TEMPLETON INCOME TRUST, 485BPOS, 2000-12-28

TEMPLETON INCOME TRUST
485BPOS, 2000-12-28

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File Nos. 33-6510 and 811-4706

As filed with the Securities and Exchange Commission on December 28, 2000

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. 23 [X]

and/or

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

Amendment No. 24 [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)

MURRAY L. SIMPSON, 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) of rule 485

[X] on JANUARY 1, 2001 pursuant to paragraph (b) of rule 485
---------------

[ ] 60 days after filing pursuant to paragraph (a)(1) of rule 485

[ ] on (date) pursuant to paragraph (a)(1) of rule 485

[ ] 75 days after filing pursuant to paragraph (a)(2) of rule 485

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

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, 2001

[Insert Franklin Templeton Ben Head]

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

3 Main Risks

6 Performance

7 Fees and Expenses

9 Management

10 Distributions and Taxes

11 Financial Highlights

YOUR ACCOUNT

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

13 Choosing a Share Class

16 Buying Shares

19 Investor Services

22 Selling Shares

24 Account Policies

27 Questions

FOR MORE INFORMATION

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

Back Cover

THE FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------

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

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
mainly 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.).

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

[End callout]

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 Ratings Group (S&P(R)) 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.

PORTFOLIO SELECTION The manager allocates the Fund's 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 When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Temporary defensive investments generally may include short-term U.S. government
securities, commercial paper, short-term bank time deposits, and bankers'
acceptances. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the Fund may be unable to achieve its
investment goal.

[Insert graphic of chart with line going up and down] MAIN RISKS
----------

[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]

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.

FOREIGN SECURITIES Investing in foreign securities, including securities of
foreign governments, typically involves more risks than investing in U.S.
securities. Certain of these risks also may apply to securities of U.S.
companies with significant foreign operations. These risks can increase the
potential for losses in the Fund and affect its share price.

CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in foreign
currencies. As a result, their values may be affected by changes in exchange
rates between foreign currencies and the U.S. dollar, as well as between
currencies of countries other than the U.S. For example, if the value of the
U.S. dollar goes up compared to a foreign currency, an investment traded in that
foreign currency will go down in value because it will be worth less U.S.
dollars. The impact of the euro, a relatively new currency adopted by certain
European countries to replace their national currencies, is unclear at this
time.

POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile than
those in the U.S. Investments in these countries may be subject to the risks of
internal and external conflicts, currency devaluations, foreign ownership
limitations and tax increases. It is possible that a government may take over
the assets or operations of a company or impose restrictions on the exchange or
export of currency or other assets. Some countries also may have different legal
systems that may make it difficult for the Fund to vote proxies, exercise
shareholder rights, and pursue legal remedies with respect to its foreign
investments.

TRADING PRACTICES. Brokerage commissions and other fees generally are higher for
foreign securities. Government supervision and regulation of foreign stock
exchanges, currency markets, trading systems and brokers may be less than in the
U.S. The procedures and rules governing foreign transactions and custody
(holding of the Fund's assets) also may involve delays in payment, delivery or
recovery of money or investments.

AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Thus, there may be less information publicly
available about foreign companies than about most U.S. companies.

LIMITED MARKETS. Certain foreign securities may be less liquid (harder to sell)
and more volatile than many U.S. securities. This means the Fund may at times be
unable to sell foreign securities at favorable prices.

EMERGING MARKETS. The risks of foreign investments typically are greater in less
developed countries, sometimes referred to as emerging markets. For example,
political and economic structures in these countries may be less established and
may change rapidly. These countries also are more likely to experience high
levels of inflation, deflation or currency devaluation, which can harm their
economies and securities markets and increase volatility. In fact, short-term
volatility in these markets, and declines of 50% or more, are not uncommon.

CREDIT An issuer of debt securities may 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.

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 and risks 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 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]

[Insert graphic of a bull and a bear] PERFORMANCE
-----------

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]

9.89% 14.91% 3.12% 10.35% -3.58% 18.21% 11.20% 1.83% 5.40% -4.83%
90 91 92 93 94 95 96 97 98 99

YEAR

[Begin callout]
BEST QUARTER:

Q2 '92 7.23%

WORST QUARTER:

Q1 '94 -3.51%
[End callout]

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of September 30, 2000, the Fund's year-to-date return was -2.59% for Class
A.

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999

1 YEAR 5 YEARS 10 YEARS
---------------------------------------------------------------------------
Templeton Global Bond Fund - -8.87% 5.16% 5.94%
Class A/2
Salomon Smith Barney Brothers -4.27% 6.42% 8.03%
WBGI Index/3

SINCE
INCEPTION
1 YEAR 5 YEARS (5/1/95)
---------------------------------------------------------------------------
Templeton Global Bond Fund - -7.06% 4.76% 4.76%
Class C/2
Salomon Smith Barney Brothers -4.27% 4.13% 4.13%
WBGI Index/3

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 Micropal. The unmanaged Salomon Smith Barney
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.

[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------

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 C1
---------------------------------------------------------------------
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

Please see "Choosing a Share Class" on page 12 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 0.48% 0.47%
--------------------
Total annual Fund operating expenses 1.23% 1.62%
--------------------

1. Except for investments of $1 million or more (see page 12) 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.

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
--------------------------------------------------------------------------------
If you sell your shares at the end of the period:

CLASS A $545/1 $799 $1,072 $1,850
CLASS C $362 $606 $972 $2,003
If you do not sell your shares:
CLASS C $263 $606 $972 $2,003

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

[Insert graphic of briefcase] MANAGEMENT

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. Together,
Templeton Investment Counsel, Inc. and its affiliates manage over $229
billion in assets.

A team from Global Bond managers is responsible for the day-to-day management of
the Fund.

The Fund pays Global Bond managers a fee for managing the Fund's assets. For the
fiscal year ended August 31, 2000, the Fund paid 0.50% of its average net assets
to the manager for its services.

[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
-----------------------

INCOME AND CAPITAL GAIN DISTRIBUTIONS The Fund intends to pay an income dividend
monthly from its net investment income. Capital gains, if any, may be
distributed at least annually. The amount of any distributions will vary, and
there is no guarantee the Fund will pay either income dividends or capital gain
distributions.

AVOID "BUYING A DIVIDEND" If you invest in the Fund shortly before it makes a
capital gain distribution, you may receive some of your investment back in the
form of a taxable distribution.

TAX CONSIDERATIONS In general, if you are a taxable investor, 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 as long-term
capital gains no matter how long you have owned your shares. Every January, you
will receive a statement that shows the tax status of distributions you received
for the previous year.

[Begin callout]
Backup Withholding
By law, the Fund must withhold 31% of your taxable distributions and redemption
proceeds unless you: o provide your correct social security or taxpayer
identification number, o certify that this number is correct, and o certify that
you are not subject to backup withholding. The Fund must also withhold if the
IRS instructs it to do so.

