FRANKLIN INVESTORS SECURITIES TRUST, 497, 1995-12-07

FRANKLIN INVESTORS SECURITIES TRUST
497, 1995-12-07

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FRANKLIN ADJUSTABLE
U.S. GOVERNMENT
SECURITIES FUND

Franklin Investors Securities Trust

PROSPECTUS March 1, 1995
as amended December 4, 1995

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

Franklin Investors Securities Trust (the "Trust") is an open-end management
investment company consisting of both diversified and non-diversified separate
series. Each series of the Trust in effect represents a separate fund with its
own investment objectives and policies, with varying possibilities for income or
capital appreciation, and subject to varying market risks. Through the different
series, the Trust attempts to satisfy different investment objectives.

This Prospectus pertains only to the Franklin Adjustable U.S. Government
Securities Fund (the "Fund"), a diversified series, which seeks a high level of
current income, consistent with lower volatility of principal. The Fund, unlike
most funds which invest directly in securities, seeks to achieve this objective
by investing all of its assets in the U.S. Government Adjustable Rate Mortgage
Portfolio (the "Portfolio"), a separate series of Adjustable Rate Securities
Portfolios whose investment objective is the same as that of the Fund. The
Portfolio in turn invests primarily in mortgage-backed securities created from
pools of adjustable rate mortgages which are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The Fund is designed for
individuals as well as certain institutional investors. There can, of course, be
no assurance that the Fund's objective will be achieved.

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.

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 the prospective investor will find useful to have.

A Statement of Additional Information ("SAI") concerning the Trust, the Fund and
another series of the Trust, dated March 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.

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.

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.

Contents Page

Expense Table.................... 2
Financial Highlights............. 4
About the Fund................... 5
Investment Objective and Policies
of the Fund..................... 5
Administration of the Fund....... 13
Distributions to Shareholders.... 14
Taxation of the Fund and
Its Shareholders................ 15
How to Buy Shares of the Fund.... 17
Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments 22

Other Programs and Privileges
Available to Fund Shareholders.. 23
Exchange Privilege............... 25
How to Sell Shares of the Fund... 27
Telephone Transactions........... 31
Valuation of Fund Shares......... 32
How to Get Information Regarding
an Investment in the Fund....... 33
Performance...................... 33
General Information.............. 34
Account Registrations............ 35
Important Notice Regarding
Taxpayer IRS Certifications..... 36
Portfolio Operations............. 36

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, before fee waivers and expense reductions, for
the fiscal year ended October 31, 1994, and include the expenses of the
Portfolio.

Shareholder Transaction Expenses

Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................... 2.25%
Deferred Sales Charge............................................. NONE*
Exchange Fee (per transaction).................................... $5.00**

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

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

Annual Fund Operating Expenses
(as a percentage of average net assets)
Portfolio Management Fees......................................... 0.40%***
Fund Administration Fees.......................................... 0.10%
12b-1 Fees........................................................ 0.22%****
Other Expenses of the Portfolio.......................... 0.02%
Other Expenses of the Fund............................... 0.08%
Total Other Expenses.............................................. 0.10%
Total Fund Operating Expenses..................................... 0.82%***

***The Fund's administrator and the Portfolio's investment manager agreed in
advance to waive the Portfolio's management fee. With this reduction, the Fund's
total operating expenses, including the Fund's proportionate share of Portfolio
expenses, were 0.42% of the Fund's average net assets. This arrangement may be
terminated by Advisers at any time.

****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.

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 maximum front-end 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.

1 year 3 years 5 years 10 years
$31* $48 $67 $122

*Assumes that a contingent deferred sales charge will not apply.

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

The above table summarizes the aggregate fees and expenses incurred by both the
Fund and the Portfolio. The Board of Trustees of the Trust considered the
aggregate fees and expenses to be paid by both the Fund and the Portfolio under
the Fund's policy of investing all of its assets in shares of the Portfolio, and
such fees and expenses the Fund would have paid if it continued to invest
directly in mortgage-backed securities. Because this arrangement enables
eligible institutional investors, including the Fund and other investment
companies, to pool their assets, which may be expected to result in the
achievement of a variety of operating economies, the Board concluded that the
aggregate expenses of the Fund and the Portfolio were expected to be lower than
the expenses that would be incurred by the Fund if it continued to invest
directly in mortgage-backed securities, although there is no guarantee or
assurance that asset growth and lower expenses will be recognized. Advisers has
agreed to limit expenses so that in no event will shareholders of the Fund incur
higher expenses than if it continued to invest directly in mortgage-backed
securities. Further information regarding the Fund's and the Portfolio's fees
and expenses is included under "Administration of the Fund."

Financial Highlights

Per Share Operating Performance+ Ratios/Supplemental Data

__________________________________________________________ __________________________
Distri- Distri-
Net Asset Net Net Realized butions butions Net Asset Net Assets Ratio of Ratio of Net
Values at Invest-& Unrealized Total From From Net From Total Value at End Expenses Income Portfolio
Year Beginning ment Gains (Losses)Investment InvestmentCapital Distri- at End Total of Year to Average to Average Turnover
Ended of Year Income on Securities Operations Income Gains butions of Year Return++(in000's)Net Assets**Net Assets Rate

Set forth below is a table containing the financial highlights or a share of the
Fund throughout the periods from the effective date of registration (October 6,
1987) to January 31, 1993, for the nine-month period from February 1, 1993 to
October 31, 1993, and for the fiscal year ended October 31, 1994. The
information for each of the five fiscal years ended October 31, 1994, has been
audited by Coopers & Lybrand L.L.P., independent auditors, whose audit report
appears in the financial statements in the Trust's SAI. The remaining figures,
which are also audited, are not covered by the auditor's current report. See the
discussion "Reports to Shareholders" under "General Information."

