FRANKLIN MANAGED TRUST, 497, 1995-02-21

FRANKLIN MANAGED TRUST
497, 1995-02-21

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SUPPLEMENT
TO THE PROSPECTUS OF
FRANKLIN CORPORATE QUALIFIED
DIVIDEND FUND
(FRANKLIN MANAGED TRUST)
DATED FEBRUARY 1, 1995

The following revisions are made to certain operating policies of the Fund,
which are effective as of February 1, 1995:

HOW TO BUY SHARES OF THE FUND - PURCHASES AT NET ASSET VALUE

a) Substitute the following for the third sentence of paragraph three under the
section:

While credit will be given for any contingent deferred sales charge paid on
the shares redeemed, a new contingency period will begin.

b) Each of the remaining paragraphs in the section which defines the categories
of investors who may purchase at net asset value is revised to reflect that such
purchases are without a front-end sales charge (net asset value) and without the
imposition of a contingent deferred sales charge.

<PAGE>

FRANKLIN
CORPORATE QUALIFIED
DIVIDEND FUND

Franklin Managed Trust

PROSPECTUS FEBRUARY 1, 1995

[FRANKLIN LOGO]

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------

Franklin Managed Trust (the "Trust") is a diversified, open-end management
investment company consisting of three separate series. This Prospectus pertains
only to the Franklin Corporate Qualified Dividend Fund (the "Fund"), formerly
the Franklin Corporate Cash Portfolio.

The Fund is designed exclusively to serve as an income producing vehicle for the
cash reserves of taxable corporations. The objective of the Fund is to generate
high after-tax income for corporations, consistent with investment in investment
quality securities. To achieve its objective, the Fund invests primarily in the
equity securities of domestic corporations that generate dividend income
qualifying for the 70% corporate dividends-received deduction under current
federal income tax laws.

This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.

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

A Statement of Additional Information ("SAI") concerning the Trust, dated
February 1, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.

This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>

CONTENTS PAGE

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

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

About the Trust.......................................................... 4

Investment Objective and Policies of the Fund............................ 4

Management of the Fund................................................... 8

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

Taxation of the Fund and Its Shareholders................................ 11

How to Buy Shares of the Fund............................................ 12

Other Programs and Privileges Available to Fund Shareholders............. 15

Exchange Privilege....................................................... 17

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

Telephone Transactions................................................... 23

Valuation of Fund Shares................................................. 24

How to Get Information Regarding an Investment in the Fund............... 25

Performance.............................................................. 26

General Information...................................................... 27

Account Registrations.................................................... 28

Portfolio Operations..................................................... 28

EXPENSE TABLE
- --------------------------------------------------------------------------------

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund for the fiscal year ended September 30, 1994.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).......... 1.50%
Deferred Sales Charge.................................................................. NONE*
Exchange Fee (per transaction)......................................................... $5.00**

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................................................ 0.50%
12b-1 Fees............................................................................. 0.23%+
Other Expenses:
Accounting Fees...................................................... 0.12%
Registration Fees.................................................... 0.05%
Other................................................................ 0.10%
-----
Total Other Expenses................................................................... 0.27%
-----
Total Fund Operating Expenses.......................................................... 1.00%
=====
</TABLE>

*Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is imposed on certain
redemptions within 12 months of the calendar month following such investments.
See "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."

**$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.

+Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules. Given the
Fund's maximum initial sales charge and the rate of the Fund's Rule 12b-1 fee,
however, it is estimated that this would take a substantial number of years.

<PAGE>

Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.

EXAMPLE

As required by SEC regulations, the following example illustrates the expenses,
including the initial sales charge, that apply to a $1,000 investment in the
Fund over various time periods assuming (1) a 5% annual rate of return and (2)
redemption at the end of each time period.

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C>
$25 $46 $69 $136
</TABLE>

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

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

Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of the registration statement through each of
the fiscal years ended December 31, 1992, for the nine-month period ended
September 30, 1993 (annualized as a result of a change in fiscal year end from
December to September) and for the fiscal year ended September 30, 1994. The
information has been audited by Tait, Weller and Baker, independent auditors,
whose audit report covering the years ended 1990 through 1994 appears in the
financial statements in the Trust's SAI. The remaining figures, which are also
audited, are not covered by the auditors' current report. See the discussion
"Reports to Shareholders" under "General Information."

<PAGE>

PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM FROM NET VALUES
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT AT END TOTAL
OF YEAR INCOME ON SECURITIES OPERATIONS INCOME OF YEAR RETURN+
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1987** $25.00 $1.68 $(3.460) $(1.780) $(1.450) $21.77 (7.41)%
1988++ 21.77 1.84 (0.650) 1.190 (1.850) 21.11 5.68
1989 21.11 1.76 (0.434) 1.326 (1.786) 20.65 6.42
1990 20.65 1.77 (1.566) 0.204 (1.824) 19.03 1.05
1991 19.03 1.73 2.540 4.270 (1.670) 21.63 23.25
1992 21.63 1.37 2.144 3.514 (1.394) 23.75 16.57
1993*** 23.75 0.73 0.777 1.507 (0.787) 24.47 6.44
1994**** 24.47 1.02 (0.844) 0.176 (0.956) 23.69 .72

</TABLE>

RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------
YEAR NET ASSETS RATIO OF RATIO OF
ENDED AT END EXPENSES NET INCOME PORTFOLIO
OF YEAR TO AVERAGE TO AVERAGE TURNOVER
(IN 000'S) NET ASSETS NET ASSETS RATE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
1987** $14,134 1.34%* 7.94%* 149.17%
1988++ 30,632 1.46 8.51 8.00
1989 23,260 1.43 8.31 14.42
1990 17,498 1.33 8.84 1.55
1991 22,242 1.24 8.09 --
1992 29,444 1.10 5.97 29.01
1993*** 33,849 1.06* 4.09* 27.46
1994**** 31,790 1.00 4.19 32.17

</TABLE>

*Annualized

**For the period January 14, 1987 (effective date of registration) to December
31, 1987.

***For the period ended September 30, 1993.

****For the year ended September 30, 1994.

+Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 1.5% initial sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.

++On June 28, 1988, the investment manager changed from L.F. Rothschild Fund
Management, Inc. to Franklin Advisers, Inc.

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

The Trust is a diversified, open-end management investment company, or mutual
fund, organized as a Massachusetts business trust in July 1986 and registered
with the SEC under the Investment Company Act of 1940 (the "1940 Act"). The
Trust currently consists of three series, each of which issues a separate series
of the Trust's shares and maintains a totally separate investment portfolio.
This Prospectus pertains only to the Franklin Corporate Qualified Dividend Fund
(the "Fund") which changed its name from the Franklin Corporate Cash Portfolio,
effective May 1, 1991.

Shares of the Fund may be purchased (minimum investment of $25,000 initially and
$5,000 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge not
exceeding 1.5% of the offering price. Shares of the Fund are available for
purchase only by corporations.

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
- --------------------------------------------------------------------------------

The Fund is designed to serve as an income producing vehicle for the cash
reserves of taxable corporations. The objective of the Fund is to generate high
after-tax income for corporations, consistent with investment in investment
quality securities. The objective is a fundamental policy of the Fund and may
not be changed without shareholder approval.

The Fund seeks to achieve its investment objective by maximizing the amount of
dividend income it receives which qualifies for the 70% corporate
dividends-received deduction under current federal income tax laws. Under normal
market conditions, at least 75% of the Fund's total assets will be invested in
equity securities of domestic corporations paying dividends that qualify for the
dividends-received deduction. The types of securities in which the Fund
typically invests include adjustable rate preferred stocks, auction rate
preferred stocks, conventional preferred stocks, and common stocks. Many of the
securities in which the Fund may invest are not short-term, and the net

<PAGE>

asset value per share of the Fund will fluctuate as the market value of its
investment portfolio fluctuates.

Because the Fund seeks income consistent with prudent management, under normal
market conditions at least 95% of the Fund's portfolio is invested in equity
securities of issuers whose long-term debt securities are either rated in one of
the four highest rating categories (described below) or, if unrated, are of
equivalent quality as determined by the Fund's investment manager. The common
stocks that the Fund purchases are generally not rated and ratings on the
issuers' preferred or debt securities should not be construed as a rating on the
issuers' common stocks. The four highest rating categories are AAA, AA, A or BBB
by Standard & Poor's Corporation ("S&P"), or Aaa, Aa, A, or Baa by Moody's
Investors Service ("Moody's"). Debt securities within the top three categories
(AAA, AA and A by S&P or Aaa, Aa or A by Moody's) comprise what are known as
high-grade bonds and are regarded as having a strong capacity to pay principal
and interest. Medium-grade bonds (BBB by S&P or Baa by Moody's) are regarded as
having an adequate capacity to pay principal and interest but with greater
vulnerability to adverse economic conditions and some speculative
characteristics. See "Appendix" in the SAI for a further description of these
ratings.

Although there is no assurance that the Fund will achieve its objective due to
the market risks inherent in any investment program, the investment manager
believes that such risks may be minimized through careful analysis of
prospective issuers. Thus, while the opinion of rating services may be
considered in selecting securities for the Fund's portfolio, in choosing
investments the investment manager relies primarily on its own credit analysis,
which includes a study of the existing debt, capital structure, ability to
service debt and to pay dividends, and the credit rating and current trend of
earnings for any company under consideration.

Consistent with procedures approved by the Board of Trustees and subject to the
following conditions, the Fund may lend its portfolio securities to qualified
securities dealers or other institutional investors, provided that such loans do
not exceed 30% of the value of the Fund's total assets at the time of the most
recent loan. The borrower must deposit with the Fund's custodian collateral with
an initial market value of at least 102% of the initial market value of the
securities loaned, including any accrued interest, with the value of the
collateral and loaned securities marked-to-market daily to maintain collateral
coverage of at least 100%. Such collateral shall consist of cash, securities
issued by the U.S. government, its agencies or instrumentalities, or irrevocable
letters of credit. The lending of securities is a common practice in the
securities industry. The Fund may engage in security loan arrangements with the
primary objective of increasing the Fund's income either through investing the
cash collateral in short-term, interest bearing obligations or by receiving a
loan premium from the borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially.

In any period of stock market weakness or of uncertain market or economic
conditions as determined by the investment manager, the Fund may establish a
defensive position to preserve capital by temporarily investing all or a part of
its assets in short-term, fixed-income securities or retaining such assets in
cash or cash equivalents. Such investments, which may also be made on a
temporary basis pending investment in equity securities,

<PAGE>

would include U.S. government securities, bank certificates of deposit, bankers'
acceptances and high-quality commercial paper issued by domestic corporations.
For temporary defensive purposes, or as an interim investment pending longer
term investment in dividend-paying equity securities, the Fund may engage in
repurchase transactions, in which the Fund purchases a U.S. government security
subject to resale to a bank or dealer at an agreed-upon price and date. The
transaction requires the collateralization of the seller's obligation by the
transfer of securities with an initial market value, including accrued interest,
equal to at least 102% of the dollar amount invested by the Fund in each
agreement, with the value of the underlying security marked to market daily to
maintain coverage of at least 100%. A default by the seller might cause the Fund
to experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. The Fund might also incur disposition costs in liquidating
the collateral. The Fund, however, intends to enter into repurchase agreements
only with financial institutions such as broker-dealers and banks which are
deemed creditworthy by the Fund's investment manager. A repurchase agreement is
deemed to be a loan by the Fund under the 1940 Act. The U.S. government security
subject to resale (the collateral) will be held on behalf of the Fund by a
custodian approved by the Fund's Board of Trustees and will be held pursuant to
a written agreement.

To the extent interest income is derived from the above activities, it will not
qualify for the corporate dividends-received deduction.

It is the policy of the Fund that illiquid securities (securities that cannot be
disposed of within seven days in the normal course of business at approximately
the amount at which the Fund has valued the securities) or restricted securities
may not constitute, at the time of purchase, more than 10% of the value of the
total net assets of the Fund.

Adjustable Rate and Auction Rate Preferred Stocks. As noted, the Fund may invest
a portion of its portfolio in adjustable rate and auction rate preferred stocks,
the dividends on which qualify for the dividends-received deduction.

Adjustable rate stocks are preferred stocks with cumulative and adjustable
dividends. Regardless of the issuer, these stocks generally have the same terms
and provisions, except for the specific adjustment formula used to determine
their quarterly dividend rate. Such formulas vary in regard to (i) the fixed
amount of premium or discount in relation to a particular U.S. Treasury
instrument rate and (ii) the minimum and maximum range within which the dividend
rate may fluctuate. The applicable rate is generally determined by the issuer at
the beginning of each quarterly dividend period by adding or subtracting
(depending upon the terms of the issue) either a fixed number of basis points or
a percentage calculation to the highest of three specified rates: a "Treasury
Bill Rate," a "Ten-Year Constant Maturity Rate" and a "Twenty-Year Constant
Maturity Rate." Auction rate stocks are similar to short-term, corporate money
market instruments in that the auction rate preferred stockholder normally has
the opportunity to liquidate at par every 49 days, at which time the dividend
rate is reset. Generally, the maximum dividend rate ranges from 110% to 250%,
depending on quality, of the sixty-day "AA" Composite Commercial Paper Rate and
the minimum rate is 56% of the same rate. The maximum and minimum dividend rates
may be higher or lower depending upon the particular issuer.

While the Fund intends to invest only in adjustable rate and auction rate
preferred stocks that are represented by the issuer or its counsel to be, or are
considered in the best judgment of the Fund's man-

<PAGE>

agement to be, equity securities for purposes of the dividends-received
deduction, there is the possibility that some such stocks may be classified as
debt securities with the result that the dividends paid on such securities would
not be qualifying dividends.

SPECIAL CONSIDERATIONS

PROSPECTIVE INVESTORS IN THE FUND SHOULD CONSIDER THE FOLLOWING SPECIAL FACTORS:

1. As discussed under "Taxation of the Fund and Its Shareholders," in order to
have 100% of the dividend income paid by the Fund qualify for the corporate 70%
dividends-received deduction, 100% of the Fund's net distributable income must
be derived from qualifying dividends received from the Fund's stock in domestic
corporations with respect to which certain requirements of federal tax laws are
satisfied by the Fund. If the aggregate qualifying dividends received by the
Fund are less than 100% of its net distributable income, then the amount of the
Fund's dividends paid to its shareholders which will be eligible for the
deduction will also be proportionately less. While the Fund intends to maximize
the amount of qualifying dividend income it receives, consistent with its
investment objective, it is possible that less than 100% of the Fund's net
distributable income in any year will consist of qualifying dividend income to
its corporate shareholders.

2. To be eligible for the 70% dividends-received deduction on any dividend paid
by the Fund, a corporate investor must also satisfy certain federal tax
requirements discussed under "Taxation of the Fund and Its Shareholders."

The Fund intends to maximize the amount of its dividend income which qualifies
for the dividends-received deduction by corporate shareholders under federal tax
laws. The effect of the tax deduction for corporate investors in the 35% regular
tax bracket is that 89.5% of the Fund's qualifying dividends will be retained as
after-tax income. On an after-tax basis, the Fund's qualifying dividends would
likely give a corporate shareholder a significantly higher return than
investments in taxable money market instruments, as illustrated in the following
chart. There is no assurance, of course, that any of these results will be
attained, that federal income tax laws applicable to the dividends-received
deduction will remain the same or that such deduction may not in the future be
modified.

The following chart compares the net after-tax yields for a fully taxable
investment and the Fund, assuming the maximum 1994 federal corporate income tax
rate of 35% and that 100% of the Fund's dividends qualify for the current 70%
dividends-received deduction.

AFTER-TAX COMPARISON OF THE CORPORATE QUALIFIED DIVIDEND FUND AND A FULLY
TAXABLE INVESTMENT

AFTER-TAX COMPARISON OF THE CORPORATE
QUALIFIED DIVIDEND FUND AND FULLY
TAXABLE INVESTMENT
<TABLE>
<CAPTION>

PRE-TAX YIELDS

4% 6% 8% 10% 12%
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AFTER-TAX YIELDS

Fully Taxable Investment 2.5% 3.90% 5.2% 6.5% 7.5%
Corporate Qualified Dividend Fund 3.5% 5.91% 7.4% 8.05% 10.71%

</TABLE>
*Pre-Tax Yields are hypothetical.

