement plans" below

In addition, effective January 1, 2000, Class C shares may be purchased without
an initial sales charge by any investor who buys Class C shares through an
omnibus account with Merrill Lynch Pierce Fenner & Smith, Inc. A CDSC may apply,
however, if the shares are sold within 18 months of purchase.

RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without an initial sales charge.
Retirement plans that are not qualified retirement plans (employer sponsored
pension or profit-sharing plans that qualify under section 401 of the Internal
Revenue Code, including 401(k), money purchase pension, profit sharing and
defined benefit plans), SIMPLEs (savings incentive match plans for employees) or
SEPs (employer sponsored simplified employee pension plans established under
section 408(k) of the Internal Revenue Code) must also meet the group purchase
requirements described above to be able to buy Class A shares without an initial
sales charge. We may enter into a special arrangement with a securities dealer,
based on criteria established by the fund, to add together certain small
qualified retirement plan accounts for the purpose of meeting these
requirements.

For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply if
the retirement plan is transferred out of the Franklin Templeton Funds or
terminated within 365 days of the retirement plan account's initial purchase in
the Franklin Templeton Funds.

Any retirement plan that does not meet the requirements to buy Class A shares
without an initial sales charge and that was a shareholder of the fund on or
before February 1, 1995, may buy shares of the fund subject to a maximum initial
sales charge of 4% of the offering price, 3.2% of which will be retained by
securities dealers.

SALES IN TAIWAN. 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.

The fund's Class A shares 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 A
shares may be offered with the following schedule of sales charges:

SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE (%)
- -------------------------------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $50,000 2.5
$50,000 but less than $100,000 2.0
$100,000 but less than $200,000 1.5
$200,000 but less than $400,000 1.0
$400,000 or more 0

DEALER COMPENSATION 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 Securities Act of 1933, as amended. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the dealer compensation table in the fund's
prospectus.

Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million 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.

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

Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of Class A shares by certain retirement plans without an initial sales charge.
These payments may be made 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.

In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of the Franklin
Templeton Group of Funds. This support is based primarily on the amount of sales
of fund shares and/or total assets with the Franklin Templeton Group of Funds.
The amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a securities dealer's support of, and
participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to securities dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain securities dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the rules of the National Association of Securities Dealers,
Inc.

Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in the Franklin Templeton Funds,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by Distributors.

CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity discount
or letter of intent programs, a CDSC may apply on any shares you sell within 12
months of purchase. For Class C shares, a CDSC may apply if you sell your shares
within 18 months of purchase. The CDSC is 1% of the value of the shares sold or
the net asset value at the time of purchase, whichever is less.

Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of the Franklin
Templeton Funds or terminated within 365 days of the account's initial purchase
in the Franklin Templeton Funds.

CDSC WAIVERS. The CDSC for any share class generally will be waived for:

o Account fees

o Sales of Class A shares purchased without an initial sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997, or
(ii) the securities dealer of record received a payment from Distributors of
0.25% or less, or (iii) Distributors did not make any payment in connection with
the purchase, or (iv) the securities dealer of record has entered into a
supplemental agreement with Distributors

o Redemptions of Class A shares by investors who purchased $1 million or more
without an initial sales charge if the securities dealer of record waived its
commission in connection with the purchase

o Redemptions by the fund when an account falls below the minimum required
account size

o Redemptions following the death of the shareholder or beneficial owner

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

o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12% annually of your
account's net asset value depending on the frequency of your plan

o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R)

o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy

o Returns of excess contributions (and earnings, if applicable) from retirement
plan accounts

o Participant initiated distributions from employee benefit plans or participant
initiated exchanges among investment choices in employee benefit plans

EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.

If a substantial number of shareholders should, within a short period, sell
their fund shares 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 goal exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing 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 generally are not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh 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.

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. There are no service charges for establishing or
maintaining a systematic withdrawal plan.

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. If the 25th falls on a weekend or holiday, we will process
the redemption on the next business day. When you sell your shares under a
systematic withdrawal plan, it is a taxable transaction.

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan also may be
subject to a CDSC.

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.

You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. 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.

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 U.S. Securities and Exchange
Commission (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.

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

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

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.

Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.

In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional 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.

Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.

Franklin Templeton Investor Services, Inc. (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 also may
charge a fee for their services directly to their clients.

If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund. 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. 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. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the fund in a timely fashion must be settled between you and
your securities dealer.

