FRANKLIN VALUE INVESTORS TRUST, 485BPOS, 1996-11-29

FRANKLIN VALUE INVESTORS TRUST
485BPOS, 1996-11-29

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As filed with the Securities and Exchange Commission on November 29, 1996.

File Nos.
33-31326
811-5878

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. 14 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 15 (X)

FRANKLIN VALUE INVESTORS TRUST
(Formerly Franklin Balance Sheet Investment Fund)
(Exact Name of Registrant as Specified in Charter)

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

Registrant's Telephone Number, Including Area Code (415) 312-2000

HARMON E. BURNS, 777 MARINERS ISLAND BVLD., SAN MATEO, CA 94403
(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, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on(date) pursuant to paragraph (a)(ii) 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.

Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to Rule
24(f)(2) under the Investment Company Act of 1940. The Rule 24f-2 Notice for the
issuers most recent fiscal year was filed on December 29, 1995.

FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A

Part A: Information Required in Prospectus
Franklin Balance Sheet Investment Fund

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

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

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

4. General Description of "How is the Trust Organized?"; "How does the
Registrant 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 Report to
Fund Performance Shareholders

6. Capital Stock and Other "How is the Trust Organized?"; "Services to Help
Securities You Manage Your Account"; "What Distributions
Might I Receive from the Fund?"; "How Taxation
Affects You and the Fund"

7. Purchase of Securities "How Do I Buy Shares?"; "May I Exchange Shares
Being Offered 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 VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A

Part A: Information Required in Prospectus
Franklin Value Fund

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

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

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

4. General Description of "How is the Trust Organized?"; "How does the
Registrant 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 Report to
Fund Performance Shareholders

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 VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A

Part A: Information Required in Prospectus
Franklin MicroCap Value Fund

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

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

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

4. General Description of "How is the Trust Organized?"; "How does the
Registrant 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 Report to
Fund Performance Shareholders

6. Capital Stock and Other "How is the Trust Organized?"; "Services to Help
Securities You Manage Your Account"; "What Distributions
Might I Receive From the Fund?"; "How Taxation
Affects You and the Fund"

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 VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A

Part B: Information Required in
Statement of Additional Information
Franklin Balance Sheet Investment Fund

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How Does the Fund Invest Its Assets?";
Policies "Investment Restrictions"

14. Management of the Registrant "Officers and Trustees";
"Investment Advisory
and Other Services"

15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "General Information"

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

17. Brokerage Allocation and Other "How Does the Fund Purchase Securities for
Practices Its Portfolio?"

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

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

20. Tax Status "Additional Information Regarding Taxation"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance Data "General Information"

23. Financial Statements "Financial Statements"

FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A

Part B: Information Required in
Statement of Additional Information
Franklin Value Fund

10.Cover Page Cover Page

11.Table of Contents Contents

12.General Information and History Not Applicable

13.Investment Objectives and "How Does the Fund Invest Its Assets?";
Policies "Investment Restrictions"

14.Management of the Registrant "Officers and Trustees";
"Investment Advisory
and Other Services"

15.Control Persons and Principal "Officers and Trustees";
Holders of Securities "General Information"

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

17.Brokerage Allocation and Other "How Does the Fund Purchase Securities for
Practices Its Portfolio?"

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

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

20.Tax Status "Additional Information Regarding Taxation"

21.Underwriters "The Fund's Underwriter"

22.Calculation of Performance Data "General Information"

23.Financial Statements "Financial Statements"

FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A

Part B: Information Required in
Statement of Additional Information
Franklin MicroCap Value Fund

10.Cover Page Cover Page

11.Table of Contents Contents

12.General Information and History Not Applicable

13.Investment Objectives and "How Does the Fund Invest Its Assets?";
Policies "Investment Restrictions"

14.Management of the Registrant "Officers and Trustees";
"Investment Advisory
and Other Services"

15.Control Persons and Principal "Officers and Trustees";
Holders of Securities "General Information"

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

17.Brokerage Allocation and Other "How Does the Fund Purchase Securities for
Practices Its Portfolio?"

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

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

20.Tax Status "Additional Information Regarding Taxation"

21.Underwriters "The Fund's Underwriter"

22.Calculation of Performance Data "General Information"

23.Financial Statements "Financial Statements"

PROSPECTUS & APPLICATION

Franklin
Balance Sheet
Investment Fund

INVESTMENT STRATEGY

GROWTH & INCOME

MARCH 1, 1996
AS AMENDED DECEMBER 1, 1996

Franklin Value Investors Trust

This prospectus describes the Franklin Balance Sheet Investment Fund (the
"Fund"). It contains information you should know before investing in the Fund.
Please keep it for future reference.

The Fund's SAI, dated March 1, 1996, as may be amended from time to time,
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 or
write the Fund at the address shown.

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 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 Balance Sheet Investment Fund

Franklin

Balance Sheet

Investment

Fund

March 1, 1996,

as amended December 1, 1996

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 .............. 2

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

How does the Fund Invest its Assets? 6

What are the Fund's Potential Risks? 12

Who Manages the Fund? ........ 16

How does the Fund Measure Performance? 18

How is the Trust Organized? .. 18

How Taxation Affects You and the Fund 19

About Your Account

How Do I Buy Shares? ......... 21

May I Exchange Shares for Shares
of Another Fund? ............ 26

How Do I Sell Shares? ........ 28

What Distributions Might I
Receive from the Fund? ...... 30

Transaction Procedures and
Special Requirements ........ 31

Services to Help You Manage Your Account 36

Glossary

Useful Terms and Definitions . 39

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

Franklin Balance Sheet Investment Fund

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 Fund's historical expenses for the fiscal year ended
October 31, 1995. Your actual expenses may vary.

A. Shareholder Transaction Expenses+

Maximum Sales Charge Imposed on Purchases
(as a percentage of Offering Price) 1.50%++
Deferred Sales Charge None+++
B. Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 0.54%
Rule 12b-1 Fees 0.44%*
Other Expenses 0.19%
Total Fund Operating Expenses 1.17%

C. Example

Assume the Fund's annual return is 5% and its operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.

1 YEAR 3 YEARS 5 YEARS 10 YEARS

$27** $52 $78 $155

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.

++There is no front-end sales charge if you invest $1 million or more.

+++A Contingent Deferred Sales Charge of 1% may apply to purchases of $1 million
or more if you sell the shares within one year. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.

* These fees may not exceed 0.50%. 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. It is estimated, however, that this would take a substantial
number of years.

**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 Trust's Annual Report to Shareholders for the fiscal
year ended October 31, 1995. The Annual Report to Shareholders also includes
more information about the Fund's performance. For a free copy, please call Fund
Information.

<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1996 Year Ended October 31, April 2, 1990** to

(unaudited) 1995 1994 1993 1992 1991 October 31,1990

PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at beginning of period $26.34 $22.68 $22.97 $17.37 $15.54 $11.48 $15.00
Net investment income 0.26 0.30 0.23 0.39 0.53 0.52 0.29
Net realized and unrealized gain
(loss) on securities 2.98 3.98 0.51 6.26 1.83 4.10 (3.63)
Total from investment operations 3.24 4.28 0.74 6.65 2.36 4.62 (3.34)
LESS DISTRIBUTIONS:
From net investment income (0.20) (0.27) (0.26) (0.43) (0.53) (0.56) (0.18)
From capital gains (1.07) (0.35) (0.77) (0.62) - - -
Total distributions (1.27) (0.62) (1.03) (1.05) (0.53) (0.56) (0.18)
Net Asset Value at end of period $28.31 $26.34 $22.68 $22.97 $17.37 $15.54 $11.48
Total Return* 12.62% 19.32% 3.42% 37.78% 15.51% 40.96% (22.36)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in 000s) $605,814 $387,540 $134,255 $22,317 $5,149 $3,572 $1,405
Ratio of expenses to average net assets 1.11%+ 1.17% 1.19%++ -++ -++ -++ -++
Ratio of expenses to average net assets
(excluding waiver and payment of expenses
by investment manager) 1.11%+ 1.17% 1.34% 1.85% 2.60% 3.16% 3.54%+
Ratio of net investment income to
average net assets 2.00%+ 1.30% 0.99% 1.89% 3.16% 3.79% 2.31%+
Portfolio turnover rate 28.87% 28.63% 24.96% 31.36% 30.86% 31.94% 5.34%
Average commission rate 0.049 - - - - - -
</TABLE>

*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge and assumes reinvestment of dividends and capital gains distributions, if
any, at Net Asset Value.

**Effective date of registration.

+Annualized.

++During the periods indicated, Advisers agreed in advance to waive all or a
portion of its management fees and pay all or a portion of the other expenses of
the Fund.

How does the Fund Invest its Assets?

The Fund is designed for long-term investors and not as a trading vehicle. It is
not intended to present a complete investment program. An investment in the Fund
involves certain risks. Please see "What are the Fund's Potential Risks?"

The Fund's Investment Objective

The investment objective of the Fund is to seek high total return, of which
capital appreciation and income are components. The objective is a fundamental
policy of the Fund and may not be changed without shareholder approval. Of
course, there is no assurance that the Fund's objective will be achieved.

Capital appreciation will be sought primarily through investment in securities
that Advisory Services believes are undervalued in the marketplace. Accordingly,
the focus on balance sheet items will be an important element in Advisory
Services' investment analysis. Income will also be sought when consistent with
the Fund's objective. The Fund currently invests in equity and debt securities
which, in the opinion of Advisory Services, represent intrinsic values not
reflected in the current market price of the securities and/or present
opportunities for high income. The Fund will also invest a portion of its total
assets in the securities of closed-end management investment companies.

Types of Securities in which the Fund May Invest

The Fund may invest an unlimited amount of its total assets in the securities of
any companies which, in the opinion of Advisory Services, represent an
opportunity for (i) significant capital appreciation due to intrinsic values not
reflected in the current market price of the securities and/or (ii) high income.
The securities of these companies, which include common and preferred stocks and
secured or unsecured bonds, commercial paper or notes, will typically be
purchased at prices below the book value of the company. Advisory Services,
however, will also take into account a variety of other factors in order to
determine whether to buy, and once purchased, whether to hold or sell these
securities. In addition to book value, Advisory Services may consider the
following factors among others: valuable franchises or other intangibles;
ownership of valuable trademarks or trade names; control of distribution
networks or of market share for particular products; ownership of real estate
the value of which is understated; underutilized liquidity and other factors
that would identify the issuer as a potential takeover target or turnaround
candidate.

The Fund generally favors common stocks, although it has no limit on the
percentage of its assets that may be invested in preferred stock and debt
obligations. The percentage of the Fund's assets invested for capital
appreciation or high income or both will vary at any time in accordance with
Advisory Services' appraisal of what securities will best meet the Fund's
objective of high total return.

The Fund will also invest a portion (but may invest without limitation) of its
total assets in the securities of registered closed-end management investment
companies ("closed-end funds"), which are traded on a national securities
exchange or in the over-the-counter markets and which Advisory Services believes
are undervalued in the marketplace. Consistent with seeking capital
appreciation, the Fund may also buy securities issued by unit investment trusts
("UITs") when, in Advisory Services' view, these securities are trading at a
discount from net asset value. The Fund's investment in the securities of
closed-end funds and UITs will be subject to certain restrictions and conditions
imposed by the 1940 Act. Please see "How Does the Fund Invest Its Assets? - 1940
Act Provisions" in the SAI. The Fund may, consistent with its investment
objective, invest in securities of any closed-end fund without regard to whether
the investment objectives and policies of such closed-end fund are similar to or
consistent with those of the Fund.

Advisory Services will consider the following, among other factors, in
evaluating closed-end funds: (i) historical market discounts, (ii) portfolio
characteristics, (iii) repurchase, tender offer, and dividend reinvestment
programs, (iv) provisions for converting into an open-end fund, and (v) quality
of management.

The securities of closed-end funds in which the Fund invests are traded on a
national securities exchange or in the over-the-counter markets. The Fund
invests in the securities of closed-end funds that, at the time of investment by
the Fund, are either trading at a discount to net asset value or which, in the
opinion of Advisory Services, present an opportunity for capital appreciation or
high income irrespective of whether such securities are trading at a discount or
at a premium to net asset value. There can be no assurance that the market value
of the securities of the closed-end funds in which the Fund invests will
increase, particularly with respect to securities trading at a premium to net
asset value. For more information about the conditions under which the
securities of a closed-end fund may trade at a discount to net asset value, see
"How Does the Fund Invest Its Assets? - Closed-End Funds" in the SAI.

In anticipation of and during temporary defensive periods or when investments of
the type in which the Fund intends to invest are not available at prices that
Advisory Services believes are attractive, the Fund may invest up to 100% of its
total assets in: (1) securities of the U.S. government and certain of its
agencies and instrumentalities that mature in one year or less from the date of
purchase, including U.S. Treasury bills, notes and bonds, and securities of the
Government National Mortgage Association, the Federal Housing Administration and
other agency or instrumentality issues or guarantees that are supported by the
full faith and credit of the U.S.; (2) obligations issued or guaranteed by other
U.S. government agencies or instrumentalities, some of which are supported by
the right of the issuer to borrow from the U.S. government (e.g., obligations of
the Federal Home Loan Banks) and some of which are backed by the credit of the
issuer itself (e.g., obligations of the Student Loan Marketing Association); (3)
bank obligations, including negotiable or non-negotiable CD's (subject to the
10% aggregate limit on the Fund's investment in illiquid securities), letters of
credit and bankers' acceptances, or instruments secured by such obligations,
issued by banks and savings institutions that are subject to regulation by the
U.S. government, its agencies or instrumentalities and that have assets of over
$1 billion, unless these obligations are guaranteed by a parent bank that has
total assets in excess of $5 billion; (4) commercial paper considered by
Advisory Services to be of high quality, which must be rated within the two
highest rating categories by Standard & Poor's Corporation ("S&P") or Moody's
Investors Service ("Moody's") or, if not rated, issued by a company having an
outstanding debt issue rated at least double-A by S&P or Moody's; and (5)
corporate obligations including, but not limited to, corporate notes, bonds and
debentures considered by Advisory Services to be high grade or that are rated
within the two highest rating categories by S&P and Moody's. Please see the
"Appendix" in the SAI for a discussion of ratings.

Fixed-Income Securities. The Fund may invest up to 25% of its total assets in
other securities, including fixed-income and convertible securities of an issuer
in default with respect to such securities, that Advisory Services believes
represent intrinsic values not reflected in the current market prices of the
securities. These securities may be non-rated debt and/or debt rated D, the
lowest rating category by S&P and Moody's. Debt rated D is in default, and
payment of interest and/or repayment of principal is in arrears. Although the
Fund reserves the right to invest up to 25% of its assets in these securities,
its current investment strategy is to limit such investments to less than 5% of
the Fund's net assets. These debt obligations are rated below investment grade
and are regarded as extremely speculative investments with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. They are also generally considered to be subject to greater risk
than securities with higher ratings with regard to a general deterioration of
prevailing economic conditions. Please see the SAI for more information about
the risks of lower rated securities, including the rating categories of S&P and
Moody's.

Options. When seeking high current income to achieve its investment objective of
high total return, the Fund may write (sell) covered call options on any of the
securities it owns that are listed for trading on a national securities
exchange, and it may also buy listed call and put options for portfolio hedging
purposes.

Call options are short-term contracts (generally having a duration of nine
months or less) that give the buyer of the option the right to buy, and obligate
the writer to sell, the underlying security at the exercise price at any time
during the option period, regardless of the market price of the underlying
security. The buyer of an option pays a cash premium that typically reflects,
among other things, the relationship of the exercise price to the market price
and the volatility of the underlying security, the remaining term of the option,
supply and demand factors, and interest rates.

A call option written by the Fund is "covered" if the Fund owns or has an
absolute right (such as by conversion) to the underlying security covered by the
call. A call option is also covered if the Fund holds a call on the same
security and in the same principal amount as the call written and 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, government securities or other
high grade debt obligations in a segregated account with its custodian bank.

The Fund may also buy put options on common stock that it owns or may acquire
through the conversion or exchange of other securities to protect against a
decline in the market value of the underlying security or to protect the
unrealized gain in an appreciated security in its portfolio without actually
selling the security. A put option gives the holder the right to sell the
underlying security at the option exercise price at any time during the option
period. The Fund may pay for a put either separately or by paying a higher price
for securities that are purchased subject to a put, thus increasing the cost of
the securities and reducing the yield otherwise available from the same
securities.

In the case of put options, any gain realized by the Fund will be reduced by the
amount of the premium and transaction costs it paid and may be offset by a
decline in the value of its portfolio securities. If the value of the underlying
stock exceeds the exercise price (or never declines below the exercise price),
the Fund may suffer a loss equal to the amount of the premium it paid plus
transaction costs. The Fund may also close out its option positions before they
expire by entering into a closing purchase transaction as discussed under "What
are the Fund's Potential Risks?-Options" and subject to the same risks.

The Fund's investment in options and certain securities transactions involving
actual or deemed short sales may be limited by the requirements of the Code for
qualification as a regulated investment company and are subject to special tax
rules that may affect the amount, timing, and character of distributions to
shareholders. These securities require the application of complex and special
tax rules and elections. For more information, please see "Additional
Information Regarding Taxation" in the SAI.

Foreign Securities. The Fund may invest in foreign securities if these
investments are consistent with the Fund's investment objective. The Fund may
buy sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs"). ADRs
are certificates issued by U.S. banks representing the right to receive
securities of a foreign issuer deposited with that bank or a correspondent bank.
GDRs and EDRs are typically issued by foreign banks or trust companies and
evidence ownership of underlying securities issued by either a foreign or a U.S.
corporation. The Fund may also buy the securities of foreign issuers directly in
foreign markets, and may buy the securities of issuers in developing nations.
The Fund intends to limit its investment in foreign securities to no more than
25% of its total assets. Please see "What are the Fund's Potential Risks? -
Foreign Securities" in this prospectus and "How Does the Fund Invest Its Assets?
- - Depositary Receipts" in the SAI.

Convertible Securities. The Fund may invest up to 25% of its total assets in
convertible securities, although its current investment strategy is to limit
these investments to less than 5% of its net assets. A convertible security is
generally a debt obligation or a 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 may be called by the issuer but only
after a specified date and under circumstances established at the time the
security is issued. Convertible securities provide a fixed-income stream and the
opportunity, through their conversion feature, to participate in any capital
appreciation resulting from a market price advance in the convertible security's
underlying common stock. Though the Fund intends to invest in liquid convertible
securities there can be no assurance that this will always be achieved. For more
information on convertible securities, including liquidity issues, please see
"How Does the Fund Invest Its Assets?" in the SAI.

Other Investment Policies of the Fund

To earn additional income, the Fund may also engage to a limited extent in the
following investment practices each of which may involve special risks. The SAI
contains more detailed information about these practices, including limitations
designed to reduce these risks.

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,
provided that such loans do not exceed 25% 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 initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 102%. 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 the cash collateral in short-term
interest bearing obligations or by receiving a loan premium from the borrower.
Under the securities loan agreement, the Fund continues to be entitled to all
dividends or interest on any loaned securities. As with any extension of credit,
there are risks of delay in recovery and loss of rights in the collateral should
the borrower of the security fail financially.