The foregoing chart is for illustrative purposes only, based on current
applicable federal corporate income tax rates, and no representation is being
made of the Fund's actual or intended yield or the percentage of its dividends
which will in fact qualify for the dividends-received deduction. In addition,
the net asset value of the Fund will fluctuate and

<PAGE>

an investor may realize a gain or loss on redemption. For more information see
"Taxation of the Fund and Its Shareholders."

Investment Restrictions. The Fund is subject to a number of additional
investment restrictions, some of which may be changed only with the approval of
shareholders, which limit its activities to some extent. One of these
restrictions states that the Fund may borrow money only from banks for temporary
or emergency purposes in amounts not to exceed 15% of the Fund's total assets,
and that additional investments may not be made while any such borrowings are in
excess of 5% of the Fund's total assets. For a list of these restrictions and
more information concerning the policies discussed herein, please see the SAI.

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES

The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.

A decline in the market, expressed for example by a drop in the Dow Jones
Industrials or the S&P 500 average or any other equity based index, may also be
reflected in declines in the Fund's share price. History reflects both decreases
and increases in the valuation of the market, and these may reoccur
unpredictably in the future.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

The Board of Trustees has the primary responsibility for the overall management
of the Trust and for electing the officers of the Trust who are responsible for
administering its day-to-day operations.

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 33 U.S. registered investment
companies (111 separate series) with aggregate assets of over $73 billion.

Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.

During the fiscal year ended September 30, 1994, fees totaling 0.50% of the
average daily net assets of the Fund were paid to Advisers.

Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in

<PAGE>

selecting a broker. Further information is included under "The Trust's Policies
Regarding Brokers Used on Portfolio Transactions" in the SAI.

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

During the fiscal year ended September 30, 1994, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.00% of the
average daily net assets of the Fund.

PLAN OF DISTRIBUTION

The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may reimburse Distributors or
others for all expenses incurred by Distributors or others in the promotion and
distribution of the Fund's shares. Such expenses may include, but are not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates. The maximum amount which the Fund may
pay to Distributors or others for such distribution expenses is 0.25% per annum
of the average daily net assets of the Fund, payable on a monthly basis. All
expenses of distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Fund. The Plan also covers any payments to or by the Fund, Advisers,
Distributors, or other parties on behalf of the Fund, Advisers or Distributors,
to the extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund. The Plan does not provide for
any unreimbursed expenses to be carried forward to successive annual periods.
For more information, please see the SAI.

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

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

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

2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed net capital gains from the prior fiscal year. These
distributions, when made, will generally be fully taxable to the Fund's
shareholders. The Fund may make more than one distribution derived from net
short-

<PAGE>

term and net long-term capital gains in any year or adjust the timing of these
distributions for operational or other reasons.

DISTRIBUTION DATE

Although subject to change by the Board of Trustees, without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends payable monthly for shareholders of record on the last business day of
the month, payable on or about the 15th day of the following month. The amount
of income dividend payments by the Fund is dependent upon the amount of net
income received by the Fund from its portfolio holdings, is not guaranteed and
is subject to the discretion of the Board of Trustees. Fund shares are quoted
EX-DIVIDEND ON THE FIRST BUSINESS DAY FOLLOWING THE RECORD DATE. THE FUND DOES
NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS
SHARES.

In order to be entitled to a dividend, an investor must have acquired Fund
shares prior to the close of business on the record date. An investor
considering purchasing Fund shares shortly before the record date of a
distribution should be aware that because the value of the Fund's shares is
based directly on the amount of its net assets, rather than on the principle of
supply and demand, any distribution of income or capital gain will result in a
decrease in the value of the Fund's shares equal to the amount of the
distribution. While a dividend or capital gain distribution received shortly
after purchasing shares represents, in effect, a return of a portion of the
shareholder's investment, it may be taxable as dividend income or capital gain.

DIVIDEND REINVESTMENT

Unless requested otherwise in writing or on the Shareholder Application, income
dividends and capital gain distributions, if any, will be automatically
reinvested in the shareholder's account in the form of additional shares, valued
at the closing net asset value (without sales charge) on the dividend
reinvestment date. Shareholders have the right to change their election with
respect to the receipt of distributions by notifying the Fund, but any such
change will be effective only as to distributions for which the record date is
seven or more business days after the Fund has been notified. See the SAI for
more information.

Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.

DISTRIBUTIONS IN CASH

A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to
another fund in the Franklin Group of Funds(R) or the Templeton Funds, to
another person, or directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing House, the payments
may be made automatically by electronic funds transfer. If this last option is
requested, the shareholder should allow at least 15 days for initial processing.
Dividends which may be paid in the interim will be sent to the address of
record. Additional information regarding automated fund transfers may be
obtained from Franklin's Shareholder Services Department. Dividend and capital
gain distributions are eligible for investment in another fund in the Franklin
Group of Funds or the Templeton Funds at net asset value.

<PAGE>

See "Purchases at Net Asset Value" under "How to Buy Shares of the Fund."

TAXATION OF THE FUND AND ITS SHAREHOLDERS
- --------------------------------------------------------------------------------

The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Taxation" in the SAI.

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

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

Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.

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

Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or a loss. Any loss incurred on the sale or
exchange of Fund shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.

For the fiscal year ended September 30, 1994, 100% of the income dividends paid
by the Fund qualified for the corporate dividends-received deduction, subject to
certain holding period and debt financing restrictions imposed under the Code on
the corporation claiming the deduction.

Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividends-received deduction. For example, any interest income and net
short-term capital gain (in excess of any net long-term capital loss or capital
loss carryover) included in investment company taxable income and distributed by
the Fund as a dividend will not qualify for the dividends-received deduction.

<PAGE>

federal alternative minimum tax is computed and may also result in a reduction
in the shareholder's tax basis in its Fund shares, under certain circumstances,
if the shares have been held for less than two years. Corporate shareholders
whose investment in the Fund is "debt financed" for these tax purposes should
consult with their tax advisors concerning the availability of the
dividends-received deduction.

The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions.

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

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

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

Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference however is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $25,000 and subsequent
investments must be $5,000 or more. The Fund and Distributors reserve the right
to waive these minimums or refuse any order for the purchase of shares.

The Fund may impose a $10 charge for each returned item, against any shareholder
account which, in connection with the purchase of Fund shares submits a check or
a draft which is returned unpaid to the Fund.

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price, which is the net
asset value per share plus a sales charge, next computed (1) after the
shareholder's securities dealer receives the order which is promptly transmitted
to the Fund or (2) after receipt of an order by mail from the shareholder
directly in proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check). The sales charge is a variable
percentage of the offering price depending upon the amount of the sale. On
orders for 100,000 shares or more, the offering price will be calculated to four
decimal places. On orders for less than 100,000 shares, the offering price will
be calculated to two decimal places using standard rounding criteria. A
description of the method of calculating net asset value per share is included
under the caption "Valuation of Fund Shares."

<PAGE>

Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
-----------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $500,000 1.50% 1.52% 1.50%
$500,000 but less than $1,000,000 1.00% 1.01% 1.00%
$1,000,000 or more None None (see below)**
- ---------------------------------------------------------------------------------------------------
</TABLE>

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

**The following commissions will be paid by Distributors to dealers who
initiate and are responsible for purchases of $1 million or more: 0.75% on sales
of $1 million but less than $2 million, plus 0.60% on sales of $2 million but
less than $3 million, plus 0.50% on sales of $3 million but less than $50
million, plus 0.25% on sales of $50 million but less than $100 million, plus
0.15% on sales of $100 million or more. Dealer concession breakpoints are reset
every 12 months for purposes of additional purchases.

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

At the discretion of Distributors, all sales charges may at times be allowed to
the securities dealer. If 90% or more of the sales commission is allowed, such
dealer may be deemed to be an underwriter as that term is defined in the
Securities Act of 1933, as amended.

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

Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to dealers in connection with sales of shares in
the Franklin Templeton Funds. Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding the Franklin Templeton Funds and
other dealer-sponsored programs or events. In some instances, this compen-

<PAGE>

sation may be made available only to certain securities dealers whose
representatives have sold or are expected to sell significant amounts of such
shares. Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
additional compensation is paid for by the Fund or its shareholders.

Certain officers and trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the SAI.

QUANTITY DISCOUNTS IN SALES CHARGES

An investment in the Fund may qualify for a reduction in the sales charge under
the following programs:

1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in Franklin Templeton Investments may be combined with the
amount of the current purchase in determining the sales charge to be paid.

2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of the Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which if made at one time would qualify for a
reduced sales charge and grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. Purchases under the Letter
will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.

AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%)
of the amount of the total intended purchase will be reserved in shares of the
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as reflected on
periodic statements; income and capital gain distributions on the reserved
shares will be paid as directed by the investor. The reserved shares will not be
available for disposal by the investor until the Letter of Intent has been
completed, or the higher sales charge paid. For more information, see
"Additional Information Regarding Purchases" in the SAI.

PURCHASES AT NET ASSET VALUE

Former shareholders of Franklin Corporate Cash Management Fund who are now
shareholders of the Fund are eligible to continue to purchase additional shares
of the Fund at the net asset value (without the imposition of a front-end sales
charge and/or contingent deferred sales charge), next computed after an order is
received in proper form from the shareholder or a securities dealer.

Shares of the Fund may be purchased at net asset value by companies exchanging
shares with or selling assets pursuant to a merger, acquisition or exchange
offer and accounts managed by the Franklin Templeton Group.

<PAGE>

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund or another of
the Franklin Templeton Funds which were purchased with a sales charge or
assessed a contingent deferred sales charge on redemption. An investor may
reinvest an amount not exceeding the redemption proceeds. Credit will be given
for any contingent deferred sales charge paid on the shares redeemed. Shares of
the Fund redeemed in connection with an exchange into another fund (see
"Exchange Privilege") are not considered "redeemed" for this privilege. In order
to exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.

Dividends and capital gains received in cash by the shareholder may also be used
to purchase shares of the Fund or another of the Franklin Templeton Funds at net
asset value within 120 days of the payment date of such distribution. To
exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be obtained from
Shareholder Services at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."

Shares of the Fund may be purchased at net asset value by investors who have,
within the past 60 days, redeemed an investment in an unaffiliated mutual fund
which charged the investor a contingent deferred sales charge upon redemption
and which has investment objectives similar to those of the Fund.

Shares of the Fund may be purchased at net asset value by registered investment
advisors and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with Distributors, on behalf of their clients who are
participting in a comprehensive fee program (also known as a wrap fee program).

Refer to the SAI for further information.

GENERAL

Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.

If the purchase or sale of Fund shares with the assistance of certain banks, as
described herein, were deemed to be an impermissible activity for such bank(s)
under the Glass-Steagall Act, or other federal laws, such activities would be
discontinued by such bank(s). Investors utilizing such bank assistance would
then be able to seek other avenues to invest in Fund shares, such as securities
dealers registered with the SEC.

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
- --------------------------------------------------------------------------------

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT
BE AVAILABLE DIRECTLY FROM

<PAGE>

THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF RECORD, BY A FINANCIAL
INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED ACCOUNT THROUGH THE
NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE SECTION CAPTIONED
"ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).

SHARE CERTIFICATES

Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested in writing by the shareholder or by the securities dealer.

CONFIRMATIONS

A confirmation statement will be sent to each shareholder quarterly to reflect
the dividends reinvested during that period and after each other transaction
which affects the shareholder's account. This statement will also show the total
number of shares owned by the shareholder, including the number of shares in
"plan balance" for the account of the shareholder.

AUTOMATIC INVESTMENT PLAN

Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Shareholder Application included with
this Prospectus contains the requirements applicable to this program. In
addition, shareholders may obtain more information concerning this program from
their securities dealers or from Distributors.

The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss.

SYSTEMATIC WITHDRAWAL PLAN

<PAGE>

a shareholder may direct the selected withdrawals to another fund in the
Franklin Templeton Funds, to another person, or directly to a checking account.
If the bank at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Withdrawals which may be paid in the
interim will be sent to the address of record. Liquidation of shares may reduce
or possibly exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. As with other redemptions, a liquidation to
make a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.

The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual withdrawals
under the plan during the time such a plan is in effect. A Systematic Withdrawal
Plan may be terminated on written notice by the shareholder or the Fund, and it
will terminate automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death or incapacity
of the shareholder. Shareholders may change the amount (but not below the
specified minimum) and schedule of withdrawal payments, or suspend one such
payment by giving written notice to Investor Services at least seven business
days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for shares of other Franklin Templeton Funds which are eligible for
sale in the shareholder's state of residence and in conformity with such fund's
stated eligibility requirements and investment minimums. Investors should review
the prospectus of the fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on exercising the
exchange privilege, for example, minimum holding periods or applicable sales
charges. Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.

EXCHANGES BY TELEPHONE

Shareholders, or their investment representative of record, if any, may exchange
shares of the Fund by telephone by calling Investor Services at 1-800/632-2301
or the automated Franklin Tele-

<PAGE>

FACTS(R) system (day or night) at 1-800/247-1753. If the shareholder does not
wish this privilege extended to a particular account, the Fund or Investor
Services should be notified.

The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
Franklin Templeton Funds. The Telephone Exchange Privilege is available only for
uncertificated shares or those which have previously been deposited in the
shareholder's account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please refer to "Telephone Transactions - Verification Procedures."

During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.

EXCHANGES THROUGH SECURITIES DEALERS

As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders by telephone or other means of electronic
transmission from securities dealers who execute a dealer or similar agreement
with Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated shares on
deposit in the shareholder's account or for which certificates have previously
been deposited. A securities dealer may charge a fee for handling an exchange.

ADDITIONAL INFORMATION REGARDING EXCHANGES

Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange.

A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased, and shares are subsequently redeemed within 12
months of the calendar month of the original purchase date, a contingent
deferred sales charge will be imposed. The 12-month period will be tolled (or
stopped) for the period such shares are exchanged into and held in a Franklin or
Templeton money market fund. See also "Contingent Deferred Sales Charge" under
"How to Sell Shares of the Fund."

When an investor requests the exchange of the total value of the Fund account,
declared but unpaid income dividends and capital gain distributions will be
transferred to the fund being exchanged into and will be invested at net asset
value. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the SAI.

There are differences among the Franklin Templeton Funds. Before making an
exchange, a shareholder

<PAGE>

should obtain and review a current prospectus of the fund into which the
shareholder wishes to transfer.

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

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

TIMING ACCOUNTS

Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.

RESTRICTIONS ON EXCHANGES

In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.

The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.

The Fund and Distributors also, as indicated in "How to Buy Shares of the Fund,"
reserve the right to refuse any order for the purchase of shares.

HOW TO SELL SHARES OF THE FUND
- --------------------------------------------------------------------------------
A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:

REDEMPTIONS BY CHECK

The Fund will supply redemption drafts (which are similar to checks and are
referred to as checks

<PAGE>

throughout this Prospectus) to shareholders who have requested them on the
Shareholder Application. The election of the check redemption procedure does not
create a checking account or other bank account relationship between a
shareholder and the Fund or any bank. These checks are drawn through the Fund's
custodian, Bank of America NT & SA (the "Custodian" or "Bank"). Shareholders
will generally not be able to convert a check drawn on the Fund account into a
certified or cashier's check by presentation at the Fund's Custodian. The
shareholder may make checks payable to the order of any person in any amount not
less than $100, provided the amount of the check is for not more than 98% of the
value of the shareholder's account. There is no charge to the shareholder for
this check redemption procedure.

When a redemption check is presented for payment, the Fund will redeem a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check. Shares will be redeemed at their net asset value
next determined after receipt of a check which does not exceed 98% of the net
asset value of the account. Only shareholders having accounts in which no share
certificates have been issued will be permitted to redeem shares by check.

Because the Fund is not a bank, no assurance can be given that stop payment
orders on checks written by shareholders will be effective. The Fund, however,
will use its best efforts to see that such orders are carried out.

Shareholders will be subject to the right of the Custodian to return a
redemption check unpaid (marked "insufficient funds") if the amount exceeds 98%
of the net asset value of their account at the time the check is presented for
payment. This is required since the aggregate value of the shareholder's account
may change and cannot accurately be determined in advance. Therefore, redemption
checks should not be used to close a Fund account. The Bank or the Fund reserves
the right to terminate this service at any time upon notice to shareholders.