2For the nine months ended October 31, resulting from a change in fiscal year
from January 31.

3For the year ended October 31, 1994.

*Annualized.

+Selected data for a share of capital stock outstanding throughout the period.

++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 at net asset value.

**During the periods indicated, the Fund's administrator agreed in advance to
waive a portion of its administration fees and made payments of other expenses
incurred by the Fund. Had such action not been taken, the ratios of operating
expenses to average net assets would have been as follows:

Franklin Adjustable U.S. Government
Securities Fund

19881............................87%*
1989.............................96
1990.............................87
1991.............................82
1992.............................48
19932............................38*

The combined ratio of expenses to average net assets of the Fund and the
Portfolio is as follows:

After Fee Before Fee
Reduction Reduction

-----------

19921......................68% .89%
1993.......................66 .80
19932......................65* .79*
1994.......................42 .82

About the Fund

The Trust, which was organized as a Massachusetts business trust on December 16,
1986, is an open-end management investment company, or mutual fund, and has
registered with the SEC under the Investment Company Act of 1940 (the "1940
Act"). The Fund and the additional separate diversified and non-diversified
series of the Trust each issue a separate series of shares of beneficial
interest. From inception until March 13, 1990, the Fund was known as the
Franklin Adjustable Rate Mortgage Fund. The Board of Trustees changed the name
of the Fund to its current name on that date.

The Board of Trustees of the Trust may determine, at a future date, to offer
shares of the Fund in one or more "classes" to permit the Fund to take advantage
of alternative methods of selling Fund shares. "Classes" of shares represent
proportionate interests in the same portfolio of investment securities but with
different rights, privileges and attributes, as determined by the trustees.
Certain funds in the Franklin Templeton Funds, as that term is defined under
"How to Buy Shares of the Fund," currently offer their shares in two classes,
designated "Class I" and "Class II." Because the Fund's sales charge structure
and plan of distribution are similar to those of Class I shares, shares of the
Fund may be considered Class I shares for redemption, exchange and other
purposes.

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 2.25% of the offering price. See "How to Buy Shares of the Fund."

Investment Objective
and Policies of the Fund

The investment objective of the Fund is to seek a high level of current income,
consistent with lower volatility of principal. The Fund pursues its investment
objective by investing all of its assets in the Portfolio which has the same
investment objective and policies as the Fund. The Portfolio is a separate
diversified series of the Adjustable Rate Securities Portfolios, an open-end
management investment company managed by Franklin Advisers, Inc. ("Advisers").
Shares of the Portfolio are acquired by the Fund at net asset value with no
sales charge. Accordingly, an investment in the Fund is an indirect investment
in the Portfolio.

The Portfolio pursues its objective by investing primarily (at least 65% of its
total assets) in adjustable rate mortgage securities ("ARMS") or other
securities collateralized by or representing an interest in mortgages
(collectively, "mortgage securities"), which have interest rates which reset at
periodic intervals. All such mortgage securities in which the Fund, through the
Portfolio, invests will be issued or guaranteed by the United States ("U.S.")
government, its agencies or instrumentalities. In addition to these mortgage
securities, the Fund may invest through the Portfolio up to 35% of its total
assets in (1) notes, bonds and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association ("FNMA"), Government National Mortgage Association
("GNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), and Small Business
Administration, (2) obligations of or guaranteed by the full faith and credit of
the United States and repurchase agreements collateralized by such obligations,
and (3) time and savings deposits in commercial or savings banks or in
institutions whose accounts are insured by the FDIC.

There is, of course, no assurance that the Fund's investment objective will be
achieved. As the value of the Portfolio's portfolio securities fluctuate, the
Portfolio's net asset value per share will also fluctuate.

The Advantages of Investing in the Fund

The Fund enables its shareholders to invest easily in the mortgage securities
which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities by allowing an initial investment of as low as $100. Any such
guarantee will extend to the payment of interest and principal due on the
mortgage securities and will not provide any protection from fluctuations in the
market value of such mortgage securities. The Fund believes that by investing in
the Portfolio, which in turn invests primarily in mortgage securities which
provide for variable rates of interest, it will achieve a higher, more
consistent and less volatile net asset value than is characteristic of mutual
funds that invest primarily in mortgage securities paying a fixed rate of
interest.

The dividends from the Fund's net investment income are declared and distributed
monthly. Some change in the net asset value per share during the month may be
expected due to the accumulation of undistributed income and the pay out of such
income once a month as a dividend (see "Valuation of Fund Shares"). Principal
payments received on the Portfolio's mortgage securities will be reinvested by
the Portfolio in other securities. Such securities may have a higher or lower
yield than the mortgage securities already held by the Portfolio, depending upon
market conditions. An investment in the Fund provides liquidity for the investor
who may redeem shares of the Fund at current net asset value at any time in
accordance with procedures described under the caption "How to Sell Shares of
the Fund" in this Prospectus. An investment in the Fund may be a permissible
investment for national banks, federal credit unions, federally chartered
savings and loan associations, and some state savings and loan associations. Any
regulated institution considering an investment in the Fund should refer to the
applicable laws and regulations governing its operations in order to determine
if the Fund is a permissible investment. 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, Advisers or the Fund's principal underwriter on arbitrage rebate
calculations.

Special Information Regarding the Fund's
Master/Feeder Fund Structure

The investment objectives of both the Fund and the Portfolio are fundamental and
may not be changed without shareholder approval. The investment policies
described herein include those followed by the Portfolio in which the Fund
invests. The Fund's investment of all of its assets in the Portfolio was
previously approved by shareholders of the Fund. Information on administration
and expenses is included under "Administration of the Fund." See the SAI for
further information regarding the Fund's and the Portfolio's investment
restrictions.

