FRANKLIN GOLD FUND, 485BPOS, 1997-11-24

FRANKLIN GOLD FUND
485BPOS, 1997-11-24

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As filed with the Securities and Exchange Commission on November 24, 1997.
File Nos.
2-30761
811-1700

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. _______

Post-Effective Amendment No. 47 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 (X)

FRANKLIN GOLD FUND
(Exact Name of Registrant as Specified in Charter)

777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404 (Address of
Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (650) 312-2000

HARMON E. BURNS, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)

Approximate Date of Proposed Public offering:

It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on December 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to
paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:

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

Title of Securities Being Registered:
Common Stock of:
Franklin Gold Fund - Class I
Franklin Gold Fund - Class II
Franklin Gold Fund - Advisor Class

FRANKLIN GOLD FUND
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Gold Fund - Class I & II

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

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

4. General Description of the "How is the Fund Organized?";
Registrant "How does the Fund Invest its
Assets?"; "What are the Fund's
Potential Risks?"

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

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

6. Capital Stock and Other "How is the Fund Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions
Might I Receive from the Fund?";
"How Taxation Affects the Fund
and its Shareholders"; "What If I
Have Questions About My Account?"

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

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

9. Legal Proceedings Not Applicable

FRANKLIN GOLD FUND
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Gold Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

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

4. General Description of the "How is the Fund Organized?";
Registrant "How does the Fund Invest its
Assets?"; "What are the Fund's
Potential Risks?"

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

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

6. Capital Stock and Other "How is the Fund Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
from the Fund?"; "How Taxation
Affects the Fund and its
Shareholders"; "What If I Have
Questions About My Account?"

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

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

9. Pending Legal Proceedings Not Applicable

FRANKLIN GOLD FUND
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
Franklin Gold Fund - Class I & II

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How does the Fund Invest its
Policies Assets?"; "Investment
Restrictions"

14. Management of the Trust "Officers and Directors"

15. Control Persons and Principal "Officers and Directors";
Holders of Securities "Investment Management and Other
Services"; "Miscellaneous
Information"

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

17. Brokerage Allocation "How does the Fund Buy
Securities for its Portfolio?"

18. Capital Stock and Other See Prospectus "How is the Fund
Securities Organized?"

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

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance Data "How does the Fund Measure
Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN GOLD FUND
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
Franklin Gold Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How does the Fund Invest its
Policies Assets?"; "Investment
Restrictions"

14. Management of the Trust "Officers and Directors"

15. Control Persons and Principal "Officers and Directors";
Holders of Securities "Investment Management and Other
Services"; "Miscellaneous
Information"

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

17. Brokerage Allocation "How does the Fund Buy
Securities for its Portfolio?"

18. Capital Stock and Other See Prospectus "How is the Fund
Securities Organized?"

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

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance Data "How does the Fund Measure
Performance?"

23. Financial Statements "Financial Statements"

PROSPECTUS & APPLICATION
FRANKLIN
GOLD
FUND
INVESTMENT STRATEGY
GROWTH
DECEMBER 1, 1997

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

The Fund currently offers another class of shares with a different sales charge
and expense structure, which affects performance. This class is described in a
separate prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.

The Fund has a Statement of Additional Information ("SAI") for its Class I and
Class II shares, dated December 1, 1997, which may be amended from time to time.
It includes more information about the Fund's procedures and policies. It has
been filed with the SEC and is incorporated by reference into this prospectus.
For a free copy or a larger print version of this prospectus, call 1-800/DIAL
BEN.

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

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

THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.

FRANKLIN
GOLD
FUND
December 1, 1997

When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.

TABLE OF CONTENTS

ABOUT THE FUND
Expense Summary....................................
Financial Highlights...............................
How does the Fund Invest its Assets?...............
What are the Fund's Potential Risks?...............
Who Manages the Fund?..............................
How does the Fund Measure Performance?.............
How Taxation Affects the Fund and its Shareholders.
How is the Fund Organized?.........................

ABOUT YOUR ACCOUNT
How Do I Buy Shares?...............................
May I Exchange Shares for Shares of Another Fund?..
How Do I Sell Shares?..............................
What Distributions Might I Receive from the Fund?..
Transaction Procedures and Special Requirements....
Services to Help You Manage Your Account...........
What If I Have Questions About My Account?.........

GLOSSARY
Useful Terms and Definitions.......................

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777

1-800/DIAL BEN

ABOUT THE FUND

EXPENSE SUMMARY

This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of each class for the fiscal year
ended July 31, 1997. The Fund's actual expenses may vary.

CLASS I CLASS II
- -----------------------------------------------------------------------------
A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge
(as a percentage of Offering Price) 4.50% 1.99%
Paid at time of purchase 4.50%++ 1.00%+++
Paid at redemption++++ None 0.99%
Exchange Fee (per transaction) $5.00* $5.00*

B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.52% 0.52%
Rule 12b-1 Fees 0.22%** 1.00%**
Other Expenses 0.31% 0.31%
--------------------
Total Fund Operating Expenses 1.05% 1.83%
==================

C. EXAMPLE

Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in the Fund.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------
CLASS I $55*** $77 $100 $167
CLASS II $38 $67 $108 $223

For the same Class II investment, you would pay projected expenses of $28 if
you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.

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

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++There is no front-end sales charge if you invest $1 million or more in
Class I shares.
+++Although Class II has a lower front-end sales charge than Class I, its Rule
12b-1 fees are higher. Over time you may pay more for Class II shares. Please
see "How Do I Buy Shares? - Choosing a Share Class."
++++A Contingent Deferred Sales Charge may apply to any Class II purchase if you
sell the shares within 18 months and to Class I purchases of $1 million or more
if you sell the shares within one year. A Contingent Deferred Sales Charge may
also apply to purchases by certain retirement plans that qualify to buy Class I
shares without a front-end sales charge. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
The number in the table shows the charge as a percentage of Offering Price.
While the percentage is different depending on whether the charge is shown based
on the Net Asset Value or the Offering Price, the dollar amount paid by you
would be the same. See "How Do I Sell Shares? - Contingent Deferred Sales
Charge" for details.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**These fees may not exceed 0.25% for Class I and 1.00% for Class II. The
combination of front-end sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the maximum front-end
sales charge permitted under the NASD's rules.
***Assumes a Contingent Deferred Sales Charge will not apply.

FINANCIAL HIGHLIGHTS

This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent five years appears in the
financial statements in the Fund's Annual Report to Shareholders for the fiscal
year ended July 31, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.

CLASS I
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

YEAR ENDED JULY 31, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the year)
Net Asset Value,
beginning of year $14.65 $15.07 $14.88 $15.63 $11.50 $12.71 $13.74 $12.17 $11.79 $17.07
-------------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .07 .21 .18 .19 .21 .35 .35 .37 .41 .49
Net realized and unrealized
gains (losses) (2.37) .01 .27 (.75) 4.15 (1.19) (.96) 1.68 .36 (4.85)
--------------------------------------------------------------------------------------------
Total from investment
operations (2.30) .22 .45 (.56) 4.36 (.84) (.61) 2.05 .77 (4.36)
--------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (.09) (.13) (.20) (.19) (.23) (.37) (.33) (.48) (.39) (.53)
In excess of net
investment income - - (.06) - - - - - - -
Distributions from
net realized gains (.82) (.51) - - - - (.09) - - (.39)
--------------------------------------------------------------------------------------------
Total distributions (.91) (.64) (.26) (.19) (.23) (.37) (.42) (.48) (.39) (.92)
--------------------------------------------------------------------------------------------
Net Asset Value, end of year $11.44 $14.65 $15.07 $14.88 $15.63 $11.50 $12.71 $13.74 $12.17 $11.79
=============================================================================================
Total return* (16.45)% 1.65% 3.14% (3.52)% 38.56% (6.87)% (4.01)% 16.87% 6.74% (26.16)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year (000's) $291,544 $364,032 $391,966 $418,698 $394,704 $257,888 $277,397 $330,950 $275,341 $278,743
Ratios to average
net assets:
Expenses 1.05% .95% .95% .81% .62% .31% .75% .75% .78% .76%
Expenses excluding waiver
and payments by affiliate 1.05% .95% .95% .81% .75% .77% - - - -
Net investment income .55% .99% 1.20% 1.30% 1.89% 2.99% 2.78% 2.72% 3.56% 3.72%
Portfolio turnover rate 16.05% 28.74% 6.36% 1.46% 1.62% 0.26% 0.53% 2.98 2.62 7.27%
Average commission rate paid** $.0156 $.0308 - - - - - - - -
</TABLE>

CLASS II

YEAR ENDED JULY 31, 1997 1996 1995+***
- -----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $14.61 $15.05 $15.02
----------------------------
Income from investment operations:
Net investment income (loss) (.02) .12 .12
Net realized and
unrealized gains (losses) (2.38) (.02) .09
----------------------------
Total from investment operations (2.40) .10 .21
----------------------------
Less distributions:
Dividends from net investment income (.02) (.03) (.12)
In excess of net investment income - - (.06)
Distributions from net realized gains (.82) (.51) -
---------------------------
Total distributions (.84) (.54) (.18)
---------------------------
Net Asset Value, end of year $11.37 $14.61 $15.05
===========================
Total return* (17.18)% .81% 1.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $20,783 $12,977 $3,104
Ratios to average net assets:
Expenses 1.83% 1.74% 1.73%++
Net investment income (loss) (.16)% .16% .33%++
Portfolio turnover rate 16.05% 28.74% 6.36%
Average commission rate paid** $.0156 $.0308 -

*Total return does not reflect sales commissions or the Contingent Deferred
Sales Charge, and is not annualized. Before May 1, 1994, dividends from net
investment income were reinvested at the Offering Price. **Relates to purchases
and sales of equity securities. Prior to the fiscal year end 1996 disclosure of
average commission rate was not required. ***For the period May 1, 1995
(effective date) to July 31, 1995. +Per share amounts have been calculated using
the daily average shares outstanding during the period. ++Annualized.

HOW DOES THE FUND INVEST ITS ASSETS?

THE FUND'S INVESTMENT OBJECTIVE

The Fund's principal investment objective is capital appreciation. The Fund
seeks to achieve its objective by investing in securities with the potential to
increase in value, so that its own shares will in turn increase in value. The
Fund's secondary objective is to provide current income through the receipt of
dividends or interest from its investments. Thus, the payment of dividends may
be a consideration when the Fund buys securities. The objectives are fundamental
policies of the Fund and may not be changed without shareholder approval. Of
course, there is no assurance that the Fund will achieve its objectives.

TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST

Under normal circumstances, the Fund will invest at least 65% of its total
assets in securities of issuers engaged in gold operations, including securities
of gold mining finance companies, as well as operating companies with long-,
medium-, or short-life mines. As a fundamental policy, the Fund will concentrate
its investments in securities of issuers engaged in mining, processing, or
dealing in gold or other precious metals, such as silver, platinum, and
palladium. This means that the Fund will invest at least 25% of its total assets
in these securities, except for temporary periods when unusual and adverse
economic conditions exist in those industries.

The Fund will normally invest in common stocks and securities convertible into
common stocks, such as convertible preferred stock, convertible debentures, and
convertible rights and warrants, all of which may be traded on a securities
exchange or over-the-counter. The Fund may also buy preferred stocks and debt
securities, such as notes, bonds, debentures, or commercial paper (short-term
debt securities of large corporations), and may place some of its cash reserves
in securities of the U.S. government and its agencies, various bank debt
instruments, or repurchase agreements collateralized by U.S. government
securities. The Fund may invest in fixed-income and convertible securities rated
below investment grade by Moody's or S&P, or that are unrated but considered by
Advisers to be of comparable quality. Below investment grade securities are
generally those rated Ba or lower by Moody's or BB or lower by S&P. Please see
the SAI for a description of ratings.

FOREIGN SECURITIES. Because the Fund invests primarily in securities of
companies engaged in gold mining, the Fund generally invests a substantial part
of its assets in securities of companies domiciled or operating in one or more
foreign countries. The Fund generally invests more than 50% of its total assets
in the securities of corporations located outside the U.S. While the Fund
intends to buy securities of foreign issuers only where there are public trading
markets for the securities, these investments may tend to reduce the liquidity
of the Fund's portfolio in the event of internal problems in the foreign
countries or deteriorating relations between the U.S. and the foreign countries.
Due to current internal conditions in South Africa, the Fund's indirect
investments in that country, which constituted approximately 21.0% of the Fund's
portfolio as of July 31, 1997, may be subject to somewhat greater risk than an
investment in a country with a more stable political profile.

The Fund will ordinarily buy securities that are traded in the U.S. or sponsored
or unsponsored American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs"), or Global Depositary Receipts ("GDRs"). The Fund may also buy
the securities of foreign issuers directly in foreign markets as long as, in
Advisers' judgment, an established public trading market exists. This means that
there are a sufficient number of shares traded regularly relative to the number
of shares to be purchased by the Fund.

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

CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A
convertible security is generally a debt obligation or preferred stock that may
be converted within a specified period of time into a certain amount of common
stock of the same or a different issuer. A convertible security provides a
fixed-income stream and the opportunity, through its conversion feature, to
participate in the capital appreciation resulting from a market price advance in
its underlying common stock. As with a straight fixed-income security, a
convertible security tends to increase in market value when interest rates
decline and decrease in value when interest rates rise. Like a common stock, the
value of a convertible security also tends to increase as the market value of
the underlying stock rises, and it tends to decrease as the market value of the
underlying stock declines. Because its value can be influenced by both interest
rate and market movements, a convertible security is not as sensitive to
interest rates as a similar fixed-income security, nor is it as sensitive to
changes in share price as its underlying stock.

The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security will
have recourse only to the issuer. In addition, a convertible security may be
subject to redemption by the issuer, but only after a specified date and under
circumstances established at the time the security is issued.

While the Fund uses the same criteria to rate a convertible debt security that
it uses to rate a more conventional debt security, a convertible preferred stock
is treated like a preferred stock for the Fund's financial reporting, credit
rating, and investment limitation purposes. A preferred stock is subordinated to
all debt obligations in the event of insolvency, and an issuer's failure to make
a dividend payment is generally not an event of default entitling the preferred
shareholder to take action. A preferred stock generally has no maturity date, so
that its market value is dependent on the issuer's business prospects for an
indefinite period of time. In addition, distributions from preferred stock are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.

OPTIONS, FUTURES, OPTIONS ON FUTURES, AND FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS. The Fund may enter into options (including writing covered call
options), futures, options on financial futures, and forward foreign currency
exchange contracts. The Fund's investments in these securities will be for
portfolio hedging purposes in an effort to stabilize principal fluctuations to
achieve the Fund's primary investment objective, and not for speculation. The
Fund will commit no more than 5% of its assets to premiums when buying put
options.

Options, futures, options on futures, and forward foreign currency exchange
contracts are generally considered "derivative securities."

REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys U.S. government
securities from a bank or broker-dealer at one price and agrees to sell them
back to the bank or broker-dealer at a higher price on a specified date. The
securities subject to resale are held on behalf of the Fund by a custodian bank
approved by the Board. The bank or broker-dealer must transfer to the custodian
securities with an initial market value of at least 102% of the repurchase price
to help secure the obligation to repurchase the securities at a later date. The
securities are then marked-to-market daily to maintain coverage of at least
100%. If the bank or broker-dealer does not repurchase the securities as agreed,
the Fund may experience a loss or delay in the liquidation of the securities
underlying the repurchase agreement and may also incur liquidation costs. The
Fund, however, intends to enter into repurchase agreements only with banks or
broker-dealers that are considered creditworthy by Advisers.

OTHER INVESTMENT POLICIES OF THE FUND

The Fund may invest in gold bullion and foreign currency in the form of gold
coins, and make loans of its portfolio securities under certain circumstances.
These investment techniques have not been used recently, but remain available in
the event it is determined that they could help the Fund achieve its objectives.

ILLIQUID INVESTMENTS. The Fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally securities
that cannot be sold within seven days in the normal course of business at
approximately the amount at which the Fund has valued them.

OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How does the Fund Invest its Assets?" and "Investment Restrictions" in the
SAI.

Each of the Fund's policies and restrictions discussed in this prospectus and in
the SAI is considered at the time the Fund makes an investment. The Fund is
generally not required to sell a security because of a change in circumstances.

The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the stock and bond markets as a whole.

Because the principal investment objective of the Fund is capital appreciation,
the Fund may invest in securities that are more volatile and subject to a
greater degree of risk than other less volatile securities, if the Fund
considers the risk to be justified by the potential for appreciation.

FOREIGN SECURITIES. While foreign securities are subject to many of the same
influences as U.S. securities, such as general economic conditions and
individual company and industry earnings prospects, they involve additional
risks that can increase the potential for losses in the Fund. Among other
things, the financial and economic policies of some foreign countries in which
the Fund may invest are not as stable as in the U.S. Foreign issuers generally
are not subject to uniform accounting, auditing, and financial standards and
requirements comparable to those applicable to U.S. corporate issuers. There may
also be less government supervision and regulation of foreign securities
exchanges, brokers, and issuers than exist in the U.S. Restrictions and controls
on investment in the securities markets of some countries may have an adverse
effect on the availability and costs to the Fund of investments in those
countries. In addition, there may be the possibility of expropriation, foreign
withholding taxes, confiscatory taxation, political, economic, or social
instability, or diplomatic developments that could affect assets of the Fund
invested in issuers in foreign countries.

There may be less publicly available information about foreign issuers than is
contained in reports and reflected in ratings published for U.S. issuers.
Foreign securities markets generally have substantially less volume than the
NYSE, and some foreign government securities may be less liquid and more
volatile than U.S. government securities. Transaction costs on foreign
securities exchanges may be higher than in the U.S., and foreign securities
settlements may, in some instances, be subject to delays and related
administrative uncertainties.

GOLD AND PRECIOUS METALS. Because the Fund concentrates its investments in gold
and precious metal-related issuers, an investment in the Fund may involve
special considerations. These include fluctuations in the price of gold; the
potential effect of the concentration of the sources of supply of gold and
control over the sale of gold; changes in U.S. or foreign tax, currency, or
mining laws; increased environmental costs; and unpredictable monetary policies
and economic and political conditions. Also, even companies with strong balance
sheets may be adversely impacted by lower profitability from lower gold prices.

Interest Rate, Currency and Market Risk. To the extent the Fund invests in debt
securities, changes in interest rates in any country where the Fund is invested
will affect the value of the Fund's portfolio and its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of the Fund's shares.
To the extent the Fund invests in common stocks, a general market decline in any
country where the Fund is invested may cause the value of what the Fund owns,
and thus the Fund's share price, to decline. Changes in currency valuations may
also affect the price of Fund shares. The value of stock markets, currency
valuations and interest rates throughout the world have increased and decreased
in the past. These changes are unpredictable.

WHO MANAGES THE FUND?

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

INVESTMENT MANAGER. Advisers manages the Fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. It is wholly
owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, Advisers and its
affiliates manage over $223 billion in assets. Please see "Investment Management
and Other Services" and "Miscellaneous Information" in the SAI for information
on securities transactions and a summary of the Fund's Code of Ethics.

MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio is: R. Martin Wiskemann since 1972 and Suzanne Willoughby
Killea since 1994.

R. Martin Wiskemann
Senior Vice President of Advisers

Mr. Wiskemann holds a degree in Business Administration from the Handelsschule
of the State of Zurich, Switzerland. He has been in the securities industry for
more than 30 years, managing mutual fund equity and fixed-income portfolios, and
private investment accounts. He has been with the Franklin Templeton Group since
1972. Mr. Wiskemann is a member of several securities industry-related
associations.

Suzanne Willoughby Killea
Portfolio Manager of Advisers

Ms. Killea holds a Master of Business Administration degree from Stanford
University and a Bachelor of Arts degree from Princeton University. She has been
with the Franklin Templeton Group since earning her MBA degree in 1991. She is a
member of several securities industry-related associations.

MANAGEMENT FEES. During the fiscal year ended July 31, 1997, management fees
totaling 0.52% of the average monthly net assets of the Fund were paid to
Advisers. Total expenses, including fees paid to Advisers, were 1.05% for Class
I and 1.83% for Class II.

PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How does the Fund Buy
Securities for its Portfolio?" in the SAI for more information.

ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. Please see
"Investment Management and Other Services" in the SAI for more information.

THE RULE 12B-1 PLANS

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

Payments by the Fund under the Class I plan may not exceed 0.25% per year of
Class I's average daily net assets. All distribution expenses over this amount
will be borne by those who have incurred them. During the first year after
certain Class I purchases made without a sales charge, Distributors may keep the
Rule 12b-1 fees associated with the purchase.