REDEMPTIONS BY MAIL

Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by Investor
Services. Redemption requests received after the time at which the net asset
value is calculated (at 1:00 p.m. Pacific time) each day that the New York Stock
Exchange (the "Exchange") is open for business will receive the price calculated
on the following business day. Shareholders are requested to provide a telephone
number(s) where they may be reached during business hours, or in the evening if
preferred. Investor Services' ability to contact a shareholder promptly when
necessary will speed the processing of the redemption.

To be considered in proper form, signature(s) must be guaranteed if the
redemption request involves any of the following:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;

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

<PAGE>

(4) share certificates, if the redemption proceeds are in excess of $50,000; or

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

Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.

Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above. Shareholders
are advised, for their own protection, to send the share certificate and
assignment form in separate envelopes if they are being mailed in for
redemption.

Liquidation requests of corporations also require a signature guaranteed letter
of instruction from the authorized officer(s) of the corporation and a corporate
resolution.

Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.

REDEMPTIONS BY TELEPHONE

A shareholder may redeem shares by telephoning the Fund at 1-800/632-2301.
Payment of redemption requests of up to $1,000 (once per business day) will be
sent by mail to the shareholder's address as reflected on the Fund's records.
For payments over $1,000, the shareholder must complete the "Wire Redemptions
Privilege" section of the Shareholder Application. Proceeds will then be wired
directly to the commercial bank or brokerage firm designated by the shareholder.
Wires will not be sent for redemption requests of $1,000 or less. Shareholders
may have redemption proceeds of over $1,000, up to $50,000 per day per Fund
account, sent directly to their address of record by filing a completed Franklin
Templeton Telephone Redemption Authorization Agreement (the "Agreement"),
included with this Prospectus. Information may also be obtained by writing to
the Fund or Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable procedures
to confirm that instructions given by telephone are genuine. Shareholders,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions - Verification Procedures."

Telephone redemption requests received before 1:00 p.m. pacific time on any
business day will be processed that same day. The redemption check

<PAGE>

will be sent within seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record. Wire payments will be
transmitted the next business day following receipt prior to 1:00 p.m. Pacific
time of a request for redemption in proper form. Shareholders may wish to allow
for longer processing time if they want to assure that redemption proceeds will
be available at a specific time for a specific transaction.

Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, a shareholder should follow the
other redemption procedures set forth in this Prospectus.

The telephone redemption privilege may be modified or discontinued by the Fund
at any time upon 60 days' notice to shareholders.

REDEEMING SHARES THROUGH SECURITIES DEALERS

The Fund will accept redemption orders by telephone or other means of electronic
transmission from securities dealers who have entered into a dealer or similar
agreement with Distributors. This is known as a repurchase. The only difference
between a normal redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net asset value next
calculated after the shareholder's dealer receives the order which is promptly
transmitted to the Fund, rather than on the day the Fund receives the
shareholder's written request in proper form. These documents, as described in
the preceding section, are required even if the shareholder's securities dealer
has placed the repurchase order. After receipt of a repurchase order from the
dealer, the Fund will still require a signed letter of instruction and all other
documents set forth above. A shareholder's letter should reference the Fund, the
account number, the fact that the repurchase was ordered by a dealer and the
dealer's name. Details of the dealer-ordered trade, such as trade date,
confirmation number, and the amount of shares or dollars, will help speed
processing of the redemption. The seven-day period within which the proceeds of
the shareholder's redemption will be sent will begin when the Fund receives all
documents required to complete ("settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of the dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the repurchase.
Thus, it is in a shareholder's best interest to have the required documentation
completed and forwarded to the Fund as soon as possible. The shareholder's
dealer may charge a fee for handling the order. The SAI contains more
information on the redemption of shares.

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers on qualified
investments of $1 million or more, a contingent deferred sales charge of 1%
applies to redemptions of those investments within 12 months of the calendar
month of their purchase. The charge is 1% of the lesser of the value of the
shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares, and is retained by
Distributors. In determining if a charge applies, shares not subject to a
contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) shares representing amounts attributable to capital
appreciation of those shares held less than 12 months; (ii) shares purchased
with reinvested dividends and capital gain distributions; and (iii) other shares
held longer than 12 months; and followed by any shares held less than 12 months,
on a "first in, first out" basis.

<PAGE>

The contingent deferred sales charge is waived for: exchanges; redemptions
through a Systematic Withdrawal Plan set up prior to February 1, 1995 and for
Systematic Withdrawal Plans set up thereafter, redemptions of up to 1% monthly
of an account's net asset value (3% quarterly, 6% semiannually or 12% annually);
and redemptions initiated by the Fund due to a shareholder's account falling
below the minimum specified account size.

REQUESTS FOR REDEMPTIONS FOR A SPECIFIED DOLLAR AMOUNT WILL RESULT IN ADDITIONAL
SHARES BEING REDEEMED TO COVER ANY APPLICABLE CONTINGENT DEFERRED SALES CHARGE
WHILE REQUESTS FOR REDEMPTION OF A SPECIFIC NUMBER OF SHARES WILL RESULT IN THE
APPLICABLE CONTINGENT DEFERRED SALES CHARGE BEING DEDUCTED FROM THE TOTAL DOLLAR
AMOUNT REDEEMED.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.

OTHER

For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------

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

All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Agreement as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.

VERIFICATION PROCEDURES

The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or

<PAGE>

Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.

GENERAL

During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.

Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.

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

VALUATION OF FUND SHARES
- --------------------------------------------------------------------------------

The net asset value per share of the Fund is determined as of 1:00 p.m. Pacific
time each day that the Exchange is open for trading. In addition, the Fund may
make or cause to be made a more frequent determination of its net asset value
and offering price, which determination shall reasonably reflect any material
changes in the fair value of securities and other assets held by the Fund since
the immediate preceding determination of net asset value. The Fund's present
intention, however, is to price only once a day. Many newspapers carry daily
quotations of the prior trading day's closing "bid" (net asset value) and "ask"
(offering price, which includes the maximum sales charge of the Fund).

The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, accrued expenses and taxes and any necessary
reserves is deducted from the aggregate gross value of all assets, and the
difference is divided by the number of shares of the Fund outstanding at the
time. For the purpose of determining the aggregate net assets of the Fund, cash
and receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities for
which market quotations are readily available are valued within the range of the
most recent bid and ask prices as obtained from one or more dealers that make
markets in the securities. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market as determined by the Manager. All money
market instruments with a maturity of more than 60 days are valued at current
market, as discussed above. All money market instruments with a maturity of 60
days or less are valued at their amortized cost, which the Board of Trustees has
determined in good faith constitutes fair value for purposes of complying with
the 1940 Act. This valuation method will continue to be used until such time as
the trustees determine that it does not constitute fair value for such purposes.
With the approval of trustees, the Fund may utilize a pricing service, bank or
securities dealer to perform any of the above described functions.

<PAGE>

Auction rate preferred stocks are valued as stated above based upon quotations
readily available in the marketplace, but if there are no such readily available
quotations with respect to a given security, such security is valued based upon
the market value of comparable securities, if any, traded in the market place.
As a practical matter, the value of auction rate preferred stock in the
secondary market has a consistent history, to date, of trading at its par value
plus an accrual of the dividend income to be received on the issuer's next
dividend payment date plus or minus some adjustment for possible changes in
interest rates or as a commission. Accordingly, when market values based upon
readily available market quotations are not determinable for such securities
held by the Fund, or for comparable securities, then such securities may be
valued at their par value plus an accrual of the dividends to be received on the
next dividend payment date. The Fund's management, on behalf of the Board of
Trustees, may also assign a fair value different from par value (plus an accrual
of dividend income due) to any auction rate preferred stock for which a market
quotation is not readily available if management believes the value of such
security has been materially affected by changes in the issuer's
creditworthiness or in the market place for trades in such security. The Board
of Trustees continually reviews this procedure and makes such changes as it
feels are needed to enable the Fund to best reflect the daily fair value of its
portfolio securities. Other securities for which reliable quotations or
comparisons are not readily available and all other assets are valued at their
respective fair value as determined following procedures established by the
Board of Trustees.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- --------------------------------------------------------------------------------

Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.

From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Funds by calling the
automated Franklin TeleFACTS(R) system (day or night) at 1-800/247-1753.
Information about the Fund may be accessed by entering Fund Code 17 followed by
the # sign, when requested to do so by the automated operator. The TeleFACTS
system is also available for processing exchanges. See "Exchange Privilege."

To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:

HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAYTHROUGH FRIDAY)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.

</TABLE>

<PAGE>

In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.

PERFORMANCE
- --------------------------------------------------------------------------------

Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance including current yield, tax
equivalent yield, various expressions of total return, current distribution
rate, and taxable equivalent distribution rate. They may occasionally cite
statistics to reflect the Fund's volatility or risk.

Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods, or based on
investments at various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.

Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result. A tax equivalent yield
demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to the Fund's current yield (calculated as indicated above).

Current yield and tax equivalent yield, which are calculated according to a
formula prescribed by the SEC (see the SAI), are not indicative of the
dividends or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders are reflected in
the current distribution rate (or taxable equivalent distribution rate), which
may be quoted to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by the Fund during the
past 12 months by the current maximum offering price. A taxable equivalent
distribution rate demonstrates the taxable distribution rate necessary to
produce an after-tax distribution rate equivalent to the Fund's distribution
rate (calculated as indicated above). Under certain circumstances, such as when
there has been a change in the amount of dividend payout or a fundamental
change in investment policies, it might be appropriate to annualize the
dividends paid during the period such policies were in effect, rather than
using the dividends during the past 12 months. 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
short-term capital gain, and is calculated over a different period of time.

In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent

<PAGE>

what an investment may earn in the future or what the Fund's yield, distribution
rate or total return may be in any future period.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

REPORTS TO SHAREHOLDERS

The Fund's fiscal year ends September 30. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this Prospectus.

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

ORGANIZATION

The Trust was organized as a Massachusetts business trust on July 1, 1986 and
registered with the SEC under the 1940 Act. Its name was changed from L.F.
Rothschild Managed Trust to Franklin Managed Trust on June 28, 1988. The Trust
is authorized to issue an unlimited number of shares of beneficial interest,
$.01 par value, in various series. The Trust currently issues shares in three
series or portfolios, all of which are diversified: the Franklin Corporate
Qualified Dividend Fund (formerly the Franklin Corporate Cash Portfolio), the
Franklin Rising Dividends Fund and the Franklin Investment Grade Income Fund.
Additional series may be added in the future by the Board of Trustees. All
shares have one vote and, when issued, are fully paid, non-assessable and
redeemable. All shares have equal voting, participation and liquidation rights,
but have no subscription, preemptive or conversion rights.

VOTING RIGHTS

Shares of the Fund have noncumulative voting rights which means that in all
elections of trustees the holders of more than 50% of the shares voting can
elect 100% of the trustees if they choose to do so and, in such event, the
holders of the remaining shares voting will not be able to elect any person or
persons to the Board of Trustees.

The Fund does not intend to hold annual shareholders' meetings. The Fund may,
however, hold a special meeting for such purposes as changing fundamental
investment restrictions, approving a new management agreement or any other
matters which are required to be acted on by shareholders under the 1940 Act. A
meeting may also be called by a majority of the Board of Trustees or by
shareholders holding at least 10% of the shares entitled to vote at the meeting.
Shareholders may receive assistance in communicating with other shareholders in
connection with the election or removal of trustees such as that provided in
Section 16(c) of the 1940 Act.

On December 31, 1988, the Fund acquired all of the net assets of Franklin
Corporate Cash Management Fund ("Management Fund") pursuant to an Agreement and
Plan of Reorganization which was approved by the shareholders of Management Fund
on December 7, 1988.

REDEMPTIONS BY THE FUND

The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $12,500, but only where the
value of such account has been reduced by the shareholder's prior voluntary
redemption of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided advance notice is
given to the shareholder. More information is included in the SAI.

<PAGE>

Shares of the Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation. SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.

OTHER INFORMATION

Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such check(s).

"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.

ACCOUNT REGISTRATIONS
- --------------------------------------------------------------------------------

Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.

The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee,
or both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in the near
future, include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.

Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.

PORTFOLIO OPERATIONS
- --------------------------------------------------------------------------------

The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio: William Lippman and Philip Smith since inception and
Margaret McGee since 1988.

William Lippman
Senior Vice President of Advisers

Mr. Lippman holds a bachelor's degree in business administration from City
College of New York and

<PAGE>

a master's degree in business administration from the Graduate School of
Business Administration of New York University. He has been with Advisers since
1988.

Philip Smith
Portfolio Manager of Advisers

Mr. Smith holds a bachelor of arts degree from Princeton University and a juris
doctorate degree from Yale University. He has been with Advisers since 1988.

Margaret McGee
Portfolio Manager of Advisers

Ms. McGee holds a bachelor of arts degree from William Patterson College. She
has been with Advisers since 1988.

SUPPLEMENT
TO THE PROSPECTUS OF
FRANKLIN INVESTMENT GRADE INCOME FUND
(FRANKLIN MANAGED TRUST)
DATED FEBRUARY 1, 1995

The following revisions are made to certain operating policies of the Fund,
which are effective as of February 1, 1995:

HOW TO BUY SHARES OF THE FUND -

a) PURCHASES AT NET ASSET VALUE

i) Substitute the following language for the third sentence of
paragraph three under the section: While credit will be given
for any contingent deferred sales charge paid on the shares redeemed,
a new contingency period will begin.

ii) Each of the remaining paragraphs in the section which defines the
categories of investors who may purchase at net asset value is
revised to reflect that such purchases are without a front-end sales
charge (net asset value) and without the imposition of a contingent
deferred sales charge.

b) DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

i) Substitute the following for the first paragraph:

Shares of the Fund may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans ("designated
plans"), subject to minimum requirements with respect to number of
employees or amount of purchase, which may be established by
Distributors. Currently those criteria require that the employer
establishing the plan have 200 or more employees or that the amount
invested or to be invested during the subsequent 13-month period in
the Fund or in any of the Franklin Templeton Investments totals at
least $1,000,000. Employee benefit plans not designated above or
qualified under Section 401 of the Code ("non-designated plans") may
be afforded the same privilege if they meet the above requirements
as well as the uniform criteria for qualified groups previously
described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales related
expenses.

ii) The two paragraphs which follow are revised to reflect that
purchases are without a front-end sales charge and without the
imposition of a contingent deferred sales charge.

HOW TO SELL SHARES OF THE FUND - CONTINGENT DEFERRED SALES CHARGE

Substitute the following for paragraph two, which describes waivers:

The contingent deferred sales charge is waived for: exchanges;
distributions to participants in Trust Company retirement plan accounts due
to death, disability or attainment of age 591/2; tax-free returns of excess
contributions to employee benefit plans; distributions from employee
benefit plans, including those due to plan termination or plan transfer;
redemptions through a Systematic Withdrawal Plan set up prior to February
1, 1995 and, for Systematic Withdrawal Plans setup thereafter, redemptions
of up to 1% monthly of an account's net asset value (3% quarterly, 6%
semiannually or 12% annually); and redemptions initiated by the Fund due to
a shareholder's account falling below the minimum specified account size.

<PAGE>

FRANKLIN
INVESTMENT GRADE
INCOME FUND

Franklin Managed Trust

PROSPECTUS FEBRUARY 1, 1995

[FRANKLIN LOGO]

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------

The objective of the Fund is to seek a maximum level of income consistent with
prudent exposure to risk. The Fund intends to achieve its objective through a
diversified investment in debt securities and dividend paying common and
preferred stocks. At least 75% of the Fund's assets will be held in investment
grade issues.