An investment in the Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other shareholders in
the Portfolio, the Fund's expenses may increase or the economies of scale which
have been achieved as a result of the structure may be diminished. Institutional
investors in the Portfolio that have a greater pro rata ownership interest in
the Portfolio than the Fund could have effective voting control over the
operation of the Portfolio. Further, in the event that the shareholders of the
Fund do not approve a proposed future change in the Fund's objective or
fundamental policies, which has been approved for the Portfolio, the Fund may be
forced to withdraw its investment from the Portfolio and seek another investment
company with the same objective and policies. In addition, the Fund may withdraw
its investment in the Portfolio at any time, if the Board of Trustees of the
Trust considers that it is in the best interests of the Fund to do so. Upon any
such withdrawal, the Board of Trustees of the Trust would consider what action
to take, including the investment of all of the assets of the Fund in another
pooled investment entity having the same investment objective and policies as
the Fund or the hiring of an investment adviser to manage the Fund's
investments. Such circumstances may cause an increase in Fund expenses. Further,
the Fund's structure is a relatively new format, which often results in certain
operational and other complexities. The Franklin organization was one of the
first mutual fund complexes in the country to implement such a structure and the
trustees do not believe that the additional complexities outweigh the benefits
to be gained by shareholders.

The Franklin Group of Funds(R) has another fund which may invest in the
Portfolio and which is designed for institutional investors only. It is possible
that in the future other funds may be created which may likewise invest in the
Portfolio or existing funds may be restructured so that they may invest in the
Portfolio. The Fund or Distributors will forward to any interested shareholder
additional information, including a prospectus and statement of additional
information, if requested, regarding such other investment companies through
which they may make investments in the Portfolio. For further information,
please refer to "Organization" under "General Information." Any such fund may be
offered with the same or different sales charge structure and Rule 12b-1 fees;
thus, an investor in such fund may experience a different return from an
investor in another investment company which invests exclusively in the
Portfolio. Investors interested in obtaining information about such funds may
contact the departments listed under "How to Get Information Regarding an
Investment in the Fund."

Whenever the Fund, as an investor in the Portfolio, is asked to vote on a matter
relating to the Portfolio, the Trust, on behalf of the Fund, will hold a meeting
of the Fund's shareholders and will cast its votes in the same proportions as
the Fund's shareholders have voted.

The Characteristics of the Mortgage Securities
in Which the Portfolio Invests

Adjustable Rate Mortgage Securities. ARMS, like traditional mortgage securities,
are interests in pools of mortgage loans. Most mortgage securities are
pass-through securities, which means that they provide investors with payments
consisting of both principal and interest as mortgages in the underlying
mortgage pool are paid off by the borrower. The dominant issuers or guarantors
of mortgage securities today are GNMA, FNMA, and FHLMC. GNMA creates mortgage
securities from pools of government guaranteed or insured (Federal Housing
Authority or Veterans Administration) mortgages originated by mortgage bankers,
commercial banks, and savings and loan associations. FNMA and FHLMC issue
mortgage securities from pools of conventional and federally insured and/or
guaranteed residential mortgages obtained from various entities, including
savings and loan associations, savings banks, commercial banks, credit unions,
and mortgage bankers.

The adjustable interest rate feature of the mortgages underlying the mortgage
securities in which the Portfolio invests generally will act as a buffer to
reduce sharp changes in the Portfolio's net asset value in response to normal
interest rate fluctuations. As the interest rates on the mortgages underlying
the Portfolio's investments are reset periodically, yields of portfolio
securities will gradually align themselves to reflect changes in market rates so
that the market value of the Portfolio's portfolio securities will remain
relatively stable as compared to fixed-rate instruments and should cause the net
asset value of the Fund to fluctuate less significantly than it would if the
Portfolio invested in more traditional long-term, fixed-rate debt securities.
During periods of rising interest rates, changes in the coupon rate lag behind
changes in the market rate, resulting in possibly a lower net asset value until
the coupon resets to market rates. Thus, investors could suffer some principal
loss if they sold their shares of the Fund before the interest rates on the
underlying mortgages are adjusted to reflect current market rates. During
periods of extreme fluctuation in interest rates, the Fund's net asset value
will fluctuate as well. Since most mortgage securities in the Portfolio's
portfolio will generally have annual reset caps of 100 to 200 basis points,
short-term fluctuation in interest rates above these levels could cause such
mortgage securities to "cap out" and to behave more like long-term, fixed-rate
debt securities.

Unlike fixed-rate mortgages, which generally decline in value during periods of
rising interest rates, adjustable rate mortgage securities allow the Portfolio
to participate in increases in interest rates through periodic adjustments in
the coupons of the underlying mortgage, resulting in both higher current yields
and lower price fluctuations. Furthermore, if prepayments of principal are made
on the underlying mortgages during periods of rising interest rates, the
Portfolio generally will be able to reinvest such amounts in securities with a
higher current rate of return. The Portfolio, however, will not benefit from
increases in interest rates to the extent that interest rates rise to the point
where they cause the current coupon of adjustable rate mortgage securities held
as investments by the Portfolio to exceed the maximum allowable annual or
lifetime reset limits (or "cap rates") for a particular mortgage. Also, the
Portfolio's net asset value could vary to the extent that current yields on
mortgage-backed securities are different than market yields during interim
periods between coupon reset dates.