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

Borrowing. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of its assets, except that it may borrow up to 15% of its total
assets (including the amount borrowed) from banks in order to meet redemption
requests that might otherwise require the untimely disposition of portfolio
securities or for other temporary or emergency purposes and may pledge its
assets in connection therewith. The Fund will not buy any securities while
borrowings exceed 5% of its total assets.

Short-Selling. The Fund may make short sales. Short sales are transactions in
which the Fund sells a security it does not own in anticipation of a decline in
the market value of that security.

Illiquid Investments. The Fund's policy is not to invest more than 10% of its
net assets, at the time of purchase, in illiquid securities and securities with
legal or contractual restrictions on resale. 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.

Percentage Restrictions. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.

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.

What are the Fund's Potential Risks?

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.

An investment in the Fund involves certain speculative considerations and may
involve a higher degree of risk than an investment in shares of more traditional
open-end, diversified investment companies because the Fund may invest up to
100% of its assets in the securities of issuers (including closed-end funds)
with less than three years continuous operation. The securities of certain
closed-end funds in which the Fund will invest may lack a liquid secondary
market. For more information please see "How Does the Fund Invest Its Assets? -
Closed-End Funds" in the SAI.

The Fund's Approach to Value Investing. The Fund will invest principally in the
securities of companies believed by Advisory Services to be undervalued.
Securities of a company may be undervalued as a result of overreaction by
investors to unfavorable news about a company, industry or the stock market in
general or as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting a company.
Often these companies are attempting to recover from business setbacks or
adverse events (turnarounds), cyclical downturns, or, in certain cases,
bankruptcy.

Cyclical stocks in which the Fund may invest tend to increase in value more
quickly during economic upturns than noncyclical stocks, but they also tend to
lose value more quickly in economic downturns. As with all investments, there is
always the possibility when investing in these securities that Advisory Services
may be incorrect in its assessment of a particular industry or company or that
Advisory Services may not buy these securities at their lowest possible prices
or sell them at their highest.

The Fund's purchase of securities of companies emerging from bankruptcy may
present risks that do not exist with other investments. Companies emerging from
bankruptcy may have some difficulty retaining customers and suppliers who prefer
transacting with solvent organizations. If new management is installed in a
company emerging from bankruptcy, the management may be considered untested; if
the existing management is retained, the management may be considered
incompetent. Further, even when a company has emerged from bankruptcy with a
lower level of debt, it may still retain a relatively weak balance sheet. During
economic downturns these companies may not have sufficient cash flow to pay
their debt obligations and may also have difficulty finding additional
financing. In addition, reduced liquidity in the secondary market may make it
difficult for the Fund to sell the securities or to value them based on actual
trades.

The Fund's policy of investing in securities that may be out of favor, including
turnarounds, cyclicals and companies emerging from bankruptcy, companies
reporting poor earnings, and companies whose share prices have declined sharply
or that are not widely followed, differs from the approach followed by many
other mutual funds. Advisory Services believes, however, that these securities
may provide a greater total investment return than securities whose prices
appear to reflect anticipated favorable developments.

Non-diversification. As a non-diversified investment company under the 1940 Act,
the Fund may concentrate its investments in the securities of a smaller number
of issuers than if it were a diversified company. An investment in the Fund
therefore will entail greater risk than an investment in a diversified
investment company because a higher percentage of investments among fewer
issuers may result in greater fluctuation in the total market value of the
Fund's portfolio, and economic, political or regulatory developments may have a
greater impact on the value of the Fund's portfolio than would be the case if
the portfolio were diversified among more issuers. All securities in which the
Fund may invest are inherently subject to market risk, and the market value of
the Fund's investments will fluctuate.

The Fund intends to comply with the diversification and other requirements
applicable to regulated investment companies under the Code. As a
non-diversified investment company under the 1940 Act, the Fund may invest more
than 5% and up to 25% of its assets in the securities of any one issuer at the
time of purchase. For purposes of the Code, however, as of the last day of any
fiscal quarter, the Fund may not have more than 25% of its total assets invested
in any one issuer, and, with respect to 50% of its total assets, the Fund may
not have more than 5% of its total assets invested in any one issuer, nor may it
own more than 10% of the outstanding voting securities of any one issuer. These
limitations do not apply to investments in securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities or to securities of
investment companies that qualify as regulated investment companies under the
Code.

Closed-end Funds. The Fund, by investing in securities of closed-end funds,
indirectly pays a portion of the operating expenses, management expenses and
brokerage costs of these companies. Thus, you will indirectly pay higher total
management and operating expenses and other costs than you would otherwise incur
if you directly owned the securities of such closed-end funds. You will also
incur some duplicative costs such as advisory, administrative and brokerage
fees. The Fund's investment strategy may result (i) in duplicative holdings, if
two or more of the closed-end funds in whose securities the Fund invests own the
same portfolio security and/or (ii) in situations whereby one closed-end fund in
whose securities the Fund invests buys a portfolio security that another
closed-end fund in whose securities the Fund invests is selling. However, the
Fund offers the opportunity for a professionally managed portfolio of the
securities of different closed-end funds and/or other companies that Advisory
Services believes are undervalued in the marketplace.

Options. When the Fund writes (sells) covered call options, it will receive a
cash premium that can be used in whatever way is believed by Advisory Services
to be most beneficial to the Fund. The risks associated with covered option
writing are that in the event of a price increase on the underlying security
that would likely trigger the exercise of the call option, the Fund will not
participate in the increase in price beyond the exercise price. It will
generally be the Fund's policy, in order to avoid the exercise of a call option
written by it, to cancel its obligation under the call option by entering into a
"closing purchase transaction," if available, unless it is determined to be in
the Fund's interest to deliver the underlying securities from its portfolio. A
closing purchase transaction consists of the Fund buying an option having the
same terms as the option written by the Fund, and has the effect of canceling
the Fund's position as the writer of the option. The premium that the Fund will
pay in executing a closing purchase transaction may be higher or lower than the
premium it received when writing the option, depending in large part upon the
relative price of the underlying security at the time of each transaction.

One risk involved in both the purchase and sale of options is that the Fund may
not be able to effect a closing purchase transaction at a time when it wishes to
do so or at an advantageous price. There is no assurance that a liquid market
will exist for a given contract or option at any particular time. To mitigate
this risk, the Fund will ordinarily buy and write options only if a secondary
market for the option exists on a national securities exchange or in the
over-the-counter market. Another risk is that during the option period, if the
Fund has written a covered call option, it will have given up the opportunity to
profit from a price increase in the underlying securities above the exercise
price in return for the premium on the option (although, of course, the premium
can be used to offset any losses or add to the Fund's income) but, as long as
its obligation as a writer of such an option continues, the Fund will have
retained the risk of loss should the price of the underlying security decline.
In addition, the Fund has no control over the time when it may be required to
fulfill its obligation as a writer of the option. Once the Fund has received an
exercise notice, it cannot effect a closing transaction in order to terminate
its obligation under the option and must deliver the underlying securities at
the exercise price. The aggregate premiums paid on all such options that are
held at any time will not exceed 20% of the Fund's total assets. Options are
generally considered "derivative securities."

Foreign Securities. Investments in the securities of companies organized outside
the U.S. or whose securities are principally traded outside the U.S. ("foreign
issuers") may offer potential benefits not available from investments solely in
securities of U.S. issuers. These benefits may include the opportunity to invest
in foreign issuers that appear, in the opinion of Advisory Services, to offer
more potential for long-term capital appreciation or current earnings than
investments in U.S. issuers, the opportunity to invest in foreign countries with
economic policies or business cycles different from those of the U.S., and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign securities markets that do not necessarily move in a manner parallel to
U.S. markets.

Investments in securities of foreign issuers involve significant risks,
including possible losses that are not typically associated with investments in
securities of U.S. issuers. These risks include political, social or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Changes in government administrations and economic or
monetary policies in the U.S. or abroad, changes in circumstances surrounding
dealings between nations, and changes in currency convertibility or exchange
rates could also result in investment losses for the Fund. Other risks include
the possibility that public information may not be as readily available for a
foreign company as it is for a U.S.-domiciled company, that foreign companies
are generally not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies, and that
there is usually less government regulation of securities exchanges, brokers and
listed companies. Confiscatory taxation or diplomatic developments could also
affect these investments.

Investments 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 laws limiting the amount and type of foreign investments.
The Fund may buy securities in any foreign country, developed or developing, but
investments will not be made in any securities issued without stock certificates
or comparable stock documents.

Foreign securities may be subject to greater fluctuations in price than U.S.
securities. The markets on which foreign securities trade may also have less
volume and liquidity. Securities 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 will not be considered illiquid so long as the Fund
acquires and holds the security with the intention of reselling the security in
the foreign trading market, the Fund reasonably believes it can readily dispose
of the security for cash in the U.S. or foreign market, and current market
quotations are readily available.

You should carefully consider the substantial risks involved in investing in
securities of foreign issuers - risks that are often heightened for investments
in developing markets. For example, the small size, inexperience and limited
volume of trading on securities markets in certain developing countries may make
the Fund's investments in developing countries illiquid and more volatile than
investments in more developed countries, and the Fund may be required to
establish special custody or other arrangements before making certain
investments in such countries. The laws of some foreign countries may also limit
the ability of the Fund to invest in securities of certain issuers located in
those countries.

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 also cause the Fund's share price to
decline. Changes in currency valuations will also affect the price of Fund
shares. The value of worldwide stock markets, currency valuations, and interest
rates has increased and decreased in the past. These changes are unpredictable
and may happen again in the future. 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.

Investment Manager. As of July 1, 1996, Advisory Services manages the Fund's
assets and makes its investment decisions. Advisory Services 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, Advisory Services and its affiliates manage
over $150 billion in assets. Advisory Services employs the same individuals to
manage the Fund's portfolio as the previous manager. The terms and conditions of
the management services provided to the Fund are also the same. Please see
"Investment Advisory and Other Services" and "General 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 since its inception is:

William Lippman

Portfolio Manager of Advisory Services

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

Bruce C. Baughman

Portfolio Manager of Advisory Services

Mr. Baughman holds a bachelor of arts degree from Stanford University and a
master of science degree in accounting from New York University. He has been
with the Franklin Templeton Group since 1988.

Margaret McGee

Portfolio Manager of Advisory Services

Ms. McGee holds a bachelor of arts degree from William Paterson College. She has
been with the Franklin Templeton Group since 1988.

Management Fees. During the fiscal year ended October 31, 1995, management fees
totaling 0.54% of the average daily net assets of the Fund were paid to
Advisers. Total expenses of the Fund, including fees paid to Advisers, were
1.17%.

Portfolio Transactions. Advisory Services tries to obtain the best execution on
all transactions. If Advisory Services believes more than one broker or dealer
can provide the best execution, consistent with internal policies, 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 Purchase Securities For Its
Portfolio?" in the SAI for more information.

Administrative Services. Under an agreement with Advisory Services, FT Services
provides certain administrative services and facilities for the Fund. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for more information.

The Fund's Rule 12b-1 Plan

The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may pay or
reimburse Distributors or others for activities primarily intended to sell
shares of the Fund. Under the plan, the Fund may reimburse Distributors or
others up to 0.25% per year of the Fund's average daily net assets for all
expenses incurred by Distributors or others in the promotion and distribution of
the Fund's shares. 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, printing prospectuses
and reports used for sales purposes, preparing and distributing sales literature
and advertisements, and a prorated portion of Distributors' overhead expenses.

In addition, pursuant to the plan, the Fund may pay Distributors or others a
service fee to reimburse such parties for personal services provided to
shareholders of the Fund and/or the maintenance of shareholder accounts. The
total amount of service fees paid by the Fund shall not exceed 0.25% per year of
the average daily net assets of the Fund. These payments are made pursuant to
distribution and/or service agreements entered into between service providers
and Distributors or the Fund directly. The maximum amount which the Fund may pay
for the promotion and distribution of shares, including service fees, is 0.50%
per year of the average daily net assets of the Fund. Payments in excess of
reimbursable expenses under the plan in any year must be refunded. Further,
expenses of Distributors other than for service fees in excess of 0.25% per year
of the Fund's average net assets that otherwise qualify for payment may not be
carried forward into successive annual periods.

During the first year after certain purchases made without a sales charge,
Distributors may keep the Rule 12b-1 fees associated with the purchase. For more
information, please see "The Fund's Underwriter" in the SAI.

How does the Fund Measure Performance?

From time to time, the Fund advertises its performance. The more commonly used
measures of performance are total return, current yield and current distribution
rate. Performance figures are usually calculated using the maximum sales charge,
but certain figures may not include the sales charge.

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield shows the
income per share earned by the Fund. The current distribution rate shows the
dividends or distributions paid to shareholders by the Fund. This rate is
usually computed by annualizing the dividends paid per share during a certain
period and dividing that amount by the current Offering Price. Unlike current
yield, the current distribution rate may include income distributions from
sources other than dividends and interest received by the Fund.

The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see
"General Information" in the SAI.

How is the Trust Organized?

The Fund is a non-diversified series of Franklin Value Investors Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. The Trust, formerly known as the Franklin Balance Sheet Investment Fund,
was organized as a Massachusetts business trust on September 11, 1989, and is
registered with the SEC under the 1940 Act. Shares of each series of the Trust
have equal and exclusive rights to dividends and distributions declared by that
series and the net assets of the series in the event of liquidation or
dissolution. Shares of the Fund are considered Class I shares for redemption,
exchange and other purposes. In the future, additional series and classes of
shares may be offered.

The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.

The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.

How Taxation Affects You and the Fund

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 Regarding
Taxation" 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 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.

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 such
distributions are received in cash or in additional shares.

Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to 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 a loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.

For the fiscal year ended October 31, 1995, 99.62% of the income dividends paid
by the Fund qualified for the corporate dividends-received deduction, subject to
certain holding period and debt financing restrictions imposed under the Code on
the corporation claiming the deduction.

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

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

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 on distributions received by you from the Fund
and the application of foreign tax laws to these distributions.

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

About Your Account

How Do I Buy Shares?

As of February 5, 1996, the Fund is closed to new investors, except retirement
plan accounts. If you were a shareholder of record as of February 5, 1996, you
may continue to add to your account with as little as $100 or buy additional
shares through the reinvestment of dividend or capital gain distributions. We
may waive the minimum for retirement plans. We may also refuse any order to buy
shares. Currently, the Fund does not allow investments by Market Timers.

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.

Quantity Discounts. The sales charge you pay depends on the dollar amount you
invest, as shown in the table below.

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*
- -----------------------------------------------------------------------------
Less than $500,000 1.50% 1.52% 1.50%

$500,000 but less than $1,000,000 1.00% 1.01% 1.00%

$1,000,000 or more** None None None

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

Cumulative Quantity Discounts. To determine if you may pay a reduced sales
charge, the amount of your current purchase is added to the cost or current
value, whichever is higher, of your Class I and Class II 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. You may buy 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.

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
Fund 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 and Sell Shares? - Letter of Intent" in the SAI or call
Shareholder Services.

Group Purchases. If you are a member of a qualified group, you may buy Fund
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 sales and other Franklin Templeton Fund 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. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1, 2 or 3
below: (i) the distributions or payments must be reinvested within 365 days of
their payment date, and (ii) Class II distributions may be reinvested in either
Class I or Class II shares. Class I distributions may only be reinvested in
Class I shares.

The Fund's sales charges will not apply if you are buying shares with money from
the following sources:

1. Dividend and capital gain distributions from any Franklin Templeton Fund or
a REIT sponsored or advised by Franklin Properties, Inc.

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

3. 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, the Templeton
Variable Products Series Fund, or the Franklin Government Securities Trust. You
should contact your tax advisor for information on any tax consequences that may
apply.

4. Redemptions from any Franklin Templeton Fund if you:

o Originally paid a sales charge on the shares,

o Reinvest the money within 365 days of the redemption date, and

o Reinvest the money in the same class of shares.

An exchange is not considered a redemption for this privilege. The Contingent
Deferred Sales Charge will not be waived if the shares reinvested were subject
to a Contingent Deferred Sales Charge when sold. We will credit your account in
shares, at the current value, in proportion to the amount reinvested for any
Contingent Deferred Sales Charge paid in connection with the earlier redemption,
but a new Contingency Period will begin.

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.

5. Redemptions from other mutual funds

If you sold shares of a fund that is not a Franklin Templeton Fund within the
past 60 days, you may invest the proceeds without any sales charge if (a) the
investment objectives were similar to the Fund's, and (b) your shares in that
fund were subject to any front-end or contingent deferred sales charges at the
time of purchase. You must provide a copy of the statement showing your
redemption.

The Fund's sales charges will also not apply to purchases by:

6. 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.

7. Group annuity separate accounts offered to retirement plans

8. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (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.
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"
above.

9. 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.

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

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

12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

13. 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

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

15. Accounts managed by the Franklin Templeton Group

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

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, please call our Retirement Plans Department.

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 below apply to Securities Dealers who initiate and are responsible
for certain purchases made without a sales charge. A Securities Dealer may only
receive one of these payments for each qualifying purchase. Securities Dealers
who receive payments under items 1 or 2 below will earn the Rule 12b-1 fee
associated with the purchase starting in the thirteenth calendar month after the
purchase. The payments described below are paid by Distributors or one of its
affiliates, at its own expense, and not by the Fund or its shareholders.

1. Securities Dealers will receive up to 1% of the purchase price for purchases
of $1 million or more.

2. Securities Dealers may, in the sole discretion of Distributors, receive up to
1% of the purchase price for purchases made under waiver category 8 above.

3. Securities Dealers may receive up to 0.25% of the purchase price for
purchases made under waiver categories 6, 9 and 10 above.

Please see "How Do I Buy and Sell Shares - Other Payments to Securities Dealers"
in the SAI for any breakpoints that may apply.

Securities Dealers may receive additional compensation from Distributors or an
affiliated company in connection with selling shares of the Franklin Templeton
Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales or training programs, or promotional
activities. Registered representatives and their families may be paid for travel
expenses, including lodging, in connection with business meetings or seminars.
In some cases, this compensation may only be available to Securities Dealers
whose representatives have sold or are expected to sell significant amounts of
shares. Securities Dealers may not use sales of the Fund's shares to qualify for
this compensation if prohibited by the laws of any state or self-regulatory
agency, such as the NASD.

General

Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.

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.

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

METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account owners

2. Include any outstanding share certificates for the shares
you're exchanging
- --------------------------------------------------------------------------------
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.

If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at Net Asset Value.

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 objective 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.

Will Sales Charges Apply to My Exchange?

You generally will not pay a front-end sales charge on exchanges. Exchanges of
shares of the Fund that were purchased with a lower sales charge into a fund
that has a higher sales charge will be charged the difference, unless the shares
were held in the Fund for at least twelve months before executing the exchange
(six months for shares purchased before September 30, 1994, by persons who were
shareholders of the Fund as of July 30, 1994). 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.