<PAGE>
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Expense Table ................................................................................................................ 2

Financial Highlights ......................................................................................................... 4

About the Trust .............................................................................................................. 4

Investment Objective and Policies of the Fund ................................................................................ 4

Management of the Fund ....................................................................................................... 11

Distributions to Shareholders ................................................................................................ 12

Taxation of the Fund and Its Shareholders .................................................................................... 14

How to Buy Shares of the Fund ................................................................................................ 15

Purchasing Shares of the Fund in Connection with Retirement Plans Involving Tax-Deferred Investments ......................... 20

Other Programs and Privileges Available to Fund Shareholders ................................................................. 22

Exchange Privilege ........................................................................................................... 23

How to Sell Shares of the Fund ............................................................................................... 26

Telephone Transactions ....................................................................................................... 29

Valuation of Fund Shares ..................................................................................................... 30

How to Get Information Regarding an Investment in the Fund ................................................................... 31

Performance .................................................................................................................. 32

General Information .......................................................................................................... 33

Account Registrations ........................................................................................................ 34

Important Notice Regarding Taxpayer IRS Certifications ....................................................................... 35

Portfolio Operations ......................................................................................................... 35
</TABLE>

EXPENSE TABLE
- --------------------------------------------------------------------------------

SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ......................... 4.25%

Deferred Sales Charge ........................................ NONE*

Exchange Fee (per transaction) ............................... $5.00**
</TABLE>

**$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.

<PAGE>

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .................................................... 0.50%
12b-1 Fees ......................................................... 0.23%***
Other Expenses:
Accounting Fees ......................................... 0.13%
Reports to Shareholders ................................. 0.05%
Other ................................................... 0.14%
-----
Total Other Expenses ............................................... 0.32%
-----
Total Fund Operating Expenses ...................................... 1.05%
=====
</TABLE>

***Consistent with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.

EXAMPLE

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C>
$53 $74 $98 $165
</TABLE>

<PAGE>

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

Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of the registration statement through each of
the fiscal years ended December 31, 1992, for the nine month period ended
September 30, 1993 (annualized as a result of a change in fiscal year end from
December to September) and for the fiscal year ended September 30, 1994. The
information has been audited by Tait, Weller and Baker, independent auditors,
whose audit report covering the years ended 1990 through 1994 appears in the
financial statements in the Trust's SAI. The remaining figures, which are also
audited, are not covered by the auditors' current report. See the discussion
"Reports to Shareholders" under "General Information."

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
VALUE AT NET & UNREALIZED TOTAL FROM FROM NET VALUES
YEAR BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT AT END
ENDED OF YEAR INCOME ON SECURITIES OPERATIONS INCOME OF YEAR
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1987** $10.00 $0.69 $(1.220) $(0.530) $(0.620) $8.85
1988++ 8.85 0.83 (0.210) 0.620 (0.810) 8.66
1989 8.66 0.78 (0.077) 0.703 (0.783) 8.58
1990 8.58 0.74 (0.174) 0.566 (0.746) 8.40
1991 8.40 0.69 0.635 1.325 (0.695) 9.03
1992 9.03 0.62 (0.086) 0.534 (0.634) 8.93
1993*** 8.93 0.38 0.402 0.782 (0.402) 9.31
1994**** 9.31 0.45 (0.544) (0.094) (0.396) 8.82

RATIOS/SUPPLEMENTAL DATA
---------------------------------------------
NET ASSETS RATIO OF RATIO OF
AT END EXPENSES NET INCOME PORTFOLIO
YEAR TOTAL OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN+ (IN 000'S) NET ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

1987** (5.34)% $15,608 1.48%* 8.47%* 101.12%
1988++ 7.24 12,650 1.35 9.36 34.87
1989 8.5 17,143 1.62 9.74 56.72
1990 7.01 12,289 1.43 8.84 11.37
1991 16.57 21,773 1.26 8.36 28.31
1992 6.16 29,367 1.08 7.02 27.28
1993*** 8.94 35,970 1.09* 5.61* 53.19
1994**** (1.02) 29,553 1.05 4.91 10.57
</TABLE>

*Annualized

**For the period January 14, 1987 (effective date of registration) to December
31, 1987.

***For the period ended September 30, 1993.

****For the year ended September 30, 1994.

+Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.

++On June 28, 1988, the investment manager changed from L.F. Rothschild Fund
Management, Inc. to Franklin Advisers, Inc.

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

The Trust was organized as a Massachusetts business trust on July 1, 1986 and is
registered with the SEC under the Investment Company Act of 1940 (the "1940
Act"). It is a diversified, open-end management investment company or mutual
fund consisting of three separate portfolios. Each portfolio or fund is a
separate series of shares of beneficial interest.

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge not
exceeding 4.25% of the offering price. See "How to Buy Shares of the Fund."

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
- --------------------------------------------------------------------------------
The objective of the Fund is to seek a maximum level of income consistent with
prudent exposure to risk. The objective is a fundamental policy of the Fund and
may not be changed without shareholder approval. The Fund seeks to achieve its
objective by investing in a diversified portfolio of debt securities, most of
which will be intermediate term investment grade issues, and dividend paying

<PAGE>

common and preferred stocks. The Fund may invest in corporate debt obligations
such as bonds, notes, and debentures; obligations convertible into common
stocks; obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities; obligations denominated in either U.S. dollars or foreign
currencies issued by foreign corporations and governments (including Canadian
provinces and their instrumentalities) and supranational entities; commercial
paper; and in currency deposits or equivalents.

Because the Fund seeks a maximum level of income consistent with prudent
exposure to risk by investing primarily in securities that are considered
investment grade, under normal market conditions at least 75% of the Fund's
portfolio will be invested in debt securities that are rated in one of the four
highest rating categories or in unrated securities that are of equivalent
quality as determined by the Fund's investment manager. The four highest rating
categories are AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P"), or
Aaa, Aa, A or Baa by Moody's Investors Service ("Moody's").

Debt securities within the top three categories (e.g., AAA, AA and A by S&P or
Aaa, Aa or A by Moody's) comprise what are known as high-grade bonds and are
regarded as having a strong capacity to pay principal and interest. Medium-grade
bonds (e.g., BBB by S&P or Baa by Moody's) are regarded as having an adequate
capacity to pay principal and interest but with greater vulnerability to adverse
economic conditions and some speculative characteristics. An Appendix discussing
these ratings is included in the SAI.

Although the Fund may invest up to 25% of its portfolio in securities that are
not in the four highest rating categories or of equivalent quality, the Fund
will not invest in any debt securities rated lower than B by Moody's or S&P or
in any equity securities of an issuer if a majority of the debt securities of
such issuer are rated lower than B by Moody's or S&P. Similarly, the Fund will
not invest in any unrated debt securities that the Fund considers to be of lower
equivalent quality than securities rated B by Moody's or S&P. (See Appendix in
the SAI.) Debt securities rated B by Moody's are regarded as generally lacking
the characteristics of desirable investments and, in Moody's judgment, assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. Debt securities rated BB or
B by S&P are regarded, on balance, as predominantly speculative with respect to
the capacity to pay interest and repay principal in accordance with the terms of
the obligation. During each of the past three fiscal years, the Fund invested
less than 10% of its total assets in securities rated lower than Baa by Moody's
or BBB by S&P.

Although there is no assurance that the Fund will achieve its objective due to
the market risks inherent in any investment program, the Fund believes that such
risks may be minimized through careful analysis of issuers whose securities are
considered for purchase. Moreover, while the opinion of rating services is
considered in selecting rated securities for the Fund's portfolio, the Fund's
investment manager, Franklin Advisers, Inc. ("Advisers" or "Manager"), relies
primarily on its own credit analysis, which includes a study of the existing
debt issuer's capital structure, ability to service debt and to pay dividends,
and the current trend of earnings for any company under consideration for
investment by the Fund. The net asset value per share of the Fund will
fluctuate, however, as the market value of its investment portfolio fluctuates.

Under normal economic conditions, the fund will invest at least 65% of its
assets in intermediate term obligations. Intermediate term obligations

<PAGE>

Typically will have effective remaining maturities of between two and ten years
at the time of purchase. The remaining 35% may be invested, to the extent
available and permissible, in obligations with maturities which are shorter than
two years or longer than ten years at the time of purchase. When purchasing
obligations which entitle each holder to require the obligor to redeem the
securities at the holder's option on a date or dates prior to the final stated
maturity (so-called "putable" bonds), the fund may consider the optional
redemption date or dates as the effective maturity of the obligations. When
purchasing obligations which require the obligor to prepay periodically portions
of the obligation prior to the stated final maturity (whether by operation of a
fixed known pro rata sinking fund or, as in collateralized securities, by the
periodic passing through of variable payments made to the issuer on the
underlying collateral), the expected average life or average term of the
investment may also be deemed to be its effective maturity. This is not a
fundamental policy of the fund and may be changed by the Board of Trustees.

At times, particularly during periods when the yield curve is positive, the Fund
will endeavor to provide a higher yield than that available from a money market
mutual fund, while attempting to avoid the potential risks to principal often
associated with both non-investment-grade securities and longer-term
instruments.

In any period of market weakness or of uncertain market or economic conditions,
the Fund may establish a temporary defensive position to preserve capital by
having all or a part of its assets invested in short-term, fixed-income
securities or retained in cash or cash equivalents. Such investments may include
U.S. government securities, bank certificates of deposit, bankers' acceptances
and high-grade commercial paper issued by domestic corporations.

The Fund may invest in all types of U.S. government securities including: (1)
U.S. Treasury obligations with varying interest rates, maturities and dates of
issuance, such as U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (original maturities of one to ten years) and U.S. Treasury bonds
(generally original maturities of greater than ten years); and (2) obligations
issued or guaranteed by U.S. government agencies and instrumentalities, such as
GNMA, the Export- Import Bank and the Farmers Home Administration. Some of the
Fund's investments will include obligations which are supported by the full
faith and credit pledge of the U.S. government. In the case of U.S. government
obligations which are not backed by the full faith and credit pledge of the U.S.
government (e.g., obligations of FNMA and a Federal Home Loan Bank), the Fund
must look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments.

The Fund may also invest in collateralized obligations, which generally are
bonds issued by single purpose, stand-alone finance subsidiaries or trusts of
financial institutions, government agencies or instrumentalities, investment
bankers or other similar institutions, such as Collateralized Automobile
Receivables ("CARs") and Collateralized Mortgage Obligations ("CMOs"). All such
collateralized obligations will either be issued or guaranteed by a U.S.
government agency or instrumentality rated AAA by a nationally recognized
statistical rating agency.

<PAGE>

CMOs purchased by the Fund may be:

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

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

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

CMOs and other mortgage-backed securities differ from conventional bonds in that
the principal is paid back over the life of the certificate rather than at
maturity. As a result, the Fund will receive monthly scheduled payments of
principal and interest on its investment in these securities, and may receive
unscheduled principal payments representing prepayments on the underlying
mortgages. When the Fund reinvests the payments and any unscheduled prepayments
of principal it receives, it may receive a rate of interest which is lower than
the rate on the existing security. For this reason, mortgage-backed securities
may be less effective than other types of U.S. government securities as a means
of "locking in" long-term interest rates. The market value of mortgage-backed
securities, like other U.S. government securities in the Fund's portfolio, will
generally vary inversely with changes in market interest rates, declining when
interest rates rise and rising when interest rates decline. However,
mortgage-backed securities, while having comparable risk of decline in value
during periods of rising rates, may have less potential for capital appreciation
than other investments of comparable maturities due to the likelihood of
increased prepayments of mortgages as interest rates decline. In addition, to
the extent such securities are purchased at a premium, mortgage foreclosures and
unscheduled principal prepayments may result in some loss of the Fund's
principal investment to the extent of the premium paid.

CARs are generally automobile loan pass-through certificates issued by single
purpose, stand alone financial subsidiaries or trusts (such as Grantor Trusts)
of financial institutions, government agencies or instrumentalities, investment
bankers or other similar institutions. Such asset-backed securities entail
certain risks not presented by mortgage-backed securities. Asset-backed
securities do not have the benefit of the same type of security interests in the
related collateral. In the case of automobile receivables, there is a risk that
the holders may not have either a proper or first security interest in all of
the obligations backing such receivables due to the large number of vehicles
involved in a typical issuance and technical requirements under state laws.
Therefore, recoveries on repossessed collateral may not always be available to
support payments on the securities.

The Fund may enter into "U.S. Treasury rolls" in which the Fund sells
outstanding U.S. Treasury securities and buys back "when-issued" U.S. Treasury
securities of slightly longer maturity for simultaneous settlement on the
settlement date of the "when-issued" U.S. Treasury security. Two potential
advantages of such a strategy are 1) that the Fund can regularly and
incrementally adjust its weighted average maturity (which otherwise would
constantly diminish with the passage of time); and 2) in a normal yield curve
environment (in which shorter maturities yield less than longer maturities), a
gain in yield to maturity can be obtained along with the desired extension.

<PAGE>

During the period prior to settlement date, the Fund continues to earn interest
on the securities it is selling. It does not earn interest on the securities
which it is purchasing until after settlement date. The Fund could suffer an
opportunity loss if the counterparty to the roll failed to perform its
obligations on settlement date, if market conditions may have changed adversely.
The Fund intends, however, to enter into U.S. Treasury rolls only with
government securities dealers recognized by the Federal Reserve Board or with
member banks of the Federal Reserve System.

SOME OF THE FUND'S OTHER INVESTMENT POLICIES

Loans of Portfolio Securities. Consistent with procedures approved by the Board
of Trustees and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 30% of the value of the Fund's
total assets at the time of the most recent loan. The borrower must deposit with
the Fund's custodian collateral with an initial market value of at least 102% of
the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. Such
collateral shall consist of cash, securities issued by the U.S. government, its
agencies or instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. The Fund may engage
in security loan arrangements with the primary objective of increasing the
Fund's income either through investing the cash collateral in short-term,
interest bearing obligations, or by receiving a loan premium from the borrower.
Under the securities loan agreement, the Fund continues to be entitled to all
dividends or interest on any loaned securities. As with any extension of credit,
there are risks of delay in recovery and loss of rights in the collateral should
the borrower of the security fail financially.

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

Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) or restricted securities may not constitute, at the time of
purchase, more than 10% of the value of the total net assets of the Fund.

Options and Financial Futures. In addition, the Fund may engage in various
option and hedging activities. Specifically, the Fund may write covered call
options and secured put options and under limited circumstances, for bona fide
hedging pur-

<PAGE>

poses only, purchase certain options on securities and interest rate
futures contracts. The option and hedging activities that the Fund is authorized
to engage in are summarized below and described in greater detail in the SAI.

The Fund may write covered call and put options on any securities it may
purchase for its portfolio. The principal reason for writing call or put options
is to obtain, through the receipt of premiums, a greater current return than
would be realized on the underlying securities alone. The Fund's current return
can be expected to fluctuate because opportunities to realize net gains from a
covered call and put option writing program and income yields vary as economic
and market conditions change. The Fund may receive a higher or lower total
return from its optioned positions than it would have received from its
underlying securities if they had not been subject to options. The Fund does not
engage in option writing strategies for speculative purposes, and writes call
options and put options on a covered basis only, which means that, with respect
to any call options it has written, it will own the underlying securities or
comparable securities satisfying the cover requirements of the securities
exchanges, and, with respect to any put options it has written, it will maintain
in a separate account cash or U.S. government securities with a value at least
equal to the exercise price of the put option.

The Fund may also purchase put and call options on securities, but only for
limited purposes. The Fund may purchase call options for the purpose of
offsetting its obligations pursuant to previously written call options. The Fund
may purchase put options only on U.S. government securities in its portfolio in
anticipation of a decline in the market value of such securities and then only
in amounts not exceeding 10% of its total assets. The Fund's ability to purchase
put options allows it to protect unrealized gains in appreciated U.S. government
securities in its portfolio without actually selling the securities and while
continuing to receive interest income on the securities.

In addition, solely for hedging purposes, the Fund may purchase put and call
options on interest rate futures contracts, which gives the Fund the right to
sell or assume a position in an underlying futures contract for a specified
price at any time during the option period. The Fund may not purchase or sell
options on interest rate futures contracts if immediately thereafter the value
of those contracts would constitute more than 30% of the Fund's total assets or
if the sum of the premiums paid for the options would exceed 5% of the Fund's
total assets.

The Fund's option and hedging activities involve certain risks as summarized
below. These risks are discussed more fully in the SAI.