Under the Class II plan, the Fund may pay Distributors up to 0.75% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Distributors
may keep this portion of the Rule 12b-1 fees associated with the purchase.

The Fund may also pay a servicing fee of up to 0.25% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the Fund on behalf of customers, and similar servicing and account
maintenance activities.

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

HOW DOES THE FUND MEASURE PERFORMANCE?

From time to time, each class of the Fund advertises its performance. A commonly
used measure of performance is total return. Performance figures are usually
calculated using the maximum sales charges, but certain figures may not include
sales charges.

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.

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

HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS

On August 6, 1997, President Clinton signed into law the Taxpayer Relief Act of
1997 (the "1997 Act"). This new law makes sweeping changes in the Internal
Revenue Code. Because many of these changes are complex, and only indirectly
affect the Fund and its distributions to you, they are discussed in the SAI.
Changes in the treatment of capital gains and Individual Retirement Accounts
("IRAs"), however, are discussed in this section.

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

The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will generally not be liable
for federal income or excise taxes.

For federal income tax purposes, any income dividends that you receive 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 you have elected to receive them in cash or in additional shares.

TAX TREATMENT OF CAPITAL GAIN DISTRIBUTIONS UNDER THE TAXPAYER RELIEF ACT OF
1997. The 1997 Act creates a category of long-term capital gain for individuals
that will be taxed at new lower tax rates. For investors who are in the 28% or
higher federal income tax brackets, these gains will be taxed at a maximum of
20%. For investors who are in the 15% federal income tax bracket, these gains
will be taxed at a maximum of 10%. Capital gain distributions will qualify for
these new maximum tax rates, depending on when the Fund's securities were sold
and how long they were held by the Fund before they were sold. Investors who
want more information on holding periods and other qualifying rules relating to
these new rates should review the expanded discussion in the SAI, or should
contact their personal tax advisors.

The Fund will advise you in its annual information reporting at calendar year
end of the amount of its capital gain distributions which will qualify for these
maximum federal tax rates.

Subject to the 1997 Act's new rules, distributions derived from the excess of
net long-term capital gain over net short-term capital loss are treated as
long-term capital gain for purposes of computing your income taxes regardless of
the length of time you have owned Fund shares and regardless of whether these
distributions are received in cash or in additional shares.

Certain distributions that are declared in October, November, or December but
which, for operational reasons, may not be paid to you until the following
January, will be treated for tax purposes as if you received them on December 31
of the calendar year in which they are declared.

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

For corporate shareholders, 38.95% of the ordinary income distributions
(including short-term capital gain distributions) paid by the Fund for the
fiscal year ended July 31, 1997, qualified for the corporate dividends-received
deduction, subject to certain holding period and debt financing restrictions
imposed under the Code on the corporation claiming the deduction. These
restrictions are discussed in the SAI.

Tax Treatment of Individual Retirement Accounts under the Taxpayer Relief Act of
1997. The 1997 Act also contains several new or expanded IRAs which will be
available to the Fund's investors beginning on January 1, 1998.

The 1997 Act creates a new "Roth IRA," which will permit tax free distributions
of account balances if the assets have been invested for five years or more and
the distributions meet certain qualifying restrictions. Investors filing as
single taxpayers who have adjusted gross incomes of $95,000 or more and
investors filing as joint taxpayers with adjusted gross incomes of $150,000 or
more may find their participation in this IRA to be restricted.

The 1997 Act also creates a new education IRA to help parents fund their
children's post-secondary school education. Parents or others may contribute up
to $500 annually to an education IRA on behalf of any child under age 18. This
IRA is subject to the same adjusted gross income limits as the Roth IRA above,
and there are other contribution restrictions that may apply. The education IRA
earnings accumulate tax free, and assets that have accumulated in the IRA may be
distributed tax free when used to pay qualified higher education expenses.

Both new IRAs are subject to special rules and conditions that must be reviewed
by the investor when opening a new account. Additional information is available
from Retirement Plan Services on each of these IRAs and on other changes in the
rules governing pre-1997 Act IRAs.

The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the total assets of the Fund at the
end of its fiscal year are invested in securities of foreign corporations, the
Fund may elect to pass through to its shareholders the pro rata share of foreign
taxes paid by the Fund. If this election is made, you will be (i) required to
include in your gross income your pro rata share of foreign source income
(including any foreign taxes paid by the Fund), and (ii) entitled either to
deduct your share of the foreign taxes in computing your taxable income or to
claim a credit for the taxes against your U.S. income tax, subject to certain
limitations under the Code. You will be informed by the Fund at the end of each
calendar year regarding the availability of any credits and the amount of
foreign source income (including any foreign taxes paid by the Fund) to be
included in your income tax returns. You should consult your tax advisor as to
the availability of foreign tax payments as deductions on your tax return.

The Fund may limit its holdings of foreign securities to avoid investment in
certain Passive Foreign Investment Companies ("PFIC") and the imposition of a
PFIC tax on the Fund resulting from such investments. While the Fund invests in
foreign securities, it is generally not its intention to invest in foreign
equity securities of issuers that meet the U.S. tax definition of a PFIC. To the
extent that the Fund makes such an investment, however, the Fund may be subject
to both an income tax and an additional tax in the form of an interest charge
with respect to such investment. To the extent possible, the Fund will avoid
such taxes by not investing in PFIC securities or by adopting other tax
strategies for any PFIC securities it does buy.

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

If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes to distributions received by you from the Fund
and the application of foreign tax laws to these distributions.

You should also consult your tax advisor with respect to the tax consequences of
a redemption or exchange of Fund shares or the applicability of any state and
local intangible property or income taxes to your shares of the Fund and
distributions and redemption proceeds received from the Fund.

HOW IS THE FUND ORGANIZED?

The Fund is a diversified, open-end management investment company, commonly
called a mutual fund. It was organized as a California corporation in 1968, and
is registered with the SEC. As of January 1, 1997, the Fund began offering a new
class of shares designated Franklin Gold Fund, Franklin Gold Fund Series,
Franklin Gold Fund - Advisor Class. All shares outstanding before the offering
of Advisor Class shares have been designated Franklin Gold Fund, Franklin Gold
Fund Series, Franklin Gold Fund - Class I and Franklin Gold Fund, Franklin Gold
Fund Series, Franklin Gold Fund - Class II. Additional classes of shares may be
offered in the future.

The Fund has cumulative voting rights. This gives each shareholder a number of
votes equal to the number of shares owned times the number of Board members to
be elected. You may cast all of your votes for one candidate or distribute your
votes between two or more candidates.

The Fund does not intend to hold annual shareholder meetings. It may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may be called by shareholders holding at least 10% of the outstanding shares to
vote on the removal of Board members. In certain circumstances, we are required
to help you communicate with other shareholders about the removal of a Board
member. A special meeting may also be called by any three Board members or by
the written request of shareholders holding at least 20% of the shares entitled
to vote at the meeting.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check. PLEASE INDICATE WHICH CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT
SPECIFY A CLASS, YOUR PURCHASE WILL BE AUTOMATICALLY INVESTED IN CLASS I SHARES.

MINIMUM
INVESTMENTS*
- ------------------------------------------------------------------------------
To Open Your Account $100
To Add to Your Account $ 25

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

CHOOSING A SHARE CLASS

Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. The class that may be best for
you depends on a number of factors, including the amount and length of time you
expect to invest. Generally, Class I shares may be more attractive for long-term
investors or investors who qualify to buy Class I shares at a reduced sales
charge. Your financial representative can help you decide.

CLASS I

o Higher front-end sales charges than Class II shares. There are several ways
to reduce these charges, as described below. There is no front-end sales
charge for purchases of $1 million or more.*

o Contingent Deferred Sales Charge on purchases of $1 million or more sold
within one year

o Lower annual expenses than Class II shares

CLASS II

o Lower front-end sales charges than Class I shares

o Contingent Deferred Sales Charge on purchases sold within 18 months

o Higher annual expenses than Class I shares

*If you are investing $1 million or more, it is generally more beneficial for
you to buy Class I shares because there is no front-end sales charge and the
annual expenses are lower. Therefore, ANY PURCHASE OF $1 MILLION OR MORE IS
AUTOMATICALLY INVESTED IN CLASS I SHARES. You may accumulate more than $1
million in Class II shares through purchases over time. If you plan to do this,
however, you should determine if it would be better for you to buy Class I
shares through a Letter of Intent.

PURCHASE PRICE OF FUND SHARES

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

TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
-------------------
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- ------------------------------------------------------------------------------
CLASS I
Under $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than
$1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more* None None None

CLASS II
Under $1,000,000* 1.00% 1.01% 1.00%

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

SALES CHARGE REDUCTIONS AND WAIVERS

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

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

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

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

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

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

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

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

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

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

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

A qualified group is one that:

o Was formed at least six months ago,

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

o Has more than 10 members,

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

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

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

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

SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of Fund shares, you may buy shares of the Fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the sales
charge waivers listed below apply to purchases of Class I shares only, except
for items 1 and 2 which also apply to Class II purchases.

Certain distributions, payments or redemption proceeds that you receive may be
used to buy shares of the Fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:

1. Dividend and capital gain distributions from any Franklin Templeton Fund. The
distributions generally must be reinvested in the same class of shares.
Certain exceptions apply, however, to Class II shareholders who chose to
reinvest their distributions in Class I shares of the Fund before November
17, 1997, and to Advisor Class or Class Z shareholders of a Franklin
Templeton Fund who may reinvest their distributions in Class I shares of the
Fund.

2. Redemption proceeds from the sale of shares of any Franklin Templeton Fund if
you originally paid a sales charge on the shares and you reinvest the money
in the same class of shares. This waiver does not apply to exchanges.

If you paid a Contingent Deferred Sales Charge when you redeemed your shares
from a Franklin Templeton Fund, a Contingent Deferred Sales Charge will apply
to your purchase of Fund shares and a new Contingency Period will begin. We
will, however, credit your Fund account with additional shares based on the
Contingent Deferred Sales Charge you paid and the amount of redemption
proceeds that you reinvest.

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

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

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

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

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

If you paid a contingent deferred sales charge when you redeemed your Class
A shares from a Templeton Global Strategy Fund, a Contingent Deferred Sales
Charge will apply to your purchase of Fund shares and a new Contingency
Period will begin. We will, however, credit your Fund account with
additional shares based on the contingent deferred sales charge you paid and
the amount of the redemption proceeds that you reinvest.

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

Various individuals and institutions also may buy Class I shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:

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

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

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

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

5. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer 6.
Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies

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

8. Accounts managed by the Franklin Templeton Group

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

10. Group annuity separate accounts offered to retirement plans

11. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below

RETIREMENT PLANS. Retirement plans that (i) are sponsored by an employer with at
least 100 employees, or (ii) have plan assets of $1 million or more, or (iii)
agree to invest at least $500,000 in the Franklin Templeton Funds over a 13
month period may buy Class I shares without a front-end sales charge. Retirement
plans that are not Qualified Retirement Plans or SEPs, such as 403(b) or 457
plans, must also meet the requirements described under "Group Purchases - Class
I Only" above to be able to buy Class I shares without a front-end sales charge.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the account is closed within 365 days of the
retirement plan account's initial purchase in the Franklin Templeton Funds.
Please see "How Do I Sell Shares?- Contingent Deferred Sales Charge" for
details.

HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?

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

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

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

OTHER PAYMENTS TO SECURITIES DEALERS

The payments described below may be made to Securities Dealers who initiate and
are responsible for Class II purchases and certain Class I purchases made
without a sales charge. The payments are subject to the sole discretion of
Distributors, and are paid by Distributors or one of its affiliates and not by
the Fund or its shareholders.

1. Class II purchases - up to 1% of the purchase price.

2. Class I purchases of $1 million or more - up to 1% of the amount invested.

3. Class I purchases made without a front-end sales charge by certain
retirement plans described under "Sales Charge Reductions and Waivers -
Retirement Plans" above - up to 1% of the amount invested.

4. Class I purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of clients
participating in comprehensive fee programs - up to 0.25% of the amount
invested.

5. Class I purchases by Chilean retirement plans - up to 1% of the amount
invested.

A Securities Dealer may receive only one of these payments for each qualifying
purchase. Securities Dealers who receive payments in connection with investments
described in paragraphs 1, 2 or 5 above or a payment of up to 1% for investments
described in paragraph 3 will be eligible to receive the Rule 12b-1 fee
associated with the purchase starting in the thirteenth calendar month after the
purchase.

FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES, PLEASE
SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO SECURITIES
DEALERS" IN THE SAI.

FOR INVESTORS OUTSIDE THE U.S.

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

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

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

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

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

METHOD STEPS TO FOLLOW
- -----------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions

2. Include any outstanding share certificates for the shares
you want to exchange

- -----------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)

If you do not want the ability to exchange by phone to
apply tO your account, please let us know.
- -----------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- -----------------------------------------------------------------------------

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

WILL SALES CHARGES APPLY TO MY EXCHANGE?

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

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

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

CONTINGENT DEFERRED SALES CHARGE - CLASS II. For accounts with Class II shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund proportionately based on the amount of shares subject to a Contingent
Deferred Sales Charge and the length of time the shares have been held. For
example, suppose you own $1,000 in shares that have never been subject to a
Contingent Deferred Sales Charge, such as shares from the reinvestment of
dividends and capital gains ("free shares"), $2,000 in shares that are no longer
subject to a Contingent Deferred Sales Charge because you have held them for
longer than 18 months ("matured shares"), and $3,000 in shares that are still
subject to a Contingent Deferred Sales Charge ("CDSC liable shares"). If you
exchange $3,000 into a new fund, $500 will be exchanged from free shares, $1,000
from matured shares, and $1,500 from CDSC liable shares. Likewise, CDSC liable
shares purchased at different times will be exchanged into a new fund
proportionately. For example, assume you purchased $1,000 in shares 3 months
ago, 6 months ago, and 9 months ago. If you exchange $1,500 into a new fund,
$500 will be exchanged from shares purchased at each of these three different
times.

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

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

EXCHANGE RESTRICTIONS

Please be aware that the following restrictions apply to exchanges:

o You may only exchange shares within the SAME CLASS, except as noted below.

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

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

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

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

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

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

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Class Z" shares. Certain shareholders of Class Z
shares of Franklin Mutual Series Fund Inc. may exchange their Class Z shares for
Class I shares of the Fund at Net Asset Value.

HOW DO I SELL SHARES?

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

METHOD STEPS TO FOLLOW
- -----------------------------------------------------------------------------

BY MAIL 1. Send us signed written instructions. If you would like your
redemption proceeds wired to a bank account, your instructions
should include:

o The name, address and telephone number of the bank where you
want the proceeds sent

o Your bank account number

o The Federal Reserve ABA routing number

o If you are using a savings and loan or credit union, the
name of the corresponding bank and the account number

2. Include any outstanding share certificates for the shares
you are selling

3. Provide a signature guarantee if required

4. Corporate, partnership and trust accounts may need to send
additional documents. Accounts under court jurisdiction may
have other requirements.
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your redemption
proceeds wired to a bank account, other than an escrow account, you
must first sign up for the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid any delay in
processing, the instructions should include the items listed in "By
Mail" above.

Telephone requests will be accepted:

o If the request is $50,000 or less. Institutional accounts may
exceed $50,000 by completing a separate agreement. Call
Institutional Services to receive a copy.

o If there are no share certificates issued for the shares you
want to sell or you have already returned them to the Fund

o Unless you are selling shares in a Trust Company retirement
plan account

o Unless the address on your account was changed by phone within
the last 15 days

If you do not want the ability to redeem by phone to apply
to your account, please let us know.

- -----------------------------------------------------------------------------
THROUGH
YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------

We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.

The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 1:00 p.m. Pacific time, your wire payment will be
sent the next business day. For requests received in proper form after 1:00 p.m.
Pacific time, the payment will be sent the second business day. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire is not processed as described in this section.

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

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

TRUST COMPANY RETIREMENT PLAN ACCOUNTS

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

CONTINGENT DEFERRED SALES CHARGE

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

Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class I shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan account is
closed within 365 days of the account's initial purchase in the Franklin
Templeton Funds.

We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.

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

WAIVERS. We waive the Contingent Deferred Sales Charge for:

o Account fees

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

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

o Redemptions following the death of the shareholder or beneficial owner

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

o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, at a rate of up to 1% a month of an account's Net Asset Value. For
example, if you maintain an annual balance of $1 million in Class I shares,
you can redeem up to $120,000 annually through a systematic withdrawal plan
free of charge. Likewise, if you maintain an annual balance of $10,000 in
Class II shares, $1,200 may be redeemed annually free of charge.

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

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

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

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

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

The Fund declares dividends from its net investment income semiannually in May
and November to shareholders of record on the last business day of that month
and pays them on or about the 15th day of the next month.

Capital gains, if any, may be distributed annually, usually in December.

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

Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.

If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution and you will then receive a portion of the price you paid back in
the form of a taxable distribution.

DISTRIBUTION OPTIONS

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

1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge) by
reinvesting capital gain distributions, or both dividend and capital gain
distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.

2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy shares of another Franklin Templeton Fund (without a sales
charge or imposition of a Contingent Deferred Sales Charge). Many shareholders
find this a convenient way to diversify their investments.

3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee. If you send
the money to a checking account, please see "Electronic Fund Transfers - Class I
Only" under "Services to Help You Manage Your Account."

Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class II shareholders who chose to reinvest their distributions in
Class I shares of the Fund or another Franklin Templeton Fund before November
17, 1997, may continue to do so; and (ii) Class II shareholders may reinvest
their distributions in shares of any Franklin Templeton money fund.

TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS
OF THE FUND. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Trust Company retirement plans, special forms are
required to receive distributions in cash.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

SHARE PRICE

When you buy shares, you pay the Offering Price. This is the Net Asset Value per
share of the class you wish to purchase, plus any applicable sales charges. When
you sell shares, you receive the Net Asset Value per share minus any applicable
Contingent Deferred Sales Charges.

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

HOW AND WHEN SHARES ARE PRICED

The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the scheduled close of the NYSE,
generally 1:00 p.m. Pacific time. You can find the prior day's closing Net Asset
Value and Offering Price for each class in many newspapers.

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

PROPER FORM

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

WRITTEN INSTRUCTIONS

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

o Your name,

o The Fund's name,

o The class of shares,

o A description of the request,

o For exchanges, the name of the fund you are exchanging into,

o Your account number,

o The dollar amount or number of shares, and

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

JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.

Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.

SIGNATURE GUARANTEES

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

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

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

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

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

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

A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.

SHARE CERTIFICATES

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

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

TELEPHONE TRANSACTIONS

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

For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.

TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell
shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b) retirement
accounts by phone, certain restrictions may be imposed on other retirement
plans.

To obtain any required forms or more information about distribution or transfer
procedures, please call Retirement Plan Services.

ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS

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

JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless ALL
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.

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

TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.

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

TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ----------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that identify the
general partners, or

2. A certification for a partnership agreement
- ------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or

2. A certification for trust
- ------------------------------------------------------------------------------

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

IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE

If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the Fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.

TAX IDENTIFICATION NUMBER

The IRS requires us to have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.

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

KEEPING YOUR ACCOUNT OPEN

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

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

AUTOMATIC INVESTMENT PLAN

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

AUTOMATIC PAYROLL DEDUCTION - CLASS I ONLY

You may have money transferred from your paycheck to the Fund to buy additional
Class I shares. Your investments will continue automatically until you instruct
the Fund and your employer to discontinue the plan. To process your investment,
we must receive both the check and payroll deduction information in required
form. Due to different procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time we receive the money.

SYSTEMATIC WITHDRAWAL PLAN

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

If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. If you choose to have the money sent to a
checking account, please see "Electronic Fund Transfers - Class I Only" below.
Once your plan is established, any distributions paid by the Fund will be
automatically reinvested in your account.

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

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan may also be
subject to a Contingent Deferred Sales Charge. Please see "Contingent Deferred
Sales Charge" under "How Do I Sell Shares?"

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

ELECTRONIC FUND TRANSFERS - CLASS I ONLY

You may choose to have dividend and capital gain distributions from Class I
shares of the Fund or payments under a systematic withdrawal plan sent directly
to a checking account. If the checking account is with a bank that is a member
of the Automated Clearing House, the payments may be made automatically by
electronic funds transfer. If you choose this option, please allow at least
fifteen days for initial processing. We will send any payments made during that
time to the address of record on your account.