[End callout]

When you sell your shares of the Fund, you may realize 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
are subject to state and local taxes. Any foreign taxes the Fund pays on its
investments may be passed through to you as a foreign tax credit. Non-U.S.
investors may be subject to U.S. withholding or estate tax, and are subject to
special U.S. tax certification requirements. You should consult your tax advisor
about the federal, state, local or foreign tax consequences of your investment
in the Fund.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
--------------------

This table presents the Fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP for the fiscal
years ended August 31, 1999 and 2000, and by other auditors for the fiscal years
before August 31, 1999.

CLASS A YEAR ENDED AUGUST 31,
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PER SHARE DATA ($)/1
Net asset value, beginning of year
8.81 9.49 9.82 9.76 9.32
-----------------------------------------------
Net investment income .65 .58 .60 .63 .69
Net realized and unrealized
gains (losses) (.80) (.66) (.32) .03 .35
-----------------------------------------------
Total from investment operations
(.15) (.08) .28 .66 1.04
-----------------------------------------------
Dividends from net
investment income (.60) (.55) (.55) (.60) .58)
Distributions from net
realized gains (.01) (.05) (.06) -- --
Tax return of capital -- -- -- -- (.02)
-----------------------------------------------
Total distributions (.61) (.60) (.61) (.60) (.60)
-----------------------------------------------
Net asset value, end of year 8.05 8.81 9.49 9.82 9.76
-----------------------------------------------

Total return (%/2 (1.80) (1.02) 2.82 6.87 11.44

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 114,247 146,753 189,898 198,131 185,596
Ratios to average net
assets: (%)
Expenses 1.23 1.22 1.17 1.15 1.13
Net investment income 7.19 6.20 6.12 6.41 7.09
Portfolio turnover rate (%) 179.84 74.60 75.95 166.69 109.40

CLASS C

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

PER SHARE DATA ($)1
Net asset value,
beginning of year 8.82 9.50 9.83 9.77 9.31
-----------------------------------------------
Net investment income .58 .54 .56 .57 .61
Net realized and unrealized
gains (losses) (.78 ) (.66) (.32) .05 .41
-----------------------------------------------
Total from investment operations
(.20) (.12) .24 .62 1.02
Dividends from net

investment income (.56) (.51) (.51) (.56) (.54)
Distributions from net

realized gains (.01) (.05) (.06) -- --
Tax basis return of capital -- -- -- -- (.02)
-----------------------------------------------
Total distributions (.57) (.56) (.57) (.56) (.56)
Net asset value, end of year -----------------------------------------------
8.05 8.82 9.50 9.83 9.77
-----------------------------------------------

Total return (%/)2 (2.34) (1.41) 2.46 6.44 11.20

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000) 11,966 17,386 20,404 16,629 6,563
Ratios to average net assets:
(%)
Expenses 1.62 1.62 1.56 1.54 1.56
Net investment income 6.78 5.80 5.73 5.96 6.69
Portfolio turnover rate (%) 179.84 74.60 75.95 166.69 109.40

1.Based on average weighted shares outstanding effective year ended
August 31, 1999.
2.Total return does not include sales charges.

YOUR ACCOUNT

[Insert graphic of pencil marking an "X"] CHOOSING A SHARE CLASS
----------------------

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

------------------------------------------------------------
o Initial sales o Initial sales charge of 1%
charge of 4.25% or less

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

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

SALES CHARGES - CLASS A

THE SALES CHARGE
MAKES UP THIS % OF WHICH EQUALS THIS % OF
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE YOUR NET INVESTMENT
-------------------------------------------------------------------------------
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

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 14), 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 14).

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 20
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
Franklin Templeton funds to take advantage of the lower sales charges for large
purchases of Class A shares.

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

[End callout]

o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in
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) - expresses 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 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.

[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
-------------

MINIMUM INVESTMENTS

-----------------------------------------------------------------------------
INITIAL ADDITIONAL

-----------------------------------------------------------------------------
Regular accounts $1,000 $50
-----------------------------------------------------------------------------
Automatic investment plans $50 ($25 for $50 ($25 for
an Education an Education
IRA) IRA)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
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
-----------------------------------------------------------------------------

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
"Investor Services" on page 19). For example, if you would like to link one of
your bank accounts to your Fund account so that you may use electronic fund
transfers to and from your bank account to buy and sell shares, please complete
the bank information section of the application. We will keep your bank
information on file for future purchases and redemptions.

BUYING SHARES

--------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment Contact your investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE

--------------------------------------------------------------------------------
[Insert graphic of If you have another Franklin Before requesting a
phone and computer] Templeton fund account with Telephone or online
your bank account information purchase into an existing
on file, you may open a new account, please make sure
BY PHONE/ONLINE account by phone. At this we have your bank account
time, a new account may not information on file. If we
(Up to $100,000 per be opened online. do not have this
shareholder per day) information, you will need
to send written
1-800/632-2301 To make a same day instructions with your
investment, your phone order bank's name and address, a
must be received and voided check or savings
franklintemple.com accepted by us by 1:00 p.m. account deposit slip, and
Pacific time or the close of a signature guarantee if
the New York Stock Exchange, the bank and Fund accounts
Note: certain whichever is earlier. do not have at least one
accounts are not common owner.
available for online
account access To make a same day
investment, your phone or
online order must be
received and accepted by us
by 1:00 p.m. Pacific time or
the close of the New York
Stock Exchange, whichever is
earlier.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Make your check payable to Make your check payable to
[Insert graphic of Templeton Global Bond Fund. Templeton Global Bond Fund.
envelope] Include your account number
Mail the check and your on the check.
BY MAIL 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 to Investor
Services.

--------------------------------------------------------------------------------
[Insert graphic of Call to receive a wire Call to receive a wire
three lightning control number and wire control number and wire
bolts] instructions. instructions.

Wire the funds and mail your To make a same day wire
signed application to investment, please call us
BY WIRE Investor Services. Please by 1:00 p.m. Pacific time
include the wire control and make sure your wire
1-800/632-2301 number or your new account arrives by 3:00 p.m.
(or 1-650/312-2000 number on the application.
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 Call Shareholder Services at Call Shareholder Services at
two arrows pointing the number below, or send the number below or our
in opposite signed written instructions. automated TeleFACTS system,
directions] Your also may place an or send signed written
online exchange order. The instructions. You also may
BY EXCHANGE TeleFACTS system cannot be place an online exchange
used to open a new account. order.

TeleFACTS(R) (Please see page 20 for
1-800/247-1753 information on exchanges.) (Please see page 20 for
(around-the-clock information on exchanges.)
access)

Our Website
franklintemple.com

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

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)

[Insert graphic of person with a headset] INVESTOR SERVICES
-----------------

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 and mail it to Investor Services. If you are opening
a new account, please include the minimum initial investment of $50 ($25 for an
Education IRA) with your application.

AUTOMATIC PAYROLL DEDUCTION You may invest in the Fund automatically by
transferring money from your paycheck to the Fund by electronic funds transfer.
If you are interested, indicate on your application that you would like to
receive an Automatic Payroll Deduction Program kit.

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 Bank & Trust 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 Investments 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 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.

FRANKLIN TEMPLETON ONLINE You can visit us online at franklintemple.com
around-the-clock viewing of information about most Franklin Templeton funds or
to register to view you accounts online. You may also register for online
transactions that will allow you to buy, sell, or exchange you shares and make
certain changes to your account. Some account types accounts may not be able to
process any or all transactions online.