Contingent Deferred 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.
For accounts with shares subject to a Contingent Deferred Sales Charge, shares
are exchanged into the new fund in the order they were purchased. If you
exchange 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. For
more information about the Contingent Deferred Sales Charge, please see that
section under "How Do I Sell Shares?"

Exchange Restrictions

Please be aware that the following restrictions apply to exchanges:

o You may only exchange shares within the same class.

o The accounts must be identically registered. You may 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(s). 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 our Retirement Plans Department 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 Currently, the Fund does not allow investments by Market Timers.

Because excessive trading can hurt Fund performance 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.

How Do I Sell Shares?

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

METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account
owners

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 additional requirements.
- --------------------------------------------------------------------------------
By Phone Call Shareholder Services

(Only available if Telephone requests will be accepted:
you have completed
and sent to us the o If the request is $50,000 or less. Institutional
telephone redemption accounts may exceed $50,000 by completing a separate
agreement included agreement. Call Institutional Services to receive a
with this prospectus) 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 30 days
- --------------------------------------------------------------------------------
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 sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.

If you sell shares you just 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 our Retirement Plans Department.

Contingent Deferred Sales Charge

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 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. The charge is 1% of the value of the shares sold or the Net
Asset Value at the time of purchase, whichever is less.

We will first redeem shares not subject to the charge in the following order:

1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,

2) Shares purchased with reinvested dividends and capital gain distributions,
and

3) Shares held longer than the Contingency Period.

We then 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 Exchanges

o Account fees

o Sales of shares purchased pursuant to a sales charge waiver

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

o Redemptions following the death of the shareholder or beneficial owner

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

o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% a month of an account's Net Asset Value (3%
quarterly, 6% semiannually or 12% annually). For example, if you maintain
an annual balance of $1 million, you can withdraw up to $120,000 annually
through a systematic withdrawal plan 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 Distributions from employee benefit plans, including those due to
termination or plan transfer

What Distributions Might I Receive from the Fund?

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 a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.

The Fund declares dividends from its net investment income quarterly, payable in
March, June, September and December, to shareholders of record on the first
business day before the 15th of the month and pays them on or about the last day
of that month. 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.

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.

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 the same class of 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" under
"Services to Help You Manage Your Account."

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 Fund. For
Trust Company retirement plans, special forms are required to receive
distributions in cash. You may change your distribution option at any time by
notifying us by mail or phone. Please allow at least seven days prior to the
record date for us to process the new option.

Transaction Procedures and Special Requirements

How and When Shares are Priced

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

To calculate Net Asset Value per share, the Fund's assets are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares outstanding. The Fund's assets are valued as
described under "How Are Fund Shares Valued?" in the SAI.

The Price We Use When You Buy or Sell Shares

You buy shares at the Offering Price, unless you qualify to buy shares at a
reduced sales charge or with no sales charge. The Offering Price is based on the
Net Asset Value per share and includes the maximum sales charge. We calculate it
to two decimal places using standard rounding criteria. You sell shares at Net
Asset Value.

We will use the Net Asset Value 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.

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 written instructions signed by all registered owners, 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 A description of the request,

o For exchanges, the name of the fund you're 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.

A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. 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. In this case, you should send the certificate and assignment
form in separate envelopes.

Telephone Transactions

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

When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. 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.

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 written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.

Trust Company Retirement Plan Accounts. You may not 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 our Retirement Plans Department.

Account Registrations and Required Documents

When you open an account, you need 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, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. 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. If you register your account as a trust, you should have a valid written
trust document to avoid 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 proc-essing 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 will not 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.

Electronic Instructions. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We can accept electronic instructions directly from your dealer or
representative without further inquiry. Electronic instructions may be processed
through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.

Tax Identification Number

For tax reasons, we must 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 $1,250 ($500 for an IRA
account). 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 $2,500.

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

You may have money transferred from your paycheck to the Fund to buy additional
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" below. There are no
service charges for establishing or maintaining a systematic withdrawal plan.

You will generally receive your payment by the fifth business day of the month
in which a payment is scheduled. Beginning with your February 1997 payment,
however, 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.

Because of the Fund's front-end sales charge, 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?"

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

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

The Fund may also 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.

Electronic Fund Transfers

You may choose to have dividend and capital gain distributions from 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 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.

You will need the Fund's code number to use TeleFACTS. The Fund's code is 150.

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 or an interim
quarterly report.

Institutional Accounts

Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further 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 and Distributors are also located at this address. Advisory Services is
located at One Parker Plaza, Sixteenth Floor, Fort Lee, New Jersey 07024. 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 1-800/524-4040 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 Plans 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

1940 Act - Investment Company Act of 1940, as amended

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

Advisory Services - Franklin Advisory Services, Inc., the Fund's investment
manager

Board - The Board of Trustees of the Trust

CD - Certificate of deposit

Class I and Class II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Because the Fund's sales charge structure and Rule 12b-1 plan are similar
to those of Class I shares, shares of the Fund are considered Class I shares for
redemption, exchange and other purposes.

Code - Internal Revenue Code of 1986, as amended

Contingency Period - The 12 month period during which a Contingent Deferred
Sales Charge may apply. 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 Trustees."

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.

Exchange - New York Stock Exchange

Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust

Franklin Templeton Funds - The Franklin Funds and the Templeton Funds

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 Timer(s) - Market Timers generally include market timing or 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.

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

Offering Price - The public offering price is based on the Net Asset Value per
share and includes the 1.50% sales charge.

Qualified Retirement Plan(s) - 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.

REIT - Real Estate Investment Trust

Resources - Franklin Resources, Inc.

SAI - Statement of Additional Information

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

Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund

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 VALUE FUND

INVESTMENT STRATEGY

GROWTH & INCOME

MARCH 11, 1996

AS AMENDED DECEMBER 1, 1996

FRANKLIN VALUE INVESTORS TRUST

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

The Fund's SAI, dated March 11, 1996, as may be amended from time to time,
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 or
write the Fund at the address shown.

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.

FRANKLIN
VALUE
FUND
MARCH 11, 1996
AS AMENDED DECEMBER 1, 1996

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

Table of Contents

About the Fund

Expense Summary......................................................... 2
Financial Highlights.................................................... 3
How does the Fund Invest its Assets?.................................... 4
What are the Fund's Potential Risks?.................................... 11
Who Manages the Fund?................................................... 16
How does the Fund Measure Performance?.................................. 19
How is the Trust Organized?............................................. 19
How Taxation Affects You and the Fund................................... 20
About Your Account
How Do I Buy Shares?.................................................... 21
May I Exchange Shares for Shares of Another Fund?....................... 27
How Do I Sell Shares?................................................... 30
What Distributions Might I Receive from the Fund?....................... 32
Transaction Procedures and Special Requirements......................... 34
Services to Help You Manage Your Account................................ 38
Glossary
Useful Terms and Definitions............................................ 42
Appendix
Description of Ratings ................................................. 44

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 contractual management and Rule 12b-1 fees of each
class for the current fiscal year and annualized operating expenses for Class I
shares for the period March 11, 1996, to June 30, 1996.
Your actual expenses may vary.

CLASS I CLASS II

A.Shareholder Transaction Expenses+
Maximum Sales Charge Imposed on Purchases
(as a percentage of Offering Price) 4.50%++ 1.99%+++
Paid at the time of purchase 4.50% 1.00%
Paid at redemption++++ None 0.99%

B. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%* 0.75%*
Rule 12b-1 Fees 0.35%** 1.00%**
Other Expenses 0.51% 0.51%
Total Fund Operating Expenses 1.61%* 2.26%*

C. EXAMPLE

Assume the annual return for each class is 5% and operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.

1 YEAR 3 YEARS
Class I $61*** $93
Class II $42 $80

For the same Class II investment, you would pay projected expenses of $33 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? - Deciding Which Class to Buy."

++++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. 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.

*Advisers has agreed in advance to limit its management fees and make certain
payments to reduce the Fund's expenses. With this reduction, contractual and
expected management fees would be 0.49% and total operating expenses for Class I
and Class II would be 1.35% and 2.00%.

**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 financial history for Class I shares of the Fund. The
information has not been audited. Information for Class II shares will be
included after they have been offered to the public for a reasonable period of
time.

MARCH 11, 1996
TO JUNE 30, 1996
CLASS I (UNAUDITED)
Per Share Operating Performance
Net Asset Value at beginning of period $15.00
Net investment income 0.045
Net realized & unrealized gain on securities 1.025
Total from investment operations 1.070
Distributions from net investment income (0.03)
Distributions from realized capital gains -
Total distributions (0.03)
Net Asset Value at end of period $16.04
Total Return* 7.13%
Ratios/Supplemental Data
Net assets at end of period (in 000's) $3,950
Ratio of expenses to average net assets 1.34%+,++
Ratio of expenses to average net assets
(before fee waiver and expense reduction) 1.53%++
Ratio of net investment income to average net assets 1.48%++
Portfolio turnover rate 1.94%
Average commission rate** 0.0396

+During the period indicated, Advisory Services agreed in advance to waive all
or a portion of its management fees and pay all or a portion of the other
expenses of the Fund.

++Annualized.

*Total return measures the change in value of an investment over the period
indicated. It is not annualized. It does not include the maximum front-end sales
charge or Contingent Deferred Sales Charge, and assumes reinvestment of
dividends and capital gains at Net Asset Value.

**Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.

HOW DOES THE FUND INVEST ITS ASSETS?

THE FUND'S INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek long-term total return. The
objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. Of course, there is no assurance that the Fund's objective
will be achieved.

TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST

The Fund seeks to achieve its objective by investing at least 65% of its assets
in the securities of companies that Advisory Services believes are undervalued.
The securities the Fund may invest in include common and preferred stocks,
warrants, secured and unsecured bonds, and notes. Income is a secondary
consideration of the Fund, although it is not part of the Fund's investment
objective.

The Fund invests at least 65% of its assets in companies of various sizes that
Advisory Services believes are selling substantially below the underlying value
of their assets or their private market value. Private market value is what a
sophisticated investor would pay for the entire company. Advisory Services may
take into account a variety of factors in order to determine whether to buy or
hold securities, including: low price to earnings ratio relative to the market,
industry group or earnings growth; low price relative to book value or cash
flow; valuable franchises, patents, trademarks, trade names, distribution
channels or market share for particular products or services, tax loss
carryforwards, or other intangibles that may not be reflected in stock prices;
ownership of understated or underutilized tangible assets such as land, timber
or minerals; underutilized cash or investment assets; and unusually high current
income. These criteria and others, alone and in combination, may identify
companies that are attractive to financial or strategic acquirers (i.e. takeover
candidates). Purchases may include companies in cyclical businesses, turnarounds
and companies emerging from bankruptcy. Purchase decisions may also be
influenced by company and its insiders' stock buy-backs.

In anticipation of and during temporary defensive periods or when the type of
investments in which the Fund intends to invest are not available at prices that
Advisory Services believes are attractive, the Fund may invest up to 100% of its
total assets in: (1) securities of the U.S. government and certain of its
agencies or instrumentalities that mature in one year or less from the date of
purchase, including U.S. Treasury bills, notes and bonds, and securities of the
Government National Mortgage Association, the Federal Housing Administration and
other agency or instrumentality issues or guarantees that are supported by the
full faith and credit of the U.S. government; (2) obligations issued or
guaranteed by other U.S. government agencies or instrumentalities, some of which
are supported by the right of the issuer to borrow from the U.S. government
(e.g., obligations of the Federal Home Loan Banks) and some of which are backed
by the credit of the issuer itself (e.g., obligations of the Student Loan
Marketing Association); (3) bank obligations, including negotiable and
non-negotiable CDs (subject to the 10% aggregate limit on the Fund's investment
in illiquid securities), letters of credit and bankers' acceptances, or
instruments secured by these types of obligations, issued by banks and savings
institutions that are subject to regulation by the U.S. government, its agencies
or instrumentalities and that have assets of over $1 billion, unless these types
of obligations are guaranteed by a parent bank that has total assets in excess
of $5 billion; (4) commercial paper considered by Advisory Services to be of
high quality, which must be rated within the two highest rating categories by
Standard & Poor's Corporation ("S&P") or Moody's Investors Service ("Moody's")
or, if unrated, issued by a company having an outstanding debt issue rated at
least AA by S&P or Aa by Moody's; and (5) corporate obligations including, but
not limited to, corporate notes, bonds and debentures considered by Advisory
Services to be high grade or that are rated within the two highest rating
categories by S&P or Moody's. Please see "Appendix" for a discussion of ratings.

Whether investing for value or for other reasons, Advisory Services may buy any
of the types of securities described below and in the SAI. The Fund currently
intends to invest primarily in domestic securities, but it may also invest its
assets in foreign securities.

Common and Preferred 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 Fund may also
invest in convertible preferred stocks that offer enhanced yield features, such
as Preferred Equity Redemption Cumulative Stock ("PERCS"), and in synthetic
convertible securities.

Foreign Securities. The Fund may invest in foreign securities if these
investments are consistent with the Fund's investment objective. The Fund may
buy sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs"). ADRs
are certificates issued by U.S. banks representing the right to receive
securities of a foreign issuer deposited with that bank or a correspondent bank.
GDRs and EDRs are typically issued by foreign banks or trust companies and
evidence ownership of underlying securities issued by either a foreign or a U.S.
corporation. The Fund may also buy the securities of foreign issuers directly in
foreign markets, and may buy the securities of issuers in developing nations.
Please see "What are the Fund's Potential Risks? - Foreign Securities" in this
Prospectus.

Options. The Fund may write (sell) call options on securities that are listed on
a national securities exchange or traded over-the-counter ("OTC") and buy listed
and OTC call and put options on securities and securities indices. The Fund may
write a call option only if the option is "covered," which means so long as the
Fund is obligated as the writer of a call option, it will either own (i) the
underlying security subject to the call or (ii) a call on the same security
where the exercise price of the call held is equal to or less than the exercise
price of the call written. The Fund will not invest in any stock options or
stock index options, other than for hedging or in covered positions, if the
option premiums paid on its open positions exceed 5% of the value of the Fund's
total assets. The Fund may enter into closing purchase transactions with respect
to its open option positions.

An option on a security is a contract that allows the buyer of the option, in
return for the premium paid, the right to buy a specified security (call option)
or to sell a specified security (put option) from or to the writer of the option
at a designated price during the term of the option. Options on securities
indices are similar to options on securities except that, rather than the right
to buy or sell particular securities at a specified price, options on a
securities 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 (for calls, or less than, for puts) the exercise price of the
option. The Fund may also engage in spread and straddle transactions, although
it intends to limit these transactions to no more than 5% of the Fund's net
assets. Please see "What are the Fund's Potential Risks?" below for more
information about options.

Futures. The Fund may enter into (i) contracts for the purchase or sale for
future delivery of securities, (ii) contracts based on securities indices and
(iii) options on these contracts. At the present time, the Fund intends to limit
these investments to no more than 5% of its net assets.

Options, futures and options on futures are generally considered "derivative
securities." The Fund's investment in options, futures and options on futures
will be for portfolio hedging or other appropriate risk management purposes in
an effort to stabilize principal fluctuations to achieve the Fund's investment
objective and not for speculation.

Structured Notes. The Fund may invest in structured notes. Structured notes
entitle their holders to receive some portion of the principal or interest
payments that would be due on traditional debt obligations. A zero coupon bond,
which is the right to receive only the principal portion of a debt security, is
a simple form of structured note. A structured note's performance or value may
be linked to a change in return, interest rate, or value at maturity of the
change in an identified or "linked" equity security, currency, interest rate,
index or other financial indicator. The holder's right to receive principal or
interest payments on a structured note may also vary in timing or amount,
depending on changes in certain rates of interest or other external events.

Loan Participations. Through a loan participation, the Fund can buy from a
lender a portion of a larger loan that it has made to a borrower. By buying loan
participations, the Fund may be able to acquire interests in loans from
financially strong borrowers that the Fund could not otherwise acquire. These
instruments are typically interests in floating or variable rate senior loans to
U.S. corporations, partnerships, and other entities. Generally, loan
participations are sold without guarantee or recourse to the lending institution
and are subject to the credit risks of both the borrower and the lending
institution. While loan participations generally trade at par value, if the
borrowers have credit problems, some may sell at discounts. To the extent the
borrower's credit problems are resolved, the loan participations may then
appreciate in value. These loan participations, however, carry substantially the
same risk as that for defaulted debt obligations and may cause loss of the
entire investment. Most loan participations are illiquid and therefore will be
included in the Fund's limitation on illiquid investments.

Mortgage-Backed and Asset-Backed Securities. The Fund may invest in
mortgage-backed securities, including collateralized mortgage obligations, which
represent direct or indirect participation in, or are collateralized by and
payable from, mortgage loans secured by real property. In addition, the Fund may
buy asset-backed securities, which represent participation in, or are secured by
and payable from, assets such as motor vehicle installment sale contracts,
installment loan contracts, leases of various types of real and personal
property, receivables from revolving credit (credit card) agreements and other
categories of receivables. These securities are generally issued by trusts and
special purpose corporations. Please see "What are the Fund's Potential Risks? -
Mortgage-Backed and Asset-Backed Securities" below for more information.

Trade Claims. The Fund may invest in trade claims, which are purchased from
creditors of companies in financial difficulty who seek to reduce the number of
debt obligations they are owed. At the present time, however, the Fund intends
to limit these investments to no more than 5% of the Fund's net assets.

Small Companies. The Fund may invest in companies that have relatively small
revenues, limited product lines, and a small share of the market for their
products or services. Small companies may lack depth of management, the ability
to internally generate funds necessary for growth or potential development, or
the ability to generate funds through external financing on favorable terms.
They may also attempt to develop or market new products or services for which
markets are not yet established and may never become established. Due to these
and other factors, small companies may suffer significant losses, as well as
realize substantial growth. Please see "What are the Fund's Potential Risks? -
Small Companies" below for more information.

High Yielding, Fixed-Income Securities. The Fund may invest up to 35% of its net
assets in lower rated, fixed-income and convertible securities (those rated BB
or lower by S&P or Ba or lower by Moody's) and unrated securities of comparable
quality, which Advisory Services believes possess intrinsic values in excess of
the current market prices of such securities. Lower rated bonds are commonly
called "junk bonds." Lower rated securities are considered by S&P, on balance,
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation, and
they generally involve more credit risk than securities in the higher rating
categories. Lower rated securities in which the Fund may invest include
securities rated D, the lowest rating category of S&P, or unrated securities of
comparable quality. Debt obligations rated D are in default and the payment of
interest and/or repayment of principal is in arrears. Please see "What are the
Fund's Potential Risks?" below for more information.

Zero Coupon Securities and Pay-in-Kind Bonds. Zero coupon or deferred interest
securities are debt obligations that do not entitle the holder to any periodic
payments of interest before maturity or a specified date when the securities
begin paying current interest (the "cash payment date") and therefore are
generally issued and traded at a discount from their face amounts or par value.
The discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, typically decreases as the final maturity
or cash payment date of the security approaches. The market prices of zero
coupon securities are generally more volatile than the market prices of
securities that pay interest periodically and are likely to respond to changes
in interest rates to a greater degree than do non-zero coupon or deferred
interest securities having similar maturities and credit quality. Current
federal income tax law requires that a holder of a zero coupon security report
as income each year the portion of the original issue discount on the security
that accrues that year, even though the holder receives no cash payments of
interest during the year.