TELEFACTS(R)

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

o obtain information about your account;

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

o exchange shares between identically registered Franklin accounts; and

o request duplicate statements and deposit slips for Franklin accounts.

You will need the code number for each class to use TeleFACTS(R). The code
number is 101 for Class I and 232 for Class II.

Statements and Reports to Shareholders

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

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

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

INSTITUTIONAL ACCOUNTS

Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.

AVAILABILITY OF THESE SERVICES

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

WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?

If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.

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 1-800/524-404 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

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

GLOSSARY

USEFUL TERMS AND DEFINITIONS

ADVISERS - Franklin Advisers, Inc., the Fund's investment manager

BOARD - The Board of Directors of the Fund

CD - Certificate of deposit

CLASS I, CLASS II AND ADVISOR CLASS - The Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. They differ, however, primarily
in their sales charge and expense structures.

CODE - Internal Revenue Code of 1986, as amended

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

CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.

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

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

FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, and Templeton Variable Products Series Fund

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

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

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

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

IRS - Internal Revenue Service

LETTER - Letter of Intent

MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange
shares based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.

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

NASD - National Association of Securities Dealers, Inc.

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

NSCC - National Securities Clearing Corporation

NYSE - New York Stock Exchange

OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 4.50% for Class I and 1% for Class II.

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

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

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

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

TELEFACTS(R) - Franklin Templeton's automated customer servicing system

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

U.S. - United States

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

PROSPECTUS & APPLICATION
FRANKLIN
GOLD FUND - ADVISOR CLASS
INVESTMENT STRATEGY
GROWTH
DECEMBER 1, 1997

This prospectus describes the Advisor Class shares of the Franklin Gold Fund
(the "Fund"). It contains information you should know before investing in the
Fund. Please keep it for future reference.

The Fund currently offers other classes of shares with different sales charge
and expense structures, which affect performance. These classes are described in
a separate prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.

The Fund has a Statement of Additional Information ("SAI") for its Advisor
Class, dated December 1, 1997, which may be amended from time to time. It
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/DIAL BEN.

FRANKLIN GOLD FUND
ADVISOR CLASS
December 1, 1997

When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section

TABLE OF CONTENTS

ABOUT THE FUND
Expense Summary.......................................
Financial Highlights..................................
How does the Fund Invest its Assets?..................
What are the Fund's Potential Risks...................
Who Manages the Fund?.................................
How does the Fund Measure Performance?................
How Taxation Affects the Fund and its Shareholders....
How is the Fund Organized?............................

ABOUT YOUR ACCOUNT
How Do I Buy Shares?..................................
May I Exchange Shares for Shares of Another Fund?.....
How Do I Sell Shares?.................................
What Distributions Might I Receive from the Fund?.....
Transaction Procedures and Special Requirements.......
Services to Help You Manage Your Account..............
What If I Have Questions About My Account?............

GLOSSARY
Useful Terms and Definitions..........................

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777

1-800/DIAL BEN

ABOUT THE FUND

EXPENSE SUMMARY

This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of the Advisor Class for the fiscal
year ended July 31, 1997. The expenses are annualized. The Fund's actual
expenses may vary.

A. SHAREHOLDER TRANSACTION EXPENSES+

Maximum Sales Charge Imposed on Purchases None
Exchange Fee (per transaction) $5.00*

B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.52%
Rule 12b-1 Fees None
Other Expenses 0.31%
Total Fund Operating Expenses 0.83%
=========
C. EXAMPLE

Assume the annual return for the class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in the Fund.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
$8 $26 $46 $103

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

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.

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

This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering the period shown below appears in the financial statements
in the Fund's Annual Report to Shareholders for the fiscal year ended July 31,
1997. The Annual Report to Shareholders also includes more information about the
Fund's performance. For a free copy, please call Fund Information.

PERIOD ENDED JULY 31, 1997****
- ----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net Asset Value, beginning of period $13.12
--------
Income from investment operations:
Net investment income .07
Net realized and unrealized loss (1.67)
-------
Total from investment operations (1.60)
--------
Less distributions:
Dividends from net investment income (.09)
-------
Net asset value, end of period $11.43
=========
Total Return* (12.24)%

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 3,211
Ratio to average net assets:
Expenses .83%**
Net investment income .80%**
Portfolio turnover rate 16.05%
Average commission rate paid*** $.0156

*Total return is not annualized.
**Annualized
***Relates to purchases and sales of equity securities.
****For the period January 2, 1997 (effective date) to July 31, 1997.

HOW DOES THE FUND INVEST ITS ASSETS?

THE FUND'S INVESTMENT OBJECTIVE

TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST

FOREIGN SECURITIES. Because the Fund invests primarily in securities of
companies engaged in gold mining, the Fund generally invests a substantial part
of its assets in securities of companies domiciled or operating in one or more
foreign countries. The Fund generally invests more than 50% of its total assets
in the securities of corporations located outside the U.S. While the Fund
intends to acquire securities of foreign issuers only where there are public
trading markets for the securities, these investments may tend to reduce the
liquidity of the Fund's portfolio in the event of internal problems in the
foreign countries or deteriorating relations between the U.S. and the foreign
countries. Due to current internal conditions in South Africa, the Fund's
indirect investments in that country, which constituted approximately 21.0% of
the Fund's portfolio as of July 31, 1997, may be subject to somewhat greater
risk than an investment in a country with a more stable political profile.

The Fund will ordinarily buy securities that are traded in the U.S. or sponsored
or unsponsored American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs"), or Global Depositary Receipts (GDRs"). The Fund may also buy
the securities of foreign issuers directly in foreign markets as long as, in
Advisers' judgment, an established public trading market exists. This means that
there are a sufficient number of shares traded regularly relative to the number
of shares to be purchased by the Fund.

A convertible security is usually issued either by an operating company or by an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security but, if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security is
issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank. The issuer of a convertible
security may be important in determining the security's true value. This is
because the holder of a convertible security will have recourse only to the
issuer. In addition, a convertible security may be subject to redemption by the
issuer, but only after a specified date and under circumstances established at
the time the security is issued.

Options, futures, options on futures, and forward foreign currency exchange
contracts are generally considered "derivative securities."

OTHER INVESTMENT POLICIES OF THE FUND

The Fund may invest in gold bullion and foreign currency in the form of gold
coins and make loans of its portfolio securities under certain circumstances.
These investment techniques have not been used recently, but remain available in
the event it is determined that they could help the Fund achieve its objectives.

WHAT ARE THE FUND'S POTENTIAL RISKS?

INTEREST RATE, CURRENCY AND MARKET RISK. To the extent the Fund invests in debt
securities, changes in interest rates in any country where the Fund is invested
will affect the value of the Fund's portfolio and its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of the Fund's shares.
To the extent the Fund invests in common stocks, a general market decline in any
country where the Fund is invested may cause the value of what the Fund owns,
and thus the Fund's share price, to decline. Changes in currency valuations may
also affect the price of Fund shares. The value of stock markets, currency
valuations and interest rates throughout the world have increased and decreased
in the past. These changes are unpredictable.

WHO MANAGES THE FUND?

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

MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio is: R. Martin Wiskemann since 1972 and Suzanne Willoughby
Killea since 1994.

R. Martin Wiskemann
Senior Vice President of Advisers

Mr. Wiskemann holds a degree in Business Administration from the Handelsschule
of the State of Zurich, Switzerland. He has been in the securities business for
more than 30 years, managing mutual fund equity and fixed-income portfolios, and
private investment accounts. He has been with the Franklin Templeton Group since
1972. He is a member of several securities industry-related associations.

Suzanne Willoughby Killea
Portfolio Manager of Advisers

MANAGEMENT FEES. During the fiscal year ended July 31, 1997, management fees
totaling 0.52% of the average monthly net assets of the Fund were paid to
Advisers. Total expenses of the Fund, including fees paid to Advisers, were
0.83%.

HOW DOES THE FUND MEASURE PERFORMANCE?

From time to time, the Advisor Class of the Fund advertises its performance. A
commonly used measure of performance is total return. Total return is the change
in value of an investment over a given period. It assumes any dividends and
capital gains are reinvested.

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

HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS

TAX TREATMENT OF CAPITAL GAIN DISTRIBUTIONS UNDER THE TAXPAYER RELIEF ACT OF
1997. The 1997 Act creates a category of long-term capital gain for individuals
that will be taxed at new lower tax rates. For investors who are in the 28% or
higher federal income tax brackets, these gains will be taxed at a maximum of
20%. For investors who are in the 15% federal income tax bracket, these gains
will be taxed at a maximum of 10%. Capital gain distributions will qualify for
these new maximum tax rates, depending on when the fund's securities were sold
and how long they were held by the Fund before they were sold. Investors who
want more information on holding periods and other qualifying rules relating to
these new rates should review the expanded discussion in the SAI, or should
contact their personal tax advisors.

The Fund will advise you in its annual information reporting at calendar year
end of the amount of its capital gain distributions which will qualify for these
maximum federal tax rates. Additional information on reporting these
distributions on your personal income tax returns is available in Franklin
Templeton's Tax Information Handbook (call toll-free 1-800-342-5236). This
handbook will be revised to include 1997 Act tax law changes, and will be
available in January, 1998.

Subject to the 1997 Act's new rules, 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 you have owned Fund
shares and regardless of whether these distributions are received in cash or in
additional shares.

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

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

Tax Treatment of Individual Retirement Accounts under the Taxpayer Relief Act of
1997. The 1997 Act also contains several new or expanded Individual Retirement
Accounts which will be available to the Fund's investors beginning on January 1,
1998.

The 1997 Act creates a new "Roth IRA" which will permit tax free distributions
of account balances if the assets have been invested for five years or more, and
the distributions meet certain qualifying restrictions. Investors filing as
single taxpayers who have adjusted gross incomes of $95,000 or more, and
investors filing as joint taxpayers with adjusted gross incomes of $150,000 or
more may find their participation in this IRA to be restricted.

The 1997 Act also creates a new education IRA to help parents fund their
children's post-secondary school education. Parents or others may contribute up
to $500 annually to an education IRA on behalf of any child under age 18. This
IRA is subject to the same AGI limits as the Roth IRA above, and there are other
contribution restrictions that may apply. The education IRA earnings accumulate
tax free, and assets that have accumulated in the IRA may be distributed tax
free when used to pay qualified higher education expenses.

Both new IRAs are subject to special rules and conditions that must be reviewed
by the investor when opening a new account. Additional information is available
from Retirement Plan Services on each of these IRAs, and on other changes in the
rules governing pre-1997 Act IRAs.

You should also consult your tax advisor with respect to the applicability of
any state and local intangible property or income taxes to your shares of the
Fund and distributions and redemption proceeds received from the Fund.

HOW IS THE FUND ORGANIZED?

Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters affecting only that class, or expressly required
to be voted on separately by state or federal law. The Fund has cumulative
voting rights. This gives each shareholder a number of votes equal to the number
of shares owned times the number of Board members to be elected. You may cast
all of your votes for one candidate or distribute your votes between two or more
candidates.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

Shares of the Fund may be purchased without a sales charge. To open your
account, contact your investment representative or complete and sign the
enclosed shareholder application and return it to the Fund with your check.

MINIMUM
INVESTMENTS*
- ----------------------------------------------
To Open Your Account $5,000,000
To Add to Your Account $ 25

*We waive or lower these minimums for certain investors listed below. We may
also refuse any order to buy shares.

To determine if you meet the minimum investment requirement, the amount of your
current purchase is added to the cost or current value, whichever is higher, of
your existing shares in the Franklin Templeton Funds. At least $1 million of
this amount, however, must be invested in Advisor Class or Class Z shares of any
of the Franklin Templeton Funds.

The Fund's minimum initial investment requirement will not apply to purchases
by:

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

2. Qualified registered investment advisors or certified financial planners
who have clients invested in the Franklin Mutual Series Fund Inc. on
October 31, 1996, or who buy through a broker-dealer or service agent who
has entered into an agreement with Distributors

3. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group and their immediate family
members, subject to a $100 minimum investment requirement

4. Accounts managed by the Franklin Templeton Group

5. The Franklin Templeton Profit Sharing 401(k) Plan

6. Each series of the Franklin Templeton Fund Allocator Series, subject to a
$1,000 minimum initial and subsequent investment requirement

7. Employer stock, bonus, pension or profit sharing plans that meet the
requirements for qualification under Section 401 of the Code, including
salary reduction plans qualified under Section 401(k) of the Code, and that
(i) are sponsored by an employer with at least 5,000 employees, or (ii)
have plan assets of $50 million or more

8. Trust companies and bank trust departments initially investing in the
Franklin Templeton Funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion

9. Defined benefit plans or governments, municipalities, and tax-exempt
entities that meet the requirements for qualification under Section 501 of
the Code, subject to a $1 million initial investment in Advisor Class
shares

10. Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group, if the group as
a whole meets the $5 million minimum investment requirement. A qualified
group is one that:

o Was formed at least six months ago,

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

o Has more than 10 members, o Can arrange for meetings between our
representatives and group members,

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

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

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

HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?

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

Payments to Securities Dealers Securities Dealers who initiate and are
responsible for purchases of Advisor Class shares may receive up to 0.25% of the
amount invested. The payment is subject to the sole discretion of Distributors,
and is paid by Distributors or one of its affiliates and not by the Fund or its
shareholders.

For information on additional compensation payable to Securities Dealers in
connection with the sale of Fund shares, please see "How Do I Buy, Sell and
Exchange Shares? - Other Payments to Securities Dealers" in the SAI.

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

METHOD STEPS TO FOLLOW
- -----------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions

2. Include any outstanding share certificates for the shares
you want to exchange

- -----------------------------------------------------------------------------
BY PHONE Call Shareholder Services

If you do not want the ability to exchange by phone to
apply to your account, please let us know.
- -----------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- -----------------------------------------------------------------------------

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

EXCHANGE RESTRICTIONS

Please be aware that the following restrictions apply to exchanges:

You may only exchange shares within the SAME CLASS, except as noted below.

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

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

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

If you want to exchange into a fund that does not currently offer an Advisor
Class, you may exchange your Advisor Class shares for Class I shares of that
fund at Net Asset Value. If you do not qualify to buy Advisor Class shares of
Templeton Developing Markets Trust, Templeton Foreign Fund or Templeton Growth
Fund, you may exchange the Advisor Class shares you own for Class I shares of
those funds or of Templeton Institutional Funds, Inc. at Net Asset Value. If you
do so and you later decide you would like to exchange into a fund that offers an
Advisor Class, you may exchange your Class I shares for Advisor Class shares of
that fund. You may also exchange your Advisor Class shares for Class Z shares of
Franklin Mutual Series Fund Inc.

HOW DO I SELL SHARES?

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

METHOD STEPS TO FOLLOW
- -----------------------------------------------------------------------------

BY MAIL 1. Send us signed written instructions. If you would like your
redemption proceeds wired to a bank account, your
instructions should include:

o The name, address and telephone number of the bank where
you want the proceeds sent

o Your bank account number

o The Federal Reserve ABA routing number

o If you are using a savings and loan or credit union, the
name of the corresponding bank and the account number

2. Include any outstanding share certificates for the shares you
are selling

3. Provide a signature guarantee if required

If you would like your redemption proceeds wired to a bank
account, other than an escrow account, you must first sign up
for the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid any delay
in processing, the instructions should include the items
listed in "By Mail" above.

Telephone requests will be accepted:

o If the request is $50,000 or less. Institutional accounts may
exceed $50,000 by completing a separate agreement. Call
Institutional Services to receive a copy.

o If there are no share certificates issued for the shares you
want to sell or you have already returned them to the Fund

o Unless you are selling shares in a Trust Company retirement
plan account

o Unless the address on your account was changed by phone
within the last 15 days

If you do not want the ability to redeem by phone to apply
to your account, please let us know.

- -----------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- -----------------------------------------------------------------------------

If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time. Under unusual
circumstances, we may suspend redemptions or postpone payment for more than
seven days as permitted by federal securities law. Please refer to "Transaction
Procedures and Special Requirements" for other important information on how to
sell shares.

TRUST COMPANY RETIREMENT PLAN ACCOUNTS

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

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

Capital gains, if any, may be distributed annually, usually in December.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.

DISTRIBUTION OPTIONS

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

1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same
class of the Fund by reinvesting capital gain distributions, or both dividend
and capital gain distributions. This is a convenient way to accumulate
additional shares and maintain or increase your earnings base.

2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy the same class of shares of another Franklin Templeton
Fund. You may also direct your distributions to buy Class I shares of another
Franklin Templeton Fund. Many shareholders find this a convenient way to
diversify their investments.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

SHARE PRICE

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

HOW AND WHEN SHARES ARE PRICED

The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 1:00 p.m.
Pacific time. You can find the prior day's closing Net Asset Value in many
newspapers.

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

PROPER FORM

WRITTEN INSTRUCTIONS

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

o Your name,

o The Fund's name,

o The class of shares,

o A description of the request,

o For exchanges, the name of the fund you are exchanging into,

o Your account number,

o The dollar amount or number of shares, and

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

SIGNATURE GUARANTEES

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

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

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

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

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

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

SHARE CERTIFICATES

TELEPHONE TRANSACTIONS

When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus. For your protection, we may delay a
transaction or not implement one if we are not reasonably satisfied that the
instructions are genuine. If this occurs, we will not be liable for any loss. We
also will not be liable for any loss if we follow instructions by phone that we
reasonably believe are genuine or if you are unable to execute a transaction by
phone.

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

To obtain any required forms or more information about distribution or transfer
procedures, please call Retirement Plan Services.

ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS

TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.

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

TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that identify the
general partners, or

2. A certification for a partnership agreement

- -----------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or

2. A certification for trust

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

IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE

TAX IDENTIFICATION NUMBER

KEEPING YOUR ACCOUNT OPEN

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

AUTOMATIC INVESTMENT PLAN

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

SYSTEMATIC WITHDRAWAL PLAN

If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.

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

TELEFACTS(R)

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

o obtain information about your account; and

o obtain price information about any Franklin Templeton Fund.

You will need the Fund's code number to use TeleFACTS(R). The Fund's code number
is 632.

STATEMENTS AND REPORTS TO SHAREHOLDERS

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

INSTITUTIONAL ACCOUNTS

AVAILABILITY OF THESE SERVICES

WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?

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.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

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

GLOSSARY

USEFUL TERMS AND DEFINITIONS

ADVISERS - Franklin Advisers, Inc., the Fund's investment manager

BOARD - The Board of Directors of the Fund

CD - Certificate of deposit

CODE - Internal Revenue Code of 1986, as amended

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

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

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

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

IRS - Internal Revenue Service

MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.

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

NASD - National Association of Securities Dealers, Inc.

NSCC - National Securities Clearing Corporation

NYSE - New York Stock Exchange

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

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

TELEFACTS(R) - Franklin Templeton's automated customer servicing system

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

U.S. - United States

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

FRANKLIN
GOLD FUND
STATEMENT OF
ADDITIONAL INFORMATION
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
DECEMBER 1, 1997

TABLE OF CONTENTS

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

Appendix
Description of Ratings........................................

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

The Franklin Gold Fund (the "Fund") is a diversified, open-end management
investment company. The Fund's principal investment objective is capital
appreciation. The Fund seeks to achieve its objective by investing in securities
with the potential to increase in value, so that its own shares will in turn
increase in value. The Fund's secondary objective is to provide current income
through the receipt of dividends or interest from its investments. Thus, the
payment of dividends may be a consideration when the Fund buys securities.
Because the Fund concentrates its investments in securities of companies engaged
in mining, processing, or dealing in gold or other precious metals, the Fund
invests a substantial portion of its assets in the securities of foreign
issuers.

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

This SAI describes the Fund's Class I and Class II shares. The Fund currently
offers another class of shares with a different sales charge and expense
structure, which affects performance. This class is described in a separate SAI
and prospectus. For more information, contact your investment representative or
call 1-800/DIAL BEN.

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

- -----------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;

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

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

HOW DOES THE FUND INVEST ITS ASSETS?
- -----------------------------------------------------------------------

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

FOREIGN SECURITIES. Because the Fund concentrates its investments in gold and
precious metal-related issuers, the Fund invests a substantial portion of its
assets in foreign securities. Foreign securities are securities issued by
companies domiciled and operating outside the U.S. or securities issued by
foreign governments. Although the Fund is not obligated to do so, the Fund
presently expects that under normal conditions, more than 50% of the value of
its assets may be invested in foreign securities. At any particular time a
substantial portion of the Fund's assets may be invested in companies domiciled
or operating in one or a very few foreign countries. The Fund may, however,
invest some or all of its assets in U.S. securities when Advisers concludes that
investments in U.S. companies are more likely to accomplish the Fund's
objectives. On July 31, 1997, approximately 69.2% of the Fund's assets were
invested in securities of foreign issuers in the following countries: 30.5% in
Canada; 21.0% in South Africa; 10.1% in Australia; and 7.6% in other foreign
countries.