The purchase of put and call options involves the risk that the price of the
underlying securities or interest rate futures contracts will not move in the
anticipated direction during the option periods, and the Fund may lose all or
some portion of the amount of the premiums it has paid (plus transaction costs).
Options on interest rate futures contracts involve a somewhat greater risk in
that a liquid market for such options may not exist to permit the Fund to
establish or close out its positions. Although the Fund generally will purchase
only options for which there appears to be an active market, there is no
assurance that a liquid market on any exchange will exist for any particular
option or at any particular time.

The principal risk with respect to writing covered call and put options is the
Fund's possible inability to effect closing transactions at favorable prices. By
writing the option, the Fund agrees to buy or sell the security at a specified
price during a specified period, and, until the option lapses (i.e., the
specified period expires or the option is exercised) or is canceled by a closing
transaction, the Fund cannot

<PAGE>

sell the covering security to recognize a profit (or limit a loss). In addition,
if the price of the underlying security does not move in the anticipated
direction, the Fund will have to sell or buy the covering security at a price
that is below market (in the case of a security sold to cover a written call
option) or above market (in the case of a security purchased to cover a written
put option) unless the Fund can close out its optioned position prior to the
option exercise date. Moreover, until an option lapses or is canceled by a
closing transaction, the maximum sales price the Fund may realize on a covering
security is limited to the option price. The Fund continues, however, to bear
the risk of a decline in the price of a covering security during the option
period, although any potential loss during that period would be reduced by the
amount of the option premium received. Although certain risks are involved in
these option and hedging transactions, the Manager believes that, because the
Fund writes only covered or secured options on portfolio securities and
purchases options only for hedging purposes, the options and hedging strategies
of the Fund do not subject it to the risks frequently associated with these
transactions.

The Fund's investment in options, futures contracts, forward contracts, options
on futures contracts or stock indices, and foreign currencies and securities may
be limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code") for qualification as a regulated investment company. These
instruments require the application of complex and special tax rules and
elections, more information about which is included in the SAI.

The Fund's investment in options, futures contracts and forward contracts, and
certain securities transactions involving actual or deemed short sales or
foreign exchange gains or losses are subject to special tax rules that may
affect the amount, timing and character of distributions to shareholders. These
investments and transactions are discussed in the SAI.

Transactions in options and financial futures and options related thereto and
CMOs, as previously discussed in this section, are generally considered
"derivative securities" by the popular media.

FOREIGN SECURITIES

The Fund may, using the criteria set forth above, invest any portion of its
assets in debt securities issued by foreign corporations and governments, their
instrumentalities, and supranational entities.

A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the World
Bank, the European Development Bank and the Asian Development Bank.

The Fund may invest in securities issued in any currency and may hold foreign
currency to the extent consistent with its objective and policies described
above. Securities of issuers within a given country may be denominated in the
currency of that or another country, or in multinational currency units.

There are inherent risks associated with investments in such foreign securities.
An investment may be affected by changes in currency rates and exchange control
regulations, and the Fund may incur transaction charges in exchanging
currencies. Foreign government securities are frequently not subject to the
accounting and financial reporting standards applicable to U.S. government
securities and less information may be available regarding such securities. Most
foreign government securities are traded in foreign over-the-counter markets or
on foreign stock exchanges, and are generally less liquid and more volatile than
comparable U.S. government securities. There is also the possibility of
expropriation or confiscatory taxation, political or social in-

<PAGE>

stability or diplomatic developments that could adversely affect the value of
those investments. (See the SAI for further information.)

Foreign exchange gains and losses realized by the Fund in connection with
transactions involving foreign currencies, foreign currency payables or
receivables, and foreign currency-denominated debt securities are subject to
special tax rules which may cause such gains and losses to be treated as
ordinary income and losses rather than capital gains and losses and may affect
the amount and timing of the Fund's income or loss from such transactions and in
turn its distributions to shareholders.

INVESTMENT RESTRICTIONS

The Fund has also adopted certain investment restrictions, which are described
fully in the SAI. One of these restrictions states that the Fund may borrow
money only from banks for temporary or emergency purposes in amounts not to
exceed 15% of the Fund's total assets, and that additional investments may not
be made while any amounts borrowed are in excess of 5% of the Fund's total
assets. These investment restrictions are fundamental policies which may be
changed only by a majority vote of the Fund's outstanding shares.

The Fund's portfolio turnover rate may exceed 100% per year. Because a higher
turnover rate increases transaction costs and may increase taxable capital
gains, the investment manager will consider the potential benefits of investing
in Treasury rolls against these considerations.

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES

In addition to the factors which affect the value of individual securities, as
described in the preceding section, a shareholder may anticipate that the value
of Fund shares will fluctuate with movements in the broader equity and bond
markets, as well. To the extent the Fund's investments consist of debt
securities, changes in interest rates will affect the value of the Fund's
portfolio and thus its share price. Increased rates of interest which frequently
accompany higher inflation and/or a growing economy are likely to have a
negative effect on the value of Fund shares. To the extent the Fund's
investments consist of common stocks, a decline in the market, expressed for
example by a drop in the Dow Jones Industrials or the Standard & Poor's 500
average or any other equity based index, may also be reflected in declines in
the Fund's share price. History reflects both increases and decreases in the
prevailing rate of interest and in the valuation of the market, and these may
reoccur unpredictably in the future.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B. Johnson and Rupert
H. Johnson, Jr., who own approximately 20% and 16%, respectively, of Resources'
outstanding shares. Resources is engaged in various aspects of the financial
services industry through its various subsidiaries (the "Franklin Templeton
Group"). Advisers acts as in-

<PAGE>

vestment manager or administrator to 33 U.S. registered investment
companies (111 separate series) with aggregate assets of over $73 billion.

During the fiscal year ended September 30, 1994, fees totaling 0.50% of the
average daily net assets of the Fund were paid to Advisers.

During the fiscal year ended September 30, 1994, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.05% of the
average daily net assets of the Fund.

PLAN OF DISTRIBUTION

The Fund has adopted a plan (the "Distribution Plan") pursuant to Rule 12b-1
under the 1940 Act whereby it pays up to 0.25% per annum of its average daily
net assets to Distributors as reimbursement for expenses incurred by
Distributors in the distribution of the Fund's shares. Pursuant to the Fund's
Distribution Plan, Distributors is entitled to a payment each month as
reimbursement for its expenses incurred in the distribution and promotion of the
Fund's shares, including the printing of prospectuses, statements of additional
information and reports used for sales purposes, expenses (including personnel
of Distributors) of preparation and printing of sales literature and related
expenses, advertisements, other distribution-related expenses, including a
prorated portion of Distributors' overhead expenses attributable to the
distribution of Fund shares, and fees paid to dealers or others as a
distribution or service fee pursuant to servicing agreements. The Distribution
Plan does not provide for any unreimbursed expenses to be carried forward to
successive annual periods.

In addition to providing reimbursement to Distributors for the distribution
expenses discussed above, the Distribution Plan also recognizes that to the
extent that certain parties, including the Manager, use their own assets to pay
expenses associated with activities primarily intended to result in the
promotion and distribution of the Fund's shares, said payment shall also be
deemed to be made pursuant to the Distribution Plan.

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

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

1. Income dividends. The Fund receives income in the form of dividends, interest
and other income

<PAGE>

derived from its investments. This income, less the expenses incurred in the
Fund's operations, is its net investment income from which income dividends may
be distributed. Thus, the amount of dividends paid per share may vary with each
distribution.

2. Capital Gain Distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed net capital gains from the prior fiscal year. These
distributions, when made, will generally be fully taxable to the Fund's
shareholders. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.

DISTRIBUTION DATE

Although subject to change by the Trust's Board of Trustees, without prior
notice to or approval by shareholders, the Fund's current policy is to declare
income dividends payable monthly for shareholders of record on the last business
day of the month, payable on or about the 15th day of the following month. The
amount of income dividend payments by the Fund is dependent upon the amount of
net income received by the Fund from its portfolio holdings, is not guaranteed
and is subject to the discretion of the Trust's Board of Trustees. Fund shares
are quoted ex-dividend on the first business day following the record date. The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.

DIVIDEND REINVESTMENT

DISTRIBUTIONS IN CASH

A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Pay-

<PAGE>

ment Instructions for Distributions" section of the Shareholder Application
included with this Prospectus, a shareholder may direct the selected
distributions to another fund in the Franklin Group of Funds(R) or the Templeton
Funds, to another person, or directly to a checking account. If the bank at
which the account is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer. If this last
option is requested, the shareholder should allow at least 15 days for initial
processing. Dividends which may be paid in the interim will be sent to the
address of record. Additional information regarding automated fund transfers may
be obtained from Franklin's Shareholder Services Department. Dividend and
capital gain distributions are eligible for investment in another fund in the
Franklin Group of Funds or the Templeton Funds at net asset value. See
"Purchases at Net Asset Value" under "How to Buy Shares of the Fund."

TAXATION OF THE FUND AND ITS SHAREHOLDERS
- --------------------------------------------------------------------------------

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

Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or a loss. Any loss incurred on sale or exchange
of the Fund's shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.

For corporate shareholders, none of the distributions paid by the Fund for the
fiscal year ended September 30, 1994 qualified for the corporate
dividends-received deduction and it is not anticipated that any of the current
year's dividends will qualify.

The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise them of the tax status for federal income tax purposes
of such dividends and distributions.

<PAGE>

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

Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference however is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for the purchase of
shares.

The Fund may impose a $10 charge for each returned item, against any shareholder
account which, in connection with the purchase of Fund shares, submits a check
or a draft which is returned unpaid to the Fund.

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price which is the net
asset value per share, plus a sales charge, next computed (1) after the
shareholder's securities dealer receives the order which is promptly transmitted
to the Fund, or (2) after receipt of an order by mail from the shareholder
directly in proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check). The sales charge is a variable
percentage of the offering price depending upon the amount of the sale. On
orders for 100,000 shares or more, the offering price will be calculated to four
decimal places. On orders for less than 100,000 shares, the offering price will
be calculated to two decimal places using standard rounding criteria. A
description of the method of calculating net asset value per share is included
under the caption "Valuation of Fund Shares."

Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

TOTAL SALES CHARGE
--------------------------------------------------------

AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more none none (see below)**
--------------------------------------------------------------------------------------------
</TABLE>

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

**The following commissions will be paid by Distributors to dealers who initiate
and are responsible for purchases of $1 million or more: 0.75% on sales of $1
million but less than $2 million, plus 0.60% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.

<PAGE>

Distributors, or one of its affiliates, may make payments, out of its own
resources, of up to 0.75% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by
non-designated retirement plans, and up to 1% of the amount purchased to
securities dealers who initiate and are responsible for purchases made at net
asset value by certain designated retirement plans (excluding IRA and IRA
rollovers), certain trust company and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of $10
million or more. See "Special Net Asset Value Purchases" as described under
"Purchases at Net Asset Value" and as set forth in the SAI.

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

Distributors, or one of its affiliates, out of its own resources, may also
provide additional compensation to dealers in connection with sales of shares in
the Franklin Templeton Funds. Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising, sales campaigns and/or
shareholder services and programs regarding the Franklin Templeton Funds and
other dealer-sponsored programs or events. In some instances, this compensation
may be made available only to certain securities dealers whose representatives
have sold or are expected to sell significant amounts of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers,

<PAGE>

Inc. None of the aforementioned additional compensation is paid for by the Fund
or its shareholders. Certain officers and trustees of the Trust are also
affiliated with Distributors. A detailed description is included in the SAI.

QUANTITY DISCOUNTS IN SALES CHARGES

Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, the
investor or the dealer should notify Distributors at the time of each purchase
of shares which qualifies for the reduction. In determining whether a purchase
qualifies for any of the discounts, any Franklin Templeton Investments may be
combined with those of the investor's spouse and children under the age of 21.
In addition, the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be considered in
determining whether a reduced sales charge is available, even though there may
be a number of beneficiaries of the account.

In addition, an investment in the Fund may qualify for a reduction in the sales
charge under the following programs:

2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of the Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which, if made at one time, would qualify for
a reduced sales charge and grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. Purchases under the Letter
will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.

AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in shares of the Fund, registered in the investor's
name, to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will be included in the
total shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Purchases" in the SAI.

GROUP PURCHASES

<PAGE>

shares and now were investing $25,000, the sales charge would be 3.50%.
Information concerning the current sales charge applicable to a group may be
obtained by contacting Distributors.

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

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

PURCHASES AT NET ASSET VALUE

Shares of the Fund may be purchased at net asset value (without the imposition
of a front-end sales charge and/or contingent deferred sales charge) by (1)
officers, trustees, directors and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members; (2) companies exchanging shares with or selling
assets pursuant to a merger, acquisition or exchange offer; (3) insurance
company separate accounts for pension plan contracts; (4) accounts managed by
the Franklin Templeton Group; (5) shareholders of Templeton Institutional Funds,
Inc. reinvesting redemption proceeds from that fund under an employee benefit
plan qualified under Section 401 of the Internal Revenue Code of 1986, as
amended, in shares of the Fund; (6) certain unit investment trusts and unit
holders of such trusts reinvesting their distributions from the trusts in the
Fund; (7) registered securities dealers and their affiliates, for their
investment account only, and (8) registered personnel and employees of
securities dealers, which have directly or through affiliates, signed an
agreement with Distributors, and by their spouses and family members, in
accordance with the internal policies and procedures of the employing securities
dealer.

<PAGE>

(including any rollover) matures. Reinvestment at net asset value may also be
handled by a securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the amount of gain or loss
recognized and the tax basis of the shares reinvested. If there has been a loss
on the redemption, the loss may be disallowed if a reinvestment in the same fund
is made within a 30-day period. Information regarding the possible tax
consequences of such a reinvestment is included in the tax section of this
Prospectus and the SAI.

Shares of the Fund may be purchased at net asset value by registered investment
advisors and/or their affiliated broker-dealers, who have entered into a
supplemental agreement with Distributors, on behalf of their clients who are
participating in a comprehensive fee program (also known as a wrap fee program).

Shares of the Fund may be purchased at net asset value by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton Profit
Sharing 401(k) plan), to the extent of such distribution. In order to exercise
this privilege a written order for the purchase of shares of the Fund must be
received by Franklin Templeton Trust Company (the "Trust Company"), the Fund or
Investor Services, within 120 days after the plan distribution. A prospectus
outlining the investment objectives and policies of a fund in which the
shareholder wishes to invest may be obtained by calling toll free at 1-800/DIAL
BEN (1-800/342-5236).

Shares of the Fund may also be purchased at net asset value by any state, county
or city, or any instrumentality, department, authority or agency thereof which
has determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a dealer who has executed a dealer agreement with
Distributors, Distributors or one of its affiliates may make a payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales Department for
additional information.

<PAGE>

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Shares of the Fund may also be purchased at net asset value by certain
designated retirement plans, including profit sharing, pension, 401(k) and
simplified employee pension plans, subject to minimum requirements with respect
to number of employees or amount of purchase, which may be established by
Distributors. Currently those criteria require that the employer establishing
the plan have 200 or more employees or that the amount invested or to be
invested during the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000. Employee benefit
plans not designated above or qualified under Section 401 of the Code may be
afforded the same privilege if they meet the above requirements as well as the
uniform criteria for qualified groups previously described under "Group
Purchases" which enable Distributors to realize economies of scale in its sales
efforts and sales related expenses.

Shares of the Fund may be purchased at net asset value by trust companies and
bank trust departments for funds over which they exercise exclusive
discretionary investment authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to the amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in this Fund or any of the
Franklin Templeton Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust company,
with payment by federal funds received by the close of business on the next
business day following such order.

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

Refer to the SAI for further information.

GENERAL

PURCHASING SHARES OF THE FUND IN CONNECTION WITH RETIREMENT PLANS INVOLVING
TAX-DEFERRED INVESTMENTS
- --------------------------------------------------------------------------------

Shares of the Fund may be used for retirement programs providing for
tax-deferred investments for both individuals and businesses. The Fund may be
used as an investment vehicle for an existing retirement plan or the Trust
Company may provide the plan documents and trustee or custodian services. A plan
document must be adopted in order for a plan to be in existence.

<PAGE>

tion regarding eligibility, contribution limits and IRS requirements. Please
note that the separate applications other than the one contained in this
Prospectus must be used to establish a Trust Company retirement account. To
obtain a retirement plan brochure or application, call toll free 1-800/DIAL BEN
(1-800/342-5236).