Pay-in-kind bonds are securities that pay interest through the issuance of
additional bonds. The Fund will be deemed to receive interest over the life of
the bonds and be treated as if interest were paid on a current basis for federal
income tax purposes, although no cash interest payments are received by the Fund
until the cash payment date or until the bonds mature. More information is
included under "What are the Fund's Potential Risks?" and in the tax section of
the SAI.

Restricted Securities. Some of the securities the Fund buys are considered
"restricted securities." The Fund's investment in restricted securities may not
exceed 15% of its net assets. Restricted securities are securities with legal or
contractual restrictions on resale, including securities that are not registered
under the 1933 Act. Securities not registered under the 1933 Act may not be sold
without first being registered, unless there is an available exemption under the
1933 Act. Normally the costs of registering these securities is borne by the
issuer. Restricted securities involve certain risks, including the risk that a
secondary market may not exist when a holder wants to sell them. In addition,
the price and valuation of these securities may reflect a discount because they
are perceived as having less liquidity than similar securities that are not
restricted.

As with other securities in the Fund's portfolio, if no readily available market
quotations exist for restricted securities, they will be valued at fair value in
accordance with procedures adopted by the Board. If the Fund suddenly has to
sell restricted securities, time constraints or a lack of interested, qualified
buyers may prevent the Fund from receiving the carrying value of the securities
at the time of the sale. Alternatively, Advisory Services may sell unrestricted
securities it might have retained if the Fund had only held unrestricted
securities.

OTHER INVESTMENT POLICIES OF THE FUND

Borrowing. The Fund does not borrow money or mortgage or pledge any of its
assets, except that it may borrow up to 33 1/3% of its total assets (including
the amount borrowed) in order to meet redemption requests that might otherwise
require the untimely disposition of portfolio securities or for other temporary
or emergency purposes and may pledge its assets in connection therewith. The
Fund will not make any additional investments while any borrowings exceed 5% of
its total assets.

Illiquid Investments. The Fund's policy is not to invest more than 10% of its
net assets, at the time of purchase, 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.

Short-Selling. The Fund may make short sales, which are transactions in which
the Fund sells a security it does not own in anticipation of a decline in the
market value of that security.

WHAT ARE THE FUND'S POTENTIAL RISKS?

The Fund's Approach to Value Investing. The Fund will invest principally in the
securities of companies believed by Advisory Services to be undervalued.
Securities of a company may be undervalued as a result of overreaction by
investors to unfavorable news about a company, industry, or the stock market in
general, or as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting a company.
Often these companies are attempting to recover from business setbacks or
adverse events (turnarounds), cyclical downturns, or, in certain cases,
bankruptcy.

You should carefully consider the substantial risks involved in investing in
securities of foreign issuers - risks that are often heightened for investments
in developing markets. For example, the small size, inexperience and limited
volume of trading on securities markets in certain developing countries may make
the Fund's investments in developing countries illiquid and more volatile than
investments in more developed countries, and the Fund may be required to
establish special custody or other arrangements before making certain
investments in these countries. The laws of some foreign countries may also
limit the ability of the Fund to invest in securities of certain issuers located
in those countries.

Options. The purchase and sale of stock options and stock index options,
including the writing of covered call options, involve risks different from
those involved with direct investments in securities. A liquid secondary market
for any particular option may not be available when a position is sought to be
closed and the inability to close a position may have an adverse impact on the
Fund's ability to effectively hedge securities. In addition, there may be an
imperfect correlation between movements in the securities on which an option
contract is based and movements in the securities in the Fund's portfolio.
Successful use of option contracts is further dependent on Advisory Services'
ability to correctly predict movements in the securities markets, but no
assurance can be given that Advisory Services' judgment will be correct.

Mortgage-backed and Asset-backed Securities. Mortgage-backed and asset-backed
securities are often subject to more rapid repayment than their stated maturity
dates would indicate because of the pass-through of prepayments of principal on
the underlying loans. During periods of declining interest rates, prepayment of
loans underlying mortgage-backed and asset-backed securities can be expected to
accelerate, and thus impair the Fund's ability to reinvest the returns of
principal at comparable yields. Accordingly, the market value of these
securities will vary with changes in market interest rates generally and in
yield differentials among various kinds of U.S. government securities and other
mortgage-backed and asset-backed securities. Asset-backed securities present
certain additional risks that are not presented by mortgage-backed securities
because asset-backed securities generally do not have the benefit of a security
interest in collateral that is comparable to mortgage assets. There is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.

Small Companies. Historically, small capitalization stocks have been more
volatile in price than larger capitalization stocks. Among the reasons for the
greater price volatility of these securities are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
these stocks, and the greater sensitivity of small companies to changing
economic conditions. Besides exhibiting greater volatility, small company stocks
may, to a degree, fluctuate independently of larger company stocks. Small
company stocks may decline in price as large company stocks rise, or rise in
price as large company stocks decline. You should therefore expect that the
shares of a fund that invests a substantial portion of its net assets in small
company stocks to be more volatile than the shares of a fund that invests solely
in larger capitalization stocks.

High Yielding, Fixed-Income Securities. Because of the Fund's policy of
investing in higher yielding, higher risk securities, an investment in the Fund
is accompanied by a higher degree of risk than is present with an investment in
higher rated, lower yielding securities. 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. If you are on a fixed income or retired, you should also 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.

The market value of lower rated, fixed-income securities and unrated securities
of comparable quality, commonly known as junk bonds, tends to reflect individual
developments affecting the issuer to a greater extent than the market value of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Lower rated securities also tend to be more sensitive
to economic conditions than higher rated securities. These lower rated,
fixed-income securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even securities rated BBB by S&P or Baa by Moody's, ratings which
are considered investment grade, possess some speculative characteristics.

Issuers of high yielding, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with acquiring the securities of these issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may experience financial stress.
During these periods, these issuers may not have sufficient cash flow to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific developments affecting
the issuer, the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer may be significantly greater for the holders of high
yielding securities because the securities are generally unsecured and are often
subordinated to other creditors of the issuer. Current prices for defaulted
bonds are generally significantly lower than their purchase price, and the Fund
may have unrealized losses on defaulted securities that are reflected in the
price of the Fund's shares. In general, securities that default lose much of
their value in the time period before the actual default so that the Fund's net
assets are impacted before the default. The Fund may retain an issue that has
defaulted because the issue may present an opportunity for subsequent price
recovery.

High yielding, fixed-income securities frequently have call or buy-back features
that permit an issuer to call or repurchase the securities from the Fund.
Although these securities are typically not callable for a period from three to
five years after their issuance, if a call were exercised by the issuer during
periods of declining interest rates, Advisory Services may find it necessary to
replace the securities with lower yielding securities, which could result in
less net investment income to the Fund.

The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities that trade in a broader secondary retail market. Reduced liquidity in
the secondary market may have an adverse impact on market price and the Fund's
ability to dispose of particular issues, when necessary, to meet the Fund's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales. For more information, please see "How Are Fund
Shares Valued?" in the SAI.

The Fund is authorized to acquire high yielding, fixed-income securities that
are sold without registration under the federal securities laws and therefore
carry restrictions on resale. The Fund may acquire high yielding, fixed-income
securities during an initial underwriting. These securities involve special
risks because they are new issues. The Fund has no arrangement with its
underwriter or any other person concerning the acquisition of these securities.

Zero Coupon Securities and Pay-in-Kind Bonds. The credit risk factors pertaining
to lower rated securities also apply to lower rated zero coupon, deferred
interest and pay-in-kind bonds. These bonds carry an additional risk in that,
unlike bonds that pay interest throughout the period to maturity, the Fund will
realize no cash until the cash payment date and, if the issuer defaults, the
Fund may obtain no return at all on its investment. Zero coupon, deferred
interest and pay-in-kind bonds involve additional special considerations. During
periods when the Fund receives no cash interest payments on its zero coupon
securities or deferred interest or pay-in-kind bonds, it may be required to
dispose of portfolio securities to meet the distribution requirements and such
sales may be subject to the risk factors discussed above. The Fund is not
limited in the amount of its assets that may be invested in these types of
securities. For more information, please see "How Taxation Affects You and the
Fund."

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 also cause the Fund's share price to
decline. Changes in currency valuations will also affect the price of Fund
shares. The value of worldwide stock markets, currency valuations and interest
rates has increased and decreased in the past. These changes are unpredictable
and may happen again in the future.

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 between the
two 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 since its inception is:

William Lippman

Portfolio Manager of Advisory Services

Margaret McGee

Portfolio Manager of Advisory Services

Ms. McGee holds a bachelor of arts degree from William Paterson College. She has
been with the Franklin Templeton Group since 1988.

Bruce C. Baughman

Portfolio Manager of Advisory Services

Mr. Baughman holds a bachelor of arts degree from Stanford University and a
master of science degree in accounting from New York University. He has been
with the Franklin Templeton Group since 1988.

Management Fees. The Fund pays its own operating expenses. These expenses
include Advisory Services' management fees; taxes, if any; custodian, legal and
auditing fees; the fees and expenses of Board members who are not members of,
affiliated with, or interested persons of Advisory Services; salaries of any
personnel not affiliated with Advisory Services; insurance premiums; trade
association dues; expenses of obtaining quotations for calculating the Fund's
Net Asset Value; and printing and other expenses that are not expressly assumed
by Advisory Services.

Under its management agreement, the Fund pays Advisory Services a management fee
equal to an annual rate of 0.75% on the first $500 million of the average daily
net assets of the Fund, 0.625% per year on the next $500 million of the average
daily net assets of the Fund, and 0.50% per year on the average daily net assets
of the Fund in excess of $1 billion. The fee is computed daily and paid monthly.
During the Fund's start-up period of the Fund, Advisory Services agreed in
advance to waive a portion of its management fees. Advisory Services may
terminate this arrangement at any time.

THE RULE 12B-1 PLANS

Each class has a distribution plan or "Rule 12b-1 Plan" under which it may pay
or reimburse Distributors or others for activities 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, printing prospectuses
and reports used for sales purposes, preparing and distributing sales literature
and advertisements, and a prorated portion of Distributors' overhead expenses.

Payments by the Fund under the Class I plan may not exceed 0.35% per year of
Class I's average daily net assets. Of this amount, the Fund may reimburse up to
0.25% to Distributors or others and may reimburse an additional 0.10% to
Distributors for distribution expenses. 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. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Performance figures are usually calculated using the
maximum sales charge, but certain figures may not include the sales charge.

Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Offering Price of the
class. Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.

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

HOW IS THE TRUST ORGANIZED?

The Fund is a non-diversified series of Franklin Value Investors Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. The Trust, formerly known as the Franklin Balance Sheet Investment Fund,
was organized as a Massachusetts business Trust on September 11, 1989, and is
registered with the SEC under the 1940 Act. The Fund began offering two classes
of shares on September 1, 1996: Franklin Value Fund - Class I and Franklin Value
Fund Class II. All shares purchased before that time are considered Class I
shares. Additional classes and series of shares may be offered in the future.

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 (1) affecting only that class, (2) expressly
required to be voted on separately by state law, or (3) required to be voted on
separately by the 1940 Act. Shares of each class of a series have the same
voting and other rights and preferences as the other classes and series of the
Trust for matters that affect the Trust as a whole.

HOW TAXATION AFFECTS YOU AND THE FUND

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. $2500
To Add to Your Account. $ 100

*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares. Currently, the Fund does not allow investments by Market Timers.

DECIDING WHICH CLASS TO BUY

You should consider a number of factors when deciding which class of shares to
buy. If you plan to buy $1 million or more in a single payment or you qualify to
buy Class I shares without a sales charge, you may not buy Class II shares.

Generally, you should consider buying Class I shares if:

o you expect to invest in the Fund over the long term;

o you qualify to buy Class I shares at a reduced sales charge; or

o you plan to buy $1 million or more over time.

You should consider Class II shares if:

o you expect to invest less than $100,000 in the Franklin Templeton Funds; and

o you plan to sell a substantial number of your shares within approximately six
years or less of your investment.

Class I shares are generally more attractive for long-term investors because of
Class II's higher Rule 12b-1 fees. These may accumulate over time to outweigh
the lower Class II front-end sales charge and result in lower income dividends
for Class II shareholders. If you qualify to buy Class I shares at a reduced
sales charge based upon the size of your purchase or through our Letter of
Intent or cumulative quantity discount programs, but plan to hold your shares
less than approximately six years, you should evaluate whether it is more
economical for you to buy Class I or Class II shares.

For purchases of $1 million or more, it is considered more beneficial for you to
buy Class I shares since there is no front-end sales charge, even though these
purchases may be subject to a Contingent Deferred Sales Charge. Any purchase of
$1 million or more is therefore automatically invested in Class I shares. You
may accumulate more than $1 million in Class II shares through purchases over
time, but if you plan to do this you should determine whether it would be more
beneficial for you to buy Class I shares through a Letter of Intent.

Please consider all of these factors before deciding which class of shares to
buy. There are no conversion features attached to either class of shares.

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%

* 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 1933 Act. Financial institutions or their
affiliated brokers may receive an agency transaction fee in the percentages
indicated.

**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 "Deciding Which
Class to Buy."

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 Class I and Class II
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.

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell 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 sales and other Franklin Templeton Fund 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.

The Fund's sales charges will not apply if you are buying Class I shares with
money from the following sources or Class II shares with money from the sources
in waiver categories 1 or 4:

1. Dividend and capital gain distributions from any Franklin Templeton Fund or
a REIT sponsored or advised by Franklin Properties, Inc.

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

3. 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,
the Templeton Variable Products Series Fund, or the Franklin Government
Securities Trust. You should contact your tax advisor for information on
any tax consequences that may apply.

4. Redemptions from any Franklin Templeton Fund if you:

o Originally paid a sales charge on the shares,

o Reinvest the money within 365 days of the redemption date, and

o Reinvest the money in the same class of shares.

5. Redemptions from other mutual funds

The Fund's sales charges will also not apply to Class I purchases by:

6. 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.

7. Group annuity separate accounts offered to retirement plans

8. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (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. 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.

9. 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.

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

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

12. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

13. 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

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

15. Accounts managed by the Franklin Templeton Group

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

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.

OTHER PAYMENTS TO SECURITIES DEALERS

The payments below apply to Securities Dealers who initiate and are responsible
for Class II purchases and certain Class I purchases made without a sales
charge. A Securities Dealer may only receive one of these payments for each
qualifying purchase. Securities Dealers who receive payments under items 1, 2 or
3 below will earn the Rule 12b-1 fee associated with the purchase starting in
the thirteenth calendar month after the purchase. The payments described below
are paid by Distributors or one of its affiliates, at its own expense, and not
by the Fund or its shareholders.

1. Securities Dealers may receive up to 1% of the purchase price for Class II
purchases.

2. Securities Dealers will receive up to 1% of the purchase price for Class I
purchases of $1 million or more.

3. Securities Dealers may, in the sole discretion of Distributors, receive up
to 1% of the purchase price for Class I purchases made under waiver
category 8 above.

4. Securities Dealers may receive up to 0.25% of the purchase price for Class
I purchases made under waiver categories 6, 9 and 10 above.

PLEASE SEE "HOW DO I BUY AND SELL SHARES? - OTHER PAYMENTS TO SECURITIES
DEALERS" IN THE SAI FOR ANY BREAKPOINTS THAT MAY APPLY.

GENERAL

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

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.

METHOD STEPS TO FOLLOW

By Mail 1. Send us written instructions signed by all account
owners

2. Include any outstanding share certificates for the
shares you're exchanging

By Phone Call Shareholder Services or TeleFACTS(R)

- If you do not want the ability to exchange by phone,
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. We believe the proportional method of exchanging Class II shares
more closely reflects the expectations of Class II shareholders if shares are
sold during the Contingency Period. 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.

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 Currently, the Fund does not allow investments by Market Timers.

HOW DO I SELL SHARES?

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

METHOD STEPS TO FOLLOW

By Mail 1. Send us written instructions signed by all account
owners

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 additional requirements.

By Phone

(Only available if you have completed
and sent to us the telephone re
demption agreement included
with this prospectus

Call Shareholder Services

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 30 days

Through Your Dealer Call your investment representative

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

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.

We will first redeem shares not subject to the charge in the following order:

1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,

2) Shares purchased with reinvested dividends and capital gain distributions,
and

3) Shares held longer than the Contingency Period.

We then redeem shares subject to the charge in the order they were purchased.

Waivers. We waive the Contingent Deferred Sales Charge for:

o Exchanges

o Account fees

o Sales of shares purchased pursuant to a sales charge waiver

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

o Redemptions following the death of the shareholder or beneficial owner

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

o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% a month of an account's Net Asset Value (3% quarterly, 6%
semiannually or 12% annually). For example, if you maintain an annual balance of
$1 million in Class I shares, you can withdraw 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 withdrawn 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 Distributions from employee benefit plans, including those due to termination
or plan transfer

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

You may receive two types of distributions from the Fund:

The Fund declares dividends from its net investment income quarterly, payable in
March, June, September and December, to shareholders of record on the first
business day before the 15th of that month and pays them on or about the last
day of that month.

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 each class.

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.

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 (without a sales charge or imposition of a Contingent Deferred
Sales Charge) by reinvesting capital gain distributions, or both dividend and
capital gain distributions. If you own Class II shares, you may also reinvest
your distributions in Class I shares of the Fund. 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
(without a sales charge or imposition of a Contingent Deferred Sales Charge). If
you own Class II shares, 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.

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. For Trust Company retirement plans, special forms are required to
receive distributions in cash. You may change your distribution option at any
time by notifying us by mail or phone. Please allow at least seven days prior to
the record date for us to process the new option.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

HOW AND WHEN SHARES ARE PRICED

The Fund is open for business each day the Exchange is open. We determine the
Net Asset Value per share of each class as of the scheduled close of the
Exchange, 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.

THE PRICE WE USE WHEN YOU BUY OR SELL SHARES

You buy shares at the Offering Price of the class you wish to purchase, unless
you qualify to buy shares at a reduced sales charge or with no sales charge. The
Offering Price of each class is based on the Net Asset Value per share of the
class and includes the maximum sales charge. We calculate it to two decimal
places using standard rounding criteria. You sell shares at Net Asset Value.

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're 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

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

To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.

ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS

Trusts. If you register your account as a trust, you should have a valid written
trust document to avoid 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

TAX IDENTIFICATION NUMBER

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 $1250. 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 $2,500.

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

AUTOMATIC INVESTMENT PLAN

AUTOMATIC PAYROLL DEDUCTION

SYSTEMATIC WITHDRAWAL PLAN

Once your plan is established, any distributions paid by the Fund will be
automatically reinvested in your account. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the first business day of the month in which a payment is scheduled for
payments before February 1997 and on the 25th day of the month beginning with
your February 1997 payment. 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.

Because of the front-end sales charge, 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?"