Any investments by the Fund in foreign securities where delivery takes place
outside the U.S. will be made in compliance with applicable U.S. and foreign
currency restrictions and other tax laws and laws limiting the amount and types
of foreign investments. Although current regulations do not, in the opinion of
Advisers, limit seriously the Fund's investment activities, if they were changed
in the future they might restrict the ability of the Fund to make its
investments or tend to impair the liquidity of the Fund's investments. Changes
in governmental administrations, economic or monetary policies in the U.S. or
abroad, or circumstances in dealings between nations could result in investment
losses for the Fund and could adversely affect the Fund's operations. The Fund's
investment in securities in foreign countries will involve currencies of the
U.S. and of foreign countries. Therefore, changes in exchange rates, currency
convertibility, and repatriation may favorably or adversely affect the Fund.

Securities that are acquired by the Fund outside the U.S. and that are publicly
traded in the U.S. or on a foreign securities exchange or in a foreign
securities market are not considered by the Fund to be illiquid investments, if
(a) the Fund reasonably believes it can readily dispose of the securities for
cash in the U.S. or foreign market, or (b) current market quotations are readily
available. The Fund will not acquire the securities of foreign issuers outside
the U.S. under circumstances where, at the time of acquisition, the Fund has
reason to believe that it could not resell the securities in a public trading
market. Foreign securities are often traded with less frequency and volume, and
therefore may have greater price volatility, than many U.S. securities.
Notwithstanding the fact that the Fund intends to acquire the securities of
foreign issuers only where there are public trading markets, investments by the
Fund in the securities of foreign issuers may tend to increase the risks with
respect to the liquidity of the Fund's portfolio and the Fund's ability to meet
a large number of shareholder redemption requests should there be economic or
political turmoil in a country in which the Fund has a substantial portion of
its assets invested or should relations between the U.S. and the foreign country
deteriorate markedly.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may buy or sell forward
foreign currency exchange contracts. While these contracts are not presently
regulated by the Commodity Futures Trading Commission ("CFTC"), the CFTC may, in
the future, assert authority to regulate forward contracts. In this event, the
Fund's ability to use forward contracts in the manner set forth in the
Prospectus may be restricted.

Forward contracts will reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the Fund
than if it had not entered into these contracts. The use of forward foreign
currency contracts will not eliminate fluctuations in the underlying U.S. dollar
equivalent value of, or rates of return on, the Fund's foreign currency
denominated portfolio securities, and the use of these techniques will subject
the Fund to certain risks.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, the Fund
may not always be able to enter into forward foreign currency contracts at
attractive prices, and this will limit the Fund's ability to use these contracts
to hedge or cross-hedge its assets. Also, with regard to the Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time, poor correlation may exist between movements in the
exchange rates of the foreign currencies in which the Fund's assets that are the
subject of the cross-hedges are denominated.

GOLD BULLION. As a means of seeking its principal objective of capital
appreciation and when the Fund considers it to be appropriate as a possible
hedge against inflation, the Fund may invest a portion of its assets in gold
bullion and may hold a portion of its cash in foreign currency in the form of
gold coins. There is, of course, no assurance that these investments will
provide capital appreciation or a hedge against inflation. The Fund's ability to
invest in gold bullion is restricted by the diversification requirements that
the Fund must meet in order to qualify as a regulated investment company under
the Code, as well as the diversification requirements of the 1940 Act.

The Fund will invest in gold bullion when the prospects of these investments
are, in the opinion of Advisers, attractive in relation to other possible
investments. The basic trading unit for gold bullion is a gold bar weighing
approximately 100 troy ounces with a purity of at least 995/1000, although gold
bullion is also sold in much smaller units. Gold bars and wafers are usually
numbered and bear an indication of purity and the stamp or assay mark of the
refinery or assay office that certifies the bar's purity. Bars of gold bullion
historically have traded primarily in the New York, London, and Zurich gold
markets. In terms of volume, these gold markets have been the major markets for
trading in gold bullion. Prices in the Zurich gold market generally correspond
to prices in the London gold market. Since the ownership of gold bullion became
legal in the U.S. on December 31, 1974, U.S. markets for trading gold bullion
have developed. It is anticipated that transactions in gold will generally be
made in U.S. markets, although these transactions may be made in foreign markets
when it is deemed to be in the best interest of the Fund. Transactions in gold
bullion by the Fund are negotiated with principal bullion dealers unless, in
Adviser's opinion, more favorable prices (including the costs and expenses
described below) are otherwise obtainable. Prices at which gold bullion is
purchased or sold include dealer mark-ups or mark-downs, insurance expenses,
assay charges and shipping costs for delivery to a custodian bank. These costs
and expenses may be a greater or lesser percentage of the price from time to
time, depending on whether the price of gold bullion decreases or increases.
Since gold bullion does not generate any investment income, the only source of
return to the Fund on such an investment will be from any gains realized upon
its sale, and negative return will be realized, of course, to the extent the
Fund sells its gold bullion at a loss.

LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors, if
such loans do not exceed 10% of the value of the Fund's total assets at the time
of the most recent loan. The borrower must deposit with the Fund's custodian
bank collateral with an initial market value of at least 102% of the market
value of the securities loaned, including any accrued interest, with the value
of the collateral and loaned securities marked-to-market daily to maintain
collateral coverage of at least 100%. This collateral shall consist of cash,
securities issued by the U.S. government, its agencies or instrumentalities, or
irrevocable letters of credit. The lending of securities is a common practice in
the securities industry. The Fund may engage in security loan arrangements with
the primary objective of increasing the Fund's income either through investing
cash collateral in short-term interest-bearing obligations or by receiving a
loan premium from the borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially.

TRANSACTIONS IN OPTIONS, FUTURES,
AND OPTIONS ON FUTURES

The Fund may buy or write (sell) put and call options that trade on securities
exchanges or in the over-the-counter market. The Fund may also buy or write put
and call options on currencies. An option allows its holder to buy a specified
security or currency (a call option) or to sell a specified security or currency
(a put option) from or to the writer of the option at a set price during the
term of the option. All options written by the Fund will be covered. The Fund
does not currently intend to write put options, although the Fund reserves the
right to do so.

WRITING CALL OPTIONS. A call option written by the Fund is "covered" if the Fund
owns the underlying security or currency that is subject to the call or has an
absolute and immediate right to acquire that security or currency without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
securities or currencies held in its portfolio. A call option is also covered if
the Fund holds a call on the same security or currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash and high-grade debt securities in a segregated account with its
custodian bank. The premium paid by the buyer will reflect, among other things,
the relationship of the exercise price to the market price and volatility of the
underlying security or currency, the remaining term of the option, supply and
demand, and interest rates.

The Fund may have no control over when the underlying securities or currencies
must be sold since, with regard to certain options, the Fund may be assigned an
exercise notice at any time before the termination of the obligation. Whether or
not an option expires unexercised, the Fund retains the amount of the premium.
This amount may be offset by a decline in the market value of the underlying
security or currency during the option period. If a call option is exercised,
the Fund experiences a profit or loss from the sale of the underlying security
or currency.

If the Fund wishes to terminate its obligation, it may effect a "closing
purchase transaction." This is done by buying an option of the same series as
the option previously written. The effect of the purchase is that the Fund's
position will be canceled by the clearing corporation. The Fund may not,
however, effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, the holder of an option may liquidate its
position by effecting a "closing sale transaction." This is done by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected.

Effecting a closing transaction in the case of a written call option will allow
the Fund to write another call option on the underlying security or currency
with a different exercise price, expiration date, or both. Also, effecting a
closing transaction will allow the proceeds from the sale of any securities or
currencies subject to the option to be used for other Fund investments. If the
Fund desires to sell a particular security or currency from its portfolio on
which it has written a call option, it will effect a closing transaction before
or at the same time as the sale of the security or currency.

The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option. The Fund
will realize a loss from a closing transaction if the price of the transaction
is more than the premium received from writing the option. Because increases in
the market price of a call option will generally reflect increases in the market
price of the underlying security or currency, any loss resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security or currency owned by the Fund.

BUYING CALL OPTIONS. The Fund may buy call options on securities or currencies
that it intends to buy in order to limit the risk of a substantial increase in
the market price of the security or currency. The Fund may also buy call options
on securities or currencies held in its portfolio and on which it has written
call options. Before its expiration, a call option may be sold in a closing sale
transaction. Profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the call option plus the
related transaction costs.

WRITING PUT OPTIONS. The operation of put options, including their related risks
and rewards, is substantially identical to that of call options.

The Fund may write put options only on a covered basis. This means that the Fund
must maintain in a segregated account cash, U.S. government securities, or other
liquid, high-grade debt securities in an amount not less than the exercise price
at all times while the put option is outstanding. The rules of the clearing
corporation currently require that these assets be deposited in escrow to secure
payment of the exercise price. The Fund may generally write covered put options
in circumstances where Advisers wants to buy the underlying security or currency
for the Fund's portfolio at a price lower than the current market price of the
security or currency. In this event, the Fund would write a put option at an
exercise price that, reduced by the premium received on the option, reflects the
lower price it is willing to pay. Since the Fund would also receive interest on
debt securities maintained to cover the exercise price of the option, this
technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premiums received.

BUYING PUT OPTIONS. The Fund may buy put options. The Fund may enter into
closing sale transactions with respect to these options, exercise them, or allow
them to expire.

The Fund may buy a put option on an underlying security or currency owned by the
Fund (a "protective put") as a hedging technique in order to protect against an
anticipated decline in the value of the security or currency. This hedge
protection is provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying security or
currency at the put exercise price, regardless of any decline in the underlying
security's market price or currency's exchange value. For example, a put option
may be purchased in order to protect unrealized appreciation of a security or
currency when Advisers deems it desirable to continue to hold the security or
currency because of tax considerations. The premium paid for the put option and
any transaction costs would reduce any short-term capital gain otherwise
available for distribution when the security or currency is eventually sold.

The Fund may also buy put options at a time when the Fund does not own the
underlying security or currency. By buying put options on a security or currency
it does not own, the Fund seeks to benefit from a decline in the market price of
the underlying security or currency. If the put option is not sold when it has
remaining value, and if the market price of the underlying security or currency
remains equal to or greater than the exercise price during the life of the put
option, the Fund will lose its entire investment in the put option. In order for
the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.

OVER-THE-COUNTER OPTIONS ("OTC" OPTIONS). The Fund may write covered put and
call options and buy put and call options that trade in the over-the-counter
market to the same extent that it may engage in exchange-traded options. OTC
options differ from exchange-traded options in certain material respects.

OTC options are available for a greater variety of securities, and in a wider
range of expiration dates and exercise prices, than exchange-traded options. OTC
options, however, are arranged directly with dealers and not, as is the case
with exchange-traded options, with a clearing corporation. Thus, there is a risk
of non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information from market makers. The writer of an
OTC option is paid the premium in advance by the dealer.

OPTIONS ON STOCK INDICES. The Fund may buy call and put options on stock indices
in order to hedge against the risk of market or industry-wide stock price
fluctuations. Call and put options on stock indices are similar to options on
securities except that, rather than the right to buy or sell stock at a
specified price, options on a stock index give the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
underlying stock index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike stock
options, all settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular industry or segment
of the market) rather than price movements in individual stocks.

When the Fund writes an option on a stock index, the Fund will establish a
segregated account containing cash or high-quality fixed-income securities with
its custodian bank in an amount at least equal to the market value of the
underlying stock index and will maintain the account while the option is open,
or it will otherwise cover the transaction.

FUTURES CONTRACTS. The Fund may enter into futures contracts based upon
financial indices ("financial futures"). Financial futures contracts are
commodity contracts that obligate the long or short holder to take or make
delivery of a specified quantity of a financial instrument, such as a security
or the cash value of a securities index, during a specified future period at a
specified price. The purpose of the acquisition or sale of a futures contract is
to attempt to protect the Fund from fluctuations in the price of portfolio
securities without actually buying or selling the underlying security. A "sale"
of a futures contract means the acquisition of a contractual obligation to
deliver the cash value called for by the contract on a specified date. A
"purchase" of a futures contract means the acquisition of a contractual
obligation to take delivery of the cash value called for by the contract at a
specified date. Futures contracts have been designed by exchanges designated
"contracts markets" by the CFTC and must be executed through a futures
commission merchant or brokerage firm that is a member of the relevant contract
market.

To the extent the Fund enters into a futures contract, it will deposit in a
segregated account with its custodian bank cash or U.S. Treasury obligations
equal to a specified percentage of the value of the futures contract (the
"initial margin"), as required by the relevant contract market and futures
commission merchant. The futures contract will be marked-to-market daily. Should
the value of the futures contract decline relative to the Fund's position, the
Fund will be required to pay to the futures commission merchant an amount equal
to the change in value.

Although financial futures contracts by their terms call for the actual delivery
or acquisition of securities, or the cash value of an index, in most cases the
contractual obligation is fulfilled before the date of the contract without
having to make or take delivery of the securities or cash. The offsetting of the
contractual obligation is done by buying (or selling, as the case may be) on a
commodities exchange an identical financial futures contract calling for
delivery in the same month. This transaction, which is effected through a member
of an exchange, cancels the obligation to make or take delivery of the
securities or cash. Since all transactions in the futures market are made,
offset, or fulfilled through a clearinghouse associated with the exchange on
which the contracts are traded, the Fund will incur brokerage fees when it buys
or sells financial futures contracts.

The Fund will not enter into futures contracts or related options for
speculation, but only as a hedge against changes in the value of its securities,
or securities that it intends to buy, resulting from market conditions and, to
the extent consistent with this policy, to accommodate cash flows. The Fund may
not buy or sell futures contracts or buy or sell related options if, immediately
thereafter, the sum of the amount of initial deposits on its existing financial
futures and premiums paid on options on financial futures contracts would exceed
5% of the market value of the Fund's total assets.

The Fund expects that in the normal course it will buy securities upon
termination of long futures contracts and long call options on futures
contracts, but under unusual market conditions it may terminate any of these
positions without a corresponding purchase of securities.

To the extent the Fund enters into a futures contract, it will maintain assets
in a segregated account with its custodian bank, to the extent required by the
SEC, to cover its obligations with respect to the contract. The assets will
consist of cash, cash equivalents, or high-quality debt securities from the
Fund's portfolio in an amount equal to the difference between the fluctuating
market value of the futures contract and the aggregate value of the initial and
variation margin payments made by the Fund with respect to the futures contract.

STOCK INDEX FUTURES AND OPTIONS
ON STOCK INDEX FUTURES

The Fund may buy and sell stock index futures contracts and options on stock
index futures contracts.

STOCK INDEX FUTURES. A stock index futures contract obligates the seller to
deliver (and the buyer to take) an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made.

The Fund may sell stock index futures contracts in anticipation of or during a
market decline to try to offset the decrease in market value of its equity
securities that might otherwise result. When the Fund is not fully invested in
stocks and anticipates a significant market advance, it may buy stock index
futures in order to gain rapid market exposure that may in part or entirely
offset increases in the cost of common stocks that it intends to buy.

OPTIONS ON STOCK INDEX FUTURES. The Fund may buy and sell call and put options
on stock index futures to hedge against risks of marketside price movements. The
need to hedge against these risks will depend on the extent of diversification
of the Fund's common stock portfolio and the sensitivity of these investments to
factors influencing the stock market as a whole.

Call and put options on stock index futures are similar to options on securities
except that, rather than the right to buy or sell stock at a specified price,
options on stock index futures give the holder the right to receive cash. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account that represents the
amount by which the market price of the futures contract, at exercise, exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. If an option is exercised on the last
trading day before the expiration date of the option, the settlement will be
made entirely in cash equal to the difference between the exercise price of the
option and the closing price of the futures contract on the expiration date.

FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in the area of
options and futures contracts and options on futures contracts and any other
derivative investments that are not presently contemplated for use by the Fund
or that are not currently available but that may be developed, to the extent
these opportunities are both consistent with the Fund's investment objectives
and legally permissible for the Fund. Before making such an investment, the Fund
will supplement its Prospectus, if appropriate.

TIMING OF THE FUND'S SECURITIES TRANSACTIONS

Normally, the Fund will buy securities for investment with a view to long-term
appreciation. The Fund may on occasion, however, buy securities with the
expectation of realizing gains over the short-term. Because the investment
outlook of the types of securities that the Fund may buy may change as a result
of unexpected developments in national or international securities markets, or
in economic, monetary or political relationships, the Fund will not treat its
portfolio turnover as a limiting factor. The Fund may make changes in particular
portfolio holdings whenever the Fund considers that a security no longer has
optimum growth potential or has reached its anticipated level of performance, or
that another security appears to have a relatively greater potential for capital
appreciation and will make such changes without regard to the length of time the
Fund has held a security. The Fund may consider the differences between the tax
treatment of long-term gains and short-term gains, however, in determining the
timing of portfolio transactions.

WHAT ARE THE FUND'S POTENTIAL RISKS?
- ---------------------------------------------------------------------------
Like all investments, there are risks associated with an investment in the Fund
and its policies of investing in securities of companies engaged in mining,
processing, or dealing in gold or other precious metals and in gold bullion.
These investments may involve the following special considerations:

1. FLUCTUATIONS IN THE PRICE OF GOLD. The price of gold has recently been
subject to substantial upward and downward movements over short periods of time
and may be affected by unpredictable international monetary and political
policies, such as currency devaluations or reevaluations, economic conditions
within an individual country, trade imbalances or trade or currency restrictions
between countries, and world inflation rates and interest rates. The price of
gold, in turn, is likely to affect the market prices of securities of companies
mining, processing, or dealing in gold and, accordingly, the value of the Fund's
investments in these securities.

2. POTENTIAL EFFECT OF CONCENTRATION OF SOURCE OF SUPPLY AND CONTROL OF SALES.
Currently there are only four major sources of supply of primary gold
production, and the market share of each source cannot be readily ascertained.
One of the largest national producers of gold bullion and platinum is the
Republic of South Africa. Changes in political and economic conditions affecting
South Africa may have a direct impact on its sales of gold. Under South African
law, the only authorized sales agent for gold produced in South Africa is the
Reserve Bank of South Africa which, through its retention policies, controls the
time and place of any sale of South African bullion. The South African Ministry
of Mines determines gold mining policy. South Africa depends predominantly on
gold sales for the foreign exchange necessary to finance its imports, and its
sales policy is necessarily subject to national and international economic and
political developments.

3. TAX AND CURRENCY LAWS. Changes in the tax or currency laws of the U.S. and
foreign countries may inhibit the Fund's ability to pursue, or may increase the
cost of pursuing, its investment policies.

4. UNPREDICTABLE MONETARY POLICIES, ECONOMIC AND POLITICAL CONDITIONS. The
Fund's assets may be less liquid or the change in the value of its assets may be
more volatile (and less related to general price movements in the U.S. markets)
than investments in the securities of U.S. companies, particularly because the
price of gold and other precious metals may be affected by unpredictable
international monetary policies, economic and political considerations,
governmental controls, and conditions of scarcity, surplus, or speculation. In
addition, the use of gold or Special Drawing Rights (which are also used by
members of the International Monetary Fund for international settlements) to
settle net deficits and surpluses in trade and capital movements between nations
subjects the supply and demand, and therefore the price, of gold to a variety of
economic factors that normally would not affect other types of commodities.

5. NEW AND DEVELOPING MARKETS FOR PRIVATE GOLD OWNERSHIP. Between 1933 and
December 31, 1974, a market did not exist in the U.S. in which gold bullion
could be purchased by individuals for investment purposes. Since it became legal
to invest in gold, markets have developed in the U.S. Any large purchases or
sales of gold bullion could have an effect on the price of gold bullion.
Recently, several central banks have sold gold bullion from their reserves.
Sales by central banks and/or rumors of these sales have had a negative effect
on gold prices.

6. EXPERTISE OF ADVISERS. The successful management of the Fund's portfolio may
be more dependent upon the skills and expertise of Advisers than is the case for
most mutual funds because of the need to evaluate the factors identified above.
Moreover, in some countries, disclosures concerning an issuer's financial
condition and results and other matters may be subject to less stringent
regulatory provisions, or may be presented on a less uniform basis than is the
case for issuers subject to U.S. securities laws. Issuers and securities
exchanges in some countries may be subject to less stringent governmental
regulations than is the case for U.S. companies.