The Franklin Templeton IRA is an individual retirement account in which the
contributions, annually limited to the lesser of $2,000 or 100% of an
individual's earned compensation*, accumulate on a tax-deferred basis until
withdrawn. Under the current tax law, individuals who (or whose spouses) are
covered by a company retirement plan (termed "active participants") may be
restricted in the amount they may claim as an IRA deduction on their returns.
The IRA deduction is gradually reduced to the extent that a taxpayer's adjusted
gross income exceeds certain specified limits.

Two IRAs, with a combined limit of $2,250 or 100% of earned compensation*, may
be established by a married couple in which only one spouse is a wage earner.
The $2,250 may be split between the two IRAs, so long as no more than $2,000 is
contributed to either one for a given tax year.

A Franklin Rollover IRA account is designed to maintain the tax-deferred status
of a qualifying distribution from an employer-sponsored retirement plan, such as
a 401(k) plan or qualified pension plan. Additionally, if the eligible
distribution is directly transferred to a rollover IRA account, the distribution
will be exempt from 20% mandatory federal withholding.

The Franklin Simplified Employee Pension Plan (SEP-IRA) and Salary Reduction
Simplified Employee Pension Plan (SAR-SEP) are for use by small businesses
(generally 25 or fewer employees) to provide a retirement plan for their
employees and, at the same time, provide for a tax-deduction to the employer.
SEP-IRA contributions are made to an employee's IRA, at the discretion of the
employer, up to the lesser of $30,000 or 15% of compensation* per employee. The
SAR-SEP allows employees to contribute a portion of their salary to an IRA on a
pre-tax basis through salary deferrals. The maximum annual salary deferral limit
for a SAR-SEP is the lesser of 15% of compensation (adjusted for deferrals) or
$9,240 (1995 limit; indexed for inflation).

The Franklin Templeton 403(b) Retirement Plan is a salary deferral plan for
employees of certain non-profit and educational institutions [501(c)(3)
organizations and public schools]. The 403(b) Plan allows participants to
determine the annual amount of salary they wish to defer. The maximum annual
salary deferral amount is generally the lesser of 25% of compensation (adjusted
for deferrals) or $9,500.

The Franklin Business Retirement Plans provide employers with additional
retirement plan options and may be used individually, in combination, or with
custom designed features. The Profit Sharing Plan allows an employer to make
contributions, at its discretion, of up to the lesser of $30,000 or 15% of
compensation* per employee each year. The Money Purchase Pension Plan allows the
employer to contribute up to the lesser of $30,000 or 25% of compensation* per
employee; however, contributions are required annually at the rate (percentage)
elected by the employer at the outset of the plan. In order to achieve a
combined contribution rate of 25% while maintaining a certain degree of
flexibility, employers may establish both a Profit Sharing Plan and a Money
Purchase Pension Plan (with a fixed contribution rate of 10%).

<PAGE>

The Trust Company can add optional provisions to the Profit Sharing and Money
Purchase Pension Plans described above and provide a Defined Benefit, Target
Benefit, and 401(k) Plans on a custom designed basis. Business Retirement Plans,
whether standard or custom designed, may require an annual report (Form 5500) to
be filed with the IRS.

Redemptions from any Franklin retirement plan accounts require the completion of
specific distribution forms to comply with IRS regulations. Please see "How to
Sell Shares of the Fund."

Individuals and employers should consult with a competent tax or financial
advisor before choosing a retirement plan.

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
- --------------------------------------------------------------------------------

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT, OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).

SHARE CERTIFICATES

CONFIRMATIONS

AUTOMATIC INVESTMENT PLAN

SYSTEMATIC WITHDRAWAL PLAN

<PAGE>

maintaining a Systematic Withdrawal Plan. The minimum amount which the
shareholder may withdraw is $50 per withdrawal transaction although this is
merely the minimum amount allowed under the plan and should not be mistaken for
a recommended amount. The plan may be established on a monthly, quarterly,
semiannual or annual basis. If the shareholder establishes a plan, any capital
gain distributions and income dividends paid by the Fund will be reinvested for
the shareholder's account in additional shares at net asset value. Payments will
then be made from the liquidation of shares at net asset value on the day of the
transaction (which is generally the first business day of the month in which the
payment is scheduled) with payment generally received by the shareholder three
to five days after the date of liquidation. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected withdrawals to
another fund in the Franklin Templeton Funds, to another person, or directly to
a checking account. If the bank at which the account is maintained is a member
of the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing. Withdrawals which may be
paid in the interim will be sent to the address of record. Liquidation of shares
may reduce or possibly exhaust the shares in the shareholder's account, to the
extent withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. As with other redemptions, a liquidation to
make a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.

The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual withdrawals
under the plan during the time such a plan is in effect. A Systematic Withdrawal
Plan may be terminated on written notice by the shareholder or the Fund, and it
will terminate automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death or incapacity
of the shareholder. Shareholders may change the amount (but not below the
specified minimum) and schedule of withdrawal payments or suspend one such
payment by giving written notice to Investor Services at least seven business
days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.

INSTITUTIONAL ACCOUNTS

Theremay be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
Franklin's Institutional Services Department at 1-800/321-8563.

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

<PAGE>

If a shareholder's investment objective or outlook for the securities markets
changes, the Fund shares may be exchanged for shares of other Franklin Templeton
Funds which are eligible for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and investment
minimums. Investors should review the prospectus of the fund they wish to
exchange from and the fund they wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
minimum holding periods or applicable sales charges. Exchanges may be made in
any of the following ways:

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.

During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS(R)
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.

EXCHANGES THROUGH SECURITIES DEALERS

As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders by telephone or by other means of
electronic transmission from securities dealers who execute a dealer or similar
agreement with Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated shares on
deposit in the shareholder's account or for which certificates have previously
been deposited. A securities dealer may charge a fee for handling an exchange.

ADDITIONAL INFORMATION REGARDING EXCHANGES

<PAGE>

A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased, and shares are subsequently redeemed within 12
months of the calendar month of the original purchase date, a contingent
deferred sales charge will be imposed. The 12-month period will be tolled (or
stopped) for the period such shares are exchanged into and held in a Franklin or
Templeton money market fund. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."

There are differences among the many funds in the Franklin Templeton Funds.
Before making an exchange, a shareholder should obtain and review a current
prospectus of the fund into which the shareholder wishes to transfer.

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

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

RETIREMENT ACCOUNTS

Franklin Templeton IRA and 403(b) retirement accounts may accomplish exchanges
directly. Certain restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."

TIMING ACCOUNTS

RESTRICTIONS ON EXCHANGES

In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.

<PAGE>

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

The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.

The Fund and Distributors also, as indicated in "How to Buy Shares of the Fund,"
reserve the right to refuse any order for the purchase of shares.

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

A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:

REDEMPTIONS BY MAIL

The shareholder will then receive from the Fund the value of the shares based
upon the net asset value per share next computed after the written request in
proper form is received by Investor Services. Redemption requests received after
the time at which the net asset value is calculated (at 1:00 p.m. Pacific time)
each day that the New York Stock Exchange (the "Exchange") is open for business
will receive the price calculated on the following business day. Shareholders
are requested to provide a telephone number(s) where they may be reached during
business hours, or in the evening if preferred. Investor Services' ability to
contact a shareholder promptly when necessary will speed the processing of the
redemption.

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;

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

(4) share certificates, if the redemption proceeds are in excess of
$50,000; or

<PAGE>

been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated
or may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.

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

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

Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.

Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.

Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.

Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.

Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.

REDEMPTIONS BY TELEPHONE

Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUC-

<PAGE>

TIONS GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF
LOSS IN CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."

For shareholder accounts with the completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before 1:00 p.m. Pacific time on
any business day will be processed that same day. The redemption check will be
sent within seven days, made payable to all the registered owners on the
account, and will be sent only to the address of record. Redemption requests by
telephone will not be accepted within 30 days following an address change by
telephone. In that case, a shareholder should follow the other redemption
procedures set forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and qualified
retirement plans which qualify to purchase shares at net asset value pursuant to
the terms of this Prospectus) which wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from Franklin's Institutional Services Department by telephoning
1-800/321-8563.

REDEEMING SHARES THROUGH SECURITIES DEALERS

The SAI contains more information on the redemption of shares.

CONTINGENT DEFERRED SALES CHARGE

<PAGE>

and capital gain distributions) or the total cost of such shares, and is
retained by Distributors. In determining if a charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than 12 months; (ii) shares purchased
with reinvested dividends and capital gain distributions; and (iii) other shares
held longer than 12 months; and followed by any shares held less than 12 months,
on a "first in, first out" basis.

The contingent deferred sales charge is waived for: exchanges; distributions to
participants in Trust Company qualified retirement plans due to death,
disability or attainment of age 591/2; tax-free returns of excess contributions
to employee benefit plans, including those due to termination or plan transfer;
distributions from employee benefit plans; redemptions through a Systematic
Withdrawal Plan set up prior to February 1, 1995 and for Systematic Withdrawal
Plans set up thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually); and redemptions
initiated by the Fund due to a shareholder's account falling below the minimum
specified account size.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

RETIREMENT ACCOUNTS

Retirement account liquidations require the completion of certain additional
forms to ensure compliance with IRS regulations. To liquidate a retirement
account, a shareholder or securities dealer may call Franklin's Retirement Plans
Department to obtain the necessary forms.

OTHER

For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------

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

All Shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option (see "Re-

<PAGE>

stricted Accounts" below), (iii) transfer Fund shares in one account to another
identically registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition, shareholders who
complete and file an Agreement as described under "How to Sell Shares of the
Fund - Redemptions by Telephone" will be able to redeem shares of the Fund.

VERIFICATION PROCEDURES

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

RESTRICTED ACCOUNTS

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

To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020 for Franklin accounts or
1-800/354-9191 (press "2" when prompted to do so) for Templeton accounts.

GENERAL

Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.

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

VALUATION OF FUND SHARES
- --------------------------------------------------------------------------------

The net asset value per share of the Fund is determined as of 1:00 p.m. Pacific
time each day that

<PAGE>

the Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum sales charge of the Fund).

The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, including without limitation, the current
market value of any outstanding options written by the Fund, accrued expenses
and taxes and any necessary reserves is deducted from the aggregate gross value
of all assets, and the difference is divided by the number of shares of the Fund
outstanding at the time. For the purpose of determining the aggregate net assets
of the Fund, cash and receivables are valued at their realizable amounts.
Interest is recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on the NASDAQ
NationalMarket System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such reported
sale, within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The current market
value of any option held by the Fund is its last sales price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value. 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 of Trustees. All money market instruments with a maturity
of more than 60 days are valued at current market, as discussed above. All money
market instruments with a maturity of 60 days or less are valued at their
amortized cost, which the Board of Trustees has determined in good faith
constitutes fair value for purposes of complying with the 1940 Act. This
valuation method will continue to be used until such time as the trustees
determine that it does not constitute fair value for such purposes. With the
approval of trustees, the Fund may utilize a pricing service, bank or securities
dealer to perform any of the above described functions.

HOW TO GET INFORMATION REGARDING INVESTMENT IN THE FUND
- -------------------------------------------------------------------------------

Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.

From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Funds by calling the
automated Franklin TeleFACTS(R) system

<PAGE>
(day or night) at 1-800/247-1753. Information about the Fund may be accessed by
entering Fund Code 59 followed by the # sign, when requested to do so by the
automated operator. The TeleFACTS system is also available for processing
exchanges. See "Exchange Privilege."

<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ---------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>

PERFORMANCE
- --------------------------------------------------------------------------------

Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.

Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five-,
and ten-year periods, or portion thereof, to the extent applicable, through the
end of the most recent calendar quarter, assuming reinvestment of all
distributions. The Fund may also furnish total return quotations for other
periods, or based on investments at various sales charge levels or at net asset
value. For such purposes total return equals the total of all income and capital
gain paid to shareholders, assuming reinvestment of all distributions, plus (or
minus) the change in the value of the original investment, expressed as a
percentage of the purchase price.

Current yield reflects the income per share earned by the Fund's portfolio
investments; it is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.

<PAGE>

price. Under certain circumstances, such as when there has been a change in the
amount of dividend payout, or a fundamental change in investment policies, it
might be appropriate to annualize the dividends paid during the period such
policies were in effect, rather than using the dividends during the past 12
months. 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 gain, and is calculated over a different period of time.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

REPORTS TO SHAREHOLDERS

ORGANIZATION

The Trust's name was changed from L.F. Rothschild Managed Trust to Franklin
Managed Trust on June 28, 1988. The Trust is authorized to issue an unlimited
number of shares of beneficial interest, $.01 par value, in three series. All
shares have one vote and, when issued, are fully paid, non-assessable and
redeemable. Additional series may be added in the future by the Board of
Trustees.

VOTING RIGHTS

All shares have equal voting, dividend and liquidation rights, but have no
subscription, preemptive or conversion rights with respect to their respective
series. Shares of the Fund have noncumulative voting rights which means that in
all elections of trustees, the holders of more than 50% of the shares voting can
elect 100% of the trustees if they choose to do so, and in such event, the
holders of the remaining shares voting will not be able to elect any person or
persons to the Board of Trustees.

The Fund does not intend to hold annual shareholders' meetings. The Fund may,
however, hold a special meeting for such purposes as changing fundamental
investment restrictions, approving a new management agreement or any other
matters which are required to be acted on by shareholders under the 1940 Act. A
meeting may also be called by a majority of the Board of Trustees or by
shareholders holding at least ten percent of the shares entitled to vote at the
meeting. Shareholders may receive assistance in communicating with other
shareholders in connection with the election or removal of trustees such as that
provided in Section 16(c) of the 1940 Act.

<PAGE>

REDEMPTIONS BY THE FUND

The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the SAI.

OTHER INFORMATION

"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.

ACCOUNT REGISTRATIONS
- --------------------------------------------------------------------------------

An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.

Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.

A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.

Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."

The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of

<PAGE>

whether the account was initially registered in the name of or by the owner, the
nominee, or both. If a securities dealer or other representative is of record on
an investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in the near future,
include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.

Any questions regarding an intended registration should be answered by the
securities dealer handling the investment or by calling Franklin's Fund
Information Department.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- --------------------------------------------------------------------------------

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend, capital
gain distribution, or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number ("TIN") and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to backup withholding
if the IRS or a securities dealer notifies the Fund that the number furnished by
the shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.

The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.

PORTFOLIO OPERATIONS
- --------------------------------------------------------------------------------

The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio: William Lippman and Philip Smith since inception and
Margaret McGee since 1988.

William Lippman, Senior Vice President of Advisers, holds a bachelor's degree in
business administration from City College of New York and a master's degree in
business administration from the Graduate School of Business Administration of
New York University. He has been with Advisers since 1988.

Philip Smith, Portfolio Manager of Advisers, holds a bachelor of arts degree
from Princeton University and a juris doctorate degree from Yale University. He
has been with Advisers since 1988.

Margaret McGee, Portfolio Manager of Advisers, holds a bachelor of arts degree
from William Patterson College. She has been with Advisers since 1988.

SUPPLEMENT
TO THE PROSPECTUS OF
FRANKLIN RISING DIVIDENDS FUND
(Franklin Managed Trust)
dated February 1, 1995

The following revisions are made to certain operating policies of the Fund,
which are effective as of February 1, 1995:

HOW TO BUY SHARES OF THE FUND -

a) PURCHASES AT NET ASSET VALUE

i) Substitute the following for the third sentence of paragraph three
under the section:

While credit will be given for any contingent deferred sales charge
paid on the shares redeemed, a new contingency period will begin.

b) DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

i) Substitute the following for the first paragraph:

Shares of the Fund may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans ("designated
plans"), subject to minimum requirements with respect to number of
employees or amount of purchase, which may be established by
Distributors. Currently those criteria require that the employer
establishing the plan have 200 or more employees or that the amount
invested or to be invested during the subsequent 13-month period in
the Fund or in any of the Franklin Templeton Investments totals at
least $1,000,000. Employee benefit plans not designated above or
qualified under Section 401 of the Code ("non-designated plans")
may be afforded the same privilege if they meet the above
requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases" which enable
Distributors to realize economies of scale in its sales efforts and
sales related expenses.

ii) The two paragraphs which follow are revised to reflect that
purchases are without a front-end sales charge and without the
imposition of a contingent deferred sales charge.