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.

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 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.

You will need the code number for each class to use TeleFACTS. The code numbers
for Class I and Class II are 282 and 582, respectively.

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 or an interim quarterly
report.

INSTITUTIONAL ACCOUNTS

Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further information, call Institutional
Services.

AVAILABILITY OF THESE SERVICES

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 FT Services are also located at this address.
Advisory Services is located at One Parker Plaza, Sixteenth Floor, Fort Lee, New
Jersey 07024. 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 1-800/524-4040 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 Plans 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

1933 Act - Securities Act of 1933, as amended

1940 Act - Investment Company Act of 1940, as amended

Advisory Services - Franklin Advisory Services, Inc., the Fund's investment
manager

Board - The Board of Trustees of the Trust

CD - Certificate of deposit

Class I and Class II - The Fund offers two classes of shares, designated "Class
I" and "Class II." The two classes have proportionate interests in the Fund's
portfolio. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans.

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 Trustees."

Exchange - New York Stock Exchange

Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust

Franklin Templeton Funds - The Franklin Funds and the Templeton Funds

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

NASD - National Association of Securities Dealers, Inc.

NSCC - National Securities Clearing Corporation

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.

REIT - Real Estate Investment Trust

Resources - Franklin Resources, Inc.

SAI - Statement of Additional Information

SEC - U.S. Securities and Exchange Commission

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.

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 of 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 which 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 which 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. Such
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.

PROSPECTUS & APPLICATION

Franklin MicroCap Value Fund

INVESTMENT STRATEGY

GROWTH & INCOME

DECEMBER 12, 1995
AS AMENDED DECEMBER 1, 1996

Franklin Value Investors Trust

This prospectus describes the Franklin MicroCap Value Fund (the "Fund"). It
contains information you should know before investing in the Fund. Please keep
it for future reference.

As of July 5, 1996, the Fund is closed to new investors, except retirement plan
accounts. If you were a shareholder of record as of July 5, 1996, you may
continue to add to your existing open account through new purchases and
reinvestment of income dividends and capital gain distributions.

The Fund's SAI, dated December 12, 1995, as may be amended from time to time,
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 or
write the Fund at the address shown.

Franklin

MicroCap

Value Fund

December 12, 1995

as amended December 1, 1996

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............... 2

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

How does the Fund Invest its Assets? 4

What are the Fund's Potential Risks? 10

Who Manages the Fund?......... 14

How does the Fund Measure Performance? 16

How is the Trust Organized?... 17

How Taxation Affects You and the Fund 17

About Your Account

How Do I Buy Shares?.......... 19

May I Exchange Shares for Shares
of Another Fund? ............ 24

How Do I Sell Shares? ........ 25

What Distributions Might I
Receive from the Fund? ...... 28

Transaction Procedures and
Special Requirements ........ 29

Services to Help You Manage Your Account 34

Glossary

Useful Terms and Definitions . 37

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 Fund's estimated expenses for the current fiscal year.
Your actual expenses may vary.

A. Shareholder Transaction Expenses+

Maximum Sales Charge Imposed on Purchases

(as a percentage of Offering Price) 4.50%++

Deferred Sales Charge None+++

B. Annual Fund Operating Expenses (as a percentage of average net assets)

Management Fees 0.75%

Rule 12b-1 Fees 0.25%*

Other Expenses 0.33%

Total Fund Operating Expenses 1.33%

C. Example

1 YEAR 3 YEARS

$58** $85

+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.

* 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 not been
audited.

DECEMBER 12, 1995
TO APRIL 30, 1996
(UNAUDITED)

PER SHARE OPERATING PERFORMANCE

Net Asset Value at beginning of period $15.00
--------
Net investment income 0.003

Net realized & unrealized gain on securities 2.730
--------
Total from investment operations 2.733
========
Distributions from net investment income (0.030)

Distributions from realized capital gains --

Total distributions (0.030)
--------
Net Asset Value at end of period $17.70
========
Total Return* 18.22%

RATIOS/SUPPLEMENTAL DATA

Net assets at end of period (in 000's) $46,424

Ratio of expenses to average net assets 0.97%**

Ratio of net investment income to
average net assets 0.50%**

Portfolio turnover rate 3.88%

Average commission rate*** 0.0497

**Annualized.

***Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities. How does the Fund Invest its Assets?

The Fund's Investment Objective

The Fund will seek capital appreciation primarily by investing in the securities
of companies with market capitalization under $100 million at the time of
purchase and which Advisory Services believes are undervalued in the
marketplace. Accordingly, a focus on balance sheet items will be an important
element in Advisory Services' analysis. The Fund will also seek income when
consistent with its objective. The policies used to seek to achieve the Fund's
objective are not fundamental, unless otherwise noted, and are subject to change
without shareholder approval.

Types of Securities in which the Fund May Invest

Under normal market conditions, the Fund will invest at least 65% of its total
assets in securities of companies with market capitalization under $100 million
at the time of purchase and which, in the opinion of Advisory Services, possess
an opportunity for significant capital appreciation due to intrinsic values in
excess of the current market price of such securities. The securities of these
companies will typically be purchased at prices below the book value of the
company. Advisory Services, however, will take into account a variety of other
factors in order to determine whether to purchase, and once purchased, whether
to hold or sell such securities. In addition to book value, Advisory Services
may consider the following factors among others: valuable franchises or other
intangibles; ownership of valuable trademarks or trade names; control of
distribution networks or of market share for particular products; ownership of
real estate the value of which is understated; and underutilized liquidity and
other factors that would identify the issuer as a potential takeover target or
turnaround candidate. Investments in the securities of companies with market
capitalization under $100 million may involve special risks. See "What are the
Fund's Potential Risks? - Small Companies." The Fund may invest the remainder of
its assets, up to 35%, in securities of companies with similar characteristics
but which have market capitalization over $100 million.

The Fund will generally invest in common stocks, although it has no limit on the
percentage of its assets that may be invested in preferred stock or debt
obligations, including securities convertible into common stocks, secured or
unsecured bonds, commercial paper and notes. The mixture of common stocks,
preferred stocks and debt obligations will vary from time to time based upon
Advisory Services' assessment as to whether investments in each category will
contribute to meeting the Fund's investment objective.

In anticipation of and during temporary defensive periods or when investments of
the type in which the Fund intends to invest are not available at prices which
Advisory Services believes are attractive, the Fund may invest up to 100% of its
total assets in: (1) securities of the U.S. government or its agencies or
instrumentalities that mature in one year or less from the date of purchase,
including U.S. Treasury bills, notes and bonds, as well as certain agency
securities issued by the Government National Mortgage Association, the Federal
Housing Administration and other agencies which may carry guarantees backed by
the full faith and credit of the U.S. government; (2) securities of other U.S.
government agencies or instrumentalities, such as certain securities issued by
the Federal Home Loan Banks and the Student Loan Marketing Association, which
may not be backed by the full faith and credit of the U.S. government but which
are supported by the right of the issuer to borrow from the U.S. government or
by the credit of the issuer; (3) bank obligations, including negotiable or
non-negotiable CDs (subject to the Fund's 10% limitation on illiquid securities
discussed under "Illiquid Investments" below), letters of credit and bankers'
acceptances, or instruments secured by such obligations, issued by banks and
savings institutions that are subject to regulation by the U.S. government, its
agencies or instrumentalities and that have assets of over $1 billion, unless
such obligations are guaranteed by a parent bank that has total assets in excess
of $5 billion; (4) commercial paper considered by Advisory Services to be of
high quality and rated within the two highest rating categories of Standard &
Poor's Corporation ("S&P") or Moody's Investors Service ("Moody's") or, if
unrated, issued by a company having an outstanding debt issue rated at least AA
by S&P or Aa by Moody's; and (5) corporate obligations including, but not
limited to, corporate notes, bonds and debentures considered by Advisory
Services to be of high quality and rated within the two highest rating
categories by S&P or Moody's. Please see "Appendix" in the SAI for a discussion
of ratings.

Lower Rated Securities. The Fund may invest up to 25% of its net assets at the
time of purchase in lower rated, fixed-income and convertible securities (those
rated BB or lower by S&P or Ba or lower by Moody's) and unrated securities of
comparable quality, commonly called "junk bonds," which Advisory Services
believes possess intrinsic values in excess of the current market prices of such
securities. Lower rated securities in which the Fund may invest include
securities rated D, the lowest rating category of S&P, or unrated securities of
comparable quality. Lower rated securities are considered by S&P, on balance, to
be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation and
generally involve more credit risk than securities in the higher rating
categories. Debt obligations rated D are in default and the payment of interest
and/or repayment of principal is in arrears. Although the Fund reserves the
right to invest up to 25% of its assets in lower rated securities, it currently
intends to limit such investments to no more than 5% of the Fund's net assets at
the time of purchase. See "What Are the Fund's Potential Risks? - High Yielding,
Fixed-Income Securities" in the SAI for more information about the risks of
lower rated 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 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.

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.

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 have 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. For more information on convertible securities,
including enhanced convertible securities, please see "How Does the Fund Invest
Its Assets?" in the SAI.

Foreign Securities. The Fund may invest in foreign securities, without
restriction, if these investments are consistent with the Fund's investment
objective and policies. The Fund will ordinarily buy foreign securities that are
traded in the U.S. or buy sponsored or unsponsored American Depositary Receipts,
which are certificates issued by U.S. banks representing the right to receive
securities of a foreign issuer deposited with that bank or a correspondent bank.
The Fund may buy the securities of foreign issuers directly in foreign markets,
and may buy the securities of issuers in developing nations. See "What are the
Fund's Potential Risks? - Foreign Securities."

Options. When seeking high current income to achieve its investment objective of
high total return, the Fund may write (sell) call options on securities, which
are listed on a national securities exchange, and buy listed call and put
options on securities and securities indices. The Fund may write a call option
only if the option is "covered," which means so long as the Fund is obligated as
the writer of a call option, it will own the underlying security subject to the
call or a call on the same security where the exercise price of the call held is
equal to or less than the exercise price of the call written. The Fund will not
invest in any stock options or stock index options, other than hedging or
covered positions, if the option premiums paid on its open positions exceed 5%
of the value of the Fund's total assets.

An option on a security is a contract that allows the buyer of the option, in
return for the premium paid, the right to buy a specified security (in the case
of a call option) or to sell a specified security (in the case of a put option)
from or to the writer of the option at a designated price during the term of the
option. Options on securities indices are similar to options on securities
except, rather than the right to buy or sell particular securities at a
specified price, options on a securities 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 a put)
the exercise price of the option. The cash received 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 options on
individual securities, 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 on price movements in individual securities.
Options are generally considered "derivative securities." The Fund's investment
in options will be for portfolio hedging purposes in an effort to stabilize
principal fluctuations to achieve the Fund's investment objective and not for
speculation. For more information about the Fund's investments in options,
please see "What are the Fund's Potential Risks? Options" below and "How Does
the Fund Invest Its Assets?" in the SAI.

The Fund's investment in options and certain securities transactions involving
actual or deemed short sales (discussed below) may be limited by the
requirements of the Code for qualification as a regulated investment company and
are subject to special tax rules that may affect the amount, timing, and
character of distributions to shareholders. These securities require the
application of complex and special tax rules and elections. For more
information, please see "Additional Information Regarding Taxation" in the SAI.

Other Investment Policies of the Fund

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,
provided that such loans do not exceed 25% 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 initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. 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.

Borrowing. As a fundamental policy, the Fund may not borrow money, except in the
form of reverse repurchase agreements or from banks in order to meet redemption
requests or for other temporary or emergency purposes in an amount up to 15% of
its total assets (including the amount borrowed). The Fund will not make any
additional investments while any borrowings exceed 5% of its total assets. The
Fund also may not mortgage or pledge any of its assets, except to secure
borrowings for temporary or emergency purposes and permissible options, short
selling or other hedging transactions.

Short-Selling. The Fund may make short sales, which are transactions in which
the Fund sells a security it does not own in anticipation of a decline in the
market value of that security. The security sold must be listed on a national
exchange. To complete the transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund is then obligated to replace the security
borrowed by buying it at the market price at the time of replacement. Until the
security is replaced, the Fund must pay the lender any dividends or interest
that accrue during the period of the loan. To borrow the security, the Fund may
also be required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is closed
out.

The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security and will realize a gain if the security
declines in price between those same dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium,
dividends or interest the Fund is required to pay in connection with the short
sale.

No securities will be sold short if, after the sale, the total market value of
all the Fund's open short positions would exceed 25% of the value of the Fund's
net assets. In addition, short sales of the securities of any one issuer may not
exceed the lesser of 2% of the Fund's net assets or 2% of the securities of any
class of the issuer.

The Fund will place in a segregated account with its custodian bank an amount of
cash or U.S. government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated account will be marked-to-market
daily and at no time will the amount deposited in the segregated account and
with the broker as collateral be less than the market value of the securities at
the time they were sold short.

In addition to the short sales discussed above, the Fund may also make short
sales "against the box," which occurs when a security identical to one owned by
the Fund is borrowed and sold short. The Fund at no time will have more than 15%
of the value of its net assets in deposits on short sales against the box.

Portfolio Turnover. The Fund anticipates its annual portfolio turnover rate
generally will not exceed 50%, but you should not consider this rate a limiting
factor in the operation of the Fund's portfolio.

What are the Fund's Potential Risks?

An investment in the Fund involves certain speculative considerations and may
involve a higher degree of risk than an investment in shares of more traditional
open-end, diversified investment companies. The Fund is designed for long-term
investors, not as a trading vehicle, and is not intended to present a complete
investment program. You should consider your individual investment objectives,
as well as your other investments, when deciding whether to buy shares of the
Fund.

The Fund's Approach to Value Investing. The Fund will invest principally in the
securities of companies believed by Advisory Services to be undervalued.
Securities of a company may be undervalued as a result of overreaction by
investors to unfavorable news about a company, industry, or the stock market in
general, or as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting a company.
Often these companies are attempting to recover from business setbacks or
adverse events (turnarounds), cyclical downturns, or, in certain cases,
bankruptcy.

Non-diversification. As a non-diversified investment company under the 1940 Act,
the Fund may concentrate its investments in the securities of a smaller number
of issuers than if it were a diversified company under the 1940 Act. An
investment in the Fund therefore will entail greater risk than an investment in
a diversified investment company because a higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio, and economic, political or regulatory developments may
have a greater impact on the value of the Fund's portfolio than would be the
case if the portfolio were diversified among more issuers. All securities in
which the Fund may invest are inherently subject to market risk, and the market
value of the Fund's investments will fluctuate.

Small Companies. The Fund may invest in companies that have relatively small
revenues, limited product lines, and a small share of the market for their
products or services. Small companies may lack depth of management, they may be
unable to internally generate funds necessary for growth or potential
development or to generate such funds through external financing on favorable
terms, and they may be developing or marketing new products or services for
which markets are not yet established and may never become established. Due to
these and other factors, small companies may suffer significant losses, as well
as realize substantial growth.

Historically, small capitalization stocks have been more volatile than larger
capitalization stocks and are therefore more speculative than investments in
larger companies. Among the reasons for the greater price volatility are the
less certain growth prospects of smaller firms, the lower degree of liquidity in
the markets for such stocks, and the greater sensitivity of small companies to
changing economic conditions. Besides exhibiting greater volatility, small
company stocks may, to a degree, fluctuate independently of larger company
stocks. Small company stocks may decline in price as large company stocks rise,
or rise in price as large company stocks decline. You should therefore expect
that the value of the Fund's shares may be more volatile than the shares of a
fund that invests in larger capitalization stocks. The Fund should not be
considered suitable if you are unable or unwilling to assume the risks of loss
inherent in investments in small companies.

Foreign Securities. Investments in the securities of companies organized outside
the U.S. or whose securities are principally traded outside the U.S. ("foreign
issuers") may offer potential benefits not available from investments solely in
securities of U.S. issuers. These benefits may include the opportunity to invest
in foreign issuers that appear, in the opinion of Advisory Services, to offer
more potential for long-term capital appreciation or current earnings than
investments in U.S. issuers, the opportunity to invest in foreign countries with
economic policies or business cycles different from those of the U.S. and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign securities markets that do not necessarily move in a manner parallel to
U.S. markets.

Investments in securities of foreign issuers involve significant risks,
including possible losses, that are not typically associated with investments in
securities of U.S. issuers. These risks include political, social or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Changes in government administrations and economic or
monetary policies in the U.S. or abroad, changes in circumstances surrounding
dealings between nations, and changes in currency convertibility or exchange
rates could result in investment losses for the Fund. In addition, public
information may not be as readily available for a foreign company as it is for a
U.S. domiciled company, foreign companies are generally not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. companies, and there is usually less government regulation of
securities exchanges, brokers and listed companies. Confiscatory taxation or
diplomatic developments could also affect these investments.

You should carefully consider the substantial risks involved in investing in
securities of foreign issuers, risks that are often heightened for investments
in developing markets. For example, the small size, inexperience and limited
volume of trading on securities markets in certain developing countries may make
the Fund's investments in developing countries illiquid and more volatile than
investments in more developed countries, and the Fund may be required to
establish special custody or other arrangements before making certain
investments in such countries. The laws of some foreign countries may also limit
the ability of the Fund to invest in securities of certain issuers located in
those countries.

Options. The purchase and sale of stock options and stock index options,
including the writing of covered call options, involve risks different from
those involved with direct investments in securities. A liquid secondary market
for any particular option may not be available when a position is sought to be
closed and the inability to close a position may have an adverse impact on the
Fund's ability to effectively hedge securities. In addition, there may be an
imperfect correlation between movements in the securities on which an option
contract is based and movements in the securities in the Fund's portfolio.
Successful use of option contracts is further dependent on Advisory Services'
ability to correctly predict movements in the securities markets and no
assurance can be given that Advisory Services' judgment will be correct. In
addition, by writing covered call options, the Fund gives up the opportunity to
profit from any price increase in the underlying security above the option
exercise price while the option is in effect.

For more information on the potential risks of the Fund, please see "What Are
the Fund's Potential Risks?" in the SAI.

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.

Management Team. The team responsible for the day-to-day management of the
Fund's portfolio since its inception is:

William Lippman

Portfolio Manager of Advisory Services

Bruce C. Baughman

Portfolio Manager of Advisory Services

Mr. Baughman holds a bachelor of arts degree from Stanford University and a
master of science degree in accounting from New York University. He has been
with the Franklin Templeton Group since 1988.

Margaret McGee

Portfolio Manager of Advisory Services

Ms. McGee holds a bachelor of arts degree from William Paterson College. She has
been with the Franklin Templeton Group since 1988.

Under its management agreement, the Fund pays Advisory Services a management fee
equal to an annual rate of 0.75%. The fee is computed daily and paid monthly.
Portfolio Transactions. Advisory Services tries to obtain the best execution on
all transactions. If Advisory Services believes more than one broker or dealer
can provide the best execution, consistent with internal policies 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 Purchase Securities For Its
Portfolio?" in the SAI for more information.