During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower yields to the Fund. Further, because of
this feature, the value of ARMS is unlikely to rise during periods of declining
interest rates to the same extent as fixed-rate instruments. As with other
mortgage backed securities, interest rate declines may result in accelerated
prepayment of mortgages and the proceeds from such prepayments must be
reinvested at lower prevailing interest rates.

One additional difference between ARMS and fixed-rate mortgages is that for
certain types of ARMS, the rate of amortization of principal, as well as
interest payments, can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of interest
due to an ARMS holder is calculated by adding a specified additional amount, the
"margin," to the index, subject to limitations or "caps" on the maximum and
minimum interest that is charged to the mortgagor during the life of the
mortgage or to maximum and minimum changes to that interest rate during a given
period. It is these special characteristics which are unique to adjustable rate
mortgages that the Fund believes make them attractive investments in seeking to
accomplish the Fund's objective.

Many mortgage securities which are issued or guaranteed by GNMA, FHLMC, or FNMA
("Certificates") are called pass-through Certificates because a pro rata share
of both regular interest and principal payments (less GNMA's, FHLMC's, or FNMA's
fees and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool, are passed through monthly to the
holder of the Certificate (i.e., the Portfolio). The principal and interest on
GNMA securities are guaranteed by GNMA which guarantee is backed by the full
faith and credit of the U.S. government. FNMA guarantees full and timely payment
of all interest and principal, while FHLMC guarantees timely payment of interest
and ultimate collection of principal. Mortgage securities issued or guaranteed
by FNMA and FHLMC are not backed by the full faith and credit of the U.S.
government; however, they are generally considered to offer minimal credit
risks. The yields provided by these mortgage securities have historically
exceeded the yields on other types of U.S. government securities with comparable
maturities in large measure due to the prepayment risk. (See "Risks of Mortgage
Securities.")

Collateralized Mortgage Obligations("CMOs"). The Portfolio may also invest in
CMOs issued and guaranteed by U.S. government agencies or instrumentalities. A
CMO is a mortgage-backed security that separates mortgage pools into short-,
medium- and long-term components. Each component pays a fixed rate of interest
at regular intervals. These components enable an investor such as the Portfolio
to more accurately predict the pace at which principal is returned. The
Portfolio will not invest in privately issued CMOs except to the extent that it
invests in the securities of entities that are instrumentalities of the U.S.
government. CMOs purchased by the Portfolio 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.

Resets. The interest rates paid on the ARMS and CMOs in which the Portfolio
invests generally are readjusted at intervals of one year or less to an
increment over some predetermined interest rate index. There are three main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one, three- and five-year
constant maturity Treasury rates, the three-month Treasury bill rate, the
180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-, three-, six-month or one-year London Interbank Offered Rate
(LIBOR), the prime rate of a specific bank, or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury rate, closely mirror
changes in market interest rate levels. Others, such as the 11th District Home
Loan Bank Cost of Funds index, tend to lag behind changes in market rate levels
and tend to be somewhat less volatile.

Caps and Floors. The underlying mortgages which collateralize the ARMS and CMOs
in which the Portfolio invests will frequently have caps and floors which limit
the maximum amount by which the loan rate to the residential borrower may change
up or down (1) per reset or adjustment interval, and (2) over the life of the
loan. Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization.

Stripped Mortgage Securities. The Portfolio may also invest in stripped mortgage
securities, which are derivative multiclass mortgage securities. The stripped
mortgage securities in which the Portfolio may invest will be issued and
guaranteed by agencies or instrumentalities of the U.S. government. Stripped
mortgage securities have greater market volatility than other types of mortgage
securities in which the Portfolio invests.

Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Fund's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Portfolio may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating categories, AAA or Aaa, by Standard & Poor's Corporation or Moody's
Investors Service, respectively.

Stripped mortgage securities are purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. As these
securities were only recently developed, traditional trading markets have not
yet been established for all such securities. Accordingly, some of these
securities may generally be illiquid. The staff of the SEC (the "Staff") has
indicated that only government-issued IO or PO securities backed by fixed-rate
mortgages may be deemed to be liquid, if procedures with respect to determining
liquidity are established by a fund's board. The Board of Trustees may, in the
future, adopt procedures which would permit the Fund to acquire, hold, and treat
as liquid government-issued IO and PO securities. At the present time, however,
all such securities will continue to be treated as illiquid and will, together
with any other illiquid investments, not exceed 10% of the Fund's net assets.
Such position may be changed in the future, without notice to shareholders, in
response to the Staff's continued reassessment of this matter as well as to
changing market conditions.

Risks of Mortgage Securities

The mortgage securities in which the Portfolio principally invests differ from
conventional bonds in that principal is paid back over the life of the mortgage
security rather than at maturity. As a result, the holder of the mortgage
securities (i.e., the Portfolio) receives monthly scheduled payments of
principal and interest and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. When the holder 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 mortgage
securities. For this reason, mortgage 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 securities, like other U.S. government securities,
will generally vary inversely with changes in market interest rates, declining
when interest rates rise and rising when interest rates decline. Mortgage
securities, while having less risk of a decline during periods of rapidly rising
rates, may also 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
mortgage securities are purchased at a premium, mortgage foreclosures and
unscheduled principal prepayments may result in some loss of the holder's
principal investment to the extent of the premium paid. On the other hand, if
mortgage securities are purchased at a discount, both a scheduled payment of
principal and an unscheduled prepayment of principal will increase current and
total returns and will accelerate the recognition of income which, when
distributed to shareholders, will be taxable as ordinary income.