OPTIONS, FUTURES, AND OPTIONS ON FUTURES

The Fund's ability to hedge effectively all or a portion of its securities
through transactions in options, futures, and options on futures depends on the
degree to which price movements in the underlying security, currency, or index
correlate with price movements in the relevant portion of the Fund's securities.
Inasmuch as these securities will not duplicate the components of any index or
the underlying securities or currencies, the correlation will not be perfect.
Consequently, the Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index, currency,
or other securities underlying the hedging instrument and the hedged securities
that would result in a loss on both the securities and the hedging instrument.
Accordingly, successful use by the Fund of options, futures, and options on
futures will be subject to Advisers' ability to predict correctly movements in
the direction of the securities or currency markets generally or of a particular
segment. This requires different skills and techniques than predicting changes
in the price of individual securities.

Positions in options, futures, and options on futures may be closed out only on
an exchange that provides a secondary market. There can be no assurance that a
liquid secondary market will exist for any particular option or futures contract
at any specific time. Thus, it may not be possible to close an option or futures
position. The inability to close an option or futures position also could have
an adverse impact on the Fund's ability to hedge its securities effectively. The
Fund will enter into an option or futures position only if there appears to be a
liquid secondary market for the option or futures contract.

There can be no assurance that a continuous liquid secondary market will exist
for any particular OTC option at any specific time. Consequently, the Fund may
be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Fund writes an OTC option, it generally can close
out that option before its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote the option. If a
covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a buyer of a put or call option might also
find it difficult to terminate its position on a timely basis in the absence of
a secondary market.

The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position that
any person may hold or control in a particular futures contract. Trading limits
are imposed on the maximum number of contracts that any person may trade on a
particular trading day. An exchange may order the liquidation of positions found
to be in violation of these limits, and it may impose other sanctions or
restrictions. The Fund does not believe that these limits will have an adverse
impact on the Fund's strategies for hedging its securities.

The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions that could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general market trends by Advisers may still not result in a
successful transaction.

Futures contracts entail other risks as well. Although the Fund believes that
the use of these contracts will benefit the Fund, if Advisers' judgment about
the general direction of the market is incorrect, the Fund's overall performance
would be poorer than if it had not entered into any futures contract. For
example, if the Fund has hedged against the possibility of an increase in
interest rates that would adversely affect the price of bonds held in its
portfolio, and interest rates decrease instead, the Fund will lose part or all
of the benefit of the increased value of its bonds that it has hedged because it
will have offsetting losses in its futures positions. In addition, if the Fund
has insufficient cash, it may have to sell securities from its portfolio to meet
daily variation margin requirements. These sales may, but will not necessarily
be at increased prices that reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.

HIGH YIELD SECURITIES. Because the Fund may invest in securities below
investment grade, an investment in the Fund is subject to a higher degree of
risk than an investment in a fund that invests primarily in higher-quality
securities. You should consider the increased risk of loss to principal that is
present with an investment in higher risk securities, such as those in which the
Fund invests. Accordingly, an investment in the Fund should not be considered a
complete investment program and should be carefully evaluated for its
appropriateness in light of your overall investment needs and goals.

The market value of high yield, lower-quality fixed-income securities, commonly
known as junk bonds, tends to reflect individual developments affecting the
issuer to a greater degree than the market value of higher-quality securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality securities also tend to be more sensitive to economic conditions
than higher-quality securities.

Issuers of high yield, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with buying the securities of these issuers is generally
greater than the risk associated with higher-quality securities. For example,
during an economic downturn or a sustained period of rising interest rates,
issuers of lower-quality securities may experience financial stress and may not
have sufficient cash flow to make interest payments. The issuer's ability to
make timely interest and principal payments may also be adversely affected by
specific developments affecting the issuer, including the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing.

The risk of loss due to default may also be considerably greater with
lower-quality securities because they are generally unsecured and are often
subordinated to other creditors of the issuer. If the issuer of a security in
the Fund's portfolio defaults, the Fund may have unrealized losses on the
security, which may lower the Fund's Net Asset Value. Defaulted securities tend
to lose much of their value before they default. Thus, the Fund's Net Asset
Value may be adversely affected before an issuer defaults. In addition, the Fund
may incur additional expenses if it must try to recover principal or interest
payments on a defaulted security.

High yield, fixed-income securities frequently have call or buy-back features
that allow an issuer to redeem the securities from the Fund. Although these
securities are typically not callable for a period of time, usually for three to
five years from the date of issue, if an issuer calls its securities during
periods of declining interest rates, Advisers may find it necessary to replace
the securities with lower-yielding securities, which could result in less net
investment income for the Fund. The premature disposition of a high yield
security due to a call or buy-back feature, the deterioration of an issuer's
creditworthiness, or a default by an issuer may make it more difficult for the
Fund to manage the timing of its income. Under the Code and U.S. Treasury
regulations, the Fund may have to accrue income on defaulted securities and
distribute the income to shareholders for tax purposes, even though the Fund is
not currently receiving interest or principal payments on the defaulted
securities. To generate cash to satisfy these distribution requirements, the
Fund may have to sell portfolio securities that it otherwise may have continued
to hold or use cash flows from other sources, such as the sale of Fund shares.

Lower-quality, fixed-income securities may not be as liquid as higher-quality
securities. Reduced liquidity in the secondary market may have an adverse impact
on market price of a security and on the Fund's ability to sell a security in
response to a specific economic event, such as a deterioration in the
creditworthiness of the issuer, or if necessary to meet the Fund's liquidity
needs. Reduced liquidity may also make it more difficult to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.

The Fund may buy high yield, fixed-income securities that are sold without
registration under the federal securities laws and therefore carry restrictions
on resale. While many high yielding securities have been sold with registration
rights, covenants and penalty provisions for delayed registration, if the Fund
is required to sell restricted securities before the securities have been
registered, it may be deemed an underwriter of the securities under the
Securities Act of 1933, which entails special responsibilities and liabilities.
The Fund may also incur special costs in disposing of restricted securities,
although the Fund will generally not incur any costs when the issuer is
responsible for registering the securities.

The Fund may buy high yield, fixed-income securities during an initial
underwriting. These securities involve special risks because they are new
issues. Advisers will carefully review their credit and other characteristics.
The Fund has no arrangement with its underwriter or any other person concerning
the acquisition of these securities.

The high yield securities market is relatively new and much of its growth before
1990 paralleled a long economic expansion. The recession that began in 1990
disrupted the market for high yield securities and adversely affected the value
of outstanding securities, as well as the ability of issuers of high yield
securities to make timely principal and interest payments. Although the economy
has improved and high yield securities have performed more consistently since
that time, the adverse effects previously experienced may reoccur. For example,
the highly publicized defaults on some high yield securities during 1989 and
1990 and concerns about a sluggish economy that continued into 1993 depressed
the prices of many of these securities. While market prices may be temporarily
depressed due to these factors, the ultimate price of any security generally
reflects the true operating results of the issuer. Factors adversely impacting
the market value of high yield securities may lower the Fund's Net Asset Value.

The Fund relies on Advisers' judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, Advisers takes into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.

REPURCHASE AGREEMENTS. The use of repurchase agreements involves certain risks.
For example, if the other party to the agreement defaults on its obligation to
repurchase the underlying security at a time when the value of the security has
declined, the Fund may incur a loss upon disposition of the security. If the
other party to the agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a court may determine
that the underlying security is collateral for a loan by the Fund not within the
control of the Fund, and therefore the realization by the Fund on the collateral
may be automatically stayed. Finally, it is possible that the Fund may not be
able to substantiate its interest in the underlying security and may be deemed
an unsecured creditor of the other party to the agreement. While Advisers
acknowledges these risks, it is expected that if repurchase agreements are
otherwise deemed useful to the Fund, these risks can be controlled through
careful monitoring procedures.

INVESTMENT RESTRICTIONS
- ------------------------------------------------------------------------

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

1. Purchase the stock or securities of any issuer other than those of the U.S.
or its instrumentalities, if at the time of the investment the effect
thereof shall be to cause more than 5% of the value of its assets to be
invested at such time in the securities of such issuer;

2. As to 75% of its total assets, purchase stock or securities of an issuer,
other than the U.S. or its instrumentalities, if the effect thereof shall
be to cause more than 10% of the voting securities of such issuer to be
held by the Fund;

3. Borrow money in an amount in excess of 5% of the value of its total assets,
and then only from banks for temporary or emergency purposes, and not for
direct investment in securities;

4. Lend its assets, except through the purchase or acquisition of bonds,
debentures, or other debt securities of a type customarily purchased by
institutional investors, or through loans of its portfolio securities, or
to the extent the entry into a repurchase agreement may be deemed a loan;

5. Underwrite the securities of other issuers or invest more than 10% of its
assets in illiquid securities, including certain securities with legal or
contractual restrictions on resale;

6. Invest in securities for the purpose of exercising management or control of
the issuer;

7. Maintain a margin account with a securities dealer or effect short sales;

8. Invest in commodities or commodity contracts, except that it may invest in
gold bullion and foreign currency in the form of gold coins;

9. Invest directly in real estate (although it may invest in real estate
investment trusts) or in the securities of other open-end investment
companies, except that securities of another open-end investment company
may be acquired pursuant to a plan of reorganization, merger,
consolidation, or acquisition, and except to the extent the Fund invests
its uninvested daily cash balances in shares of Franklin Money Fund and
other money market funds in the Franklin Group of Funds, provided (i) its
purchases and redemptions of such money market fund shares may not be
subject to any purchase or redemption fees, (ii) its investments may not be
subject to duplication of management fees, nor to any charge related to the
expenses of distributing the fund's shares (as determined under Rule 12b-1,
as amended under the federal securities laws), and (iii) provided aggregate
investments by the Fund in any such money market fund do not exceed (A) the
greater of (i) 5% of the Fund's total net assets or (ii) $2.5 million, or
(B) more than 3% of the outstanding shares of any such money market fund;

10. Invest in assessable securities or securities involving unlimited liability
on the part of the Fund; or

11. Purchase or retain in its portfolio any security if any officer, director,
or security holder of the issuer is at the same time an officer, director,
or employee of the Fund or of Advisers and this person owns beneficially
more than 1/2 of 1% of the securities and if all persons owning more than
1/2 of 1% own more than 5% of the outstanding securities of the issuer.

In addition to these fundamental policies, it is the present policy of the Fund,
which may be changed without shareholder approval, not to pledge, mortgage, or
hypothecate the Fund's assets as security for loans, nor to engage in joint or
joint and several trading accounts in securities, except that an order to buy or
sell may be combined with orders from other persons to obtain lower brokerage
commissions, and except that the Fund may participate in a joint repurchase
agreement with other funds in the Franklin Templeton Group of Funds. The Fund
may not invest in real estate limited partnerships or in interests, other than
publicly traded equity securities, in oil, gas, or other mineral leases,
exploration, or development. Investments in marketable securities issued by real
estate investment trusts are not subject to this restriction. The Fund's
investments in warrants, if any, other than those acquired by the Fund as a part
of a unit, valued at the lower of cost or market, will not exceed 5% of the
value of the Fund's net assets, including not more than 2% that are not listed
on the New York or American Stock Exchange. The Fund will not invest in
commodities or commodity contracts, except that the Fund may invest up to 10% of
its total assets in gold bullion and gold coins, up to 5% of its total assets in
options and futures, and more than 5% of its total assets in options and futures
for hedging purposes only or when these investments are covered by cash or
securities.

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

OFFICERS AND DIRECTORS
- -----------------------------------------------------------------

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

POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE FUND DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------

Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111

Director

President and Director, Abbott Corporation (an investment company); and director
or trustee, as the case may be, of 29 of the investment companies in the
Franklin Templeton Group of Funds.

Harris J. Ashton (65)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045

Director

President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods (a meat packing company); and director or
trustee, as the case may be, of 53 of the investment companies in the Franklin
Templeton Group of Funds.

*Harmon E. Burns (52)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Director

Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc. and
Franklin Templeton Services, Inc.; Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 58 of the investment companies in the Franklin
Templeton Group of Funds.

S. Joseph Fortunato (65)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945

Director

Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director, General Host
Corporation (nursery and craft centers); and director or trustee, as the case
may be, of 55 of the investment companies in the Franklin Templeton Group of
Funds.

*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404 and

Chairman of the Board and Director

President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc., Franklin Templeton Services, Inc. and General Host Corporation (nursery
and craft centers); and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 54 of the
investment companies in the Franklin Templeton Group of Funds.

*Rupert H. Johnson, Jr. (57)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Director

Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 58 of
the investment companies in the Franklin Templeton Group of Funds.

Frank W.T. LaHaye (68)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014

Director

General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds.

*R. Martin Wiskemann (70)
777 Mariners Island Blvd.
San Mateo, CA 94404

President and Director

Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President and Director,
ILA Financial Services, Inc.; and officer and/or director or trustee, as the
case may be, of 17 of the investment companies in the Franklin Templeton Group
of Funds.

Martin L. Flanagan (37)
777 Mariners Island Blvd
San Mateo, CA 94404

Vice President and Chief Financial Officer

Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.; Treasurer,
Franklin Advisory Services, Inc.; Treasurer and Chief Financial Officer,
Franklin Investment Advisory Services, Inc.; President, Franklin Templeton
Services, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as the case may be, of 58 of the
investment companies in the Franklin Templeton Group of Funds.

Deborah R. Gatzek (48)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Secretary

Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief Operating
Officer, Franklin Investment Advisory Services, Inc.; and officer of 58 of the
investment companies in the Franklin Templeton Group of Funds.

Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404

Treasurer and Principal Accounting Officer

Senior Vice President, Franklin Templeton Services, Inc.; and officer of 35 of
the investment companies in the Franklin Templeton Group of Funds.

Edward V. McVey (60)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 30 of the investment companies in the
Franklin Templeton Group of Funds.

The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated members of the Board are currently paid
$150 per month plus $150 per meeting attended. As shown above, the nonaffiliated
Board members also serve as directors or trustees of other investment companies
in the Franklin Templeton Group of Funds. They may receive fees from these funds
for their services. The following table provides the total fees paid to
nonaffiliated Board members by the Fund and by other funds in the Franklin
Templeton Group of Funds.

NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP
RECEIVED FROM FRANKLIN TEMPLETON OF FUNDS ON WHICH
NAME THE FUND* GROUP OF FUNDS** EACH SERVES***
- -----------------------------------------------------------------------------
Frank H. Abbott, III $3,450 $165,236 29
Harris J. Ashton 3,450 343,591 53
S. Joseph Fortunato 3,450 60,411 55
David W. Garbellano**** 3,150 148,916 28
Frank W.T. LaHaye 3,300 139,233 27

*For the fiscal year ended July 31, 1997.
**For the calendar year ended December 31, 1996.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 58 registered investment companies, with approximately 171 U.S. based
funds or series.
****Deceased, September 27, 1997.

As of November 3, 1997, the officers and Board members, as a group, owned of
record and beneficially the following shares of the Fund: approximately 10,823
Class I shares and 5,298 Advisor Class shares, or less than 1% of the total
outstanding Class I and Advisor Class shares of the Fund. Many of the Board
members also own shares in other funds in the Franklin Templeton Group of Funds.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

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

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

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

MANAGEMENT FEES. Under its management agreement, the Fund pays Advisers a
management fee equal to a monthly rate of 5/96 of 1% of the value of net assets
up to and including $100 million; 1/24 of 1% of the value of net assets over
$100 million and not over $250 million; and 9/240 of 1% of the value of net
assets in excess of $250 million. The fee is computed at the close of business
on the last business day of each month. Each class pays its proportionate share
of the management fee.

For the fiscal years ended July 31, 1995, 1996 and 1997, management fees
totaling $2,063,979, $2,024,845 and $1,822,259, respectively, were paid to
Advisers.

MANAGEMENT AGREEMENT. The management agreement is in effect until April 30,
1998. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities on 30 days' written notice to Advisers, or by Advisers on 30 days'
written notice to the Fund, and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.

ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the Fund. These include
preparing and maintaining books, records, and tax and financial reports, and
monitoring compliance with regulatory requirements. FT Services is a wholly
owned subsidiary of Resources.

Under its administration agreement, Advisers pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Fund's average daily
net assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700 million
up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion.
The fee is paid by Advisers. It is not a separate expense of the Fund.

SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these services
per benefit plan participant Fund account per year may not exceed the per
account fee payable by the Fund to Investor Services in connection with
maintaining shareholder accounts.

CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York 10286, acts as custodian of the securities and other assets of
the Fund. The custodian does not participate in decisions relating to the
purchase and sale of portfolio securities.

AUDITORS. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended July
31, 1997, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Fund's Annual Report to
Shareholders for the fiscal year ended July 31, 1997.

HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
- ------------------------------------------------------------------

Advisers selects brokers and dealers to execute the Fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the Board may give.

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

Advisers may pay certain brokers commissions that are higher than those another
broker may charge, if Advisers determines in good faith that the amount paid is
reasonable in relation to the value of the brokerage and research services it
receives. This may be viewed in terms of either the particular transaction or
Advisers' overall responsibilities to client accounts over which it exercises
investment discretion. The services that brokers may provide to Advisers
include, among others, supplying information about particular companies,
markets, countries, or local, regional, national or transnational economies,
statistical data, quotations and other securities pricing information, and other
information that provides lawful and appropriate assistance to Advisers in
carrying out its investment advisory responsibilities. These services may not
always directly benefit the Fund. They must, however, be of value to Advisers in
carrying out its overall responsibilities to its clients.

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

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

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

During the fiscal years ended July 31, 1995, 1996 and 1997, the Fund paid
brokerage commissions totaling $163,994, $552,944 and $279,557, respectively.

As of July 31, 1997, the Fund did not own securities of its regular
broker-dealers.

HOW DO I BUY, SELL AND EXCHANGE SHARES?
- --------------------------------------------------------------------------
ADDITIONAL INFORMATION ON BUYING SHARES

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

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

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

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

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

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

OTHER PAYMENTS TO SECURITIES DEALERS. Distributors may pay the following
commissions, out of its own resources, to Securities Dealers who initiate and
are responsible for purchases of Class I shares of $1 million or more: 1% on
sales of $1 million to $2 million, plus 0.80% on sales over $2 million to $3
million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on sales
over $50 million to $100 million, plus 0.15% on sales over $100 million.

Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to Securities Dealers who initiate and are responsible for
purchases of Class I shares by certain retirement plans without a front-end
sales charge, as discussed in the Prospectus: 1% on sales of $500,000 to $2
million, plus 0.80% on sales over $2 million to $3 million, plus 0.50% on sales
over $3 million to $50 million, plus 0.25% on sales over $50 million to $100
million, plus 0.15% on sales over $100 million. Distributors may make these
payments in the form of contingent advance payments, which may be recovered from
the Securities Dealer or set off against other payments due to the dealer if
shares are sold within 12 months of the calendar month of purchase. Other
conditions may apply. All terms and conditions may be imposed by an agreement
between Distributors, or one of its affiliates, and the Securities Dealer.

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

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

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

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

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

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

ADDITIONAL INFORMATION ON
EXCHANGING SHARES

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

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

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

ADDITIONAL INFORMATION ON SELLING SHARES

Systematic Withdrawal Plan. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the 25th day of the month in which a payment is scheduled. If the 25th falls
on a weekend or holiday, we will process the redemption on the next business day
for Class I shares and on the prior business day for Class II shares. If the
processing dates are different, the date of the Net Asset Value used to redeem
the shares will also be different for Class I and Class II shares.

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

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

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

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

GENERAL INFORMATION

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

Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.

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

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

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

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

HOW ARE FUND SHARES VALUED?
- -------------------------------------------------------------------------

We calculate the Net Asset Value per share as of the scheduled close of the
NYSE, generally 1:00 p.m. Pacific time, each day that the NYSE is open for
trading. As of the date of this SAI, the Fund is informed that the NYSE observes
the following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

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

Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
the Fund is its last sale price on the relevant exchange before the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.

The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the scheduled close of trading
on the NYSE, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York time,
on the day the value of the foreign security is determined. If no sale is
reported at that time, the foreign security is valued within the range of the
most recent quoted bid and ask prices. Occasionally events that affect the
values of foreign securities and foreign exchange rates may occur between the
times at which they are determined and the close of the exchange and will,
therefore, not be reflected in the computation of the Net Asset Value of each
class. If events materially affecting the values of these foreign securities
occur during this period, the securities will be valued in accordance with
procedures established by the Board.