The Fund's Rule 12b-1 Plan

The Fund has a distribution plan or "Rule 12b-1 Plan." Payments by the Fund
under the plan may not exceed 0.25% per year of the Fund's average daily net
assets. The fees payable under the plan will be used primarily to pay
Distributors or others who have executed a servicing agreement with the Fund,
Distributors or its affiliates a service fee to reimburse them for personal
services provided to shareholders of the Fund and/or the maintenance of
shareholder accounts. To the extent authorized by the Board, these fees may be
used to reimburse Distributors or others in the promotion and distribution of
Fund shares. For more information, please see "The Fund's Underwriter" in the
SAI.

How does the Fund Measure Performance?

How is the Trust Organized?

The Fund is a non-diversified series of Franklin Value Investors Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. The Trust, formerly known as Franklin Balance Sheet Investment Fund, was
organized as a Massachusetts business trust on September 11, 1989, and is
registered with the SEC under the 1940 Act. Shares of each series of the Trust
have equal and exclusive rights to dividends and distributions declared by that
series and the net assets of the series in the event of liquidation or
dissolution. Shares of the Fund are considered Class I shares for redemption,
exchange and other purposes. In the future, additional series and classes of
shares may be offered.

Conversion to a Master/Feeder Structure

The Fund currently invests directly in securities. Certain Franklin Templeton
Funds, however, are "feeder funds" in a master/feeder fund structure. This means
they invest their assets in a "master fund" that, in turn, invests its assets
directly in securities. The Fund's investment objective and other fundamental
policies allow it to invest either directly in securities or indirectly in
securities through a master fund. In the future, the Board may decide to convert
the Fund to a master/feeder structure. If this occurs, your purchase of Fund
shares will be considered your consent to a conversion and we will not seek
further shareholder approval. We will, however, notify you in advance of the
conversion. If the Fund converts to a master/feeder structure, its fees and
total operating expenses are not expected to increase.

How Taxation Affects You and the Fund

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

About Your Account

How Do I Buy Shares?

As of July 5, 1996, the Fund is closed to new investors, except retirement plan
accounts. If you were a shareholder of record as of July 5, 1996, you may
continue to add to your account with as little as $100 or buy additional shares
through the reinvestment of dividend or capital gain distributions. We may waive
the minimum for retirement plans. We may also refuse any order to buy shares.
Currently, the Fund does not allow investments by Market Timers.

Sales Charge Reductions and Waivers

Quantity Discounts. The sales charge you pay depends on the dollar amount you
invest, as shown in the table below.

$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

**If you invest $1 million or more, a Contingent Deferred Sales Charge may be
imposed on an early redemption. 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. Cumulative Quantity
Discounts. To determine if you may pay a reduced sales charge, the amount of
your current purchase is added to the cost or current value, whichever is
higher, of your Class I and Class II 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.

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
Fund 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.

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

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 sales and other Franklin Templeton Fund 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. The Fund's sales charges (front-end and contingent
deferred) will not apply to certain purchases. For waiver categories 1 or 2: (i)
the distributions or payments must be reinvested within 365 days of their
payment date, and (ii) Class II distributions may be reinvested in either Class
I or Class II shares. Class I distributions may only be reinvested in Class I
shares.

The Fund's sales charges will not apply if you are buying shares with money from
the following sources:

1. Dividend and capital gain distributions from any Franklin Templeton Fund or a
REIT sponsored or advised by Franklin Properties, Inc.

2. 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, the Templeton
Variable Products Series Fund, or the Franklin Government Securities Trust. You
should contact your tax advisor for information on any tax consequences that may
apply.

3. Redemptions from other mutual funds

The Fund's sales charges will also not apply to purchases by:

4. 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.

5. Group annuity separate accounts offered to retirement plans

6. Retirement plans that (i) are sponsored by an employer with at least 100
employees, (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.
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"
above.

7. 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.

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

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

10. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

11. 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

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

13. Accounts managed by the Franklin Templeton Group

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

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.

Other Payments to Securities Dealers

1. Securities Dealers will receive up to 1% of the purchase price for purchases
of $1 million or more.

2. Securities Dealers may, in the sole discretion of Distributors, receive up to
1% of the purchase price for purchases made under waiver category 6 above.

3. Securities Dealers may receive up to 0.25% of the purchase price for
purchases made under waiver categories 4, 7 and 8 above.

Please see "How Do I Buy and Sell Shares? - Other Payments to Securities
Dealers" in the SAI for any breakpoints that may apply.

General

May I Exchange Shares for Shares of Another Fund?

No exchanges into the Fund from other Franklin Templeton Funds will be accepted.

METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account owners

- If you do not want the ability to exchange by phone,
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.

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.

Will Sales Charges Apply to My Exchange?

Exchange Restrictions

Please be aware that the following restrictions apply to exchanges:

o You may only exchange shares within the same class.

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 Currently, the Fund does not allow investments by Market Timers.

How Do I Sell Shares?

You may sell (redeem) your shares at any time. If you sell all the shares in
your account, your account will be closed and you will not be allowed to buy
additional shares of the Fund or to reopen your account. This policy does not
apply to retirement plans.

METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account owners
- --------------------------------------------------------------------------------
2. Include any outstanding share certificates for the shares
you are selling

3. Provide a signature guarantee if required

(Only available if Telephone requests will be accepted:
you have completed
and sent to us the o If the request is $50,000 or less. Institutional accounts
telephone redemption may exceed $50,000 by completing a separate agreement.
agreement included Call Institutional Services to receive a copy.
with this prospectus
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

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

Contingent Deferred Sales Charge

We will first redeem shares not subject to the charge in the following order:

1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,

2) Shares purchased with reinvested dividends and capital gain distributions,
and

3) Shares held longer than the Contingency Period.

We then redeem shares subject to the charge in the order they were purchased.

Waivers. We waive the Contingent Deferred Sales Charge for:

o Exchanges

o Account fees

o Sales of shares purchased pursuant to a sales charge waiver

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 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 Distributions from employee benefit plans, including those due to
termination or plan transfer

What Distributions Might I Receive from the Fund?

You may receive two types of distributions from the Fund:

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 a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year, and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.

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.

Distribution Options

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

Transaction Procedures and Special Requirements

How and When Shares are Priced

The Price We Use When You Buy or Sell Shares

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 A description of the request,

o For exchanges, the name of the fund you're 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

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

When you call, we will request personal or other identifying information to
confirm that instructions are genuine . We will also record calls. We will not
be liable for following instructions communicated by telephone if we reasonably
believe they are genuine. 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.

To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.

Account Registrations and Required Documents

Trusts. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.

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

Tax Identification Number

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 $1,250. 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 $2,500.

Services to Help You Manage Your Account

Automatic Investment Plan

Automatic Payroll Deduction

Systematic Withdrawal Plan

Electronic Fund Transfers

From a touch-tone phone, you may call our TeleFACTS 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.

You will need the Fund's code number to use TeleFACTS. The Fund's code is 189.

Statements and Reports to Shareholders

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

Institutional Accounts

Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further information, call Institutional
Services.

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 Plans 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

1940 Act - Investment Company Act of 1940, as amended

Advisory Services - Franklin Advisory Services, Inc., the Fund's investment
manager

Board - The Board of Trustees of the Trust

CD - Certificate of deposit

Code - Internal Revenue Code of 1986, as amended

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 Trustees."

Exchange - New York Stock Exchange

Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust

Franklin Templeton Funds - The Franklin Funds and the Templeton Funds

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

NASD - National Association of Securities Dealers, Inc.

NSCC - National Securities Clearing Corporation

Offering Price - The public offering price is based on the Net Asset Value per
share and includes the 4.50% sales charge.

REIT - Real Estate Investment Trust

Resources - Franklin Resources, Inc.

SAI - Statement of Additional Information

SEC - U.S. Securities and Exchange Commission

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.

o150 STKSA

SUPPLEMENT DATED
December 1, 1996

TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN BALANCE SHEET INVESTMENT FUND
Dated March 1, 1996

I. The section "Officers and Trustees" is revised to add the following:

As of November 4, 1996, the officers and trustees, as a group, owned of record
and beneficially approximately 57,842 shares, or less than 1% of the Fund's
total outstanding shares.

II. The section "Investment Advisory and Other Services" is revised to reflect
that as of July 1, 1996, Franklin Advisory Services, Inc. ("Advisory Services")
is the Fund's investment manager and to add the following:

Administrative Services. Under an agreement with Advisory Services, Franklin
Templeton Services, Inc. ("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, Advisory Services 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 Advisory Services. It is not a separate
expense of the Fund.

III. The two paragraphs under "How Do I Buy and Sell Shares? - Other Payments to
Securities Dealers" are replaced in their entirety with the following:

Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases 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 by certain retirement plans pursuant to a sales charge waiver, 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.

IV. The following is added under "General Information:"

Total Return

The Fund's average annual compounded rates of return for the indicated periods
ended April 30, 1996, were as follows:

One Year 20.10%

Five Years 18.21%

From Inception (April 2, 1990) 15.63%

The Fund's total rates of return for the indicated periods ended April 30,
1996, were as follows:

One Year..................................................... 20.10%
Five Years................................................... 130.83%
From Inception (April 2, 1990)............................... 141.96%

Current Yield

The Fund's yield for the 30-day period ended April 30, 1996, was 1.70%.

Current Distribution Rate

The Fund's current distribution rate for the 30-day period ended April 30,
1996, was 1.26%.

V. The following paragraph is added to the section "Financial Statements:"

The unaudited financial statements contained in the Semi-Annual Report to
Shareholders of the Trust, for the six month period ended April 30, 1996, are
incorporated herein by reference.

FRANKLIN
BALANCE SHEET
INVESTMENT FUND

Franklin Value Investors Trust

STATEMENT OF
ADDITIONAL INFORMATION

777 Mariners Island Blvd., P.O. Box 7777 MARCH 1, 1996
San Mateo, CA 94403-7777 1-800/DIAL BEN

Contents Page
How Does the Fund Invest Its Assets?...................... 2
What Are the Fund's Potential Risks?...................... 5
Investment Restrictions................................... 7
Officers and Trustees..................................... 8
Investment Advisory and Other Services.................... 11
How Does the Fund Purchase Securities
For Its Portfolio?....................................... 12
How Do I Buy and Sell Shares?............................. 13
How Are Fund Shares Valued?............................... 16
Additional Information Regarding Taxation................. 16
The Fund's Underwriter.................................... 18
General Information....................................... 19
Financial Statements...................................... 23
Appendix.................................................. 23

Franklin Balance Sheet Investment Fund (the "Fund") is a non-diversified series
of Franklin Value Investors Trust (the "Trust"), an open-end management
investment company. The Fund's investment objective is to seek high total
return, of which capital appreciation and income are components.

A Prospectus for the Fund dated March 1, 1996, as may be amended from time to
time, provides the basic information you should know before investing in the
Fund and may be obtained without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"), at the
address or telephone number shown above.

This Statement of Additional Information ("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 Fund's Prospectus.

HOW DOES THE FUND INVEST ITS ASSETS?

As noted in the Prospectus, the Fund's investment objective is to seek high
total return, of which capital appreciation and income are components. This
objective is a fundamental policy and may not be changed without approval of
shareholders. The Fund will seek capital appreciation primarily through
investment in securities that the Fund's investment manager believes are
undervalued in the marketplace. The Fund will also seek income when deemed
consistent with its objective.

The Fund's emphasis on securities believed to be undervalued by the market uses
a technique followed by certain very wealthy investors highlighted by the media
and a number of private partnerships with very high minimum investments. It
requires not only the resources to undertake exhaustive research of little
followed, out-of-favor securities, but also the patience and discipline to hold
these investments until their intrinsic values are ultimately recognized by
others in the marketplace. There can be no assurance that this technique will be
successful for the Fund or that the Fund will achieve its investment objective.

The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus entitled "How Does the Fund Invest Its Assets?"

Closed-End Funds. As stated in the Prospectus, the Fund invests a portion of its
total assets (but may invest without limitation) in the common shares of
closed-end funds that are traded on a national securities exchange or in the
over-the-counter markets. Typically, the common shares of closed-end funds are
offered to the public in a one-time initial public offering by a group of
underwriters who retain a spread or underwriting commission of between 4% and 6%
of the initial public offering price. These securities may then be listed for
trading on the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers Automated Quotation ("NASDAQ") System
and, in some cases, may be traded in other over-the-counter markets. Because the
common shares of closed-end funds cannot be redeemed upon demand to the issuer
like the shares of an open-end investment company (such as the Fund), investors
seek to buy and sell common shares of closed-end funds in the secondary market.

The Fund also may invest in senior securities, such as preferred stock and debt
obligations, of closed-end funds. Closed-end funds may issue senior securities
for the purpose of leveraging the closed-end fund's common shares in an attempt
to enhance the current return to closed-end fund's common shareholders. The
Fund's investment in the common shares of closed-end funds that are financially
leveraged may create an opportunity for greater total return on its investment,
but at the same time may be expected to exhibit more volatility in market price
and net asset value than an investment in shares of investment companies without
a leveraged capital structure. The Fund will not invest in senior securities of
closed-end funds rated lower than A by Standard & Poor's Corporation ("S&P") and
Moody's Investors Service ("Moody's") and the Fund will not own more than 3% of
the total outstanding stock (including common and preferred stock and certain
senior securities that have been afforded voting rights as a consequence of the
existence of dividend arrears) of any single closed-end fund.

The Fund generally will only purchase securities of closed-end funds in the
secondary market. The Fund will incur normal brokerage costs on these purchases
similar to the expenses the Fund would incur for the purchase of securities of
any other type of issuer in the secondary market. The Fund may, however, also
purchase securities of a closed-end fund in an initial public offering when, in
the opinion of the investment manager, based on a consideration of the nature of
the closed-end fund's proposed investments, the prevailing market conditions and
the level of demand for such securities, they represent an attractive
opportunity for capital appreciation. The initial offering price will include a
dealer spread, which may be higher than the applicable brokerage cost if the
Fund purchased the securities in the secondary market.

Closed-end funds invest the net proceeds of their public offering in the
securities of other companies consistent with their investment objectives and
policies. Certain closed-end funds seek to provide current income to investors,
others seek to provide appreciation in value, while others may seek a
combination of both income and appreciation. Closed-end funds may have a policy
of investing in certain types of securities such as equity or debt securities;
some may concentrate in particular industry sectors or geographic areas, while
others may invest in a variety of securities to achieve a particular type of
return or a particular tax result. The indicated characteristics and risks apply
to the securities of closed-end funds regardless of whether such securities
trade at a market discount or premium. According to a report from Lipper
Analytical Services, Inc., as of December 31, 1994, there were approximately 531
closed-end funds with assets in excess of $118 billion. In order to comply with
federal tax regulations, the Fund will generally invest in closed-end funds that
qualify as "regulated investment companies" under federal income tax law.

The common shares of many closed-end funds, after their initial public offering,
frequently trade at a price per share which is less than the net asset value per
share, the difference representing the "market discount" of such common shares.
This market discount may be due in part to the investment objective of long-term
appreciation, which is sought by many closed-end funds, as well as the fact that
the common shares of closed-end funds are not redeemable by the holder upon
demand to the issuer at the next-determined net asset value but rather are
subject to the principles of supply and demand in the secondary market. A
relative lack of secondary market purchasers of closed-end fund common shares
also may contribute to such common shares trading at a discount to their net
asset value.

Although the Fund intends primarily to purchase common shares of closed-end
funds that trade at a market discount and that the investment manager believes
present the opportunity for capital appreciation or increased income due in part
to such market discount, there can be no assurance that the market discount on
common shares of any closed-end fund will ever decrease. In fact, it is possible
that this market discount may increase and the Fund may suffer realized or
unrealized capital losses due to a further decline in the market price of the
securities of such closed-end funds, thereby adversely affecting the net asset
value of the Fund's shares. Similarly, there can be no assurance that the common
shares of closed-end funds which trade at a premium will continue to trade at a
premium or that the premium will not decrease subsequent to a purchase of shares
by the Fund. Although no assurances can be given, the investment manager
believes that its market research and analysis and the diversification policies
of the Fund will enable the Fund to avoid significant declines in the net asset
value of the Fund's shares due to losses related to an individual issuer.

The Fund may also invest in the securities of closed-end funds which (i)
concentrate their portfolios in the issuers of specific industries or in
specific geographic areas and (ii) are non-diversified for purposes of the
Investment Company Act of 1940, as amended (the "1940 Act"). However, because
the Fund does not intend to concentrate its investments in any single industry
and because the closed-end funds in which the Fund will invest will generally
satisfy the diversification requirements applicable to a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund does not believe that its investment in closed-end funds that concentrate
in specific industries or geographic areas or which are non-diversified for
purposes of the 1940 Act present any special risks to you. The Fund will treat
its entire investment in the securities of a closed-end fund that concentrates
in a specific industry as an investment in securities of an issuer in the
industry in which such fund concentrates its portfolio.

The Fund will not invest in the securities of closed-end funds that invest more
than 10% of their assets in the securities of other investment companies. The
Fund will also not invest directly in the securities of open-end investment
companies; however, the Fund may retain the securities of a closed-end
investment company that has converted to open-end fund status subsequent to the
Fund's investment in the securities of such closed-end fund.

1940 Act Provisions. The Fund will structure its investments in the securities
of closed-end funds and unit investment trusts ("UITs") to comply with
applicable provisions of the 1940 Act. The presently applicable provisions
require that (i) the Fund and affiliated persons of the Fund not own together
more than 3% of the total outstanding stock of any one investment company, (ii)
the Fund not offer its shares at a public offering price that includes a sales
charge of more than 1.5% and (iii) the Fund will either seek instructions from
its shareholders with regard to the voting of all proxies with respect to its
investment in the securities of closed-end funds and UITs and vote such proxies
only in accordance with such instructions, or vote the shares held by it in the
same proportion as the vote of all other holders of such securities. For
purposes of applying the 3% of total outstanding stock limitation, the Fund will
aggregate its purchases of a closed-end fund or a UIT with the purchases, if
any, by other investment companies managed or sponsored by the investment
manager. The Fund intends to vote the shares of any closed-end fund held by it
in the same proportion as the vote of all other holders of such fund's
securities. The effect of such "mirror" voting is to neutralize the Fund's
influence on corporate governance matters regarding the closed-end funds in
which the Fund invests.

Closed-end funds may, under certain circumstances, convert into open-end
investment companies. Pursuant to applicable provisions of the 1940 Act, the
Fund may not redeem more than 1% of the outstanding redeemable securities of an
open-end investment company during any period of 30 days or less. Consequently,
should the Fund own more than 1% of the outstanding redeemable securities of an
open-end investment company after such fund's conversion from closed-end fund
status, the amount in excess of 1% may be treated as an investment in illiquid
securities. Because the Fund may not hold at any time more than 10% of the value
of its total assets in illiquid securities (securities that cannot be disposed
of within seven days in the normal course of business at approximately the
amount at which the Fund has valued the securities), the Fund may seek to divest
itself, prior to any such conversion, of securities in excess of 1% of the
outstanding redeemable securities of a converting fund. The Fund may, however,
retain such securities and any amount in excess of 1% of the open-end fund,
thereby subject to the limits on redemption, would be treated as an investment
in illiquid securities subject to the aggregate limit of 10% of the Fund's total
assets.