TELEPHONE/ONLINE PRIVILEGES You will automatically receive telephone/online
privileges when you open your account, allowing you to obtain or view your
account information, and conduct the following transactions by phone or online:
buy, sell, or exchange shares of most funds; change your address; request a
year-end statement; add or change account services (including distribution
options, systematic withdrawals, automatic investment plans, money fund check
orders).

To view your account information or request online transactions, you will first
need to register for these services at the shareholder section of our website at
franklintempleton.com. You will be asked to accept the terms of an online
agreement(s) and establish a password for online services. Using our shareholder
website means you are consenting to sending and receiving personal financial
information over the Internet so you should be sure you are comfortable with the
risks.

For accounts with more than one registered owner, telephone/online privileges
allow the Fund to accept online registration or telephone/online instructions
for transactions from only one owner. As long as you have telephone/online
exchange privileges on your account, you may exchange shares by phone or online
from a fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.

Additionally, if you have telephone privileges on an account with more than one
owner, the Fund will accept written instructions signed by only ONE OWNER for
transactions that could otherwise be made by phone. For all other transactions
and changes, all registered owners must sign the instructions.

As long as we follow reasonable security procedures and act on instructions we
reasonably believe are genuine, we will not be responsible for any losses that
may occur from unauthorized requests. We will request passwords or other
information, and may also record calls. To help safeguard your account, keep
your password confidential, and verify the accuracy of your confirmation
statements immediately after you receive them. Contact us immediately if you
believe someone has obtained unauthorized access to your account or password.
For transactions done over the Internet, we recommend the use of an Internet
browser with 128-bit encryption. Certain methods of contacting us (such as by
phone or by Internet) may be unavailable or delayed during periods of unusual
market activity. OF COURSE, YOU CAN DECLINE TELEPHONE PRIVILEGES ON YOUR ACCOUNT
APPLICATION, OR CHOOSE NOT TO REGISTER FOR ONLINE PRIVILEGES. IF YOU HAVE
TELEPHONE/ONLINE PRIVILEGES ON YOUR ACCOUNT AND WANT TO DISCONTINUE THEM, PLEASE
CONTACT US FOR INSTRUCTIONS. You may reinstate these privileges at any time in
writing, including online registration with respect to online privileges.

NOTE: We discourage you from including confidential or sensitive information in
any Internet communication to us. If you do choose to send email (encrypted or
not) to us over the Internet, you are accepting the associated risks of lack of
confidentiality.

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.

Because excessive trading can hurt Fund performance, operations and
shareholders, the Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges, reject any exchange, or
restrict or refuse purchases if (i) the Fund or its manager believes the Fund
would be harmed or unable to invest effectively, or (ii) the Fund receives or
anticipates simultaneous orders that may significantly affect the Fund (please
see "Market Timers" on page 25).

*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.

[Insert graphic of a certificate] SELLING SHARES
--------------

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, online, 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, we may
delay sending you the proceeds until your check, draft, or wire/electronic funds
transfer 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 Bank & Trust retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020 for
details.

SELLING SHARES

-------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES

-------------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE

-------------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] certificates (if you hold share certificates)
to Investor Services. Corporate, partnership
BY MAIL or 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.

-------------------------------------------------------------------------
[Insert graphic of As long as your transaction is for $100,000 or
phone and computer] less, you do not hold share certificates and
you have not changed your address by phone or
BY PHONE/ONLINE online within the last 15 days, you can
sell your shares by phone or online.

1-800/632-2301
A check will be mailed to the name(s) and
franklintemple.com 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.

(Please see page 20 for more information.)

--------------------------------------------------------------------------
[Insert graphic of three You can call, write, or visit us online to have
lightening bolts] redemption proceeds sent to a bank account. See the
policies above for selling shares by mail, phone, or
online.

Before requesting to have redemption proceeds
BY ELECTRONIC FUNDS sent to a bank account, please make sure we
TRANSFER (ACH) 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 bank and Fund
accounts do not have at least one common owner.

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 Obtain a current prospectus for the fund you are
arrows pointing in considerding. Prospecutses are available online at
opposite directions] franklintemple.com.

BY EXCHANGE Call Shareholder Services at the number below
or our automated TeleFACTS system, or send
TeleFACTS(R) signed written instructions. You also may
1-800/247-1753 place an exchange order online. See the
(around-the-clock policies above for selling shares by mail,
access) phone, or online.

If you hold share certificates, you will need to return
them to the Fund before your exchange can be processed.
(Please see page 20 for information on exchanges.)

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

[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------

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. You can also review these documents online at franklintemple.com.

INVESTMENT REPRESENTATIVE ACCOUNT ACCESS If there is a dealer or other
investment representative of record on your account, he or she will be able to
obtain your account information, conduct transactions for your account, and will
also receive copies of all notifications and 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 purchases or exchanges by Market
Timers. You may be considered a Market Timer if you have (i) requested an
exchange out of any of the Franklin Templeton funds within two weeks of an
earlier exchange request out of any fund, or (ii) exchanged shares out of any of
the Franklin Templeton funds more than twice within a rolling 90 day period, or
(iii) otherwise seem to follow a market timing pattern that may adversely affect
the Fund. Accounts under common ownership or control with an account that is
covered by (i), (ii), or (iii) are also subject to these limits.

Anyone, including the shareholder or the shareholder's agent, who is considered
to be a Market Timer by the Fund, its manager or shareholder services agent,
will be issued a written notice of their status and the Fund's policies.
Identified Market Timers will be required to register with the market timing
desk of Franklin Templeton Investor Services, Inc., and to place all purchase
and exchange trade requests through the desk. Some funds do not allow
investments by Market Timers.

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

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

o The Fund may modify, suspend, or terminate telephone/online privileges at any
time.

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, in the
case of an emergency, to make payments in securities or other assets of the
Fund, if the payment of cash proceeds 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.

MARKET TIMERS. Please note that for Class A NAV purchases by market timers,
including purchases of $1 million or more, dealers are not eligible to receive
the dealer commission. Dealers, however, may be eligible to receive the 12b-1
fee from the date of purchase.

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.

[Insert graphic of question mark]QUESTIONS

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 also can 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)
----------------------------------------------------------------------------
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 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor 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.
TeleFACTS(R)(automated) 1-800/247-1753 (around-the-clock access)

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. You can
also view the current annual/semiannual report online at franklintemple.com.

FRANKLIN(R)TEMPLETON(R)

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

You also can obtain information about the Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this
information, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request at the
following E-mail address: [email protected].

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

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, 2001

[Insert Franklin Templeton Ben Head]

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

3 Main Risks

6 Performance

7 Fees and Expenses

8 Management

9 Distributions and Taxes

10 Financial Highlights

YOUR ACCOUNT

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

11 Qualified Investors

13 Buying Shares

15 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

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------

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]

[Insert graphic of chart with line going up and down] MAIN RISKS
----------

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.

More detailed information about the Fund, its policies and risks can be found in
the Fund's Statement of Additional Information (SAI).