Other Investment Policies of the Portfolio
(and the Fund)

Repurchase Agreements. The Portfolio may engage in repurchase transactions in
which the Portfolio 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 Portfolio in each agreement, with the value of
the underlying security marked to market daily to maintain coverage of at least
100%. The repurchase agreements in which the Portfolio may invest are limited to
those agreements having terms of one year or less. A default by the seller might
cause the Portfolio to experience a loss or delay in the liquidation of the
collateral securing the repurchase agreement. The Portfolio might also incur
disposition costs in liquidating the collateral. The Portfolio, however, intends
to enter into repurchase agreements only with financial institutions such as
broker-dealers and banks which are deemed creditworthy by the Portfolio's
investment manager. A repurchase agreement is deemed to be a loan by the
Portfolio under the 1940 Act. The U.S. government security subject to resale
(the collateral) will be held on behalf of the Portfolio by a custodian approved
by the Portfolio's Board and will be held pursuant to a written agreement.

When-Issued and Delayed Delivery Transactions. The Portfolio may purchase U.S.
government obligations on a "when-issued" or "delayed delivery" basis. These
transactions are arrangements under which the Portfolio purchases securities
with payment and delivery scheduled for a future time, generally in 30 to 60
days. Purchases of U.S. government securities on a when-issued or delayed
delivery basis are subject to market fluctuation and are subject to the risk
that the value or yields at delivery may be more or less than the purchase price
or the yields available when the transaction was entered into. Although the
Portfolio will generally purchase U.S. government securities on a when-issued
basis with the intention of acquiring such securities, it may sell such
securities before the settlement date if it is deemed advisable. When the
Portfolio is the buyer in such a transaction, it will maintain, in a segregated
account with its custodian, cash or high-grade marketable securities having an
aggregate value equal to the amount of such purchase commitments until payment
is made. To the extent the Portfolio engages in when-issued and delayed delivery
transactions, it will do so only for the purpose of acquiring portfolio
securities consistent with the Portfolio's investment objective and policies,
and not for the purpose of investment leverage. In when-issued and delayed
delivery transactions, the Portfolio relies on the seller to complete the
transaction. The other party's failure may cause the Portfolio to miss a price
or yield considered advantageous. Securities purchased on a when-issued or
delayed delivery basis do not generally earn interest until their scheduled
delivery date. The Portfolio is not subject to any percentage limit on the
amount of its assets which may be invested in when-issued purchase obligations.

Mortgage Dollar Rolls. The Portfolio may enter into mortgage "dollar rolls" in
which the Portfolio sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (name,
type, coupon and maturity) securities on a specified future date. During the
roll period, the Portfolio forgoes principal and interest paid on the
mortgage-backed securities. The Portfolio is compensated by the difference
between the current sales price and the lower forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale. A covered roll is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position.

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
and includes, among other things, repurchase agreements of more than seven days
duration) may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund.

Other Permitted Investments. Other investments permitted by the Portfolio
include: obligations of the U.S. government; notes, bonds, and discount notes of
the following U.S. government agencies or instrumentalities: Federal Home Loan
Banks, FNMA, GNMA, FHLMC, Small Business Administration; and time and savings
deposits (including fixed or adjustable rate certificates of deposit) in
commercial or savings banks or in institutions whose accounts are insured by the
FDIC. The Portfolio's investments in savings deposits are generally deemed to be
illiquid and will, together with any other illiquid investments, not exceed 10%
of the Portfolio's total net assets. The Portfolio's investments in time
deposits will not exceed 10% of its total assets.

Temporary Defensive Positions. When maintaining a temporary defensive position,
the Portfolio may invest its assets, without limit, in U.S. government
securities, certificates of deposit of banks having total assets in excess of $5
billion, and repurchase agreements.

Investment Restrictions

The Fund is subject to a number of additional investment restrictions, some of
which have been adopted as fundamental policies of the Fund and may be changed
only with the approval of a majority of the outstanding voting securities of the
Fund. A list of these restrictions and more information concerning the policies
are discussed in the SAI.

How Shareholders Participate in the
Results of the Fund's Activities

The assets of the Fund are invested in the Portfolio, the assets of which are
continuously being invested in portfolio securities. If the securities owned by
the Portfolio increase in value, the value of the Fund shares which the
shareholder owns will increase. If the securities owned by the Portfolio
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 Portfolio.

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 Portfolio shares will fluctuate with movements in the broader equity and bond
markets, as well. In particular, changes in interest rates will affect the value
of the Portfolio's holdings 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 Portfolio shares. History
reflects both increases and decreases in the prevailing rate of interest and
these may reoccur unpredictably in the future.

Administration of the Fund

The Board of Trustees has the primary responsibility for the overall management
of the Trust and the Fund and for electing the officers of the Trust who are
responsible for administering the day-to-day operations of all series of the
Trust. The officers and trustees of the Trust are also officers and trustees of
the Adjustable Rate Securities Portfolios. For information concerning the
officers and trustees of the Trust and the Adjustable Rate Securities
Portfolios, see "Trustees and Officers" in the SAI. The Board of Trustees, with
all disinterested trustees as well as the interested trustees voting in favor,
has adopted written procedures designed to deal with potential conflicts of
interest which may arise from having the same persons serving on each trust's
Board of Trustees. The procedures call for an annual review of the Fund's
relationship with the Portfolio, and in the event a conflict is deemed to exist,
the Board of Trustees may take action, up to and including the establishment of
a new Board of Trustees. The Board of Trustees has determined that there are no
conflicts of interest presented by this arrangement at the present time. Further
information is included in the SAI.

Advisers serves as the Fund's administrator and as the Portfolio'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 34 U.S. registered investment companies
(116 separate series) with aggregate assets of over $77 billion.

Pursuant to the administration agreement, Advisers provides the Fund with
various administrative, statistical and other services which are necessary to
conduct the Fund's business.