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

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

ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------
DISTRIBUTIONS

You may receive two types of distributions from the Fund:

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

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

Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is required to
track its sales of portfolio securities and to report its capital gain
distributions to you according to the following categories of holding periods:

"PRE-ACT LONG-TERM CAPITAL GAINS": Securities sold by the Fund before May 7,
1997, that were hold for more than 12 months. These gains will be taxable to
individual investors at a maximum rate of 28%.

"MID-TERM CAPITAL GAINS": Securities sold by the Fund after July 28, 1997 that
were held for more than one year but not more than 18 months. These gains will
be taxable to individual investors at a maximum rate of 28%.

"1997 ACT LONG-TERM CAPITAL GAINS": Securities sold by the Fund between May 7,
1997 and July 28, 1997 that were held for more than 12 months, and securities
sold by the Fund after July 28, 1997 that were held for more than 18 months.
These gains will be taxable to individual investors at a maximum rate of 20% for
investors in the 28% or higher federal income tax brackets, and at a maximum
rate of 10% for investors in the 15% federal income tax bracket.

"QUALIFIED 5-YEAR GAINS": For individuals in the 15% bracket, qualified 5-year
gains are net gains on securities held for more than 5 years which are sold
after December 31, 2000. For individuals who are subject to tax at higher rate
brackets, qualified 5-year gains are net gains on securities which are purchased
after December 31, 2000 and are held for more than 5 years. Taxpayers subject to
tax at the higher rate brackets may also make an election for shares held on
January 1, 2001 to recognize gain on their shares in order to qualify such
shares as qualified 5-year property. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher federal
income tax brackets, and at a maximum rate of 8% for investors in the 15%
federal income tax bracket.

TAXES

As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable as ordinary dividends to the extent of the Fund's
available earnings and profits.

In order to qualify as a regulated investment company for federal income tax
purposes, the Fund must meet certain specific requirements, including:

(i) The Fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. Government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets, and,
with respect to 50% of the Fund's total assets, no investment (other than cash
and cash items, U.S. Government securities, and securities of other regulated
investment companies) can exceed 5% of the Fund's total assets;

(ii) The Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
disposition of stock and securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities, or
currencies;

(iii) The Fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal years; and

(iv) The Fund must realize less than 30% of its gross income for each fiscal
year from gains from the sale of securities and certain other assets that have
been held by the Fund for less than three months ("short-short income"). The
Taxpayer Relief Act of 1997 repealed the 30% short-short income test for tax
years of regulated investment companies beginning after August 5, 1997; however,
this rule may have continuing effect in some states for purposes of classifying
the Fund as a regulated investment company.

Subject to the limitations discussed below, all or a portion of the income
distributions paid by the Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction under
federal income tax law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations, the stock in which
is not debt-financed by the Fund and is held for at least a minimum holding
period) is less than 100% of its distributable income, then the amount of the
Fund's dividends paid to corporate shareholders which may be designated as
eligible for such deduction will not exceed the aggregate qualifying dividends
received by the Fund for the taxable year. The amount or percentage of income
qualifying for the corporate dividends-received deduction will be declared by
the Fund annually in its fiscal year end Annual Report to Shareholders.

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

Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. Under the 1997
Act, the amount that the Fund may designate as eligible for the
dividends-received deduction will be reduced or eliminated if the shares on
which the dividends earned by the Fund were debt-financed or held by the Fund
for less than a 46-day period during a 90-day period beginning 45 days before
the ex-dividend date and ending 45 days after the ex-dividend date. Similarly,
if your Fund shares are debt-financed or held by you for less than a 46-day
period during a 90-day period beginning 45 days before the ex-dividend date and
ending 45 days after the ex-dividend date, then the dividends-received deduction
for Fund dividends on your shares may also be reduced or eliminated. Even if
designated as dividends eligible for the dividends-received deduction, all
dividends (including any deducted portion) must be included in your alternative
minimum taxable income calculation.

The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the 12 month period ending October 31 of each year (in
addition to amounts from the prior year that were neither distributed nor taxed
to the Fund) to you by December 31 of each year in order to avoid the imposition
of a federal excise tax. Under these rules, certain distributions that are
declared in October, November or December but which, for operational reasons,
may not be paid to you until the following January, will be treated for tax
purposes as if paid by the Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund intends as a matter of policy
to declare such dividends, if any, in December and to pay these dividends in
December or January to avoid the imposition of this tax, but does not guarantee
that its distributions will be sufficient to avoid any or all federal excise
taxes.

Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. Gain or loss will be recognized in an amount
equal to the difference between the basis in your shares and the amount
received, subject to the rules described below. If such shares are a capital
asset in your hands, gain or loss will be capital gain or loss and will be
long-term for federal income tax purposes if the shares have been held for more
than one year.

All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.

All or a portion of the sales charge incurred in buying shares of the Fund will
not be included in the federal tax basis of such shares sold or exchanged within
ninety (90) days of their purchase (for purposes of determining gain or loss
with respect to such shares) if the sales proceeds are reinvested in the Fund or
in another fund in the Franklin Templeton Funds and a sales charge which would
otherwise apply to the reinvestment is reduced or eliminated. Any portion of
such sales charge excluded from the tax basis of the shares sold will be added
to the tax basis of the shares acquired in the reinvestment.

The Fund's investment in options and forward contracts are subject to many
complex and special tax rules. For example, OTC options on debt securities and
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing a
long-term or short-term capital gain or loss upon exercise, lapse, or closing
out of the option or sale of the underlying stock or security. By contrast, the
Fund's treatment of certain other options, futures, and forward contracts
entered into by the Fund is generally governed by Section 1256 of the Code.
These "Section 1256" positions generally include listed options on debt
securities, options on broad-based stock indexes, options on securities indexes,
options on futures contracts, regulated futures contracts, and certain foreign
currency contracts and options thereon.

Absent a tax election to the contrary, each Section 1256 position held by the
Fund will be marked-to-market (i.e., treated as if it were sold for fair market
value) on the last business day of the Fund's fiscal year, and all gain or loss
associated with fiscal year transactions and mark-to-market positions at fiscal
year end (except certain foreign currency gain or loss covered by Section 988 of
the Code) will generally be treated as 60% long-term and 40% short-term. While
it is unclear at this time, the Fund expects that some or all of the 60%
long-term capital gain portion will qualify as "1997 Act long-term capital gain"
(gain from securities held for more than 18 months) and will be subject to tax
to individual investors at a maximum rate of 20% for investors in the 28% or
higher federal income tax brackets, or at a maximum rate of 10% for investors in
the 15% federal income tax bracket. The effect of Section 1256 mark-to-market
rules may be to accelerate income or to convert what otherwise would have been
long-term capital gains into short-term capital gains or short-term capital
losses into long-term capital losses within the Fund. The acceleration of income
on Section 1256 positions may require the Fund to accrue taxable income without
the corresponding receipt of cash. In order to generate cash to satisfy the
distribution requirements of the Code, the Fund may be required to dispose of
portfolio securities that it otherwise would have continued to hold or to use
cash flows from other sources such as the sale of Fund shares. In these ways,
any or all of these rules may affect the amount, character, and timing of income
distributed to shareholders by the Fund.

When the Fund holds an option or contract that substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities, and conversion of
short-term capital losses into long-term capital losses. Certain tax elections
exist for mixed straddles (i.e., straddles comprised of at least one Section
1256 position and at least one non-Section 1256 position) which may reduce or
eliminate the operation of these straddle rules.

As a regulated investment company, the Fund is subject to the requirement that
less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income"). This requirement may limit the Fund's ability to
engage in options because these transactions are often consummated in less than
three months, may require the sale of portfolio securities held less than three
months and may reduce the holding periods of certain securities within the Fund,
resulting in additional short-short income for the Fund.

The Fund will monitor its transactions in options and futures contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.

The 1997 Act has also added new provisions for dealing with transactions that
are generally called "Constructive Sale Transactions." Under these rules, the
Fund must recognize gain (but not loss) on any constructive sale of an
appreciated financial position in stock, a partnership interest, or certain debt
instruments. The Fund will generally be treated as making a constructive sale
when it: 1) enters into a short sale on the same property, 2) enters into an
offsetting notional principal contract, or 3) enters into a futures or forward
contract to deliver the same or substantially similar property. Other
transactions (including certain financial instruments called collars) will be
treated as constructive sales as provided in Treasury regulations to be
published. There are also certain exceptions that apply for transactions that
are closed before the end of the 30th day after the close of the taxable year.

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

In order for the Fund to qualify as a regulated investment company, at least 90%
of the Fund's annual gross income must consist of dividends, interest, and other
types of qualifying income. Foreign exchange gains derived by the Fund with
respect to the Fund's business of investing in securities or options or futures
with respect to such securities is qualifying income for purposes of this 90%
limitation.

If the Fund owns shares in a foreign corporation that constitutes a passive
foreign investment company ("PFIC") for federal income tax purposes and the Fund
does not elect to treat the foreign corporation as a qualified electing fund
within the meaning of the Code, the Fund may be subject to U.S. federal income
taxation on a portion of any excess distribution it receives from the PFIC or
any gain it derives from the disposition of such shares, even if such income is
distributed as a taxable dividend by the Fund to its U.S. shareholders. The Fund
may also be subject to additional interest charges in respect of deferred taxes
arising from such distributions or gains. Any tax paid by the Fund as a result
of its ownership of shares in a PFIC will not give rise to a deduction or credit
to the Fund or to any shareholder. A PFIC means any foreign corporation if, for
the taxable year involved, either (i) it derives at least 75 percent of its
gross income from passive income (including, but not limited to, interest,
dividends, royalties, rents and annuities), or (ii) on average, at least 50
percent of the value (or adjusted basis, if elected) of the assets held by the
corporation produce passive income.

On April 1, 1992, proposed U.S. Treasury regulations were issued regarding a
special mark-to-market election for regulated investment companies. Under these
regulations, the annual mark-to-market gain, if any, on shares held by the Fund
in a PFIC would be treated as an excess distribution received by the Fund in the
current year, eliminating the deferral and the related interest charge. These
excess distribution amounts are treated as ordinary income, which the Fund will
be required to distribute to you even though the Fund has not received any cash
to satisfy this distribution requirement. These regulations would be effective
for taxable years ending after the promulgation of the proposed regulations as
final regulations.

In addition, for taxable years beginning after December 31, 1997, the Fund may
elect to mark to market the Fund's PFIC shares at the end of each taxable year
(and on certain other dates as prescribed in the Code), with the result that
unrealized gains would be treated as though they were realized. Any gain from
this mark-to-market election is reported as ordinary income and losses are
allowable to the extent of previously recognized gains. If this election were
made, tax at the Fund level under the PFIC rules would generally be eliminated.
The Fund's intention to qualify annually as a regulated investment company may
limit its election with respect to PFIC shares.

THE FUND'S UNDERWRITER
- --------------------------------------------------------------------------

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

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

In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscal years ended July 31, 1995, 1996 and 1997, were
$1,831,694, $1,764,475 and $1,365,973, respectively. After allowances to
dealers, Distributors retained $200,964, $183,271 and $137,857 in net
underwriting discounts and commissions for the respective years. For the period
February 1, 1995 through July 31, 1995, and for the fiscal years ended July 31,
1996 and 1997, Distributors received $19, $9,175, and $24,272, respectively, in
connection with redemptions or repurchases of shares. Distributors may be
entitled to reimbursement under the Rule 12b-1 plan for each class, as discussed
below. Except as noted, Distributors received no other compensation from the
Fund for acting as underwriter.

THE RULE 12B-1 PLANS

Class I and Class II have separate distribution plans or "Rule 12b-1 plans" that
were adopted pursuant to Rule 12b-1 of the 1940 Act.

THE CLASS I PLAN. Under the Class I plan, the Fund may pay up to a maximum of
0.25% per year of Class I's average daily net assets, payable quarterly, for
expenses incurred in the promotion and distribution of Class I shares.

In implementing the Class I plan, the Board has determined that the annual fees
payable under the plan will be equal to the sum of: (i) the amount obtained by
multiplying 0.25% by the average daily net assets represented by Class I shares
of the Fund that were acquired by investors on or after May 1, 1994, the
effective date of the plan ("New Assets"), and (ii) the amount obtained by
multiplying 0.15% by the average daily net assets represented by Class I shares
of the Fund that were acquired before May 1, 1994 ("Old Assets"). These fees
will be paid to the current Securities Dealer of record on the account. In
addition, until such time as the maximum payment of 0.25% is reached on a yearly
basis, up to an additional 0.05% will be paid to Distributors under the plan.
The payments made to Distributors will be used by Distributors to defray other
marketing expenses that have been incurred in accordance with the plan, such as
advertising.

THE FEE IS A CLASS I EXPENSE. This means that all Class I shareholders,
regardless of when they purchased their shares, will bear Rule 12b-1 expenses at
the same rate. The initial rate will be at least 0.20% (0.15% plus 0.05%) of the
average daily net assets of Class I and, as Class I shares are sold on or after
May 1, 1994, will increase over time. Thus, as the proportion of Class I shares
purchased on or after May 1, 1994, increases in relation to outstanding Class I
shares, the expenses attributable to payments under the plan will also increase
(but will not exceed 0.25% of average daily net assets). While this is the
currently anticipated calculation for fees payable under the Class I plan, the
plan permits the Board to allow the Fund to pay a full 0.25% on all assets at
any time. The approval of the Board would be required to change the calculation
of the payments to be made under the Class I plan.

The Class I plan does not permit unreimbursed expenses incurred in a particular
year to be carried over to or reimbursed in later years.

THE CLASS II PLAN. Under the Class II plan, the Fund pays Distributors up to
0.75% per year of Class II's average daily net assets, payable quarterly, for
distribution and related expenses. These fees may be used to compensate
Distributors or others for providing distribution and related services and
bearing certain Class II expenses. All distribution expenses over this amount
will be borne by those who have incurred them without reimbursement by the Fund.

Under the Class II plan, the Fund also pays an additional 0.25% per year of
Class II's average daily net assets, payable quarterly, as a servicing fee.

THE CLASS I AND CLASS II PLANS. In addition to the payments that Distributors or
others are entitled to under each plan, each plan also provides that to the
extent the Fund, Advisers or Distributors or other parties on behalf of the
Fund, Advisers or Distributors make payments that are deemed to be for the
financing of any activity primarily intended to result in the sale of shares of
each class within the context of Rule 12b-1 under the 1940 Act, then such
payments shall be deemed to have been made pursuant to the plan. The terms and
provisions of each plan relating to required reports, term, and approval are
consistent with Rule 12b-1.

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

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

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

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

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

For the fiscal year ended July 31, 1997, the total amounts paid by the Fund
pursuant to the Class I plan was $716,169, which was used for the following
purposes:

CLASS I
- ----------------------------------------------------------
ADVERTISING $ 22,006

Printing and mailing
of prospectuses other than
to current shareholders $ 64,311
Payments to underwriters $ 24,382
Payments to broker-dealers $605,470

For the fiscal year ended July 31, 1997, Distributors had eligible expenditures
of $278,360 for advertising, printing, and payments to underwriters and
broker-dealers pursuant to the Class II plan, of which the Fund paid
Distributors $173,968 under the Class II plan.

HOW DOES THE FUND
MEASURE PERFORMANCE?

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

TOTAL RETURN

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

When considering the average annual total return quotations, you should keep in
mind that the maximum front-end sales charge reflected in each quotation is a
one time fee charged on all direct purchases, which will have its greatest
impact during the early stages of your investment. This charge will affect
actual performance less the longer you retain your investment in the Fund. The
average annual total return for Class I for the one-, five- and ten-year periods
ended July 31, 1997, was -20.21%, 2.28%, and -0.75%, respectively. The average
annual total return for Class II for the one-year period ended July 31, 1997,
and for the period from inception (May 1, 1995) to July 31, 1997, was -18.74%
and -7.49%, respectively.

These figures were calculated according to the SEC formula:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period

CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes the maximum front-end sales charge is deducted from the initial
$1,000 purchase, and income dividends and capital gain distributions are
reinvested at Net Asset Value. Cumulative total return, however, is based on the
actual return for a specified period rather than on the average return over the
periods indicated above. The cumulative total return for Class I for the one-,
five- and ten-year periods ended July 31, 1997, was -20.21%, 11.92%, and -7.22%,
respectively. The cumulative total return for Class II for the one-year period
ended July 31, 1997, and for the period from inception (May 1, 1995) to July 31,
1997, was -18.74% and -16.08%, respectively.

VOLATILITY

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

OTHER PERFORMANCE QUOTATIONS

The Fund may also quote the performance of shares without a sales charge. Sales
literature and advertising may quote a current distribution rate, yield,
cumulative total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of Net
Asset Value for the public Offering Price.

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

COMPARISONS

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

a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones(R) Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment of
dividends.

b) Standard & Poor's(R) 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.

c) The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed on
the NYSE.

d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.

e) Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund
Performance Analysis - measure total return for the mutual fund industry and
rank individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.

f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.

g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds.

h) Financial publications: THE WALL STREET JOURNAL, AND BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, AND MONEY magazines - provide
performance statistics over specified time periods.

i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.

j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.

k) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.

l) Historical data supplied by the research departments of CS First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg L.P.

m) Standard & Poor's(R) 100 Stock Index - an unmanaged index based on the prices
of 100 blue-chip stocks, including 92 industrials, one utility, two
transportation companies, and 5 financial institutions. The S&P 100 Stock Index
is a smaller, more flexible index for options trading.

n) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk-adjusted performance of a fund over specified
time periods relative to other funds within its category.

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

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

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

MISCELLANEOUS INFORMATION
- ------------------------------------------------------------------------------

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

The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 49 years and
now services more than 2.8 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $223 billion in assets under
management for more than 5.7 million U.S. based mutual fund shareholder and
other accounts. The Franklin Templeton Group of Funds offers 121 U.S. based
open-end investment companies to the public. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the NYSE.
While many of them have similar investment objectives, no two are exactly alike.
As noted in the Prospectus, shares of the Fund are generally sold through
Securities Dealers. Investment representatives of such Securities Dealers are
experienced professionals who can offer advice on the type of investment
suitable to your unique goals and needs, as well as the types of risks
associated with such investment.

As of November 3, 1997, the principal shareholders of the Fund, beneficial or of
record, were as follows:

SHARE PER-
NAME AND ADDRESS AMOUNT CENTAGE
- -------------------------------------------------------
ADVISOR CLASS

C/O The Trust Company of
Louisiana
P.O. Box 1410
Ruston, LA
71273-1410 172,526.29 23%

FTTC TTE for ValuSelect
Franklin Resources
PSPAttn. Trading
P.O. Box 2438
Rancho Cordova, CA
95741-2438 159,040.560 21%

From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.

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

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

FINANCIAL STATEMENTS
- --------------------------------------------------------------------------

The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended July 31, 1997, including the auditors'
report, are incorporated herein by reference.

USEFUL TERMS AND DEFINITIONS
- -------------------------------------------------------------------------
1940 ACT - Investment Company Act of 1940, as amended

ADVISERS - Franklin Advisers, Inc., the Fund's investment manager

BOARD - The Board of Directors of the Fund

CD - Certificate of deposit

CODE - Internal Revenue Code of 1986, as amended

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

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

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

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

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

IRS - Internal Revenue Service

LETTER - Letter of Intent

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

NASD - National Association of Securities Dealers, Inc.

NYSE - New York Stock Exchange

PROSPECTUS - The prospectus for the Fund's Class I and Class II shares dated
December 1, 1997, as may be amended from time to time

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

U.S. - United States

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

APPENDIX

DESCRIPTION OF RATINGS
- ----------------------------------------------------------------------------
CORPORATE BOND RATINGS

MOODY'S

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

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

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

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

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

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

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

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

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

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

S&P

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

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

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

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

BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

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

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

COMMERCIAL PAPER RATINGS

MOODY'S

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

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

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

S&P

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

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

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

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

FRANKLIN
GOLD FUND-
ADVISOR CLASS
STATEMENT OF
ADDITIONAL INFORMATION
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
DECEMBER 1, 1997

TABLE OF CONTENTS

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

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

The Franklin Gold Fund (the "Fund") is a diversified, open-end management
investment company. The Fund's principal investment objective is capital
appreciation. The Fund seeks to achieve its objective by investing in securities
with the potential to increase in value, so that its own shares will in turn
increase in value. The Fund's secondary objective is to provide current income
through the receipt of dividends or interest from its investments. Thus, the
payment of dividends may be a consideration when the Fund buys securities.
Because the Fund concentrates its investments in securities of companies engaged
in mining, processing or dealing in gold or other precious metals, the Fund
invests a substantial portion of its assets in the securities of foreign
issuers.