HOW TO SELL SHARES OF THE FUND - CONTINGENT DEFERRED SALES CHARGE

Substitute the following for paragraph two, which describes waivers:

The contingent deferred sales charge is waived for: exchanges;
distributions to participants in Trust Company retirement plan accounts
due to death, disability or attainment of age 591/2; tax-free returns of
excess contributions to employee benefit plans; distributions from
employee benefit plans, including those due to plan termination or plan
transfer; redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995 and, for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3%
quarterly, 6% semiannually or 12% annually); and redemptions initiated by
the Fund due to a shareholder's account falling below the minimum
specified account size.

<PAGE>

FRANKLIN RISING
DIVIDENDS FUND

Franklin Managed Trust

PROSPECTUS FEBRUARY 1, 1995

[FRANKLIN LOGO]

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------

The objective of the Fund is to seek long-term capital appreciation primarily
through investment in the equity securities of companies that have paid
consistently rising dividends over the past ten years. Preservation of capital
is also an important consideration. The Fund seeks current income incidental to
long-term capital appreciation.

<PAGE>
<TABLE>
<CAPTION>
CONTENT PAGE
<S> <C>
Expense Table ............................................................................................................... 2

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

About the Trust ............................................................................................................. 4

Investment Objective and Policies of the Fund ............................................................................... 4

Management of the Fund ...................................................................................................... 6

Distributions to Shareholders ............................................................................................... 7

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

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

Purchasing Shares of the Fund in Connection with Retirement Plans Involving Tax-Deferred Investments ........................ 16

Other Programs and Privileges Available to Fund Shareholders ................................................................ 17

Exchange Privilege .......................................................................................................... 19

How to Sell Shares of the Fund .............................................................................................. 21

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

Valuation of Fund Shares .................................................................................................... 26

How to Get Information Regarding an Investment in the Fund .................................................................. 27

Performance ................................................................................................................. 27

General Information ......................................................................................................... 28

Account Registrations ....................................................................................................... 29

Important Notice Regarding Taxpayer IRS Certifications ...................................................................... 30

Portfolio Operations ........................................................................................................ 31
</TABLE>

EXPENSE TABLE
- -------------------------------------------------------------------------------

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ....................... 4.50%
Deferred Sales Charge ........................................ NONE*
Exchange Fee (per transaction) ............................... $5.00**

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .............................................. 0.75%
12b-1 Fees ................................................... 0.48%***
Other Expenses:
Shareholder Servicing Costs ...................... 0.07%
Reports to Shareholders .......................... 0.06%
Other ............................................ 0.07%
-----
Total Other Expenses ......................................... 0.20%
-----
Total Fund Operating Expenses ................................ 1.43%
=====
</TABLE>
* Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is imposed on certain
redemptions within 12 months of the calendar month following such investments.
See "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."

** $5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.

*** Consistent with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.

<PAGE>

EXAMPLE

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C>
$59 $88 $120 $209
</TABLE>

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

Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of the registration statement through each of
the fiscal years ended December 31, 1992, for the nine month period ended
September 30, 1993 (annualized as a result of a change in fiscal year end from
December to September) and for the fiscal year ended September 30, 1994. The
information has been audited by Tait, Weller and Baker, independent auditors,
whose audit report covering the years ended 1990 through 1994 appears in the
financial statements in the Trust's SAI. The remaining figures, which are also
audited, are not covered by the auditors' current report. See the discussion
"Reports to Shareholders" under "General Information."

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
VALUE AT NET & UNREALIZED TOTAL FROM FROM NET VALUES
YEAR BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT AT END TOTAL
ENDED OF YEAR INCOME ON SECURITIES OPERATIONS INCOME OF YEAR RETURN+
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1987** $10.00 $.28 $(1.370) $(1.090) $(.190) $ 8.72 (11.25)%
1988++ 8.72 .33 1.280 1.610 (.320) 10.01 18.80
1989 10.01 .37 1.560 1.930 (.360) 11.58 19.60
1990 11.58 .33 (.310) .020 (.390) 11.21 .26
1991 11.21 .28 3.720 4.000 (.300) 14.91 35.95
1992 14.91 .24 1.290 1.530 (.260) 16.18 10.38
1993*** 16.18 .19 (.745) (.555) (.195) 15.43 (3.43)
1994**** 15.43 .28 (.800) (.520) (.240) 14.67 (3.38)

<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------
NET ASSETS RATIO OF RATIO OF
AT END EXPENSES NET INCOME PORTFOLIO
YEAR OF YEAR TO AVERAGE TO AVERAGE TURNOVER
ENDED (IN 000'S) NET ASSETS NET ASSETS RATE
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
1987** $ 33,418 1.79%* 3.06%* 44.57%
1988++ 31,792 1.62 3.44 18.19
1989 40,550 1.70 3.28 26.87
1990 39,907 1.60 2.99 28.87
1991 71,380 1.53 2.16 16.83
1992 197,804 1.46 1.67 12.73
1993*** 356,708 1.40* 1.73* 11.48
1994**** 261,461 1.43 1.81 25.75
</TABLE>

*Annualized

** For the period January 14, 1987 (effective date of registration) to December
31, 1987.

*** For the period ended September 30, 1993.

**** For the year ended September 30, 1994.

+ Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.

++ On June 28, 1988, the investment manager changed from L.F. Rothschild Fund
Management, Inc. to Franklin Advisers, Inc.

<PAGE>

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

The Trust is a diversified, open-end management investment company or mutual
fund consisting of three separate portfolios. Each portfolio or fund is a
separate series of shares of beneficial interest. The Trust was organized as a
Massachusetts Business Trust on July 1, 1986 and is registered with the SEC
under the Investment Company Act of 1940 (the "1940 Act").

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge not
exceeding 4.5% of the offering price. See "How to Buy Shares of the Fund."

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
- -------------------------------------------------------------------------------

The objective of the Fund is long-term capital appreciation. The objective is a
fundamental policy of the Fund and may not be changed without shareholder
approval. Preservation of capital, while not an objective, is also an important
consideration. Incidental to seeking its investment objective of long-term
capital appreciation, the Fund seeks current income.

The Fund seeks to achieve its investment objective of long-term capital
appreciation by investing at least 65% of its total assets in financially sound
companies that have paid consistently rising dividends (as described below)
based on the investment philosophy of the Fund's investment manager, Franklin
Advisers, Inc. ("Advisers" or the "Manager"), that the securities of such
companies, because of their dividend record, have a strong potential to increase
in value. The Fund diversifies its investments among different companies in
different industry segments with no more than 25% of the Fund's portfolio
concentrated in any one industry. Normally, the Fund's investments are in common
stocks, securities convertible into common stocks, or rights or warrants to
subscribe for or purchase common stocks. However, in any period of stock market
weakness or of uncertain market or economic conditions as determined by the
Manager, the Fund may establish a defensive position to preserve capital by
temporarily having all or a part of its assets invested in short-term,
fixed-income securities or retained in cash or cash equivalents. Such
investments would include U.S. government securities, bank certificates of
deposit, bankers' acceptances and high-quality commercial paper issued by
domestic corporations.

As a fundamental policy, under normal market conditions at least 65% of the
Fund's portfolio is invested in the securities of companies that meet the
following criteria:

Consistent dividend increases - A company should have increased its dividend in
at least eight out of the last ten years with no year showing a decrease.

Substantial dividend increases - A company must have increased its dividend at
least 100% over the past ten years.

Reinvested earnings - Dividend payout should be less than 65% of current
earnings (except for utility companies).

Strong balance sheet - Long-term debt should be no more than 30% of total
capitalization (except for utility companies).

Attractive price - The current price should either be in the lower half of the
stock's price/earnings ratio range for the past ten years or less than the
current market price/earnings ratio of the stocks comprising the Standard &
Poor's 500 Stock Index. This criterion applies only at time of purchase.

<PAGE>

The remaining 35% of the Fund's assets typically are invested in dividend-paying
equity securities with similar characteristics that may not meet all of the
criteria listed above.

The Fund's Manager also considers other factors, such as return on shareholder's
equity, rate of earnings growth and anticipated price/earnings ratios, in
selecting investments for the Fund.

The Fund's Manager believes, however, that a focus on companies with a pattern
of rising dividends will help the Fund attain its objective of long-term capital
appreciation. In addition, because capital preservation is an important
consideration, the Manager also reviews a company's stability and the strength
of its balance sheet in selecting among eligible growth companies generally.
There is, of course, no assurance that the Fund will achieve its objective due
to the market risks inherent in any investment program. Moreover, the net asset
value per share of the Fund will fluctuate as the market value of its investment
portfolio fluctuates.

The Fund may purchase American Depositary Receipts ("ADRs"), which are
certificates issued by U.S. banks representing the right to receive securities
of a foreign issuer deposited with that bank or a correspondent bank.

SOME OF THE FUND'S OTHER INVESTMENT POLICIES

Repurchase Agreements. For temporary defensive purposes, or as an interim
investment pending longer-term investment in securities meeting the Fund's
special criteria, the Fund may engage in repurchase transactions in which the
Fund purchases a U.S. government security subject to resale to a bank or dealer
at an agreed-upon price and date. The transaction requires the collateralization
of the seller's obligation by the transfer of securities with an initial market
value, including accrued interest, equal to at least 102% of the dollar amount
invested by the Fund in each agreement, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. A default
by the seller might cause the Fund to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Fund might
also incur disposition costs in liquidating the collateral. The Fund, however,
intends to enter into repurchase agreements only with financial institutions
such as broker-dealers and banks which are deemed creditworthy by the

<PAGE>

Fund's investment manager. A repurchase agreement is deemed to be a loan by the
Fund under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian approved by the
Fund's Board and will be held pursuant to a written agreement.

Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) or restricted securities may not constitute, at the time of purchase
or at any time, more than 10% of the value of the total net assets of the Fund.

Investment Restrictions. The Fund has adopted certain investment restrictions,
which are described fully in the SAI. One of these restrictions states that the
Fund may borrow money only from banks for temporary or emergency purposes in
amounts not to exceed 15% of the Fund's total assets, and that additional
investments may not be made while any amounts borrowed are in excess of 5% of
the Fund's total assets. These investment restrictions are fundamental policies
which may be changed only by a majority vote of the Fund's outstanding shares.

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES

In addition to the factors which affect the value of individual securities, as
described in the preceding sections, a shareholder may anticipate that the value
of Fund shares will fluctuate with movements in the broader equity and bond
markets, as well. A decline in the market, expressed for example by a drop in
the Dow Jones Industrials or the Standard & Poor's 500 average or any other
equity based index, may also be reflected in declines in the Fund's share price.
History reflects both decreases and increases in the valuation of the market,
and these may reoccur unpredictably in the future.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

During the fiscal year ended September 30, 1994, fees totaling 0.75% of the
average daily net assets of the Fund were paid to Advisers. The management fee
rate is higher than the management fees paid by most mutual funds although the
Board of

<PAGE>

Trustees believes it to be comparable to fees paid by many funds having
similar investment objectives and policies, and reasonable in light of the level
of services provided by the Manager.

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

During the fiscal year ended September 30, 1994, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.43% of the
average daily net assets of the Fund.

PLAN OF DISTRIBUTION

The Fund has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act, whereby it reimburses Distributors or others in an amount equal to 0.25%
per annum of the average daily net assets of the Fund for expenses incurred by
Distributors or others in the promotion and distribution of the shares of the
Fund, including but not limited to, the printing of prospectuses, statements of
additional information and reports used for sales purposes, expenses of
preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares. Such payments are made monthly. In addition, pursuant to the Plan,
the Fund may pay Distributors or others a service fee to reimburse such parties
for personal services provided to shareholders of the Fund and/or the
maintenance of shareholder accounts. The total amount of service fees paid by
the Fund shall not exceed 0.25% per year of the average daily net assets of the
Fund. Such payments are made pursuant to distribution and/or service agreements
entered into between such service providers and Distributors or the Fund
directly. The maximum amount which the Fund may pay on a yearly basis for the
promotion and distribution of shares, including service fees, is 0.50% per year
of the average daily net assets of the Fund. Payments in excess of reimbursable
expenses under the Plan in any year must be refunded. Further, expenses of
Distributors other than for service fees in excess of 0.25% per year of the
Fund's average net assets that otherwise qualify for payment may not be carried
forward into successive annual periods.

The Plan also covers any payments to or by the Fund, Distributors, or other
parties on behalf of the Fund or Distributors, to the extent such payments are
deemed to be for the financing of any activity primarily intended to result in
the sale of shares issued by the Fund within the context of Rule 12b-1. The
payments under the Plan are included in the maximum operating expenses which may
be borne by the Fund.

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

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

<PAGE>

2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term
capital gains (after taking into account any net capital loss carryovers)
may generally be made once a year in December to reflect any net short-term
and net long-term capital gains realized by the Fund as of October 31 of the
current fiscal year and any undistributed net capital gains from the prior
fiscal year. These distributions, when made, will generally be fully taxable
to the Fund's shareholders. The Fund may make more than one distribution
derived from net short-term and net long-term capital gains in any year or
adjust the timing of these distributions for operational or other reasons.

DISTRIBUTION DATE

Although subject to change by the Trust's Board of Trustees, without prior
notice to or approval by shareholders, the Fund's current policy is to declare
income dividends payable quarterly in March, June, September and December for
shareholders of record on the last business day of the preceding month, payable
on or about the 15th day of the following month. The amount of income dividend
payments by the Fund is dependent upon the amount of net income received by the
Fund from its portfolio holdings, is not guaranteed and is subject to the
discretion of the Trust's Board of Trustees. Fund shares are quoted ex-dividend
on the first business day following the record date. THE FUND DOES NOT PAY
"INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.

DIVIDEND REINVESTMENT

<PAGE>

DISTRIBUTIONS IN CASH

TAXATION OF THE FUND AND ITS SHAREHOLDERS
- -------------------------------------------------------------------------------

100% of the income dividends paid by the Fund for the fiscal year ended
September 30, 1994 qualified for the corporate dividends-received deduction,
subject to certain holding period and debt financing restrictions imposed under
the Code on the corporation claiming the deduction.

<PAGE>

Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless the Fund shares have been held (or deemed
held) for at least 46 days in a substantially unhedged manner. The
dividends-received deduction may also be reduced to the extent interest paid or
accrued by a corporate shareholder is directly attributable to its investment in
Fund shares. The entire dividend, including the portion which is treated as a
deduction, is includable in the tax base on which the federal alternative
minimum tax is computed and may also result in a reduction in the shareholder's
tax basis in its Fund shares, under certain circumstances, if the shares have
been held for less than two years. Corporate shareholders whose investment in
the Fund is "debt financed" for these tax purposes should consult with their tax
advisors concerning the availability of the dividends-received deduction.

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

Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference however is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for the purchase of
shares.

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price, which is the net
asset value per share, plus a sales charge, next computed (1) after the
shareholder's securities dealer receives the order

<PAGE>

which is promptly transmitted to the Fund, or (2) after receipt of an order by
mail from the shareholder directly in proper form (which generally means a
completed Shareholder Application accompanied by a negotiable check). The sales
charge is a variable percentage of the offering price depending upon the amount
of the sale. On orders for 100,000 shares or more, the offering price will be
calculated to four decimal places. On orders for less than 100,000 shares, the
offering price will be calculated to two decimal places using standard rounding
criteria. A description of the method of calculating net asset value per share
is included under the caption "Valuation of Fund Shares."

Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
-------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more none none (see below)**
- -----------------------------------------------------------------------------------------------------
</TABLE>

* Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

**The following commissions will be paid by Distributors to dealers who initiate
and are responsible for purchases of $1 million or more: 1.00% on sales of $1
million but less than $2 million, plus 0.80% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.

Distributors, or one of its affiliates, may make payments, out of its own
resources, of up to 1% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset value by certain
designated retirement plans (excluding IRA and IRA rollovers), certain trust
company and trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $10 million or more).
See "Special Net Asset Value Purchases" as described under "Purchases at Net
Asset Value" and as set forth in the SAI.