The Fund will not invest in the securities of closed-end funds which are managed
by the investment manager or UITs that are sponsored by the investment manager.
The foregoing policy is not a fundamental policy of the Fund and can therefore
be changed by a majority vote of the Board of Trustees of the Fund without any
requirement for a vote of the Fund's shareholders.

Depositary Receipts. Many securities of foreign issuers are represented by
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
and Global Depositary Receipts ("GDRs") (collectively "Depositary Receipts").
ADRs evidence ownership of, and represent the right to receive, securities of
foreign issuers deposited in a domestic bank or trust company or a foreign
correspondent bank. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued by either a foreign or a
United States ("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.

Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risk
associated with foreign investments, by investing in ADRs rather than directly
in the stock of foreign issuers, the Fund will avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the U.S. for ADRs quoted on a national securities exchange or
on NASDAQ. The information available for ADRs is subject to the accounting,
auditing and financial reporting standards of the U.S. market or exchange on
which they are traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject. EDRs and GDRs may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted.

Depositary Receipts may be issued under 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 unsponsored programs and there may not be a correlation
between such information and the market value of the Depositary Receipts.

Depositary Receipts reduce but do not eliminate all the risk inherent in
investing in the securities of foreign issuers. To the extent that the Fund
acquires Depositary Receipts through banks that do not have a contractual
relationship with the foreign issuer of the security underlying the Depositary
Receipt to issue and service such Depositary Receipts, there may be an increased
possibility that the Fund would not become aware of and be able to respond to
corporate actions such as stock splits or rights offerings involving the foreign
issuer in a timely manner.

Convertible Securities. 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.

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.

Short-Selling. In a short sale, the Fund sells a security it does not own in
anticipation of a decline in the market value of that security. To complete such
a transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund then is obligated to replace the security borrowed by purchasing it at
the market price at the time of replacement. The price at this time may be more
or less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay to the lender any dividends or
interest which accrue during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would increase the cost of the
security sold. The proceeds of the short sale will be retained by the broker, to
the extent necessary to meet margin requirements, until the short position is
closed out.

The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium,
dividends or interest the Fund may be required to pay in connection with a short
sale.

No securities will be sold short if, after effect is given to any such short
sale, the total market value of all securities sold short would exceed 25% of
the value of the Fund's net assets. In addition, short sales of the securities
of any single issuer, which must be listed on a national exchange, may not
exceed 5% of the Fund's net assets or 5% of any class of such issuer's
securities.

The Fund will place in a segregated account with its custodian bank an amount of
cash or U.S. government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). This segregated account will be marked-to-market
daily, provided that at no time will the amount deposited in it plus the amount
deposited with the broker as collateral be less than the market value of the
securities at the time they were sold short.

In addition to the short sales discussed above, the Fund also may make short
sales "against the box," i.e., when a security identical to one owned by the
Fund is borrowed and sold short. The Fund at no time will have more than 15% of
the value of its net assets in deposits on short sales against the box.

WHAT ARE THE FUND'S POTENTIAL RISKS?

Fixed-Income Securities. The Fund may invest up to 25% of its total assets in
fixed-income securities offering high current income, although its current
investment strategy is to limit these investments to less than 5% of its net
assets (at the time of investment). Because of the Fund's policy of investing in
higher yielding, higher risk securities, an investment in the Fund is
accompanied by a higher degree of risk than is present with an investment in
higher rated, lower yielding securities. 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. If you are on a fixed income or retired, you should also consider the
increased risk of loss to principal which is present with an investment in
higher risk securities such as those in which the Fund invests.

The market value of lower rated, fixed-income securities and unrated securities
of comparable quality, commonly known as junk bonds, tends to reflect individual
developments affecting the issuer to a greater extent than the market value of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Lower rated securities also tend to be more sensitive
to economic conditions than higher rated securities. These lower rated
fixed-income securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even bonds rated BBB by S&P or Baa by Moody's, ratings which are
considered investment grade, possess some speculative characteristics.

Issuers of high yielding, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with acquiring the securities of such issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may experience financial stress.
During these periods, such issuers may not have sufficient cash flow to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific developments affecting
the issuer, the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer may be significantly greater for the holders of high
yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. As of October 31, 1995 no
issues (excluding short-term securities and cash equivalents) in the Fund's
portfolio were in default. Current prices for defaulted bonds are generally
significantly lower than their purchase price, and the Fund may have unrealized
losses on such defaulted securities which are reflected in the price of the
Fund's shares. In general, securities which default lose much of their value in
the time period prior to the actual default so that the Fund's net assets are
impacted prior to the default. The Fund may retain an issue which has defaulted
because such issue may present an opportunity for subsequent price recovery.

High yielding, fixed-income securities frequently have call or buy-back features
which permit an issuer to call or repurchase the securities from the Fund.
Although such securities are typically not callable for a period from three to
five years after their issuance, if a call were exercised by the issuer during
periods of declining interest rates, the Manager may find it necessary to
replace such securities with lower yielding securities, which could result in
less net investment income to the Fund. The premature disposition of a high
yielding security due to a call or buy-back feature, the deterioration of the
issuer's creditworthiness, or a default may also make it more difficult for the
Fund to manage the timing of its receipt of income, which may have tax
implications. The Fund may be required under the Code and U.S. Treasury
regulations to accrue income for income tax purposes on defaulted obligations
and to distribute such income to the Fund's shareholders even though the Fund is
not currently receiving interest or principal payments on such obligations. In
order to generate cash to satisfy any or all of these distribution requirements,
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.

The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent the secondary trading market for
a particular high yielding, fixed-income security does exist, it is generally
not as liquid as the secondary market for higher rated securities. Reduced
liquidity in the secondary market may have an adverse impact on market price and
the Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales. (See "How Are Fund Shares Valued?" in this
Prospectus and in the SAI.)

The Fund is authorized to acquire high yielding, 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 such restricted securities before
the securities have been registered, it may be deemed an underwriter of such
securities under the Securities Act of 1933, which entails special
responsibilities and liabilities. The Fund may incur special costs in disposing
of such securities; however, the Fund will generally incur no costs when the
issuer is responsible for registering the securities.

The Fund may acquire high yielding, fixed-income securities during an initial
underwriting. Such securities involve special risks because they are new issues.
The Fund has no arrangement with its underwriters or any other person concerning
the acquisition of such securities, and the Manager will carefully review the
credit and other characteristics pertinent to such new issues.

The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recession that began in 1990
disrupted the market for high yielding securities and adversely affected the
value of outstanding securities and the ability of issuers of such securities to
meet their obligations. Although the economy has improved considerably and high
yielding securities have performed more consistently since that time, there is
no assurance that the adverse effects previously experienced will not reoccur.
For example, the highly publicized defaults of some high yield issuers during
1989 and 1990 and concerns regarding a sluggish economy which continued into
1993, depressed the prices for many of these securities. While market prices may
be temporarily depressed due to these factors, the ultimate price of any
security will generally reflect the true operating results of the issuer.
Factors adversely impacting the market value of high yielding securities will
adversely impact the Fund's net asset value. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings. The Fund will
rely on the Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the Manager will take 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

The Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act a "vote of a
majority of the outstanding voting securities" of the Fund means the affirmative
vote of the lesser 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. The Fund may not:

1. Have invested as of the last day of any fiscal quarter (i) more than 25% of
its total assets in the securities of any one issuer, or (ii) with respect to
50% of the Fund's total assets, more than 5% of its total assets in the
obligations of any one issuer, except for securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities.

2. Purchase more than 10% of the voting securities, or more than 10% of any
class of securities, of any issuer. For purposes of this restriction, all
outstanding fixed-income securities of an issuer are considered as one class.

3. Invest in the stock of any investment company if a purchase of such stock
would result in the Fund and affiliates of the Fund owning together more than 3%
of the total outstanding stock of such investment company.

4. Borrow money, except from banks, in order to meet redemption requests that
might otherwise require the untimely disposition of portfolio securities or for
other temporary or emergency (not leveraging) purposes in an amount up to 15% of
the value of the Fund's total assets (including the amount borrowed) based on
the lesser of cost or market, less liabilities (not including the amount
borrowed) at the time the borrowing is made. While borrowings exceed 5% of the
Fund's total assets, the Fund will not make any additional investments.

5. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure borrowings for temporary or emergency purposes and permissible options,
short selling or other hedging transactions.

6. Purchase securities on margin or underwrite securities. (Does not preclude
the Fund from obtaining such short-term credit as may be necessary for the
clearance of purchases and sales of its portfolio securities.)

7. Buy or sell interests in oil, gas or mineral exploration or development
programs or leases, or real estate. (Does not preclude investments in marketable
securities of issuers engaged in such activities.)

8. Make loans to others except through the purchase of debt obligations
referred to in the Prospectus and the entry into repurchase agreements and
portfolio lending agreements, provided that the value of securities subject to
such lending agreements may not exceed 25% of the value of the Fund's total
assets. Any loans of portfolio securities will be made according to guidelines
established by the Securities and Exchange Commission ("SEC") and the Fund's
Board of Trustees, including maintenance of collateral of the borrower equal at
all times to at least 102% of the current market value of the securities loaned.

9. Purchase or sell commodities or commodity futures contracts or financial
futures contracts; or invest in put, call, straddle or spread options on
financial or other futures contracts or stock index futures contracts.

10. Invest in warrants (valued at the lower of cost or market) in excess of 5%
of the value of the Fund's net assets. No more than 2% of the value of the
Fund's net assets may be invested in warrants (valued at the lower of cost or
market) which are not listed on the New York or American Stock Exchanges.

11. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but the Fund may
deal with such persons or firms as brokers and pay a customary brokerage
commission; nor invest in securities of any company if, to the knowledge of the
Fund, any officer, director or trustee of the Fund or the investment advisor
owns more than 0.5% of the outstanding securities of such company and such
officers, directors and trustees (who own more than 0.5%) in the aggregate own
more than 5% of the outstanding securities of such company.

12. Underwrite the securities of other issuers, except insofar as the Fund may
be technically deemed an underwriter under the federal securities laws in
connection with the disposition of portfolio securities.

13. Purchase or hold the securities of any issuer if, as a result, in the
aggregate, more than 10% of the value of the Fund's total assets would be
invested in securities that are subject to legal or contractual restrictions on
resale ("restricted securities"), in securities that are not readily marketable
(including over-the-counter options) or in repurchase agreements maturing in
more than seven days.

14. Invest in any issuer for purposes of exercising control or management.

15. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges or (ii) entering into repurchase
transactions.

16. Engage in the short sales of securities, except short sales "against the
box," if the cash or securities deposited in the segregated account with the
Fund's custodian to collateralize its short positions in the aggregate exceed
25% of the Fund's net assets.

If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.

Pursuant to an undertaking given to the Texas State Securities Board, 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.

OFFICERS AND TRUSTEES

The Board of Trustees (the "Board") has the responsibility for the overall
management of the Fund, including general supervision and review of its
investment activities. The trustees, in turn, elect the officers of the Fund who
are responsible for administering day-to-day operations of the Fund. The
affiliations of the officers and trustees and their principal occupations for
the past five years are listed below. Trustees who are deemed to be "interested
persons" of the Fund, as defined in the 1940 Act, are indicated by an
asterisk(*).

Frank T. Crohn (71) Trustee
7251 West Palmetto Park Road
Boca Raton, FL 33433

Chairman and Chief Executive Officer, Financial Benefit Life Insurance Company
and Financial Benefit Group, Inc.; Director, Unity Mutual Life Insurance
Company; and trustee of three of the investment companies in the Franklin Group
of Funds.

* William J. Lippman (71) President, Chief
One Parker Plaza Executive Officer
Fort Lee, NJ 07024 and Trustee

Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc.,
Franklin Templeton Distributors, Inc. and Franklin Management, Inc.; officer
and/or director or trustee of six of the investment companies in the Franklin
Group of Funds.

Charles Rubens II (65) Trustee
18 Park Road
Scarsdale, NY 10583

Private Investor; and trustee of three of the investment companies in the
Franklin Group of Funds.

Leonard Rubin (70) Trustee
501 Broad Avenue
Ridgefield, NJ 07657

Chairman of the Board, Carolace Embroidery Co., Inc.; President, F.N.C Textiles,
Inc.; Vice President, Trimtex Co. Inc.; and trustee of three of the investment
companies in the Franklin Group of Funds.

Harmon E. Burns (51) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404

Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 43 of the investment companies in the Franklin Templeton Group of Funds.

Kenneth V. Domingues (63) Vice President -
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 and Accounting
Standards

Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.

Martin L. Flanagan (35) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer

Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.

Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404

Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.

Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404

Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies
in the Franklin Templeton Group of Funds.

Diomedes Loo-Tam (57) Treasurer and
777 Mariners Island Blvd. Principal Accounting
San Mateo, CA 94404 Officer

Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.

Edward V. McVey (58) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404

Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.

R. Martin Wiskemann (69) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404

Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 20 of the
investment companies in the Franklin Group of Funds.

The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and the investment manager. Trustees not
affiliated with the investment manager ("nonaffiliated trustees") are currently
paid fees of $600 per quarter plus $300 per meeting attended. As indicated
above, certain of the Trust's nonaffiliated trustees also serve as directors,
trustees or managing general partners of other investment companies in the
Franklin Group of Funds(R) and the Templeton Group of Funds (the "Franklin
Templeton Group of Funds") from which they may receive fees for their services.
The following table indicates the total fees paid to nonaffiliated trustees by
the Trust and by other funds in the Franklin Templeton Group of Funds.

Number of
Total Fees Boards in the
Total Fees Received from the Franklin Templeton
Received Franklin Templeton Group of Funds on
Name from the Trust* Group of Funds** Which Each Serves***
Frank T. Crohn...... $3,900 $15,600 3
Charles Rubens, II.. $3,900 $15,600 3
Leonard Rubin....... $3,900 $15,600 3

*For the fiscal year ended October 31, 1995.

**For the calendar year ended December 31, 1995.

***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.

Nonaffiliated trustees 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, trustee or managing general
partner. No officer or trustee received any other compensation directly from the
Fund. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. ("Resources") may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries.

As of December 7, 1995, the officers and trustees, as a group, owned of record
and beneficially approximately 64,792 shares or less than 1% of the total
outstanding shares of the Fund. Many of the Fund's trustees also own shares in
various of the other funds in the Franklin Templeton Group of Funds.

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

INVESTMENT ADVISORY AND OTHER SERVICES

The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Resources, a publicly-owned
holding company whose shares are listed on the New York Stock Exchange (the
"Exchange"). Resources owns several other subsidiaries that are involved in
investment management and shareholder services.

Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through whom the
Fund's portfolio transactions are executed. The Manager's activities are subject
to the review and supervision of the Board to whom the Manager renders periodic
reports of the Fund's investment activities. Under the terms of the management
agreement, the Manager provides office space and office furnishings, facilities
and equipment required for managing the business affairs of the Fund; maintains
all internal bookkeeping, clerical, secretarial and administrative personnel and
services; and provides certain telephone and other mechanical services. The
Manager is covered by fidelity insurance on its officers, directors and
employees for the protection of the Fund. Please see the Statement of Operations
in the financial statements included in the Trust's Annual Report to
Shareholders dated October 31, 1995.

The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The Manager
may give advice and take action with respect to any of the other funds it
manages, or for its own account, which may differ from action taken by the
Manager on behalf of the Fund. Similarly, with respect to the Fund, the Manager
is not obligated to recommend, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Manager and access
persons, as defined by the 1940 Act, may purchase or sell for its or their own
account or for the accounts of any other fund. Furthermore, the Manager is not
obligated to refrain from investing in securities held by the Fund or other
funds which it manages or administers. Of course, any transactions for the
accounts of the Manager and other access persons will be made in compliance with
the Trust's Code of Ethics.

Pursuant to the management agreement, the Fund is obligated to pay the Manager a
fee computed and accrued daily and paid monthly at an annual rate of 0.625 of 1%
for the first $100 million of average daily net assets of the Fund; 0.50 of 1%
on net assets in excess of $100 million up to $250 million; 0.45 of 1% on net
assets in excess of $250 million up to $10 billion; 0.44 of 1% on net assets in
excess of $10 billion up to and including $12.5 billion; 0.42 of 1% on net
assets in excess of $12.5 billion up to and including $15 billion; and 0.40 of
1% on net assets in excess over $15 billion.

The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by the Fund as prescribed by any state in which the Fund's
shares are offered for sale. The most stringent current limit requires the
Manager to reduce or eliminate its fee to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise exceed in any
fiscal year 2.5% of the first $30 million of average net assets of the Fund,
2.0% of the next $70 million of average net assets of the Fund and 1.5% of
average net assets of the Fund in excess of $100 million. Expense reductions
have not been necessary based on state requirements.

In previous years the Manager agreed in advance to waive its management fees and
make certain payments to reduce expenses. For the fiscal years ended October 31,
1993, and 1994, the Manager waived the management fees the Fund was otherwise
contractually obligated to pay of $65,810 and $111,747, respectively. Management
fees for the fiscal year ended October 31, 1995, when there was no advance
waiver, were $1,325,910.

The management agreement is in effect until March 31, 1997. Thereafter, it may
continue in effect for successive annual periods providing such 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 Fund's trustees who are not parties to
the management agreement or interested persons of any such party (other than as
trustees of the Fund), 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, or by the Manager on 30 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.

Franklin/Templeton Investor Services, Inc. ("Investor Services"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent for the Fund 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.

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.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian for cash received in connection with the
purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle, Delaware
19720, acts as custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.

Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors. During the fiscal year ended October 31,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Fund included in the Trust's Annual Report to Shareholders
dated October 31, 1995.

HOW DOES THE FUND PURCHASE
SECURITIES FOR ITS PORTFOLIO?

Under the current management agreement, the selection of brokers and dealers to
execute transactions in the Fund's portfolio is made by the Manager in
accordance with criteria set forth in the management agreement and any
directions which the Board may give.

When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions done on a
securities exchange, the amount of commission paid by the Fund is negotiated
between the Manager and the broker executing the transaction. The Manager seeks
to obtain the lowest commission rate available from brokers that are felt to be
capable of efficient execution of the transactions. The determination and
evaluation of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and review of such
transactions. These opinions are formed on the basis of, among other things, the
experience of these individuals in the securities industry and information
available to them concerning the level of commissions being paid by other
institutional investors of comparable size. The Manager will ordinarily place
orders for the purchase and sale of over-the-counter securities on a principal
rather than agency basis with a principal market maker unless, in the opinion of
the Manager, 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. The Fund seeks to obtain
prompt execution of orders at the most favorable net price.

The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Fund's best
interest, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will pay a
higher commission than if no weight were given to the broker's furnishing of
these services. This will be done only if, in the opinion of the Manager, the
amount of any additional commission is reasonable in relation to the value of
the services. Higher commissions will be paid only when the brokerage and
research services received are bona fide and produce a direct benefit to the
Fund or assist the Manager in carrying out its responsibilities to the Fund, or
when it is otherwise in the best interest of the Fund to do so, whether or not
such services may also be useful to the Manager in advising other clients.