[Insert graphic of a bull and a bear] PERFORMANCE
-----------

ADVISOR CLASS ANNUAL TOTAL RETURNS/1,/2

[Insert bar graph]

9.89% 14.91% 3.12% 10.35% -3.58% 18.21% 11.20% 2.09% 5.68% -4.70%
90 91 92 93 94 95 96 97 98 99
YEAR

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

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

1. As of September 30, 2000, the Fund's year-to-date return was -2.28%.

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999

1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Templeton Global Bond Fund - Advisor -4.70% 6.33% 6.53%
Class/2

Salomon Smith Barney Brothers WBGI Index/3 -4.27% 6.42% 8.03%

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.
3. Source: Standard & Poor's
Micropal. The unmanaged Salomon Smith Barney 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.

[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------

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

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS

-------------------------------------------------------------------------------
Management fees 0.50%
Distribution and service (12b-1) fees None
Other expenses 0.48%
--------------------------
Total annual Fund operating expenses 0.98%

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
---------------------------------------------
$100 $312 $542 $1,201

[Insert graphic of briefcase] MANAGEMENT

A team from Global Bond managers is responsible for the day-to-day management of
the Fund.

The Fund pays Global Bond Managers a fee for managing the Fund's assets. For the
fiscal year ended August 31, 2000, the Fund paid 0.50% of its average net assets
to the manager for its services.

[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
-----------------------

AVOID "BUYING A DIVIDEND" If you invest in the Fund shortly before it makes a
capital gain distribution, you may receive some of your investment back in the
form of a taxable distribution.

[Begin callout]
Backup Withholding
By law, the Fund must withhold 31% of your taxable distributions and redemption
proceeds unless you: o .....provide your correct social security or taxpayer
identification number, o certify that this number is correct, and o certify that
you are not subject to backup withholding. The Fund must also withhold if the
IRS instructs it to do so.
[End callout]

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
--------------------

AUGUST 31,

-----------------------------------------------------------------------
2000 1999 1998 1997/1
-----------------------------------------------------------------------
PER SHARE DATA ($)/2
Net asset value,

beginning of year 8.81 9.49 9.82 10.16
--------------------------------------
Net investment income .63 .61 .62 .42
Net realized and unrealized
gains (losses) (.77) (.67) (.32) (.34)
--------------------------------------
Total from investment operations
(.14) (.06) .30 .08
--------------------------------------
Less distributions from net
investment income (.62) (.57) (.57) (.42)
--------------------------------------
Distributions from net
realized gains (.01) (.05) (.06)
--------------------------------------
--------------------------------------
Total distributions (.63) (.62) (.63) (.42)
--------------------------------------
--------------------------------------
Net asset value, end of year 8.04 8.81 9.49 9.82
--------------------------------------
Total return (%)/3 (1.65) (.77) 3.08 .80

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x
1,000) 413 1,261 11,330 12,742
Ratios to average net assets:
(%)
Expenses .98 .97 .91 .88/4
Net investment income 7.28 6.42 6.38 6.76/4
Portfolio turnover rate (%) 179.84 74.60 75.95 166.69

1.For the period January 1, 1997 (effective date) to August 31, 1997. 2.Based on
average weighted shares outstanding effective year ended August 31, 1999.

3. Total return is not annualized.
4. Annualized.

YOUR ACCOUNT

[Insert graphic of pencil marking an "X"]QUALIFIED INVESTORS
-------------------

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

o Qualified registered investment advisors with clients invested in any
series of Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy
through a broker-dealer or service agent who has an agreement with
Franklin Templeton Distributors, Inc. (Distributors). Minimum investments:
$1,000 initial and $50 additional.

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
Investments 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 Franklin Templeton fund and $50 additional.

o Accounts managed by Franklin Templeton Investments. 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 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 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 Franklin Templeton
fund.

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 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 Franklin Templeton fund. 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.

[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
-------------

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 "Investor Services" on page 15). For example, if you would like
to link one of your bank accounts to your Fund account so that you may use
electronic fund transfers to and from your bank account to buy and sell shares,
please complete the bank information section of the application. We will keep
your bank information on file for future purchases and redemptions.

BUYING SHARES

--------------------------------------------------------------------------------
[Insert graphic of computer]
If you have another Franklin Before requesting a
Templeton fund account with telephone or online
BY PHONE/ONLINE your bank account information purchase into an existing
on file, you may open a new account, please make sure
(Up to $100,000 per account by phone. At this we have your bank account
shareholder per day) time, a new account may not information on file. If
be opened online. we do not have this
1-800/632-2301 information, you will need
To make a same day to send written
franklintempleton.com investment, your phone order instructions with your
must be received and bank's name and address, a
accepted by us by 1:00p.m. voided check or savings
Note: certain Pacific time or the close of account deposit slip, and
accounts are not the New York Stock Exchange, a signature guarantee if
available for online whichever is earlier. the bank and Fund accounts
account access do not have at least one
common owner.

To make a same day
investment, your phone or
online order must be
received and accepted by us
by 1:00p.m. Pacific time or
the close of the New York
Stock Exchange, whichever
is earlier.

--------------------------------------------------------------------------------
Make your check payable to Make your check payable
[Insert graphic of Templeton Global Bond Fund. to Templeton Global Bond
envelope] Fund. Include your
Mail the check and your account number on the
BY MAIL signed application to check.
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 to Investor
Services.

--------------------------------------------------------------------------------
[Insert graphic of Call to receive a wire Call to receive a wire
three lightning bolts] control number and wire control number and wire
instructions. instructions.

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

--------------------------------------------------------------------------------
[Insert graphic of Call Shareholder Services at Call Shareholder Services
two arrows pointing the number below, or send at the number below, or
in opposite signed written send signed written
directions] instructions. You also may instructions. You also
place an online exchange may place an online
BY EXCHANGE order. exchange order.

Our Website (Please see page 16 for (Please see page 16 for
franklintempleton.com 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)

[Insert graphic of person with a headset] INVESTOR SERVICES
-----------------

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 and mail it to Investor Services. If you are opening
a new account, please include your minimum initial investment with your
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 Bank & Trust 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.

FRANKLIN TEMPLETON ONLINE You can visit us online at franklintempleton.com for
around-the-clock viewing of information about most Franklin Templeton funds or
to register to view your accounts online. You may also register for online
transactions that will allow you to buy, sell, or exchange your shares and make
certain changes to your account. Some account types accounts may not be able to
process any or all transactions online.

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.

[End callout]

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.

[Insert graphic of a certificate] SELLING SHARES
--------------

You can sell your shares at any time.

[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]

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, draft,
or wire/electronic funds transfer has cleared, which may take seven business
days or more. A certified or cashier's check may clear in less time.

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

SELLING SHARES

-------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES

-------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE

-------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed
envelope] share certificates (if you hold share
certificates) to Investor Services.
BY MAIL Corporate, partnership or 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.

-------------------------------------------------------------------
[Insert graphic of As long as your transaction is for
phone and computer] $100,000 or less, you do not hold share
certificates and you have not changed your
BY PHONE/ONLINE address by phone or online within the last
15 days, you can sell your shares by phone
1-800/632-2301 or online.

franklintempleton.com 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.

(Please see page 16 for more information.)