This SAI describes the Fund's Advisor Class shares. The Prospectus, dated
December 1, 1997, as may be amended from time to time, contains the basic
information you should know before investing in the Fund. For a free copy, call
1-800/DIAL BEN.

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

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

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

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

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

FOREIGN SECURITIES. Because the Fund concentrates its investments in gold and
precious metal-related issuers, the Fund invests a substantial portion of its
assets in foreign securities. Foreign securities are securities issued by
companies domiciled and operating outside the U.S. or securities issued by
foreign governments. Although the Fund is not obligated to do so, the Fund
presently expects that under normal conditions, more than 50% of the value of
its assets may be invested in foreign securities. At any particular time, a
substantial portion of the Fund's assets may be invested in companies domiciled
or operating in one or a very few foreign countries. The Fund may, however,
invest some or all of its assets in U.S. securities when Advisers concludes that
investments in U.S. companies are more likely to accomplish the Fund's
objectives. On July 31, 1997, approximately 69.2% of the Fund's assets were
invested in securities of foreign issuers in the following countries: 30.5% in
Canada; 21.0% in South Africa; 10.1% in Australia; and 7.6% in other foreign
countries.

GOLD BULLION. As a means of seeking its principal objective of capital
appreciation, and when the Fund considers it to be appropriate as a possible
hedge against inflation, the Fund may invest a portion of its assets in gold
bullion and may hold a portion of its cash in foreign currency in the form of
gold coins. There is, of course, no assurance that these investments will
provide capital appreciation or a hedge against inflation. The Fund's ability to
invest in gold bullion is restricted by the diversification requirements that
the Fund must meet in order to qualify as a regulated investment company under
the Code, as well as the diversification requirements of the 1940 Act.

TRANSACTIONS IN OPTIONS, FUTURES,
AND OPTIONS ON FUTURES

The Fund may buy or write (sell) put and call options that trade on securities
exchanges or in the over-the-counter market. The Fund may also buy or write put
or call options on currencies. An option allows its holder to buy a specified
security or currency (a call option) or to sell a specified security or currency
(a put option) from or to the writer of the option at a set price during the
term of the option. All options written by the Fund will be covered. The Fund
does not currently intend to write put options, although the Fund reserves the
right to do so.

WRITING PUT OPTIONS. The operation of put options, including their related
risks and rewards, is substantially identical to that of call options.

BUYING PUT OPTIONS. The Fund may buy put options. The Fund may enter into
closing sale transactions with respect to these options, exercise them, or allow
them to expire.

STOCK INDEX FUTURES AND OPTIONS
ON STOCK INDEX FUTURES

The Fund may buy and sell stock index futures contracts and options on stock
index futures contracts.

TIMING OF THE FUND'S SECURITIES TRANSACTIONS

Normally, the Fund will buy securities for investment with a view to long-term
appreciation. The Fund may on occasion, however, buy securities with the
expectation of realizing gains over the short-term. Because the investment
outlook of the types of securities that the Fund may buy may change as a result
of unexpected developments in national or international securities markets, or
in economic, monetary, or political relationships, the Fund will not treat its
portfolio turnover as a limiting factor. The Fund may make changes in particular
portfolio holdings whenever the Fund considers that a security no longer has
optimum growth potential or has reached its anticipated level of performance, or
that another security appears to have a relatively greater potential for capital
appreciation and will make such changes without regard to the length of time the
Fund has held a security. The Fund may consider the differences between the tax
treatment of long-term gains and short-term gains, however, in determining the
timing of portfolio transactions.

WHAT ARE THE FUND'S POTENTIAL RISKS?

Like all investments, there are risks associated with an investment in the Fund
and its policies of investing in securities of companies engaged in mining,
processing, or dealing in gold or other precious metals and in gold bullion.
These investments may involve the following special considerations:

1 FLUCTUATIONS IN THE PRICE OF GOLD. The price of gold has recently been subject
to substantial upward and downward movements over short periods of time and may
be affected by unpredictable international monetary and political policies, such
as currency devaluations or reevaluations, economic conditions within an
individual country, trade imbalances or trade or currency restrictions between
countries, and world inflation rates and interest rates. The price of gold, in
turn, is likely to affect the market prices of securities of companies mining,
processing, or dealing in gold and, accordingly, the value of the Fund's
investments in these securities.

3. TAX AND CURRENCY LAWS. Changes in the tax or currency laws of the U.S. and
foreign countries may inhibit the Fund's ability to pursue or may increase the
cost of pursuing, its investment policies.

OPTIONS, FUTURES, AND OPTIONS ON FUTURES

The Fund relies on Adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, Advisers takes into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.

INVESTMENT RESTRICTIONS
- ----------------------------------------

1. Purchase the stock or securities of any issuer other than those of the U.S.
or its instrumentalities, if at the time of the investment the effect thereof
shall be to cause more than 5% of the value of its assets to be invested at
such time in the securities of such issuer;

2. As to 75% of its total assets, purchase stock or securities of an issuer,
other than the U.S. or its instrumentalities, if the effect thereof shall be to
cause more than 10% of the voting securities of such issuer to be held by the
Fund;

3. Borrow money in an amount in excess of 5% of the value of its total assets,
then only from banks for temporary or emergency purposes, and not for direct
and investment in securities;

4. Lend its assets, except through the purchase or acquisition of bonds,
debentures, or other debt securities of a type customarily purchased by
institutional investors, or through loans of its portfolio securities, or to
the extent the entry into a repurchase agreement may be deemed a loan;

5. Underwrite the securities of other issuers or invest more than 10% of its
assets in illiquid securities, including certain securities with legal or
contractual restrictions on resale;

6. Invest in securities for the purpose of exercising management or control of
the issuer;

7. Maintain a margin account with a securities dealer or effect short sales;

8. Invest in commodities or commodity contracts, except that it may invest in
gold bullion and foreign currency in the form of gold coins;

9. Invest directly in real estate (although it may invest in real estate
investment trusts) or in the securities of other open-end investment companies,
except that securities of another open-end investment company may be acquired
pursuant to a plan of reorganization, merger, consolidation, or acquisition, and
except to the extent the Fund invests its uninvested daily cash balances in
shares of Franklin Money Fund and other money market funds in the Franklin Group
of Funds, provided (i) its purchases and redemptions of such money market fund
shares may not be subject to any purchase or redemption fees, (ii) its
investments may not be subject to duplication of management fees, nor to any
charge related to the expenses of distributing the fund's shares (as determined
under Rule 12b-1, as amended under the federal securities laws), and (iii)
provided aggregate investments by the Fund in any such money market fund do not
exceed (A) the greater of (i) 5% of the Fund's total net assets or (ii) $2.5
million, or (B) more than 3% of the outstanding shares of any such money market
fund;

10. Invest in assessable securities or securities involving unlimited
liability on the part of the Fund; or

11. Purchase or retain in its portfolio any security if any officer, director,
or security holder of the issuer is at the same time an officer, director, or
employee of the Fund or of Advisers and this person owns beneficially more than
1/2 of 1% of the securities and if all persons owning more than 1/2 of 1% own
more than 5% of the outstanding securities of the issuer.

OFFICERS AND DIRECTORS
- ------------------------------------------------------------------------------

POSITIONS AND OFFICES PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS WITH THE FUND THE PAST FIVE YEARS
- -----------------------------------------------------------------------------
Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111

Director

President and Director, Abbott Corporation (an investment company); and director
or trustee, as the case may be, of 29 of the investment companies in the
Franklin Templeton Group of Funds.

Harris J. Ashton (65)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045

Director

*Harmon E. Burns (52)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Director

S. Joseph Fortunato (65)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945

Director

*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404

Chairman of the Board and Director

*Rupert H. Johnson, Jr. (57)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Director

Frank W.T. LaHaye (68)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014

Director

*R. Martin Wiskemann (70)
777 Mariners Island Blvd.
San Mateo, CA 94404

President and Director

Martin L. Flanagan (37)
777 Mariners Island Blvd
San Mateo, CA 94404

Vice President and Chief Financial Officer

Deborah R. Gatzek (48)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Secretary

Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404

Treasurer and Principal Accounting Officer

Senior Vice President, Franklin Templeton Services, Inc.; and officer of 35 of
the investment companies in the Franklin Templeton Group of Funds.

Edward V. McVey (60)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 30 of the investment companies in the
Franklin Templeton Group of Funds.

NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP
RECEIVED FROM FRANKLIN TEMPLETON OF FUNDS ON WHICH
NAME THE FUND* GROUP OF FUNDS** EACH SERVES***
- -----------------------------------------------------------------------------
Frank H. Abbott, III $3,450 $165,236 29
Harris J. Ashton 3,450 343,591 53
S. Joseph Fortunato 3,450 360,411 55
David Garbellano**** 3,150 148,916 28
Frank W.T. LaHaye 3,300 139,233 27

Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or trustee.
No officer or Board member received any other compensation, including pension or
retirement benefits, directly or indirectly from the Fund or other funds in the
Franklin Templeton Group of Funds. Certain officers or Board members who are
shareholders of Resources may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries. As
of November 3, 1997, the officers and Board members, as a group, owned of record
and beneficially the following shares of the Fund: approximately 10,823 Class I
shares and 5,298 Advisor Class shares, or less than 1% of the total outstanding
Class I and Advisor Class shares of the Fund. Many of the Board members also own
shares in other funds in the Franklin Templeton Group of Funds. Charles B.
Johnson and Rupert H. Johnson, Jr. are brothers.

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

MANAGEMENT FEES. Under its management agreement, the Fund pays Advisers a
management fee equal to a monthly rate of 5/96 of 1% of the value of net assets
up to and including $100 million; 1/24 of 1% of the value of net assets over
$100 million and not over $250 million; and 9/240 of 1% of the value of net
assets in excess of $250 million. The fee is computed at the close of business
on the last business day of each month. Each class of the Fund's shares pays its
proportionate share of the management fee.

For the fiscal years ended July 31, 1995, 1996 and 1997, management fees
totaling $2,063,979, $2,024,845 and $1,822,259, respectively, were paid to
Advisers.

Auditors. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended July
31, 1997, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Fund's Annual Report to
Shareholders for the fiscal year ended July 31, 1997.

HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
- -------------------------------------------------------------

Advisers selects brokers and dealers to execute the Fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the Board may give.

During the fiscal years ended July 31, 1995, 1996 and 1997, the Fund paid
brokerage commissions totaling $163,994, $552,944 and $279,557, respectively.

As of July 31, 1997, the Fund did not own securities of its regular
broker-dealers.

HOW DO I BUY, SELL AND EXCHANGE SHARES?

ADDITIONAL INFORMATION ON BUYING SHARES

The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.

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

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

ADDITIONAL INFORMATION ON EXCHANGING SHARES

ADDITIONAL INFORMATION ON SELLING SHARES

SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the 25th day of the month in which a payment is scheduled. If the 25th falls
on a weekend or holiday, we will process the redemption on the prior business
day.

GENERAL INFORMATION

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

HOW ARE FUND SHARES VALUED?
- ----------------------------------------------------------------

The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the scheduled close of trading
on the NYSE, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York time,
on the day the value of the foreign security is determined. If no sale is
reported at that time, the foreign security is valued within the range of the
most recent quoted bid and ask prices. Occasionally events that affect the
values of foreign securities and foreign exchange rates may occur between the
times at which they are determined and the close of the exchange and will,
therefore, not be reflected in the computation of the Net Asset Value. If events
materially affecting the values of these foreign securities occur during this
period, the securities will be valued in accordance with procedures established
by the Board.

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

ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------
DISTRIBUTIONS

You may receive two types of distributions from the Fund:

"PRE-ACT LONG-TERM CAPITAL GAINS": Securities sold by the Fund before May 7,
1997 that were held for more than 12 months. These gains will be taxable to
individual investors at a maximum rate of 28%.

TAXES

In order to qualify as a regulated investment company for federal income tax
purposes, the Fund must meet certain specific requirements, including:

(i) The Fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets, and,
with respect to 50% of the Fund's total assets, no investment (other than cash
and cash items, U.S. government securities, and securities of other regulated
investment companies) can exceed 5% of the Fund's total assets;

(iii) The Fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal years; and

Subject to the limitations discussed below, a portion of the income
distributions paid by the Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction under
federal income tax law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations, the stock in which
is not debt-financed by the Fund and is held for at least a minimum holding
period) is less than 100% of its distributable income, then the amount of the
Fund's dividends paid to corporate shareholders which may be designated as
eligible for such deduction will not exceed the aggregate qualifying dividends
received by the Fund for the taxable year. The amount or percentage of income
qualifying for the corporate dividends-received deduction will be provided by
the Fund annually in the Fund's Annual Report to Shareholders.

The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the 12 month period ending October 31 of each year (in
addition to amounts from the prior year that were neither distributed nor taxed
to the Fund) to shareholders by December 31 of each year in order to avoid the
imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to you until the following January, will be treated for
tax purposes as if paid by the Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund intends as a matter of policy
to declare such dividends, if any, in December and to pay these dividends in
December or January to avoid the imposition of this tax, but does not guarantee
that its distributions will be sufficient to avoid any or all federal excise
taxes.

Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. Gain or loss will be recognized in an amount
equal to the difference between your basis in the shares and the amount you
received, subject to the rules described below. If such shares are a capital
asset in your hands, gain or loss will be capital gain or loss and will be
long-term for federal income tax purposes if your shares have been held for more
than one year.

All or a portion of the sales charge incurred in buying shares of the Fund will
not be included in the federal tax basis of shares sold or exchanged within
ninety (90) days of their purchase (for purposes of determining gain or loss
with respect to such shares) if you reinvest the sales proceeds in the Fund or
in another fund in the Franklin Templeton Funds, and a sales charge which would
otherwise apply to the reinvestment is reduced or eliminated. Any portion of the
sales charge excluded from the tax basis of the shares sold will be added to the
tax basis of the shares acquired in the reinvestment.

The Fund's investment in options and forward contracts are subject to many
complex and special tax rules. For example, OTC options on debt securities and
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing a
long-term or short-term capital gain or loss upon exercise, lapse, or closing
out of the option or sale of the underlying stock or security. By contrast, the
Fund's treatment of certain other options, futures and forward contracts entered
into by the Fund is generally governed by Section 1256 of the Code. These
"Section 1256" positions generally include listed options on debt securities,
options on broad-based stock indexes, options on securities indexes, options on
futures contracts, regulated futures contracts, and certain foreign currency
contracts and options thereon.

Absent a tax election to the contrary, each Section 1256 position held by the
Fund will be marked-to-market (i.e., treated as if it were sold for fair market
value) on the last business day of the Fund's fiscal year, and all gain or loss
associated with fiscal year transactions and mark-to-market positions at fiscal
year end (except certain foreign currency gain or loss covered by Section 988 of
the Code) will generally be treated as 60% long-term and 40% short-term. While
it is unclear at this time, the Fund expects that some or all of the 60%
long-term capital gain portion will qualify as "1997 Act long-term capital gain"
(gain from securities held for more than 18 months) and will be subject to tax
to individual investors at a maximum rate of 20% for investors in the 28% or
higher federal income tax brackets, or at a maximum rate of 10% for investors in
the 15% federal income tax bracket. The effect of Section 1256 mark-to-market
rules may be to accelerate income or to convert what otherwise would have been
long-term capital gains into short-term capital gains or short-term capital
losses into long-term capital losses within the Fund. The acceleration of income
on Section 1256 positions may require the Fund to accrue taxable income without
the corresponding receipt of cash. In order to generate cash to satisfy the
distribution requirements of the Code, the Fund may be required to dispose of
portfolio securities that it otherwise would have continued to hold or to use
cash flows from other sources such as the sale of Fund shares. In these ways,
any or all of these rules may affect both the amount, character and timing of
income distributed to shareholders by the Fund.

When the Fund holds an option or contract that substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities and conversion of
short-term capital losses into long-term capital losses. Certain tax elections
exist for mixed straddles (i.e., straddles comprised of at least one Section
1256 position and at least one non-Section 1256 position) which may reduce or
eliminate the operation of these straddle rules.

Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currencies, foreign currency payables or
receivables, foreign currency-denominated debt securities, foreign currency
forward contracts, and options or futures contracts on foreign currencies are
generally subject to Section 988 of the Code which may cause the gains and
losses to be treated as ordinary income and losses rather than capital gains and
losses and may affect the amount and timing of the Fund's income or loss from
such transactions and in turn its distributions to you.

If the Fund owns shares in a foreign corporation that is a "passive foreign
investment company" ("PFIC") for federal income tax purposes and the Fund does
not elect to treat the foreign corporation as a "qualified electing fund" within
the meaning of the Code, the Fund may be subject to U.S. federal income taxation
on a portion of any "excess distribution" it receives from the PFIC or any gain
it derives from the disposition of such shares, even if such income is
distributed as a taxable dividend by the Fund to its U.S. shareholders. The Fund
may also be subject to additional interest charges in respect of deferred taxes
arising from such distributions or gains. Any federal income tax paid by the
Fund as a result of its ownership of shares in a PFIC will not give rise to a
deduction or credit to the Fund or to any shareholder. A PFIC means any foreign
corporation if, for the taxable year involved, either (i) it derives at least 75
percent of its gross income from "passive income" (including, but not limited
to, interest, dividends, royalties, rents and annuities), or (ii) on average, at
least 50 percent of the value (or adjusted basis, if elected) of the assets held
by the corporation produce "passive income."

On April 1, 1992, proposed U.S. Treasury regulations were issued regarding a
special mark-to-market election for regulated investment companies. Under these
regulations, the annual mark-to-market gain, if any, on shares of stock held by
the Fund in a PFIC would be treated as an excess distribution received by the
Fund in the current year, eliminating the deferral and the related interest
charge. These excess distribution amounts are treated as ordinary income, which
the Fund will be required to distribute to you even though the Fund has not
received any cash to satisfy this distribution requirement. These regulations
would be effective for taxable years ending after promulgation of the proposed
regulations as final regulations.

In addition, for taxable years beginning after December 31, 1997, the Fund may
elect to mark-to-market the Fund's PFIC shares at the end of each taxable year
(and on certain other dates as prescribed in the Code), with the result that
unrealized gains would be treated as though they were realized. Any gain from
this mark-to-market election is reported as ordinary income and losses are
allowable to the extent of previously recognized gains. If this election were
made, tax at the Fund level under the PFIC rules would generally be eliminated.
The Fund's intention to qualify annually as a regulated investment company may
limit its election with respect to PFIC shares.

THE FUND'S UNDERWRITER
- --------------------------------------------------------------------

Distributors does not receive compensation from the Fund for acting as
underwriter of the Fund's Advisor Class shares.

HOW DOES THE FUND
MEASURE PERFORMANCE?
- ----------------------------------------------------------------

For periods before January 1, 1997, standardized performance quotations for
Advisor Class are calculated by substituting Class I performance for the
relevant time period, excluding the effect of Class I's maximum initial sales
charge, and including the effect of the Rule 12b-1 fees applicable to Class I
shares of the Fund. For periods after January 1, 1997, standardized performance
quotations for Advisor Class are calculated as described below.

An explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results, and is an indication of the return to shareholders
only for the limited historical period used.

TOTAL RETURN

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

The average annual total return for Advisor Class for the one-, five- and
ten-year periods ended July 31, 1997, was -19.53%, 4.25% and -0.29%,
respectively.

These figures were calculated according to the SEC formula:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period

CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
Net Asset Value. Cumulative total return, however, is based on the actual return
for a specified period rather than on the average return over the periods
indicated above. The cumulative total return for Advisor Class for the one-,
five- and ten-year periods ended July 31, 1997, was -19.53%, 23.11% and -2.85%,
respectively.

VOLATILITY

OTHER PERFORMANCE QUOTATIONS

Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies. The Fund may
include in its advertising or sales material information relating to investment
objectives and performance results of funds belonging to the Franklin Templeton
Group of Funds. Resources is the parent company of the advisors and underwriter
of the Franklin Templeton Group of Funds.

COMPARISONS

c) The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed on
the NYSE.

g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds.

k) Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.

l) Historical data supplied by the research departments of CS First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg L.P.