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

For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.

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, before 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.

PRICING SHARES
- -------------------------------------------------------------------------------

When you buy shares, you pay the offering price. The offering price is the net
asset value (NAV) per share plus any applicable sales charge, calculated to two
decimal places using standard rounding criteria. When you sell shares, you
receive the NAV minus any applicable CDSC.

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.

The fund calculates the NAV per share of each class each business
day at the close of trading on the New York Stock Exchange (normally 1:00 p.m.
Pacific time). The fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.

When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager.

The fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the fund holds is its last sale price on the relevant exchange before the fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the fund values options within the range of the
current closing bid and ask prices if the fund believes the valuation fairly
reflects the contract's market value.

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 fund's NAV is not calculated. Thus, the calculation of the fund's NAV
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 close of the NYSE. The value of these securities used in computing the NAV
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 close of the NYSE that will not be reflected in the computation of the NAV.
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 use a pricing service, bank or securities dealer to perform any of the
above described functions.

THE UNDERWRITER
- -------------------------------------------------------------------------------

Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.

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.

The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances to
dealers, and the amounts Distributors received in connection with redemptions or
repurchases of shares for the last three fiscal years ended August 31:

AMOUNT
RECEIVED IN
CONNECTION
WITH
TOTAL AMOUNT REDEMPTIONS
COMMISSIONS RETAINED BY AND
RECEIVED DISTRIBUTORS REPURCHASES
($) ($) ($)
- -------------------------------------------------------------------------------
1999 179,184 10,375 10,964
1998 467,836 777 12,258
1997 608,587 (2,666) 4,182

Distributors may be entitled to reimbursement under the Rule 12b-1 plans, as
discussed below. Except as noted, Distributors received no other compensation
from the fund for acting as underwriter.

DISTRIBUTION AND SERVICE (12B-1) FEES Each class has a separate distribution or
"Rule 12b-1" plan. Under each plan, the fund shall pay or may reimburse
Distributors or others for the expenses of activities that are primarily
intended to sell shares of the class. These expenses may include, among others,
distribution or service fees paid to securities dealers or others who have
executed a servicing agreement with the fund, Distributors or its affiliates; a
prorated portion of Distributors' overhead expenses; and the expenses of
printing prospectuses and reports used for sales purposes, and preparing and
distributing sales literature and advertisements.

The distribution and service (12b-1) fees charged to each class are based only
on the fees attributable to that particular class.

THE CLASS A PLAN. Payments by the fund under the Class A plan may not exceed
0.25% per year of Class A's average daily net assets, payable quarterly.
Expenses not reimbursed in any quarter may be reimbursed in future quarters or
years. This includes expenses not reimbursed because they exceeded the
applicable limit under the plan. As of August 31, 1999, expenses under the Class
A plan that may be reimbursable in future quarters or years totaled $154,594 of
Class A's net assets.

THE CLASS C PLAN. Under the Class C plan, the fund pays Distributors up to 0.50%
per year of the class's average daily net assets, payable quarterly, to pay
Distributors or others for providing distribution and related services and
bearing certain expenses. All distribution expenses over this amount will be
borne by those who have incurred them. The fund also may pay a servicing fee of
up to 0.15% per year of the class's average daily net assets, payable quarterly.
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 expenses relating to the Class C plan also are used to pay Distributors for
advancing the commission costs to securities dealers with respect to the initial
sale of Class C shares.

THE CLASS A AND C PLANS. The terms and provisions of each plan relating to
required reports, term, and approval are consistent with Rule 12b-1.

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 National Association of Securities Dealers, Inc.

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 noninterested
members of the fund's board. The plans and any related agreement may be
terminated at any time, without penalty, by vote of a majority of the
noninterested 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 management agreement with the manager or by
vote of a majority of the outstanding shares of the class. Distributors or any
dealer or other firm also may 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 noninterested board
members, 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 to enable the board to make an informed determination of
whether the plans should be continued.

For the fiscal year ended August 31, 1999, Distributors' eligible expenditures
for advertising, printing, payments to underwriters and broker-dealers and other
expenses pursuant to the plans and the amounts the fund paid Distributors under
the plans were:

DISTRIBUTORS' AMOUNT
ELIGIBLE PAID BY THE
EXPENSES ($) FUND ($)
- -----------------------------------------------------------------------------
Class A 520,712 431,311
Class C 157,721 131,290

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.
Average annual total return and current yield quotations used by the fund are
based on the standardized methods of computing performance mandated by the SEC.
Performance figures reflect Rule 12b-1 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 follows. Regardless of the method used, past
performance does not guarantee future results, and is an indication of the
return to shareholders only for the limited historical period used.

AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum initial 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 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 initial sales
charge currently in effect.

When considering the average annual total return quotations, you should keep in
mind that the maximum initial 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 returns for the indicated periods ended August 31, 1999, were:

1 YEAR (%) 5 YEARS (%)10 YEARS (%)
- -------------------------------------------------------------------------------
Class A -5.22 5.11 6.13

SINCE
INCEPTION
1 YEAR (%) (5/1/95) (%)

- -------------------------------------------------------------------------------
Class C -3.36 5.10

The following SEC formula was used to calculate these figures:

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 each period at
the end of each period

CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are reinvested
at net asset value, the account was completely redeemed at the end of each
period and the deduction of all applicable charges and fees. Cumulative total
return, however, is based on the actual return for a specified period rather
than on the average return over the periods indicated above. The cumulative
total returns for the indicated periods ended August 31, 1999, were:

1 YEAR (%) 5 YEARS (%)10 YEARS (%)
- -------------------------------------------------------------------------------
Class A -5.22 28.31 81.28

SINCE
INCEPTION
1 YEAR (%) (5/1/95) (%)
- ------------------------------------------------------------------------------
Class C -3.36 24.06

CURRENT YIELD Current yield shows the income per share earned by the fund. It is
calculated by dividing the net investment income per share 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 yields for the 30-day period ended August 31, 1999, were:

CLASS A (%) CLASS C (%)
- -------------------------------------------------------------------------------
5.95 5.52

The following SEC formula was used to calculate these figures:

Yield = 2 [(a-b + 1)6 - 1]
-------------------
cd

where:

a = 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. 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 rates for the 30-day period ended August 31, 1999, were:

CLASS A (%) CLASS C (%)
- -----------------------------------------------------------------------------
6.52 6.34

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 The fund also may quote the performance of shares
without a sales charge. Sales literature and advertising may quote a cumulative
total return, average annual total return and other measures of performance 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
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 goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.

COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:

(i) unmanaged indices so that you 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 that
ranks mutual funds by overall performance, investment goals 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.

From time to time, the fund and the manager also may refer to the following
information:

o The manager's and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or a similar
statistical organization.

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

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

o The geographic and industry distribution of the fund's portfolio and the
fund's top ten holdings.

o 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.

o 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).

o The major industries located in various jurisdictions as published by the
Morgan Stanley Index.

o Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder
services.

o Allegorical stories illustrating the importance of persistent long-term
investing.

o The fund's portfolio turnover rate and its ranking relative to industry
standards as published by Lipper Analytical Services, Inc. or Morningstar, Inc.

o 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.

o Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions. o Quotations from the Templeton
organization's founder, Sir John Templeton,* advocating the virtues of
diversification and long-term investing.

*Sir John Templeton sold the Templeton organization to Franklin Resources, Inc.
in October 1992 and resigned from the board on April 16, 1995. He is no longer
involved with the investment management process.

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 also may compare the fund's performance to the
return on certificates of deposit (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, as well as the value of its shares that
are based upon the value of such portfolio investments, can be expected to fall.
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.

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 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 is one of the
oldest mutual fund organizations and now services more than 3 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, a pioneer in international investing. The Mutual Series team,
known for its value-driven approach to domestic equity investing, became part of
the organization four years later. Together, the Franklin Templeton Group has
over $218 billion in assets under management for more than 6 million U.S. based
mutual fund shareholder and other accounts. The Franklin Templeton Group of
Funds offers 103 U.S. based open-end investment companies to the public. The
fund may identify itself by its NASDAQ symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.

The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has been
making necessary software changes to help the computer systems that service the
fund and its shareholders to be Year 2000 compliant. After completing these
modifications, comprehensive tests are conducted in one of Resources' U.S. test
labs to verify their effectiveness. Resources continues to seek reasonable
assurances from all major hardware, software or data-services suppliers that
they will be Year 2000 compliant on a timely basis. Resources is also developing
a contingency plan, including identification of those mission critical systems
for which it is practical to develop a contingency plan. However, in an
operation as complex and geographically distributed as Resources' business, the
alternatives to use of normal systems, especially mission critical systems, or
supplies of electricity or long distance voice and data lines are limited.