-------------------------------------------------------------------
[Insert graphic of You can call, write, or visit us online to
three have redemption proceeds sent to a bank
lightning bolts] account. See the policies above for
selling shares by mail, phone, or online.
BY ELECTRONIC FUNDS

TRANSFER (ACH) 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 bank and Fund accounts do
not have at least one common owner.

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 Obtain a current prospectus for the fund
arrows pointing in you are considering. Prospectuses are
opposite directions] available online at franklintempleton.com.

BY EXCHANGE

Call Shareholder Services at the number below or send
signed written instructions. You also may place an
exchange order online. See the policies above for selling
shares by mail, phone, or online.

If you hold share certificates, you will need to return
them to the Fund before your exchange can be processed.
(Please see page 16 for 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)

[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------

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.

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 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 restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.

o The Fund may modify, suspend, or terminate telephone/online privileges at any
time.

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.

[Insert graphic of question mark]QUESTIONS

HOURS (PACIFIC TIME, MONDAY
DEPARTMENT NAME TELEPHONE NUMBER THROUGH FRIDAY)
-------------------------------------------------------------------------------
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 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor 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.
TeleFACTS(R)(automated) 1-800/247-1753 (around-the-clock access)

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).

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

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

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, 2001

[Insert Franklin Templeton Ben Head]
P.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, 2001, 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, 2000, 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, Strategies, and Risks. . . . . . . . . . . .2
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. . . . . . . . . . . . . . . . . .25
The Underwriter. . . . . . . . . . . . . . . . . 26
Performance. . . . . . . . . . . . . . . . . . . 27
Miscellaneous Information. . . . . . . . . . . . 29
Description of Ratings. . . . . . . . . . . . . .30

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

o ARE NOT 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.
------------------------------------------------------------------------------

GOAL, STRATEGIES, AND RISKS

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

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 will not be considered a violation of the restriction or
limitation.

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 trying to
maximize the return to shareholders.

The Fund has adopted certain restrictions as fundamental and others as
non-fundamental policies. A policy which is identified as fundamental 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. A
non-fundamental policy may be changed by the Board of Trustees without the
approval of shareholders.

FUNDAMENTAL INVESTMENT POLICIES

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

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 Franklin
Templeton Investments.)

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.

NON-FUNDAMENTAL INVESTMENT POLICIES

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.

NON-FUNDAMENTAL INVESTMENTS, TECHNIQUES, STRATEGIES AND THEIR RISKS

The Fund tries to achieve its goal by investing mainly 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 up to 10% of its total assets in securities that may not be
resold without registration (restricted securities) and securities which are not
otherwise readily marketable, with a maximum of 5% in restricted securities.

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.

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.

In trying to achieve its investment goals, the Fund may, but is not obligated
to, invest in the following types of securities or engage in the following types
of transactions:

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.

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 Ratings Group (S&P(R)) 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.

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, 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.

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.

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.

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.

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").

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.
To the extent the Fund enters into these transactions, their success will depend
upon the manager's ability to predict pertinent market movements.

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 "Fundamental investment policies."

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.

FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against foreign
currency exchange rate risks, the Fund may, but is not obligated to, 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.

EQUITY SECURITIES 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.

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. From time to time, trading in
a foreign market may be interrupted and 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 Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national currencies
of the following member countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the above countries.

The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of the participating countries, however, have retained the
authority to set tax and spending policies and public debt levels.

The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the business
or financial condition of European countries and issuers, and issuers in other
regions, whose securities the Fund may hold, or the impact, if any, on Fund
performance. In the first two years of the euro's existence, the exchange rates
of the euro versus many of the world's major currencies steadily declined. In
this environment, U.S. and other foreign investors experienced erosion of their
investment returns on their euro-denominated securities. The transition and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets, but the
impact of those changes cannot be assessed at this time.

LOANS OF PORTFOLIO SECURITIES To generate additional income, the Fund may lend
certain of its portfolio securities to qualified banks and broker-dealers. These
loans may not exceed 33 1/3% 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
Trustees, 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.

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
suitable 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.

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.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Unfavorable market or economic conditions may include excessive volatility or a
prolonged general decline in the securities markets, the securities in which the
Fund normally invests, or the economies of the countries where the Fund invests.

Temporary defensive investments generally may include (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. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity.

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.

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.

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 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.

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 (68)
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 48 of the
investment companies in Franklin Templeton Investments; and FORMERLY, President,
Chief Executive Officer and Chairman of the Board, General Host Corporation
(nursery and craft centers) (until 1998).

*Nicholas F. Brady (70)
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 oil and gas), C2, Inc. (operating and investment business), and H.J.
Heinz Company (processed foods and allied products); director or trustee, as the
case may be, of 18 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Secretary of the United States Department of the
Treasury (1988-1993), Chairman of the Board, Dillon, Read & Co., Inc.
(investment banking) (until 1988) and U.S. Senator, New Jersey (April
1982-December 1982).

S. Joseph Fortunato (68)
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 50 of the investment companies in Franklin Templeton
Investments.

Andrew H. Hines, Jr. (77)
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 19 of the investment
companies in Franklin Templeton Investments; 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 FORMERLY, director of various of its subsidiaries.

*Charles B. Johnson (67)
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.; 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 49 of the investment companies in Franklin Templeton
Investments.

Betty P. Krahmer (71)
2201 Kentmere Parkway, Wilmington, DE 19806
TRUSTEE

Director or trustee of various civic associations; director or trustee, as the
case may be, of 18 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Economic Analyst, U.S. government.

Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE

Director, Martek Biosciences Corporation, WorldCom, Inc. (communications
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 48 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chairman, White River Corporation (financial services) (until 1998)
and Hambrecht & Quist Group (investment banking) (until 1992), and President,
National Association of Securities Dealers, Inc. (until 1987).

Fred R. Millsaps (71)
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 19 of the
investment companies in Franklin Templeton Investments; 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).

Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Vice President and Director, Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin Investment Advisory Services, Inc., Franklin/Templeton
Investor Services, Inc. and Franklin Templeton 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 52 of the investment
companies in Franklin Templeton Investments.

Jeffrey A. Everett (36)
P.O. Box N-7759, Lyford Cay, Nassau, Bahamas
President

Executive Vice President, Portfolio Management, Templeton Global Advisors
Limited; officer of some of the other investment companies in Franklin Templeton
Investments; and FORMERLY, Investment Officer, First Pennsylvania Investment
Research (until 1989).

Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

President, Member - Office of the President, Chief Financial Officer and
Chief Operating Officer, Franklin Resources, Inc.; Executive Vice President
and Director, Franklin/Templeton Investor Services, Inc.; 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, Franklin Advisers, Inc. and Franklin
Investment Advisory Services, Inc.; Chief Financial Officer, Franklin
Advisory Services, LLC; Chairman 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 52 of the investment companies in Franklin Templeton Investments.

Samuel J. Forester, Jr. (52)
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 9 of the
investment companies in Franklin Templeton Investments; 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).