<PAGE>

products underwritten by Distributors or its affiliates (although certain
investments may not have the same schedule of sales charges and/or may not be
subject to reduction) and (c) the U.S. mutual funds in the Templeton Group of
Funds except Templeton American Trust, Inc., Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund (the "Templeton Funds"). (Franklin Funds and Templeton Funds are
collectively referred to as the "Franklin Templeton Funds.") Sales charge
reductions based upon aggregate holdings of (a), (b) and (c) above ("Franklin
Templeton Investments") may be effective only after notification to Distributors
that the investment qualifies for a discount.

Certain officers and trustees of the Fund are also affiliated with Distributors.
A detailed description is included in the SAI.

QUANTITY DISCOUNTS IN SALES CHARGES

In addition, an investment in the Fund may qualify for a reduction in the
sales charge under the following programs:

1. Rights of Accumulation. The cost or current value (whichever is higher) of
existing investments in Franklin Templeton Investments may be combined with
the amount of the current purchase in determining the sales charge to be
paid.

<PAGE>

reduced sales charge on a purchase of shares of the Fund by completing the
Letter of Intent section of the Shareholder Application (the "Letter of Intent"
or "Letter"). By completing the Letter, the investor expresses an intention to
invest during the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge and grants to Distributors a security
interest in the reserved shares and irrevocably appoints Distributors as
attorney-in-fact with full power of substitution to surrender for redemption any
or all shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of Rule 22d-1
under the 1940 Act. The investor or the investor's securities dealer must inform
Investor Services or Distributors that this Letter is in effect each time a
purchase is made.

AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VAUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in shares of the Fund, registered in the investor's
name, to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will be included in the
total shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Purchases" in the SAI.

GROUP PURCHASES

An individual who is a member of a qualified group may also purchase shares of
the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of shares previously
purchased and still owned by the group, plus the amount of the current purchase.
For example, if members of the group had previously invested and still held
$80,000 of Fund shares and now were investing $25,000, the sales charge would be
3.75%. Information concerning the current sales charge applicable to a group may
be obtained by contacting Distributors.

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

PURCHASES AT NET ASSET VALUE

<PAGE>

Funds, or of the Franklin Templeton Group, and by their spouses and family
members; (2) companies exchanging shares with or selling assets pursuant to a
merger, acquisition or exchange offer; (3) insurance company separate accounts
for pension plan contracts; (4) accounts managed by the Franklin Templeton
Group; (5) shareholders of Templeton Institutional Funds, Inc. reinvesting
redemption proceeds from that fund under an employee benefit plan qualified
under Section 401 of the Internal Revenue Code of 1986, as amended, in shares of
the Fund; (6) certain unit investment trusts and unit holders of such trusts
reinvesting their distributions from the trusts in the Fund; (7) registered
securities dealers and their affiliates, for their investment account only, and
(8) registered personnel and employees of securities dealers, which have
directly or through affiliates, signed an agreement with Distributors, and by
their spouses and family members, in accordance with the internal policies and
procedures of the employing securities dealer.

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund or another of
the Franklin Templeton Funds which were purchased with a front-end sales charge
or assessed a contingent deferred sales charge on redemption. An investor may
reinvest an amount not exceeding the redemption proceeds. Credit will be given
for any contingent deferred sales charge paid on the shares redeemed. Shares of
the Fund redeemed in connection with an exchange into another fund (see
"Exchange Privilege") are not considered "redeemed" for this privilege. In order
to exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.

<PAGE>

comprehensive fee program (also known as a wrap fee program).

Shares of the Fund may also be purchased at net asset value by any state,
county, or city, or any instrumentality, department, authority or agency thereof
which has determined that the Fund is a legally permissible investment and which
is prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company (an "eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a dealer who has executed a dealer agreement with
Distributors, Distributors or one of its affiliates may make a payment, out of
their own resources, to such dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales Department for
additional information.

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

<PAGE>

be accepted by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order.

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

Refer to the SAI forfurther information.

GENERAL

PURCHASING SHARES OF THE FUND IN CONNECTION WITH RETIREMENT PLANS INVOLVING
TAX-DEFERRED INVESTMENTS
- --------------------------------------------------------------------------------

Shares of the Fund may be used for retirement programs providing for
tax-deferred investments for both individuals and businesses. The Fund may be
used as an investment vehicle for an existing retirement plan, or the Trust
Company may provide the plan documents and trustee or custodian services. A plan
document must be adopted in order for a plan to be in existence.

The Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for various types of retirement plans. Brochures for each of the plans
sponsored by Franklin contain important information regarding eligibility,
contribution limits and IRS requirements. Please note that the separate
applications other than the one contained in this Prospectus must be used to
establish a Trust Company retirement account. To obtain a retirement plan
brochure or application, call toll free 1-800/DIAL BEN (1-800/342-5236).

<PAGE>

The Franklin Templeton 403(b) Retirement Plan is a salary deferral plan for
employees of certain non-profit and educational institutions [ss.501(c)(3)
organizations and public schools]. The 403(b) Plan allows participants to
determine the annual amount of salary they wish to defer. The maximum annual
salary deferral amount is generally the lesser of 25% of compensation (adjusted
for deferrals) or $9,500.

Redemptions from any Franklin retirement plan accounts require the completion
of specific distribution forms to comply with IRS regulations. Please see "How
to Sell Shares of the Fund."

Individuals and employers should consult with a competent tax or financial
advisor before choosing a retirement plan.

* The limit on compensation for determining SEP and qualified plan contributions
is reduced from $235,840 in 1993 to $150,000 for 1994 and 1995. The $150,000
limit will be adjusted for inflation, but only in $10,000 increments.

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
- --------------------------------------------------------------------------------

SHARE CERTIFICATES

<PAGE>

in uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. A lost, stolen or destroyed certificate cannot
be replaced without obtaining a sufficient indemnity bond. The cost of such a
bond, which is generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate will be issued
if requested in writing by the shareholder or by the securities dealer.

CONFIRMATIONS

AUTOMATIC INVESTMENT PLAN

SYSTEMATIC WITHDRAWAL PLAN

A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net asset value of the
shares held by the shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal transaction although
this is merely the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. The plan may be established on a monthly,
quarterly, semiannual or annual basis. If the shareholder establishes a plan,
any capital gain distributions and income dividends paid by the Fund will be
reinvested for the shareholder's account in additional shares at net asset
value. Payments will then be made from the liquidation of shares at net asset
value on the day of the transaction (which is generally the first business day
of the month in which the payment is scheduled) with payment generally received
by the shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions" section of the
Shareholder Application included with this Prospectus, a shareholder may direct
the selected withdrawals to another fund in the Franklin Templeton Funds, to
another person, or directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing House, the payments
may be made automatically by electronic funds transfer. If this last option is
requested, the shareholder should allow at least 15 days for initial processing.
Withdrawals which may be paid in the interim will be sent to the address of
record. Liquidation of shares may re-

<PAGE>

duce or possibly exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. As with other redemptions, a liquidation to
make a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.

The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the annual withdrawals
under the plan during the time such a plan is in effect. A Systematic Withdrawal
Plan may be terminated on written notice by the shareholder or the Fund, and it
will terminate automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death or incapacity
of the shareholder. Shareholders may change the amount (but not below the
specified minimum) and schedule of withdrawal payments or suspend one such
payment by giving written notice to Investor Services at least seven business
days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.

INSTITUTIONAL ACCOUNTS

There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
Franklin's Institutional Services Department at 1-800/321-8563.

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives or policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for shares of other Franklin Templeton Funds which are eligible for
sale in the shareholder's state of residence and in conformity with such fund's
stated eligibility requirements and investment minimums. Investors should review
the prospectus of the fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on exercising the
exchange privilege, for example, minimum holding periods or applicable sales
charges. Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

<PAGE>

EXCHANGES THROUGH SECURITIES DEALERS

ADDITIONAL INFORMATION REGARDING EXCHANGES

A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased, and shares are subsequently redeemed within 12
months of the calendar month of the original purchase date, a contingent
deferred sales charge will be imposed. The 12-month period will be tolled (or
stopped) for the period such shares are exchanged into and held in a Franklin or
Templeton money market fund. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."

There are differences among the Franklin Templeton Funds. Before making an
exchange, a shareholder should obtain and review a current prospectus of the
fund into which the shareholder wishes to transfer.

<PAGE>

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

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

RETIREMENT ACCOUNTS

TIMING ACCOUNTS

RESTRICTIONS ON EXCHANGES

In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) make an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) make more than two exchanges out of the Fund per
calendar quarter, or (iii) exchange shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.

The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.

The Fund and Distributors also, as indicated in "How to Buy Shares of the Fund,"
reserve the right to refuse any order for the purchase of shares.

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

A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:

<PAGE>

REDEMPTIONS BY MAIL

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;

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

(4) share certificates, if the redemption proceeds are in excess of $50,000; or

(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated
or may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.

<PAGE>

protection, to send the share certificate and assignment form in separate
envelopes if they are being mailed in for redemption.

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

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

Trust - (1) Signature guaranteed letter of instruction from the trustee(s), and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.

Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.

Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.

Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.

REDEMPTIONS BY TELEPHONE

Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts.

INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN
CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."

REDEEMING SHARES THROUGH SECURITIES DEALERS

The Fund will accept redemption orders by telephone or other means of electronic
transmission from securities dealers who have entered into a dealer or similar
agreement with Distributors. This

<PAGE>

is known as a repurchase. The only difference between a normal redemption and a
repurchase is that if the shareholder redeems shares through a dealer, the
redemption price will be the net asset value next calculated after the
shareholder's dealer receives the order which is promptly transmitted to the
Fund, rather than on the day the Fund receives the shareholder's written request
in proper form. These documents, as described in the preceding section, are
required even if the shareholder's securities dealer has placed the repurchase
order. After receipt of a repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other documents set forth above.
A shareholder's letter should reference the Fund, the account number, the fact
that the repurchase was ordered by a dealer and the dealer's name. Details of
the dealer-ordered trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of the redemption. The
seven-day period within which the proceeds of the shareholder's redemption will
be sent will begin when the Fund receives all documents required to complete
("settle") the repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the dealer's repurchase
order and the date the redemption is processed upon receipt of all documents
necessary to settle the repurchase. Thus, it is in a shareholder's best interest
to have the required documentation completed and forwarded to the Fund as soon
as possible. The shareholder's dealer may charge a fee for handling the order.
The SAI contains more information on the redemption of shares.

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers on qualified
investments of $1 million or more, a contingent deferred sales charge of 1%
applies to redemptions of those investments within 12 months of the calendar
month of their purchase. The charge is 1% of the lesser of the value of the
shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the total cost of such shares, and is retained by
Distributors. In determining if a charge applies, shares not subject to a
contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than 12 months; (ii) shares purchased
with reinvested dividends and capital gain distributions; and (iii) other shares
held longer than 12 months; and followed by any shares held less than 12 months,
on a "first in, first out" basis.

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

<PAGE>

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

RETIREMENT ACCOUNTS

OTHER

For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.

TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------

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

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

VERIFICATION PROCEDURES

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

<PAGE>

RESTRICTED ACCOUNTS

GENERAL

Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.

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

VALUATION OF FUND SHARES
- --------------------------------------------------------------------------------

The net asset value per share of the Fund is determined as of 1:00 p.m. Pacific
time each day that the Exchange is open for trading. The Fund's present
intention, however, is to price only once a day. Many newspapers carry daily
quotations of the prior trading day's closing "bid" (net asset value) and "ask"
(offering price, which includes the maximum sales charge of the Fund).

The net asset value per share of the Fund is determined in the following
manner: The aggregate of all liabilities, accrued expenses and taxes and any
necessary reserves, is deducted from the aggregate gross value of all assets,
and the difference is divided by the number of shares of the Fund outstanding
at the time. For the purpose of determining the aggregate net assets of the
Fund, cash and receivables are valued at their realizable amounts. Interest is
recorded as accrued and dividends are recorded on the ex-dividend date.
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and ask prices. Over-the-counter
portfolio securities for which market quotations are readily available are
valued within the range of the most recent bid and ask prices as obtained from
one or more dealers that make markets in the securities. Portfolio securities
which are traded both in the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market as
determined by the Manager. 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

<PAGE>
at fair value as determined following procedures approved by the Board of
Trustees. All money market instruments with a maturity of more than 60 days are
valued at current market, as discussed above. All money market instruments with
a maturity of 60 days or less are valued at their amortized cost, which the
Board of Trustees has determined in good faith constitutes fair value for
purposes of complying with the 1940 Act. This valuation method will continue to
be used until such time as the trustees determine that it does not constitute
fair value for such purposes. With the approval of trustees, the Fund may
utilize a pricing service, bank or securities dealer to perform any of the
above described functions.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
- --------------------------------------------------------------------------------

Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.

From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Funds by calling the
automated Franklin TeleFACTS(R) system (day or night) at 1-800/247-1753.
Information about the Fund may be accessed by entering Fund Code 58 followed by
the # sign, when requested to do so by the automated operator. The TeleFACTS
system is also available for processing exchanges. See "Exchange Privilege."

<TABLE>
<CAPTION>
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- --------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>

PERFORMANCE
- --------------------------------------------------------------------------------

Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.

Average annual total return figures as prescribed by the SEC represent the
average annual percent-

<PAGE>

age change in value of $1,000 invested at the maximum public offering price
(offering price includes sales charge) for one-, five-, and ten-year periods, or
portion thereof, to the extent applicable, through the end of the most recent
calendar quarter, assuming reinvestment of all distributions. The Fund may also
furnish total return quotations for other periods or based on investments at
various sales charge levels or at net asset value. For such purposes total
return equals the total of all income and capital gain paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the change in the
value of the original investment, expressed as a percentage of the purchase
price.

Yield, which is calculated according to a formula prescribed by the SEC (see the
SAI), is not indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to shareholders
are reflected in the current distribution rate, which may be quoted to
shareholders. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past 12 months by a
current maximum offering price. Under certain circumstances, such as when there
has been a change in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the dividends paid
during the period such policies were in effect, rather than using the dividends
during the past 12 months. 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 short-term capital gain,
and is calculated over a different period of time.

In each case performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the Fund's yield, distribution rate or total return may be in any future period.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

REPORTS TO SHAREHOLDERS

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

ORGANIZATION

<PAGE>

deemable. Additional series may be added in the future by the Board of Trustees.

VOTING RIGHTS

All shares have equal voting, dividend and liquidation rights, but have no
subscription, preemptive or conversion rights with respect to their respective
series. Shares of the Fund have noncumulative voting rights which means that in
all elections of trustees, the holders of more than 50% of the shares voting can
elect 100% of the trustees if they choose to do so and, in such event, the
holders of the remaining shares voting will not be able to elect any person or
persons to the Board of Trustees.

The Fund does not intend to hold annual meetings; it may, however, hold special
shareholder meetings for such purposes as changing fundamental investment
restrictions or approving new management agreements, underwriting agreements or
a new Distribution Plan. A meeting may also be called by a majority of the Board
of Trustees or by shareholders holding at least ten percent of the shares
entitled to vote at the meeting. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees such as that provided in Section 16(c) of the 1940 Act.

REDEMPTIONS BY THE FUND

OTHER INFORMATION

"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.

ACCOUNT REGISTRATIONS
- --------------------------------------------------------------------------------

<PAGE>

Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."

Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.

The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in the near future,
include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.

Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
- --------------------------------------------------------------------------------

The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.

<PAGE>

PORTFOLIO OPERATIONS
- --------------------------------------------------------------------------------

The following persons are primarily responsible for the day-to-day management of
the Fund's portfolios: Mr. Baughman and Mr. Lippman since inception and Ms.
McGee since 1988.

Bruce C. Baughman
Portfolio Manager of Advisers

Mr. Baughman holds a bachelor of arts degree from Stanford University and a
master's degree in science - accounting from New York University. He has been
with Advisers since 1988. Mr. Baughman is a member of several securities
industry-related committees and associations.

William Lippman
Senior Vice President of Advisers

Mr. Lippman holds a bachelor's degree in business administration from City
College New York and a master's degree in business administration from the
Graduate School of Business Administration of New York University. He has been
with Advisers since 1988.

Margaret McGee
Portfolio Manager of Advisers

Ms. McGee holds a bachelor of arts degree from William Patterson College. She
has been with Advisers since 1988.