DESCRIPTION OF RATINGS
- -------------------------------------------------------------------------------

CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. (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 as
"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 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 that 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 that 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. These
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 standing. These 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 that are speculative to a high degree.
These 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

STANDARD & POOR'S RATINGS GROUP (S&P(R))

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 a 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 these bonds will likely have some quality and protective
characteristics, they 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 also may 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. Plus (+) or minus (-): The ratings from "AA" to "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.

MUNICIPAL BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. (MOODY'S)

Aaa: Municipal bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"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: Municipal bonds rated Aa are judged to be 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 that make the
long-term risks appear somewhat larger.

A: Municipal 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 that suggest a
susceptibility to impairment sometime in the future.

Baa: Municipal 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.
These bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.

Ba: Municipal 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 may be 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: Municipal 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: Municipal bonds rated Caa are of
poor standing. These issues may be in default or there may be present elements
of danger with respect to principal or interest.

Ca: Municipal bonds rated Ca represent obligations that are speculative to a
high degree. These issues are often in default or have other marked
shortcomings.

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

Con.(-): Municipal bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals that begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon the
completion of construction or the elimination of the basis of the condition.

Standard & Poor's Ratings Group (S&P(R))

AAA: Municipal bonds rated AAA are the highest-grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market,
they move with interest rates and, hence, provide the maximum safety on all
counts. AA: Municipal bonds rated AA also qualify as high-grade obligations, and
in the majority of instances differ from AAA issues only in a small degree.
Here, too, prices move with the long-term money market.

A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions. BBB: Municipal bonds rated BBB are
regarded as having an adequate capacity to pay principal and interest. Whereas
they normally exhibit adequate 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: Municipal 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 these bonds will likely have some quality and
protective characteristics, they are outweighed by large uncertainties or major
risk exposures to adverse conditions.

C: This 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.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

COMMERCIAL PAPER RATINGS

MOODY'S

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's commercial paper
ratings 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 for both short-term debt and
commercial paper, 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. The
relative degree of safety, however, 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.

PART B
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION

TEMPLETON
GLOBAL BOND FUND

TEMPLETON INCOME TRUST

ADVISOR CLASS

STATEMENT OF ADDITIONAL INFORMATION

JANUARY 1, 2000 P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN(R)
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For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goal and Strategies ............................. 2
Risks ........................................... 7
Officers and Trustees ........................... 11
Management and Other Services ................... 14
Portfolio Transactions .......................... 15
Distributions and Taxes ......................... 16
Organization, Voting Rights
and Principal Holders .......................... 18
Buying and Selling Shares ....................... 19
Pricing Shares .................................. 21
The Underwriter ................................. 22
Performance ..................................... 22
Miscellaneous Information ....................... 24
Description of Ratings .......................... 25

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Mutual funds, annuities, and other investment products:

o are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency of the U.S. government;

o are not deposits or obligations of, or guaranteed or endorsed by, any bank;

o are subject to investment risks, including the possible loss of principal.
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406 SAIA 01/00

GOAL AND STRATEGIES
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The fund's investment goal is current income with capital appreciation and
growth of income. This goal is fundamental, which means it may not be changed
without shareholder approval.

The fund tries to achieve its goal by investing primarily in the debt securities
of companies, governments and their agencies located anywhere in the world,
including emerging markets.

The fund may invest up to 100% of its total assets in emerging markets,
including up to 5% of its total assets in Russian securities.

Below is a description of the various types of securities the fund may buy.

The average maturity of the debt securities in the fund's portfolio will
fluctuate depending upon the manager's judgment as to future interest rate
changes.

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 may buy call options on individual securities or futures contracts to
hedge against an increase in the price of securities or futures contracts that
it anticipates buying in the future. Similarly, the fund may buy 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
buying 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.

The fund may not:

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 that 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.

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

The fund also may be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.

RISKS
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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.

DIVERSIFICATION. 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, which generally will relieve the fund of any
liability for federal income tax to the extent its earnings are distributed to
shareholders. See "Distributions and Taxes". 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 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.

OFFICERS AND TRUSTEES
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The trust has a board of trustees. The board is responsible for the overall
management of the trust, including general supervision and review of the fund's
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 board
also monitors the fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.