David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Associate General Counsel, Franklin Templeton Investments; President, Chief
Executive Officer and Director, Franklin Select Realty Trust, Property
Resources, Inc., Property Resources Equity Trust, Franklin Real Estate
Management, Inc. and Franklin Properties, Inc.; officer and director of some
of the other subsidiaries of Franklin Resources, Inc.; officer of 53 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
President, Chief Executive Officer and Director, Franklin Real Estate Income
Fund and Franklin Advantage Real Estate Income Fund (until 1996).

Barbara J. Green (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY

Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc.; officer of 53 of the investment
companies in Franklin Templeton Investments; 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
(until 1986), and Judicial Clerk, U.S. District Court (District of
Massachusetts) (until 1979).

Charles E. Johnson (44)
777 Mariners Island Blvd., San Mateo, CA 94404
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. and Franklin Advisers, Inc.;
Director, Templeton Investment Counsel, Inc.; Chairman of the Board and
President, Franklin Investment Advisory 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 33 of the
investment companies in Franklin Templeton Investments.

Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc., Franklin Investment
Advisory Services, Inc. and Franklin/Templeton Investor Services, Inc.;
Senior Vice President, Franklin Advisory Services, LLC; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 52 of the investment companies in Franklin
Templeton Investments.

John R. Kay (60)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT

Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; Senior Vice President, Franklin Templeton
Services, Inc.; officer of 23 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Vice President and Controller, Keystone
Group, Inc.

Gregory E. McGowan (51)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
PRESIDENT

Executive Vice President and Director, Templeton Investment Counsel, Inc.;
Executive Vice President-International Development, Chief International
General Counsel and Director, Templeton Worldwide, Inc.; Executive Vice
President, General Counsel and Director, 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 Franklin Templeton Investments; director of one of
the subsidiaries of Franklin Resources, Inc.; and FORMERLY, Senior Attorney,
U.S. Securities and Exchange Commission.

Bruce S. Rosenberg (39)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
TREASURER

Vice President, Franklin Templeton Services, Inc., and officer of 19 of the
investment companies in Franklin Templeton Investments, and FORMERLY, Senior
Manager-Fund Accounting, Templeton Global Investors, Inc.(1995-1996).

Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; officer of 53 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until January 2000)
and Director, Templeton Asset Management Ltd. (until 1999).

*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 Franklin Templeton
Investments 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 Franklin Templeton Investments 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 Franklin Templeton
Investments.

TOTAL FEES TOTAL FEES RECEIVED NUMBER OF BOARDS IN
RECEIVED FROM FRANKLIN FRANKLIN TEMPLETON
FROM THE TRUST/1 TEMPLETON INVESTMENTS ON
NAME ($) INVESTMENTS/2 ($) WHICH EACH SERVES/3
--------------------------------------------------------------------------------
Harris J. Ashton 3,000 363,165 48
Nicholas F. Brady 3,000 138,700 18
S. Joseph Fortunato 3,000 363,238 50
John Wm. Galbraith/4 3,021 144,200 0
Andrew H. Hines, Jr 3,016 203,700 19
Betty P. Krahmer 3,000 138,700 18
Gordon S. Macklin 3,000 363,165 48
Fred R. Millsaps 3,016 201,700 19

1. For the fiscal year ended August 31, 2000.
2. For the calendar year ended December 31, 2000.
3. We base the number of boards on the number of registered investment companies
in Franklin Templeton Investments. This number does not include the total number
of series or funds within each investment company for which the board members
are responsible. Franklin Templeton Investments currently includes 52 registered
investment companies, with approximately 156 U.S. based funds or series.

4. Resigned December 31, 2000.

Noninterested board members and Mr. Brady are reimbursed for expenses incurred
in connection with attending board meetings, paid pro rata by each fund in
Franklin Templeton Investments 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
Franklin Templeton Investments. 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 Franklin Templeton Investments, 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, Hungary,
India, Ireland, Italy, Japan, Korea, Luxembourg, Mauritius, Netherlands, Poland,
Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey,
United Kingdom, United States and Venezuela.

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.

The Fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal securities
transactions, including transactions involving securities that are being
considered for the Fund or that are currently held by the Fund, subject to
certain general restrictions and procedures. The personal securities
transactions of access persons of the Fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).

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 ($)
-------------------------------------------------
2000 759,639
1999 975,877
1998 1,139,351

ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager 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 FT Services
the following administration fees:

ADMINISTRATION FEES PAID ($)
-------------------------------------------------
2000 227,895
1999 292,763
1998 340,429

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 33716-1205. 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 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 Franklin Templeton Investments, also may be
considered a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.

Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the Fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.

If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by 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 ($)
-------------------------------------------------
2000 00
1999 4,024
1998 5,681

As of August 31, 2000, the Fund did not own securities of its regular
broker-dealers.

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

The Fund calculates income dividends and capital gain distributions 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 applicable to each class.

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. If you are a taxable investor,
any income dividends the Fund pays are taxable to you as ordinary income.

DISTRIBUTIONS OF CAPITAL GAINS The Fund may realize capital gains and losses on
the sale or other disposition of its portfolio securities. Distributions from
net short-term capital gains are taxable to you as ordinary income.
Distributions from net long-term capital gains are taxable to you as long-term
capital gains, regardless of how long you have owned your shares in the Fund.
Any net capital gains realized by the Fund generally are distributed once each
year, and may be distributed more frequently, if necessary, to reduce or
eliminate excise or income taxes on the Fund.

DISTRIBUTIONS OF FIVE YEAR GAINS Beginning in the year 2001 for shareholders in
the 15% federal income tax bracket (or in the year 2006 for shareholders in the
28% or higher bracket), capital gain distributions from the Fund's sale of
securities held for more than five years are subject to a maximum rate of tax of
8% (or 18% for shareholders in the 28% or higher bracket).

PASS-THROUGH OF FOREIGN TAX CREDITS The Fund may be subject to foreign
withholding taxes on income from certain foreign securities. This, in turn,
could reduce the Fund's income dividends paid to you. If more than 50% of the
Fund's total assets at the end of a fiscal year is invested in foreign
securities, 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 Fund may report
more taxable income to you than it actually distributes. You will then be
entitled either to deduct your share of these taxes in computing your taxable
income, or to claim a foreign tax credit for these taxes against your U.S.
federal income tax (subject to limitations for certain shareholders). The Fund
will provide you with the information necessary to complete your personal income
tax return if it makes this election.

EFFECT OF FOREIGN DEBT INVESTMENTS AND HEDGING 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 on the sale of
debt securities generally are treated as ordinary losses. These gains when
distributed are taxable to you as ordinary income, and any losses 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. A return of capital generally is not taxable
to you, but reduces the tax basis of your shares in the Fund. Any return of
capital in excess of your basis, however, is taxable as a capital gain.

INFORMATION ON THE AMOUNT AND TAX CHARACTER OF DISTRIBUTIONS The Fund will
inform you of the amount of your income dividends and capital gain 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 owned your Fund shares for a full year, the Fund may designate and
distribute to you, as ordinary income or capital gains, a percentage of income
that may not be equal to the actual amount of each type of income earned during
the period of your investment in the Fund. Distributions declared in December
but paid in January are taxable to you as if paid in December.

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 (Code). It has qualified as a regulated investment company for its
most recent fiscal year, and intends to continue to 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 this course of action to be beneficial to
shareholders. In that case, the Fund would be subject to federal, and possibly
state, corporate taxes on its taxable income and gains, and distributions to you
would be taxed as ordinary income dividends to the extent of the Fund's earnings
and profits.

EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Code
requires the Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts:

o 98% of its taxable ordinary income earned during the calendar year;
o 98% of its capital gain net income earned during the twelve month
period ending October 31; and
o 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 them for shares of a
different Franklin Templeton fund, the IRS requires you to report any gain or
loss on your redemption or exchange. If you hold your shares as a capital asset,
any gain or loss that you realize is a capital gain or loss and is long-term or
short-term, generally depending on how long you have owned your shares.

REDEMPTIONS AND FIVE YEAR GAINS Beginning in the year 2001 for shareholders in
the 15% federal income tax bracket (or in the year 2006 for shareholders in the
28% or higher bracket), gain from the redemption of Fund shares held for more
than five years may be subject to a maximum rate of tax of 8% (or 18% for
shareholders in the 28% or higher bracket). If you are in the 28% or higher tax
bracket, you may elect to mark your Fund shares to market on January 2, 2001. If
you make this election, any Fund shares that you acquired before this date will
be eligible for the 18% maximum rate of tax, beginning in 2006. However, in
making the election, you are required to pay a tax on any appreciation in the
value of your Fund shares on January 2, 2001, and to restart your holding period
in the shares on this date.

REDEMPTIONS AT A LOSS WITHIN SIX MONTHS OF PURCHASE Any loss incurred on the
redemption or exchange of shares held for six months or less is 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.

WASH SALES All or a portion of any loss that you realize on the redemption of
your Fund shares is 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 is added to
your tax basis in the new shares.

DEFERRAL OF BASIS If you redeem some or all of your shares in the Fund, and then
reinvest the redemption 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. In reporting
any gain or loss on your redemption, all or a portion of the sales charge that
you paid for your original shares in the Fund is excluded from your tax basis in
the shares sold and added to your tax basis in the new shares.

U.S. GOVERNMENT SECURITIES The income earned on certain U.S. government
securities is exempt from state and local personal income taxes if earned
directly by you. States also grant tax-free status to mutual fund dividends paid
to you from interest earned on these securities, subject in some states to
minimum investment or reporting requirements that must be met by a fund. The
income on Fund investments in certain securities, such as repurchase agreements,
commercial paper and federal agency-backed obligations (e.g., Government
National Mortgage Association (GNMA) or Federal National Mortgage Association
(FNMA) securities), generally does not qualify for tax-free treatment. The rules
on exclusion of this income are different for corporations.

DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS It is anticipated that none or
only a small percentage of the Fund's income dividends will qualify for the
corporate dividends-received deduction. This is because only dividends received
by the Fund from its investment in certain corporations qualify for the
deduction.

INVESTMENT IN COMPLEX SECURITIES The Fund may invest in complex securities that
could affect whether gains and losses it recognizes are treated as ordinary
income or capital gains, or could affect the amount and timing of income
distributed to you. For example, if the Fund is allowed to invest in option or
futures contracts, it could be required to mark-to-market these contracts at its
fiscal year end. Under these rules, gains or losses on these contracts would be
treated as 60% long-term and 40% short-term capital gains or losses.

The Fund may also invest in securities issued or purchased at a discount, such
as zero coupon, step-up or payment-in-kind (PIK) bonds, that may require it to
accrue and distribute income not yet received. In order to generate sufficient
cash to make these distributions, the Fund may be required to sell securities in
its portfolio that it otherwise might have continued to hold. These rules could
affect the amount, timing and tax character of income distributed to you by the
Fund.

PFIC SECURITIES The Fund may invest in securities of foreign entities that could
be deemed for tax purposes to be passive foreign investment companies (PFICs).
The Fund intends to mark-to-market these securities, and recognize any gains at
the end of its fiscal year. Deductions for losses are allowable only to the
extent of any current or previously recognized gains. These gains (reduced by
allowable losses) are treated as ordinary income that the Fund is required to
distribute, even though it has not sold the securities.

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

The Fund is a nondiversified series of Templeton Income Trust (the 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 Global Bond Fund - Class A
o Templeton Global Bond Fund - Class C
o 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, 2000, the principal shareholders of the Fund, beneficial or of
record, were:

Charles Schwab & Co Inc Class A 17.01
FBO SPS Advantage
101 Montgomery St.
San Francisco, CA 94104-4122

FTB&T Cust for the IRA of Advisor 10.89
Dieter E. Bronner Class
17940 Gulf Blvd Condo 12E
Redington Shores, FL 33708

FTB&T Cust for the 403B of Advisor 7.10
Zelma D. Tate Class
FBO Zelma D. Tate
833 Parkhaven
Mesquite, TX 75149

Larry L Greene Advisor 6.52
7106 Fort Hunt Rd Class
Alexandria, VA 22307

Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and/or
trustees of the Trust, may be considered beneficial holders of the Fund
shares held by Franklin Resources, Inc. (Resources). As principal
shareholders of Resources, they may be able to control the voting of
Resources' shares of the Fund.

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

As of December 1, 2000, 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 Franklin Templeton
Investments.

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 Franklin Templeton funds to take advantage of the
lower sales charges for large purchases. Franklin Templeton funds include the
U.S. registered mutual funds in Franklin Templeton Investments except Franklin
Templeton Variable Insurance Products Trust and Templeton Capital Accumulator
Fund, Inc.

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 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 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 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 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 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. 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 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 investing 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 may accept orders for these accounts 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 Franklin Templeton
Investments, 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 Franklin Templeton Investments

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, 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 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 Franklin Templeton funds or terminated
within 365 days of the retirement plan account's initial purchase in 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 $100,000 2.0
$100,000 but less than $400,000 1.0
$400,000 or more 0
$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: 0.75% on sales of $1 million to $2 million, plus
0.60% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.

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 Franklin
Templeton Investments. This support is based primarily on the amount of sales of
fund shares and/or total assets with Franklin Templeton Investments. 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 Franklin
Templeton Investments; 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 Franklin Templeton Investments. 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 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 Franklin
Templeton funds or terminated within 365 days of the account's initial purchase
in 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 an employee benefit plan: (i) that is a customer of Franklin
Templeton Defined Contribution Services; and/or (ii) whose assets are held by
Franklin Templeton Bank & Trust as trustee or custodian

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.

Each month in which a payment is scheduled, we will redeem an equivalent amount
of shares in your account on the day of the month you have indicated on your
account application or, if no day is indicated, on the 20th day of the month. If
that day falls on a weekend or holiday, we will process the redemption on the
next business day. For plans set up before June 1, 2000, we will continue to
process redemptions on the 25th day of the month (or the next business day)
unless you instruct us to change the processing date. Available processing dates
currently are the 1st, 5th, 10th, 15th, 20th and 25th days of the month. 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.

To discontinue a systematic withdrawal plan, change the amount and schedule of
withdrawal payments, or suspend one payment, we must receive instructions from
you at least three business days before a scheduled payment. The Fund may
discontinue a systematic withdrawal plan by notifying you in writing and will
discontinue a systematic withdrawal plan automatically 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.