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

MISCELLANEOUS INFORMATION
- ----------------------------------------------------------------

As of November 3, 1997, the principal shareholders of the Fund, beneficial or of
record, were as follows:

SHARE PER-
NAME AND ADDRESS AMOUNT CENTAGE
- ------------------------------------------------------------------------
ADVISOR CLASS

RSBCO
C/O The Trust Company of Louisiana
P.O. Box 1410
Ruston, LA 71273-1410 172,526.295 23%

FTTC TTEE for ValuSelect
Franklin Resources PSP
Attn: Trading
P.O. Box 2438
Rancho Cordova, CA 95741-2438 159,040.560 21%

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

FINANCIAL STATEMENTS
- --------------------------------------------------------------------------

USEFUL TERMS AND DEFINITIONS
- ----------------------------------------------------------------------------

1940 ACT - Investment Company Act of 1940, as amended

ADVISERS - Franklin Advisers, Inc., the Fund's investment manager

Board - The Board of Directors of the Fund

CD - Certificate of deposit

CODE - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter

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

FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds FT SERVICES -
Franklin Templeton Services, Inc., the Fund's administrator

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

IRS - Internal Revenue Service

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

NASD - National Association of Securities Dealers, Inc.

NYSE - New York Stock Exchange

PROSPECTUS - The prospectus for Advisor Class shares of the Fund dated December
1, 1997, as may be amended from time to time

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

U.S. - United States

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

APPENDIX

DESCRIPTION OF RATINGS
- ---------------------------------------------------------------------------
CORPORATE BOND RATINGS

MOODY'S

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

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

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

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

S&P

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

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

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

COMMERCIAL PAPER RATINGS

MOODY'S

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

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

S&P

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

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

FRANKLIN GOLD FUND
File Nos. 2-30761
811-1700
PART C
OTHER INFORMATION

ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS

a) Audited Financial Statements incorporated herein by reference to
the Registrant's Annual Report to Shareholders dated July 31,
1997 as filed with the SEC electronically on form type N-30D on
October 10, 1997.

(i) Report of Independent Accountants.

(ii) Financial Highlights

(iii)Statement of Investments, July 31, 1997.

(iv) Statement of Assets and Liabilities - July 31, 1997.

(v) Statement of Operations for the year ended July 31, 1997.

(vi) Statements of Changes in Net Assets for the years ended
July 31, 1997 and 1996.

(vii) Notes to Financial Statements.

b) Exhibits:

The following exhibits are incorporated by reference, except for exhibits
8(iv), 11(i), 27(i), 27(ii) and 27(iii) which are attached.

(1) Copies of the charter as now in effect:

(i) Restated Articles of Incorporation dated March 19, 1973
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(ii) Certificate of Amendment to Articles of Incorporation dated
October 21, 1983
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(iii) Certificate of Amendment to Articles of Incorporation dated
March 21, 1995
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(2) Copies of the existing By-Laws or instruments corresponding thereto;

(i) By-Laws of Franklin Gold Fund dated January 29, 1973
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(ii) Amendment to the By-Laws of Franklin Gold Fund dated December
18, 1973
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(iii) Amendment to the By-Laws of Franklin Gold Fund dated September
5, 1974
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(iv) Amendment to the By-Laws of Franklin Gold Fund dated November
29, 1976
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(v) Amendment to the By-Laws of Franklin Gold Fund in form of
Certificate of Secretary dated November 17, 1987
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(vi) Amendment to the By-Laws of Franklin Gold Fund in form of
Certificate of Secretary dated March 16, 1993
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(vii) Amendment to the By-Laws of Franklin Gold Fund in form of
Certificate of Secretary dated February 28, 1994
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(3) Copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;

Not Applicable

(4) Specimens or copies of each security issued by the Registrant,
including copies of all constituent instruments, defining the rights
of the holders of such securities, and copies of each security being
registered;

Not Applicable

(5) Copies of all investment advisory contracts relating to the
management of the assets of the Registrant;

(i) Management Agreement between Registrant and Franklin Advisers,
Inc., dated December 1, 1986
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(6) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of
all agreements between principal underwriters and dealers;

(i) Amended and Restated Distribution Agreement between Registrant
and Franklin/Templeton Distributors, Inc., dated April 23, 1995
Filing: Post-Effective Amendment No. 44 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: September 28, 1995

(ii) Forms of Dealer Agreements between Registrant and
Franklin/Templeton Distributors, Inc. and Securities Dealers
Registrant: Franklin Tax-Free Trust
Filing: Post-Effective Amendment No. 22 to Registration
Statement on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996

(7) Copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
directors or officers of the Registrant in their capacity as such;
any such plan that is not set forth in a formal document, furnish a
reasonably detailed description thereof;

Not Applicable

(8) Copies of all custodian agreements and depository contracts under
Section 17(f) of the Investment Company Act of 1940 (the "1940 Act"),
with respect to securities and similar investments of the Registrant,
including the schedule of remuneration;

(i) Master Custodian Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 45 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: November 27, 1996

(ii) Terminal Link Agreement between Registrant and Bank of New York
dated February 16, 1996
Filing: Post-Effective Amendment No. 45 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: November 27, 1996

(iii)Precious Metals Storage & Custodian Agreement between Registrant
and Wilmington Trust Company dated January 1, 1988
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(iv) Amendment dated May 7, 1997 to the Master Custody Agreement
dated February 16, 1996 between Registrant and Bank of New York

(9) Copies of all other material contracts not made in the ordinary course
of business which are to be performed in whole or in part at or after
the date of filing the Registration Statement;

Not Applicable

(10) An opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will when sold be legally
issued, fully paid and nonassessable;

Not Applicable

(11) Copies of any other opinions, appraisals or rulings and consents to
the use thereof relied on in the preparation of this registration
statement and required by Section 7 of the 1933 Act;

(i) Consent of Independent Accountants

(12) All financial statements omitted from Item 23;

Not Applicable

(13) Copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intention of
redeeming or reselling;

(i) Letter of Understanding dated April 12, 1995
Filing: Post-Effective Amendment No. 43
to Registration Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(14) copies of the model plan used in the establishment of any retirement
plan in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;

(i) Copy of Model Retirement Plan:
Registrant: Franklin High Income Trust
Filing: Post-Effective Amendment No. 26
to Registration Statement on Form N-1A
File No. 2-3020
Filing Date: August 1, 1989

(15) Copies of any plan entered into by Registrant pursuant to Rule 12b-l
under the 1940 Act, which describes all material aspects of the
financing of distribution of Registrant's shares, and any agreements
with any person relating to implementation of such plan.

(i) Plan of Distribution pursuant to Rule 12b-1 dated May 1, 1994
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(ii) Class II Distribution Plan pursuant to Rule 12b-1 dated March
30, 1995
Filing: Post-Effective Amendment No. 43 to Registration
Staement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(16) Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 (which need not be
audited)

(i) Schedule for Computation of Performance Quotation
Registrant: Franklin New York Tax-Free Trust
Filing: Post-Effective Amendment No. 12 to Registration
Statement on Form N-1A
File No. 33-7785
Filing Date: April 25, 1995

(17) Power of Attorney

(i) Power of Attorney dated February 16, 1995
Filing: Post-Effective Amendment No. 43
Registration Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(ii) Certificate of Secretary dated February 16, 1995
Filing: Post-Effective Amendment No. 43
to Registration Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995

(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3
under the 1940 Act

(ii) Multiple Class Plan, Franklin Gold Fund - Advisor Class dated
June 18, 1996
Filing: Post-Effective Amendment No. 46
to Registration Statement on Form N-1A
File No. 2-30761
Filing Date: December 31, 1996

(27) Financial Data Schedule

(1) Financial Data Schedule for Franklin Gold Fund -
Class I

(2) Financial Data Schedule for Franklin Gold Fund -
Class II
(3) Financial Data Schedule for Franklin Gold Fund -
Advisor Class

ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None

ITEM 26 NUMBER OF HOLDERS OF SECURITIES

As of August 30, 1997 the number of record holders of each class of securities
of the Registrant are as follows:

NUMBER OF RECORD HOLDERS
----------------------------
ADVISOR
CLASS I CLASS II CLASS
- ---------------------------------------------------------------------------
Franklin Gold Fund 43,133 2,707 98

ITEM 27 INDEMNIFICATION

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Please see the By-Laws, Management, and Distribution Agreements, previously
filed as exhibits and incorporated herein by reference.

Notwithstanding the provisions contained in the Registrant's By-Laws, in the
absence of authorization by the appropriate court on the merits pursuant to said
By-Laws, any indemnification under said Article shall be made by Registrant only
if authorized in the manner provided by such By-Laws.

ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

The officers and directors of the Registrant's manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin/Templeton Group of
Funds. In addition, Mr. Charles B. Johnson is a director of General Host
Corporation. For additional information please see Part B and Schedules A and D
of Form ADV of the Fund's investment manager (SEC File 801-26292), incorporated
herein by reference, which sets forth the officers and directors of the
investment manager and information as to any business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years.

ITEM 29 PRINCIPAL UNDERWRITERS

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

Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust

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

(b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this Form N-1A
and Schedule A of Form BD filed by Distributors with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (SEC File No. 8-5889).

(c) Not Applicable. Registrant's principal underwriter is an affiliated person
of an affiliated person of the Registrant.

ITEM 30 LOCATION OF ACCOUNTS AND RECORDS

The accounts, books or other documents required to be maintained by Section 31
(a) of the Investment Company Act of 1940 will be kept by the Fund or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA 94404.

ITEM 31 MANAGEMENT SERVICES

There are no management-related service contracts not discussed in Part A or
Part B.

ITEM 32 UNDERTAKINGS

(a) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 per cent of the Registrant's outstanding shares and to
assist its shareholders in the communicating with other shareholders in
accordance with the requirements of Section 16(c) of the Investment Company Act
of 1940.

(b) The Registrant hereby undertakes to comply with the information
requirement in Item 5A of the Form N-1A by including the required information in
the Fund's annual report and to furnish each person to whom a prospectus is
delivered a copy of the annual report upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of California,
on the 21st day of November, 1997.

FRANKLIN GOLD FUND
(Registrant)
By: R.MARTIN WISKEMANN
--------------------
R. Martin Wiskemann
President

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

R. MARTIN WISKEMANN* Principal Executive Officer
- -------------------- and Director
R. Martin Wiskemann Dated: November 21, 1997

CHARLES B. JOHNSON* Director
- -------------------
Chares B. Johnson
Dated: November 21, 1997

RUPERT H. JOHNSON, JR.* Director
- -----------------------
Rupert H. Johnson, Jr. Dated: November 21, 1997

FRANK H. ABBOTT III* Director
- ----------------------
Frank H. Abbott III Dated: November 21, 1997

HARRIS J. ASHTON* Director
- ---------------------
Harris J. Ashton Dated: November 21, 1997

HARMON E. BURNS* Director
- --------------------
Harmon E. Burns Dated: November 21, 1997

MARTIN L. FLANAGAN* Principal Financial Officer
- --------------------
Martin L. Flanagan Dated: November 21, 1997

S. JOSEPH FORTUNATO* Director
- --------------------
S. Joseph Fortunato Dated: November 21, 1997

FRANK W.T. LAHAYE* Director
- ------------------
Frank W.T. LaHaye Dated: November xx, 1997

DIOMEDES LOO-TAM* Principal Accounting Officer
- ------------------
Diomedes Loo-Tam Dated: November 21, 1997

*By /s/LARRY L. GREEN
------------------
Larry L. Greene, Attorney-in-Fact
(Pursuant to Powers of Attorney previously filed)

FRANKLIN GOLD FUND
REGISTRATION STATEMENT
EXHIBITS INDEX

EXHIBIT NO. DESCRIPTION LOCATION
- ----------------------------------------------------------------------------
EX-99.B1(i) Restated Articles of Incorporation dated *
March 19, 1973

EX-99.B1(ii) Certificate of Amendment to Articles of *
Incorporation dated October 21, 1973

EX-99.B1(iii) Certificate of Amendment to Articles of *
Incorporation dated March 21, 1995

EX-99.B2(i) By-Laws *

EX-99.B2(ii) Amendment to the By-Laws of Franklin *
Gold Fund dated December 18, 1973

EX-99.B2(iii) Amendment to By-Laws dated September 5, *
1974

EX-99.B2(iv) Amendment to By-Laws dated November 29, *
1976

EX-99.B2(v) Amendment to By-Laws in form of *
Certificate of Secretary dated November
17, 1987

EX-99.B2(vi) Amendment to By-Laws in form of *
Certificate of Secretary dated March 16,
1993

EX-99.B2(vii) Amendment to By-Laws in form of *
Certificate of Secretary dated February
28, 1994

EX-99.B5(i) Management Agreement between the *
Registrant and Franklin Advisers, Inc.,
dated December 1, 1986

EX-99.B6(i) Amended and Restated Distribution *
Agreement between Registrant and
Franklin/Templeton Distributors, Inc.,
dated April 23, 1995

EX-99.B6(ii) Forms of Dealer Agreements between *
Registrant and Franklin/Templeton
Distributors, Inc.

EX-99.B8(i) Master Custody Agreement between *
Registrant and Bank of New York dated
February 16, 1996

EX-99.B8(ii) Terminal Link Agreement between *
Registrant and Bank of New York dated
February 16, 1996

EX-99.B8(iii) Precious Metals Storage and Custodian *
Agreement between Registrant and
Wilmington Trust Company dated January
1, 1988

EX-99.B8(iv) Amendment dated May 7, 1997 to the Attached
Master Custody Agreement dated February
16, 1996 between Registrant and Bank of
New York

EX-99.B11(i) Consent of Independent Accountants Attached

EX-99.B13(i) Letter of Understanding dated April 12, *
1995

EX-99.B14(i) Copy of model retirement plan *

EX-99.B15(i) Distribution Plan pursuant to Rule 12b-1 *
dated May 1, 1994

EX-99.B15(ii) Class II Distribution Plan pursuant to *
Rule 12b-1 dated July 1, 1995

EX-99.B16(i) Schedule for Computation of Performance *
Quotations

EX-99.B17(i) Power of Attorney dated February 16, 1995 *

EX-99.B17(ii) Certificate of Secretary dated February *
16, 1995

EX-99.B18(ii) Multiple Class Plan for Advisor Class *

EX-99.27(i) Financial Data Schedule for Franklin Attached
Gold Fund - Class I

EX-99.27(ii) Financial Data Schedule for Franklin Attached
Gold Fund - Class II

EX-99.27(iii) Financial Data Schedule for Franklin Attached
Gold Fund - Advisor Class

*Incorporated by Reference

AMENDMENT, dated May 7, 1997, to the Master Custody Agreement ("Agreement")
between each Investment Company listed on Exhibit A to the Agreement and The
Bank of New York dated February 16, 1996.

It is hereby agreed as follows:

A. Unless otherwise provided herein, all terms and conditions of the
Agreement are expressly incorporated herein by reference and, except as modified
hereby, the Agreement is confirmed in all respects. Capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Agreement.

B. The Agreement shall be amended to add a new Section 4. 1 0 as
follows:

4.10 ADDITIONAL DUTIES WITH RESPECT TO RUSSIAN SECURITIES.

(a) Upon [2] business days prior notice from a Fund that it
will invest in any security issued by a Russian issuer ("Russian Security"), the
Custodian shall to the extent required and in accordance with the terms of the
Subcustodian Agreement between the Custodian and Credit Suisse ("Foreign
Custodian") dated as of August 8, 1996 (the "Subcustodian Agreement") direct the
Foreign Custodian to enter into a contract ("Registrar Contract") with the
entity providing share registration services to the Russian issuer ("Registrar")
containing substantially the following protective provisions:

(1) REGULAR SHARE CONFIRMATIONS. Each Registrar Contract
must establish the Foreign Custodian's right to conduct regular share
confirmations on behalf of the Foreign Custodian's customers.

(2) PROMPT RE-REGISTRATIONS. Registrars must be obligated to
effect re-registrations within 72 hours (or such other specified time as the
United States Securities and Exchange Commission (the "SEC") may deem
appropriate by rule, regulation, order or "no-action" letter) of receiving the
necessary documentation.

(3) USE OF NOMINEE NAME. The Registrar Contract must establish
the Foreign Custodian's right to hold shares not held directly in the beneficial
owner's name in the name of the Foreign Custodian's nominee.

(4) AUDITOR VERIFICATION. The Registrar Contract must allow
the independent auditors of the Custodian and the Custodian's clients to obtain
direct access to the share register for the independent auditors of each of the
Foreign Custodian's clients.

(5) SPECIFICATION OF REGISTRAR'S RESPONSIBILITIES AND LIABILITIES.
The contract must set forth: (1) the Registrar's responsibilities with regard to
corporate actions and other distributions; (ii) the Registrar's liabilities as
established under the regulations applicable to the Russian share registration
- -system and (iii) the procedures for making a claim against and receiving
compensation from the registrar in the event a loss is incurred.

(b) The Custodian shall, in accordance with the Subcustodian
Agreement, direct the Foreign Custodian to conduct regular share confirmations,
which shall require the Foreign Custodian to (1) request either a duplicate
share extract or some other sufficient evidence of verification and (2)
determine if the Foreign Custodian's records correlate with those of the
Registrar. For at least the first two years following the Foreign Custodian's
first use of a Registrar in connection with a Fund investment, and subject to
the cooperation of the Registrar, the Foreign Custodian will conduct these share
confirmations on at least a quarterly basis, although thereafter they may be
conducted on a less frequent basis, but no less frequently than annually, if the
Fund's Board of Directors, in consultation with the Custodian, determine it
appropriate.

(c) The Custodian shall, pursuant to the Subcustodian Agreement,
direct the Subcustodian to maintain custody of the Fund's share register
extracts or other evidence of verification obtained pursuant to paragraph (b)
above.

(d) The Custodian shall, pursuant to the Subcustodian Agreement,
direct the Foreign Custodian to comply with the rules, regulations, orders and
"no-action" letters of the SEC with respect to

(1) the receipt, holding, maintenance, release and
delivery of Securities; and

(2) providing notice to the Fund and its Board of Directors of
events specified in such rules, regulations, orders and letters.

(e) The Custodian shall have no liability for the action or inaction
of any Registrar or securities depository utilized in connection with Russian
Securities except to the extent that any such action or inaction was the result
of the Custodian's negligence. With respect to any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees (collectively,
"Losses") incurred by a Fund as a result of the acts or the failure to act by
any Foreign Custodian or its subsidiary in Russia ("Subsidiary"), the Custodian
shall take appropriate action to recover such Losses from the Foreign Custodian
or Subsidiary. The Custodian's sole responsibility and liability to a Fund with
respect to any Losses shall be limited to amounts so received from the Foreign
Custodian or Subsidiary (exclusive of costs and expenses incurred by the
Custodian) except to the extent that such losses were the result of the
Custodian's negligence.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.

THE BANK OF NEW YORK

By: /s/STEPHEN E. GRUNSTON
------------------------
Name: Stephen E. Grunston
Title: Vice President

THE INVESTMENT COMPANIES LISTED ON EXHIBIT A TO THE AGREEMENT

By: /s/DEBORAH R. GATZEK
------------------------
Name: Deborah R. Gatzek
Title: Vice President

By: /s/KAREN L. SKIDMORE
----------------------
Name: Karen L. Skidmore
Title: Assistant Vice President

AMENDMENT TO MASTER CUSTODY AGREEMENT

The Bank of New York and Templeton Variable Products Series Fund, for itself and
on behalf of its series, hereby amend Schedule A of the Master Custody Agreement
dated as of February 16, 1996, to add the series listed below:

REGISTERED INVESTMENT COMPANY SERIES
- ------------------------------- -----------------
Templeton Variable Products Series Fund Franklin Growth Investments Fund

Dated as of: May 1, 1997

TEMPLETON VARIABLE PRODUCTS SERIES FUND

By: /s/KAREN L. SKIDMORE
---------------------------
Title: Assistant Vice President And
Assistant Secretary

THE BANK OF NEW YORK

By: /s/STEPHEN E. GRUNSTON
----------------------------
Title: VICE PRESIDENT

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in Post-Effective Amendment No. 47
to the Registration Statement of Franklin Gold Fund on Form N-1A File Nos.
2-30761 of our report dated September 2, 1997 on our audit of the financial
statements and financial highlights of Franklin Gold Fund, which report is
included in the Annual Report to Shareholders for the year ended July 31, 1997,
which is incorporated by reference in the Registration Statement.

/s/COOPERS & LYBRAND L.L.P.

San Francisco, California
November 21, 1997

<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN
GOLD FUND JULY 31, 1997 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> FRANKLIN GOLD FUND - CLASS I

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