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

Fund shareholders will bear a portion of the Portfolio's operating expenses,
including its management fee, to the extent that the Fund, as a shareholder of
the Portfolio, bears such expenses. The portion of the Portfolio's expenses
borne by the Fund is dependent upon the number of other shareholders of the
Portfolio, if any.

Advisers may, but is not obligated to, agree in advance to waive all or any
portion of the management fee due from the Portfolio or the administration fee
due from the Fund. During the fiscal year ended October 31, 1994, administration
fees totaling 0.10% of the Fund's daily net assets, were paid to Advisers. The
Fund's proportionate share of the Portfolio's management fees was 0.40%.
Advisers, however, waived the Portfolio's management fee. Total operating
expenses including administration fees and the Fund's proportionate share of the
Portfolio's expenses, would have totaled 0.82%. After fee waivers, total
operating expenses of the Fund, including its proportionate share of the
Portfolio's operating expenses, totaled 0.42%. See "Expense Table" at the front
of the Prospectus. This action may be terminated by Advisers upon notice to the
Board of Trustees.

It is not anticipated that the Portfolio or the Fund will incur a significant
amount of brokerage expenses because adjustable rate securities are generally
traded in principal transactions that involve the receipt by the broker of a
spread between the bid and ask prices for the securities and not the receipt of
commissions.

To the extent that the Portfolio does participate in transactions involving
brokerage commissions, it is Advisers' responsibility to select brokers through
which such transactions will be effected.

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.

Plan of Distribution

The Fund has adopted a plan of distribution (the "Plan") pursuant to Rule 12b-1
under the 1940 Act whereby it may reimburse Distributors or others for expenses
actually incurred by Distributors or others in the promotion and distribution of
the Fund's shares, including but not limited to, the printing of prospectuses
and reports used for sales purposes, expenses of preparation and distribution of
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, and fees paid
to dealers or others as a distribution or service fee for servicing shareholders
of the Fund. 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 quarterly 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, 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:

1. Income dividends. The Fund receives income primarily in the form of income
dividends paid by the Portfolio. 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. 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 Board of Trustees, without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends monthly for shareholders of record generally on the first business day
preceding the 15th of the month, payable on or about the last business day of
the month. The amount of income dividend payments by the Fund is dependent upon
the amount of net income received by the Fund from the Portfolio (and the amount
of income received by the Portfolio from its investments), 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 a sales charge) on the dividend
reinvestment date. Dividend and capital gain distributions are only eligible for
reinvestment at net asset value in the Fund or Class I shares of other Franklin
Templeton Funds. 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
Class I shares of another Franklin Templeton Fund, 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.

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.

The Fund is treated as a separate entity for federal income tax purposes. The
Fund has elected and qualified to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). By distributing all of its net investment income and net realized
short-term and long-term capital gain for a fiscal year in accordance with the
timing requirements imposed by the Code and by 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.

None of the distributions paid by the Fund for the fiscal year ended October 31,
1994, qualified for the corporate dividends-received deduction and it is not
expected that distributions for the current fiscal year will so qualify.

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 as if 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 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. Shareholders should consult with their tax advisors concerning the
tax rules applicable to the redemption and exchange of Fund shares. 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 shareholders of the tax status for federal income tax purposes of such
dividends and distributions.

While many states grant tax-free status to dividends paid to shareholders of
mutual funds from interest income earned by the Fund from direct obligations of
the U.S. government, none of the distributions of the Fund during fiscal year
ending October 31, 1994 qualified for such tax-free treatment. Investments in
mortgage-backed securities (including GNMA, FNMA and FHLMC securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisors with respect to the applicability of state
and local intangible property or income taxes to their shares of the Fund and
distributions and redemption proceeds received from the Fund.

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 taxes to distributions received by them from the Fund and
the application of foreign tax laws to these distributions.

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, either directly or through affiliates, have an agreement
with Distributors to 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 determined
by adding the net asset value per share plus a front-end 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. 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 showing front-end sales charges and dealer
concessions:

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*
Less than $100,000 2.25% 2.30% 2.00%
$100,000 but less than $250,000 1.75% 1.78% 1.50%
$250,000 but less than $500,000 1.25% 1.26% 1.00%
$500,000 but less than $1,000,000 1.00% 1.00% 0.85%
$1,000,000 or more none none (see below)**

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. 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 securities dealer may be deemed to
be an underwriter as that term is defined in the Securities Act of 1933, as
amended.

**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 0.75% on sales of $1 million but less than $2 million,
plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, 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 on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of investments of $1 million or more within 12 months of the
calendar month following such investments ("contingency period"). See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."

The size of a transaction which determines the applicable sales charge on the
purchase of 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 and (c) the U.S. registered mutual funds in the Templeton Group
of Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund (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.

Other Payments to Securities Dealers. Either 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 non-designated plans, certain trust
companies and trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $10 million or more. See
"Description of Special Net Asset Value Purchases" below and as set forth in the
SAI.

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

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

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 discount, investments in any of the Franklin Templeton Investments
may be combined with those of the investor's spouse, children under the age of
21, and grandchildren under the age of 21. The value of Class II shares owned by
the investor may also be included for this purpose.

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 the 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. This policy of reserving shares does
not apply to certain benefit plans described under "Description of Special Net
Asset Value Purchases." For more information, see "Additional Information
Regarding Purchases" in the SAI.

The value of Class II shares an investor owns may be included in determining a
reduced sales charge to be paid on shares of the Fund pursuant to the Letter of
Intent and Rights of Accumulation programs.