There are special procedures for banks and other institutions that wish to open
multiple accounts. An institution may open a single master account by filing one
application form with the Fund, signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened when the master account is
opened by listing them on the application, or by providing instructions to the
Fund at a later date. These sub-accounts may be registered either by name or
number. The Fund's investment minimums apply to each sub-account. The Fund will
send confirmation and account statements for the sub-accounts to the
institution.

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 COMMISSIONS AMOUNT RETAINED BY REDEMPTIONS AND
RECEIVED ($) DISTRIBUTORS ($) REPURCHASES ($)
-------------------------------------------------------------------------------
2000 76,916 6,082 34,061
1999 179,184 10,375 10,964
1998 467,836 777 12,258

Distributors may be entitled to payments from the Fund 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 The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the Fund and its shareholders.
The plans are expected to, among other things, increase advertising of the Fund,
encourage sales of the Fund and service to its shareholders, and increase or
maintain assets of the Fund so that certain fixed expenses may be spread over a
broader asset base, resulting in lower per share expense ratios. In addition, a
positive cash flow into the Fund is useful in managing the Fund because the
manager has more flexibility in taking advantage of new investment opportunities
and handling shareholder redemptions.

Under each plan, the Fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others who
have executed a servicing agreement with the Fund, Distributors or its
affiliates and who provide service or account maintenance to shareholders
(service fees); the expenses of printing prospectuses and reports used for sales
purposes, and of preparing and distributing sales literature and advertisements;
and a prorated portion of Distributors' overhead expenses related to these
activities. Together, these expenses, including the service fees, are "eligible
expenses." The 12b-1 fees charged to each class are based only on the fees
attributable to that particular class.

THE CLASS A PLAN. The Fund may pay up to 0.25% per year of Class A's average
daily net assets.

THE CLASS A PLAN is a reimbursement plan. It allows the Fund to reimburse
Distributors for eligible expenses that Distributors has shown it has incurred.
The Fund will not reimburse more than the maximum amount allowed under the plan.
Any unreimbursed expenses from one quarter, however, may be reimbursed in future
quarters or years. This includes expenses not reimbursed because they had
exceeded the applicable limit under the plan. As of August 31, 2000, expenses
under the plan that may be reimbursable in future quarters or years totaled
$215,334, or 0.18848% of Class A's net assets.

For the fiscal year ended August 31, 2000, the amounts paid by the fund pursuant
to the plan were:

($)
-----------------------------------------------------
Advertising 8,574
Printing and mailing prospectuses 11,218
other than to current shareholders
Payments to underwriters 5,940
Payments to broker-dealers 294,032
Other 29,192
-------------
Total 348,956
=============

THE CLASS C PLANS. The Fund pays Distributors up to 0.65% per year of the
class's average daily net assets, out of which 0.15% may be paid for services to
the shareholders (service fees). The Class C plan also may be used to pay
Distributors for advancing commissions to securities dealers with respect to the
initial sale of Class C shares.

THE CLASS C plans is a compensation plan. It allows the Fund to pay a fee to
Distributors that may be more than the eligible expenses Distributors has
incurred at the time of the payment. Distributors must, however, demonstrate to
the board that it has spent or has near-term plans to spend the amount received
on eligible expenses. The Fund will not pay more than the maximum amount allowed
under the plan.

In addition to the payments that Distributors or others are entitled to under
each plan, each plan also provides that to the extent the Fund, the manager or
Distributors or other parties on behalf of the Fund, the manager or Distributors
make payments that are deemed to be for the financing of any activity primarily
intended to result in the sale of Fund shares within the context of Rule 12b-1
under the Investment Company Act of 1940, as amended, then such payments shall
be deemed to have been made pursuant to the plan.

Under the Class C plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended August 31, 2000, were:

($)
-----------------------------------------------------
Advertising 1,632
Printing and mailing prospectuses
other than to current shareholders 1,289
Payments to underwriters 632
Payments to broker-dealers 91,517
Other 2,231
-------------
Total 97,301
=============

THE CLASS A AND C PLANS. To the extent fees are for distribution or marketing
functions, as distinguished from administrative servicing or agency
transactions, certain banks may not participate in the plans because of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. These banks, however, are allowed to receive
fees under the plans for administrative servicing or for agency transactions.

Distributors must provide written reports to the board at least quarterly on the
amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board may
reasonably request to enable it to make an informed determination of whether the
plans should be continued.

Each plan has been approved according to the provisions of Rule 12b-1. The terms
and provisions of each plan also are consistent with Rule 12b-1.

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, 2000, were:

1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
-----------------------------------------------------------------------------
Class A -5.96 2.66 5.07

SINCE
INCEPTION
1 YEAR (%) 5 YEARS (%) (5/1/95)(%)
-----------------------------------------------------------------------------
Class C -4.23 2.95 2.95

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, 2000, were:

1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
-----------------------------------------------------------------------------
Class A -5.96 14.00 63.94

SINCE
INCEPTION
1 YEAR (%) 5 YEARS (%) (5/1/95) (%)
-----------------------------------------------------------------------------
Class C -4.23 15.64 15.64

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, 2000, were:

CLASS A (%) CLASS C (%)
-------------------------------------------------------------------
6.98 6.58

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 that 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, 2000, were:

CLASS A (%) CLASS C (%)
---------------------------------------------
6.68 6.52

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
Franklin Templeton Investments. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of Franklin Templeton 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(R) 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 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 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 Salomon World Government Bond 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(R)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.

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. 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
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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 Franklin Templeton Investments, 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 approximately 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, Franklin Templeton Investments has over
$229 billion in assets under management for more than 5 million U.S. based
mutual fund shareholder and other accounts. Franklin Templeton Investments
offers 107 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.

DESCRIPTION OF RATINGS
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CORPORATE BOND RATINGS

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

INVESTMENT GRADE

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.

BELOW INVESTMENT GRADE

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))

INVESTMENT GRADE

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.

BELOW INVESTMENT GRADE

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.

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.

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* 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.

PART B
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION

TEMPLETON GLOBAL BOND FUND

Templeton Income Trust

ADVISOR CLASS

STATEMENT OF ADDITIONAL INFORMATION

JANUARY 1, 2001

[Insert Franklin Templeton Ben Head]
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, and Risks. . . . . . . . . 2
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. . . . . . . . . . . . 25
Description of Ratings. . . . . . . . . . . . . .25

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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

o ARE NOT 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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GOAL, STRATEGIES, AND RISKS
------------------------------------------------------------------------------

FUNDAMENTAL INVESTMENT POLICIES

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

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.

NON-FUNDAMENTAL INVESTMENT POLICIES

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.

NON-FUNDAMENTAL INVESTMENTS, TECHNIQUES, STRATEGIES AND THEIR RISKS

The Fund tries to achieve its goal by investing mainly 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.

In trying to achieve its investment goals, the Fund may, but is not obligated
to, invest in the following types of securities or engage in the following types
of transactions:

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 Ratings Group(S&P(R)) 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.

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.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Unfavorable market or economic conditions may include excessive volatility or a
prolonged general decline in the securities markets, the securities in which the
Fund normally invests, or the economies of the countries where the Fund invests.

OFFICERS AND TRUSTEES
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