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 members of 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 1.75%. 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 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 without the imposition of a front-end sales
charge ("net asset value") or a 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, including subsequent investments made by such
parties after cessation of employment; (2) companies exchanging shares or
selling assets pursuant to a merger, acquisition or exchange offer; (3) accounts
managed by the Franklin Templeton Group; (4) certain unit investment trusts and
unit holders of such trusts reinvesting their distributions from the trusts in
the Fund; (5) registered securities dealers and their affiliates, for their
investment account only; (6) current employees of securities dealers and their
affiliates and by their family members, in accordance with the internal policies
and procedures of the employing securities dealer and affiliate; (7) insurance
company separate accounts for pension plan contracts; and (8) shareholders of
Templeton Institutional Funds, Inc. reinvesting redemption proceeds from that
fund under an employee benefit plan qualified under Section 401 of the Code, in
shares of the Fund.

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 365 days, their shares of the Fund or another of
the Class I Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end sales charge must be
paid at the time of purchase of the new shares. Under this privilege, you may
reinvest an amount not exceeding the redemption proceeds. While credit will be
given for any contingent deferred sales charge paid on the shares redeemed and
subsequently repurchased, a new contingency period will begin. Matured shares
will be reinvested at net asset value and will not be subject to a new
contingent deferred sales charge. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this privilege, a written
order for the purchase of shares of the Fund must be received by the Fund or the
Fund's Shareholder Services Agent within 365 days after the redemption. The 365
days, however, do not begin to run on redemption proceeds placed immediately
after redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset value may also be
handled by a securities dealer or other financial institution, who may charge
you 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 under "Additional Information Regarding Taxation" in the SAI.

Shares of the Fund may be purchased at net asset value and without a contingent
deferred sales charge by persons who have received dividends and capital gain
distributions from investments in the Fund or another Franklin Templeton Fund
within 365 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 and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds and which was subject to a front-end sales charge
or a contingent deferred sales charge and which has investment objectives
similar to those of the Fund.

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

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

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

Description of Special Net Asset Value Purchases

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.

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount to be purchased
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 and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of organizations
with collective retirement plan assets of $10 million or more, without regard to
where such assets are currently invested.

Refer to the SAI for further information.

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.

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

Shares of the Fund may be used for individual or employer-sponsored retirement
plans involving tax-deferred investments. The Fund may be used as an investment
vehicle for an existing retirement plan, or the Trust Company may provide the
plan documents and serve as custodian or trustee. A plan document must be
adopted in order for a retirement plan to be in existence.

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

Please see "How to Sell Shares of the Fund" for specific information regarding
redemptions from retirement plan accounts. Specific forms are required to be
completed for distributions from Trust Company retirement plans.

Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition,
retirement plan investors should consider consulting their investment
representatives or advisors concerning investment decisions within their plans.

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

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 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

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. Retirement plans subject to mandatory
distribution requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis. If the
shareholder establishes a plan, any capital gain distributions and income
dividends paid by the Fund 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 the same class
of another of 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. Also, redemptions of shares may be subject
to a contingent deferred sales charge if the shares are redeemed within 12
months of the calendar month of the original purchase date. The shareholder
should ordinarily not make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time such a plan is in
effect. The applicable contingent deferred sales charge is waived for share
redemptions of up to 1% monthly of an account's net asset value (12% annually,
6% semiannually, 3% quarterly). For example, if an account maintained an annual
balance of $1,000,000, only $120,000 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge; any amount over that $120,000 would
be assessed a 1% (or applicable) contingent deferred sales charge. 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
the Franklin Templeton 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 other Franklin Templeton Funds Class I shares 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, limitation on a fund's sale of its shares,
minimum holding periods or applicable sales charges. No exchanges between
different classes of shares are allowed and, therefore, shares of the Fund may
not be exchanged for Class II shares of other Franklin Templeton Funds.
Shareholders of a Class II Franklin Templeton Fund may, however, elect to direct
their dividends and capital gain distributions to the Fund or another Class I
Franklin Templeton Fund. Shareholders may choose to redeem shares of the Fund
and purchase Class II shares of other Franklin Templeton Funds but such purchase
will be subject to that Fund's Class II front-end and contingent deferred sales
charges for the contingency period of 18 months.

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 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.

The telephone exchange privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account of the same class of shares 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(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 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

If the account has shares subject to a contingent deferred sales charge, the
shares will be exchanged into the new account on a "first-in, first-out" basis.
The contingency period of 12 months during which a contingent deferred sales
charge may be assessed will be tolled (or stopped) for the period 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."

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 original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How To Buy Shares
of the Fund." Exchanges of shares of the Fund which were purchased with a lower
sales charge into 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. 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.

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 Plan Accounts

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

Timing Accounts

Accounts which are administered by allocation or market timing services to
exchange 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) 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:

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 (less the
contingent deferred sales charge, if applicable) 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 the
scheduled closing of the New York Stock Exchange (the "Exchange") which is
generally 1:00 p.m. Pacific time) each day that 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

(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.

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 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 instructions given by
telephone are genuine. Shareholders, however, bear the risk of loss in certain
cases as described under "Telephone Transactions - Verification Procedures."

For shareholder accounts with a completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled close of
the Exchange (generally 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 the
Franklin Templeton Institutional Services Department by telephoning
1-800/321-8563.

Redeeming Shares Through Securities Dealers

The Fund will accept redemption orders 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. The
documents described under "Redemptions By Mail" above, as well as a signed
letter of instruction, are required regardless of whether the shareholder
redeems shares directly or submits such shares to a securities dealer for
repurchase. 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, investments of $1
million or more redeemed within the contingency period of 12 months of the
calendar month of such investment will be assessed a contingent deferred sales
charge, unless one of the exceptions described below applies. The charge is 1%
of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the net asset value at the time of
purchase of such shares, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances.

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

The contingent deferred sales charge is waived for: exchanges; any account fees;
distributions from an individual retirement plan account by reason of death or
disability, or upon periodic distributions based on life expectancy; tax-free
returns of excess contributions from employee benefit plans; distributions from
employee benefit plans, including those due to termination or plan transfer;
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually); redemptions initiated by the Fund due to a
shareholder's account falling below the minimum specified account size; and
redemptions following the death of the shareholder or the beneficial owner.

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

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

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.

Retirement Plan Accounts

Retirement plan 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.

Tax penalties will generally apply to any distribution from such plans to a
participant under age 591/2, unless the distribution meets one of the exceptions
set forth in the Code.

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.

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 execute various telephone transactions,
including to: (i) effect a change in address, (ii) change a dividend option (see
"Restricted Accounts" below), (iii) transfer Fund shares in one account to
another identically registered account in the Fund, (iv) request the issuance of
certificates, to be sent to the address of record only, and (v) exchange Fund
shares as described in this Prospectus by telephone. In addition, shareholders
who complete and file an Agreement as described under "How Do I Sell Shares? -
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.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions in the event such reasonable procedures are not
followed. 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.

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.

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 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.

Valuation of Fund Shares

The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that 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 front-end 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 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. Under procedures approved by the Board of Trustees of
Adjustable Rate Securities Portfolios, the mortgage securities of the Portfolio
(in which the Fund invests all of its assets) are valued at current market value
provided by a pricing service, bank or securities dealer, when over-the-counter
market quotations are readily available. 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.

With the approval of trustees, the Portfolio may utilize a pricing service, bank
or securities dealer to perform any of the above described functions. The
Portfolio advises the Fund of the net asset value of the Portfolio shares which
is used to calculate the net asset value of the Fund's shares. 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, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:

By calling the Franklin TeleFACTS(R) system at
1-800/247-1753, shareholders may obtain Class I and Class II account
information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
Franklin Class I shareholders may process an exchange, within the same class,
into an identically registered Franklin account; and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.

Fund information may be accessed by entering Fund Code 138 followed by the #
sign. The system's automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.

To assist shareholders and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.

Hours of Operation (Pacific time)
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired)1-800/851-0637 5:30 a.m. to 5:00 p.m.

In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin or Templeton 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
several 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 front-end 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.

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

The Trust's fiscal year ends October 31. 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. To reduce the volume of mail sent to one household as well
as to reduce Fund expenses, Investor Services will attempt to identify related
shareholders within a household, and send only one copy of the report.
Additional copies may be obtained by investors or shareholders, 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 Trust's Annual
Report to Shareholders and the SAI.

Organization and Voting Rights

The Trust was organized as a Massachusetts business trust on December 16, 1986.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, with a par value of $.01 per share in various series. All shares have
one vote and, when issued, are fully paid, non-assessable, and redeemable.
Currently, the Trust issues shares in six separate and distinct series.

The Portfolio is a series of Adjustable Rate Securities Portfolios, a Delaware
business trust, organized on February 15, 1991. Adjustable Rate Securities
Portfolios is authorized to issue an unlimited number of shares of beneficial
interest, with a par value of $.01 per share. All shares have one vote, and,
when issued, are fully paid, non-assessable, and redeemable. Currently,
Adjustable Rate Securities Portfolios issues shares in only two series; however,
additional series may be added in the future by the Board of Trustees, the
assets and liabilities of which will be separate and distinct from any other
series.

Shares of each series of the Trust have equal voting, dividend and liquidation
rights. Shares of each series of the Trust vote separately as to issues
affecting that series or the Trust, unless otherwise permitted by the 1940 Act.
The shares have noncumulative voting rights, which means that holders of more
than 50% of the shares voting for the election of trustees can elect 100% of the
trustees if they choose to do so. The Trust does not intend to hold annual
shareholders' meetings. The Trust 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. Whenever the Fund is requested to vote on a
fundamental policy pertaining to the Portfolio, it will hold a special meeting
of Fund shareholders and will cast its vote in the same proportion as the
shareholders' votes received. 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. The Board of Trustees
may from time to time establish other series of the Trust, the assets and
liabilities of which will be separate and distinct from any other series.

Shares have no preemptive or subscription rights and are fully transferable.
There are no conversion rights; however, holders of shares of any fund may
reinvest all or any portion of the proceeds from the redemption or repurchase of
such shares into shares of another fund as described in "Exchange Privilege."

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.

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."

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. Account transfers may
be effected 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

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the 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 portfolio
management of the Portfolio in which the Fund invests: Tony Coffey since 1989,
Roger Bayston since 1991 and Jack Lemein since inception.

Tony Coffey
Portfolio Manager
Franklin Advisers, Inc.

Mr. Coffey holds a Master of Business Administration from the University of
California at Los Angeles. He earned his Bachelor of Arts degree from Harvard
University. Mr. Coffey has been with Advisers or an affiliate since 1989. He is
a member of several securities industry associations.

Roger Bayston
Portfolio Manager
Franklin Advisers, Inc.

Mr. Bayston is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of California at Los Angeles. He
earned his Bachelor of Science degree from the University of Virginia. He has
been with Advisers or an affiliate since 1991. Prior thereto Mr. Bayston was an
Assistant Treasurer for Bankers Trust Company. Following completion of the
Masters degree program, Mr. Bayston joined Franklin in 1991.

Jack Lemein
Senior Vice President
Franklin Advisers, Inc.

Mr. Lemein holds a Bachelor of Science degree in finance from the University of
Illinois. Mr. Lemein has been in the securities industry since 1967 and with
Advisers or an affiliate since 1984. He is a member of several securities
industry associations.