When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services and through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total brokerage as may reasonably
be required.

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

Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain 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 under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.

If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly 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 past three fiscal years ended October 31, the Fund paid brokerage
commissions totaling $143,849, $922,550, and $851,495, respectively. As of
October 31, 1995, the Fund did not own securities of its regular broker-dealers.

HOW DO I BUY AND SELL SHARES?

All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of 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.

In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Fund to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus.

If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to the Fund, the Fund may impose a $10 charge
against your account for each returned item.

Dividend checks returned to the Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.

The Fund may deduct from your account the costs of its efforts to locate you if
mail is returned as undeliverable or the Fund is otherwise unable to locate you
or verify your current mailing address. These costs may include a percentage of
the account when a search company charges a percentage fee in exchange for its
location services.

Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such 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.

Purchases and Redemptions
through Securities Dealers

Orders for the purchase of shares of the Fund received in proper form prior to
the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted to
the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial institutions
after the scheduled close of the Exchange will be effected at the Fund's public
offering price on the day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which, either directly
or through affiliates, have an agreement with Distributors to handle customer
orders and accounts with the Fund. Such reference, however, is for convenience
only and does not indicate a legal conclusion of capacity.

Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to you resulting from the failure to do so must be settled between you
and the securities dealer.

Other Payments to Securities Dealers

As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust departments of
banks, certain designated retirement plans (excluding IRA and IRA Rollovers),
certain non-designated plans, and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, as described below.
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 securities dealer in the event shares are redeemed 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.

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 made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers): 1% on sales of $1 million but less than $2
million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more.
These payment breakpoints are reset every 12 months for purposes of additional
purchases. With respect to purchases made at net asset value by certain trust
companies and trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $1 million or more,
either Distributors, or one of its affiliates, out of its own resources, may pay
up to 1% of the amount invested.

Letter of Intent

You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the first
investment which you want to qualify for a reduced sales charge, you may file
with the Fund a signed Shareholder Application, with the Letter of Intent (the
"Letter") 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 upon purchases
in more than one of the Franklin Templeton Funds will be effective only after
notification to Distributors that the investment qualifies for a discount. Your
holdings in the Franklin Templeton Funds, including Class II shares, acquired
more than 90 days before the Letter is filed, will be counted towards completion
of the Letter, but will not be entitled to a retroactive downward adjustment in
the sales charge. Any redemptions you make, unless by a designated retirement
plan, during the 13-month period 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 upon the amount actually
purchased (less redemptions) during the period. The upward adjustment does not
apply to designated retirement plans. If you execute a Letter prior to a change
in the sales charge structure for the Fund, you will be entitled to 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 shares of the Fund registered in your
name. This policy of reserving shares does not apply to a designated retirement
plan. If the 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 the total purchases, less redemptions,
exceed the amount specified under the Letter and is an amount which 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 such purchases had been made at a single
time. Upon such 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 prior
to 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 a designated retirement plan, 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.

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 trustees reserve 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 such circumstances, the securities
distributed would be valued at the price used to compute the Fund's net assets.
Should the Fund do so, you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. Should
it happen, however, you may not be able to recover your investment in a timely
manner and you may incur brokerage costs in selling the securities.

Redemptions by the Fund

Due to the relatively high cost of handling small investments, the Fund reserves
the right to involuntarily redeem your shares at net asset value if your account
has a value of less than one-half of your initial required minimum investment,
but only where the value of your account has been reduced by the prior voluntary
redemption of shares. Until further notice, it is the present policy of the Fund
not to exercise this right if your account has a value of $1250 or more. In any
event, before the Fund redeems your shares and sends you the proceeds, it will
notify you that the value of the shares in your account is less than the minimum
amount and allow you 30 days to make an additional investment in an amount which
will increase the value of your account to at least $2500.

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 from month to month and does not affect the
amount or value of the shares acquired.

Reports to Shareholders

The Fund sends annual and semiannual reports regarding its performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.

Special Services

The Franklin Templeton Institutional Services Department provides specialized
services, including recordkeeping, for institutional investors of the Fund. The
cost of these services is not borne by the Fund.

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 which the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.

HOW ARE FUND SHARES VALUED?

As noted in the Prospectus, the Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. As of the date of this SAI, the Fund is
informed that the Exchange observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

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 prior to the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, the options are valued within the range of the
current closing bid and ask prices if such valuation is believed to fairly
reflect the contract's market value.

In the case of securities of closed-end funds, the last quoted sale price, or
the mean between the quoted bid and ask prices, may be lower or higher than the
net asset value of such securities. 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 trustees, the Fund may utilize a pricing service,
bank or securities dealer to perform any of the above described functions.

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 Exchange, if that is earlier, and that 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 mean between the current bid and ask prices is used.
Occasionally events which 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 Fund's net asset value. If events which materially affect the values of
these foreign securities occur during such period, then these 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 prior to
the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of the Fund's shares is determined as of such
times. Occasionally, events affecting the values of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange which will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the values of these securities occur
during such period, then the securities will be valued at their fair value as
determined in good faith by the Board.

ADDITIONAL INFORMATION REGARDING TAXATION

As stated in the Prospectus, the Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code. The trustees reserve the
right not to maintain the qualification of the Fund as a regulated investment
company if they determine such course of action to be beneficial to
shareholders. In such case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.

Subject to the limitations discussed below, all or a portion of the income
distributions paid by a 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 a notice to shareholders mailed shortly after the end of
the Fund's fiscal year.

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 twelve-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. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between the shareholder's basis
in the shares and the amount received, subject to the rules described below. If
such shares are a capital asset in the hands of the shareholder, 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 the sales charge incurred in purchasing 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 Group of Funds and the 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. You should consult with your tax advisors concerning the tax rules
applicable to the redemption or exchange of Fund shares.

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.

When the Fund holds an option or contract which 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.

As a regulated investment company, the Fund is also 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 and hedging transactions 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, as in the case of short sales of
portfolio securities, 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 such options and 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.

Gain realized by a Fund from transactions entered into after April 30, 1993 that
are deemed to constitute "conversion transactions" under the Code and which
would otherwise produce capital gain may be recharacterized as ordinary income
to the extent that such gain does not exceed an amount defined by the Code as
the "applicable imputed income amount." A conversion transaction is any
transaction in which substantially all of the Fund's expected return is
attributable to the time value of the Fund's net investment in such transaction
and any one of the following criteria are met: 1) there is an acquisition of
property with a substantially contemporaneous agreement to sell the same or
substantially identical property in the future; 2) the transaction is an
applicable straddle; 3) the transaction was marketed or sold to the Fund on the
basis that it would have the economic characteristics of a loan but would be
taxed as capital gain; or 4) the transaction is specified in Treasury
regulations to be promulgated in the future. The applicable imputed income
amount, which represents the deemed return on the conversion transaction based
upon the time value of money, is computed using a yield equal to 120 percent of
the applicable federal rate, reduced by any prior recharacterizations under this
provision or Section 263(g) of the Code concerning capitalized carrying costs.

THE FUND'S UNDERWRITER

Pursuant to an underwriting agreement in effect until March 31, 1997,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Fund. The underwriting agreement will continue in effect for
successive annual periods provided that 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 Fund's trustees who are not parties to the underwriting
agreement or interested persons of any such party (other than as trustees of the
Fund), 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.

Until April 30, 1994, income dividends were reinvested at the offering price
(which includes the sales charge) and Distributors allowed 50% of the entire
commission to the securities dealer of record, if any, on an account. Starting
with any income dividends paid after April 30, 1994, such reinvestment is at net
asset value.

In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscal years ended October 31, 1993, 1994 and 1995 were
$143,922, $953,869 and $1,801,511, respectively. After allowances to dealers,
Distributors retained $73, and $31,319 in net underwriting discounts and
commissions in 1993 and 1994, respectively, and nothing in 1995. Distributors
may be entitled to reimbursement under the Fund's distribution plan, as
discussed below. Except as noted, Distributors received no other compensation
from the Fund for acting as underwriter.

Distribution Plan

The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan") whereby the Fund may pay up to a maximum of 0.25% per annum of
its average net assets for expenses incurred in the distribution of its shares.
In addition, the Plan provides that up to an additional 0.25% may be paid to
Distributors or others as a service fee to reimburse these service providers for
personal services to shareholders of the Fund and/or the maintenance of
shareholder accounts.

In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides that to the extent the Fund, the Manager or
Distributors or other parties on behalf of the Fund, the Manager or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of shares of the Fund
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.

In no event shall the aggregate asset-based sales charges which include payments
made under the Plan, plus any other payments deemed to be made pursuant to the
Plan, exceed the amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., Article III,
Section 26(d)4.

The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1.

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 Plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing such services, you would be
permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In such an 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.

The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan is effective through March 31, 1997, and renewable annually by a vote of
the Board, including a majority vote of the trustees who are non-interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, cast in person at a meeting called for that purpose. It
is also required that the selection and nomination of such trustees be done by
the non-interested trustees. The Plan and any related agreement may be
terminated at any time, without penalty, by vote of a majority of the
non-interested trustees on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with the Manager or the
underwriting agreement with Distributors, or by a vote of a majority of the
Fund's outstanding shares. Distributors or any dealer or other firm may also
terminate their respective distribution or service agreement at any time upon
written notice.

The Plan 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 Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non-interested trustees,
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 Plan 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 Plan should be continued.

For the fiscal year ended October 31, 1995, the total amount paid by the Fund
pursuant to the Plan was $1,068,865, which was used for the following purposes:

Dollar
Amount

Advertising...................................... $ 65,454
Printing and mailing of prospectuses
other than to current shareholders.............. $ 33,991
Payments to underwriters......................... $ 29,281
Payments to broker-dealers....................... $940,139

GENERAL INFORMATION

Performance

As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance and may
occasionally cite statistics to reflect its volatility or risk.

Performance quotations by investment companies are subject to rules adopted by
the SEC. 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. Current yield and average annual compounded total return
quotations used by the Fund are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the Fund to compute or express performance follows.

Total Return

The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or fractional
portion thereof, 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 order, and income dividends
and capital gains are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each one-, five- and ten-year
period and the deduction of all applicable charges and fees. If a change is made
on the sales charge structure, historical performance information will be
restated to reflect the maximum front-end sales charge currently in effect.

The Fund's average annual compounded rates of return for the indicated periods
ended October 31, 1995 were as follows:

One Year........................................... 17.51%
From inception (April 2, 1990)..................... 14.67%

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 the one-, five- or ten-year periods at the end of the one-, five-
or ten-year periods (or fractional portion thereof)

As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. These quotations are computed in
the same manner as the Fund's average annual compounded rate, except they will
be based on the Fund's actual return for a specified period rather than on its
average return over one-, five- and ten-year periods, or fractional portion
thereof. The Fund's total rates of return for the indicated periods ended
October 31, 1995 were as follows:

One Year........................................... 17.51%
From inception (April 2, 1990)..................... 114.85%

Current Yield

Current yield reflects the income per share earned by the Fund's portfolio
investments and is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
Fund's yield for the 30-day period ended October 31, 1995 was 1.23%.

This figure was obtained using the following SEC formula:

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

where:

a = dividends and interest earned during the period

b = expenses accrued for the period (net of reimbursements)

c = the average daily number of shares outstanding during the period that
were entitled to receive dividends

d = the maximum offering price per share on the last day of the period

The above formula will be used in calculating quotations of current yield, based
on specified 30-day periods identified in an advertisement or communication.
Yield calculations assume the maximum applicable sales load.

The Fund's current yield and total return may be compared to relevant indices,
including U.S. domestic and international taxable bond indices and data from
Lipper Analytical Services, Inc. or S&P's Indices.

Current Distribution Rate

Current yield which is calculated according to a formula prescribed by the SEC
is not indicative of the amounts which were or will be paid to shareholders of
the Fund. Amounts paid to shareholders are reflected in the quoted current
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by the Fund during the past 12 months
by a current maximum offering price. Under certain circumstances, such as when
there has been a change in the amount of dividend payout or a fundamental change
in investment policies, it might be appropriate to annualize the dividends paid
over the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing and short-term capital gains, and is calculated over a different
period of time.

Volatility

Occasionally, statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare Fund net asset
value or performance relative 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

For investors who are permitted to purchase shares of the Fund at net asset
value, sales literature pertaining to the Fund may quote a current distribution
rate, yield, 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.

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.

Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.

You should note that the investment results of the Fund will fluctuate over
time, and any presentation of the Fund's current yield or total return for any
period should not be considered as a representation of what an investment may
earn or what your total return or yield may be in any future period. You should
also note that although the Fund believes that there are substantial benefits to
be realized by investing in the shares of closed-end funds, these investments
also involve certain risks. Please see "What Are the Fund's Potential Risks?" in
the Prospectus.

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

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 - Fixed Income Fund
Performance Analysis - measure total return and average current yield 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 equity funds.

h) Valueline Index - an unmanaged index which follows the stocks of
approximately 1,700 companies.

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

k) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines provide performance
statistics over specified time periods.

l) Morgan Stanley Capital International World Indices, including, among others,
the Morgan Stanley Capital International Europe, Australia, Far East Index
("EAFE Index"). The EAFE index is an unmanaged index of more than 1,000
companies of Europe, Australia and the Far East.

m) Financial Times Actuaries Indices - including the FTA-World Index (and
components thereof), which are based on stocks in major world equity markets.

n) The Russell 1000 Value Index is a total return index that comprises stocks
from the Russell 1000 Index with a less than average growth orientation. The
average market capitalization (as of November 31, 1995) is $18.99 billion.

From time to time, advertisements or information for the Fund may include a
discussion of the benefits of investing in the shares of closed-end investment
companies by purchasing the shares of a mutual fund, such as the Fund, which
invest a substantial portion of its assets in closed-end fund shares. Such
advertisements or information may include symbols, headlines or other material
which highlights or summarizes the information discussed in more detail in the
communication.

These advertisements and sales literature may also note that deeply discounted
securities offer growth potential, but that finding these deeply discounted
securities involves expensive and extensive research generally available only to
large institutional investors and very affluent investors. Further, it may be
noted that the Fund is the first to offer the research and potential benefits of
buying discounted securities in the mutual fund format.

Advertisements or information may also compare the Fund's performance to the
return on certificates of deposit 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 certificate
of deposit 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 which 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. Certificates of deposit 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 such other averages.

Other Features and Benefits

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/or
other long-term goals. The Franklin College Costs Planner may assist 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 such goals will be met.

Miscellaneous Information

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 48 years and now services
more than 2.5 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 Worldwide, Inc., a pioneer in international
investing. Together, the Franklin Templeton Group has over $135 billion in
assets under management for more than 3.9 million U.S. based mutual fund
shareholder and other accounts. The Franklin Group of Funds and the Templeton
Group of Funds offers to the public 114 U.S. based mutual funds.
The Fund may identify itself by its NASDAQ symbol or CUSIP number.

The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past seven years.

Employees of Resources or its subsidiaries 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 within 24
hours after clearance; (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.

As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.

Ownership and Authority Disputes

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, prior to
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 Internal Revenue Service in response to a
Notice of Levy.

FINANCIAL STATEMENTS

The audited financial statements contained in the Annual Report to Shareholders
of the Trust, dated October 31, 1995, including the auditors' report, are
incorporated herein by reference.

APPENDIX

Description of 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.

Nonrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.

3. There is a lack of essential data pertaining to the issuer.

4. The issue was privately placed, in which case the rating is not published in
Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonably up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

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.

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

NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.

Description of Commercial Paper Ratings

Moody's

Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, 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.

Prime-1 repayment ability will often be evidenced by many of the following
characteristics:

- - Leading market positions in well-established industries.

- - High rates of return on funds employed.

- - Conservative capitalization structure with moderate reliance on debt and ample
asset protection.

- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- - Well-established access to a range of financial markets and assured sources of
alternate liquidity.

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.

S&P Notes

A S&P note rating reflects the liquidity concerns and market access risks unique
to notes. Notes due in three years or less will likely receive a note rating.
Notes maturing beyond three years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:

- - Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).

- - Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).

Note rating symbols are as follows:

SP-1: Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.

SP-2: Satisfactory capacity to pay principal and interest.

SP-3: Speculative capacity to pay principal and interest.

o282 STKSA

SUPPLEMENT DATED DECEMBER 1, 1996
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN VALUE FUND
Dated March 11, 1996

I.The section "Officers and Trustees" is revised to add the following:
As of November 4, 1996, the officers and trustees did not own of record or
beneficially any shares of either class of the Fund.

Administrative Services. Under an agreement with Advisory Services,
Franklin Templeton Services, Inc. ("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, Advisory Services 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 Advisory Services. It is
not a separate expense of the Fund.

III. The sales charge table at the top of page 15 under "How Do I Buy and Sell
Shares?", referring to Taiwan investors, applies only to Class I shares. The
table is replaced with the following:

Size of Purchase - U.S. dollars Sales Charge
Under $30,000.......................................... 3.0%
$30,000 but less than $50,000.......................... 2.5%
$50,000 but less than $100,000......................... 2.0%
$100,000 but less than $200,000........................ 1.5%
$200,000 but less than $400,000........................ 1.0%
$400,000 or more....................................... .0%

IV. The two paragraphs under "How Do I Buy and Sell Shares?" - Other Payments to
Securities Dealers" are replaced in their entirety with the following:

Distributors will 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
pursuant to a sales charge waiver, 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.

V. The reduced sales charge described under "How Do I Buy and Sell Shares? -
Letter of Intent" applies only to Class I shares.

VI. The section "How Are Fund Shares Valued?" is revised to add the following:
The net asset value per share is calculated for each class of the Fund.

VII. "The Fund's Underwriter - Distributions Plan" is amended as follows:
The first paragraph in this section applies only to Class I's Rule 12b-1 plan.
The remaining paragraphs in this section apply to both the Class I and Class II
Rule 12b-1 plans.

The following paragraphs are added to this section.

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.

VIII. The following is added under "General Information."

Total Return
The Fund's total rate of return for Class I from March 11, 1996 (date of
inception) through June 30, 1996, was 2.23%.

Current Yield

The yield for Class I for the 30-day period ended June 30, 1996, was 1.19%.

Current Distribution

Rate The Fund's current distribution rate for Class I for the 30-day period
ended June 30, 1996, was 0.18%.

Miscellaneous Information

As of November 4, 1996, the principal shareholders of the Fund, beneficial or of
record, were as follows:

Name and Address Share Amount Percentage
CLASS I
Franklin Resources, Inc.
Corporate Treasury
1850 Gateway Drive, 6th Flr
San Mateo, CA 94404....................... 66,871.787 14.16%
CLASS II
Lehman Brothers, Inc.
FBO 835-91120-11
P.O. Box 29198
Brooklyn, NY 11202-9198................... 3,136.574 12.36%
Lehman Brothers, Inc.
FBO 835-91121-10
P.O. Box 29198
Brooklyn, NY 11202-9198................... 2,647.829 10.43%
NFSC FEBO
FBO William E. McCahan, Jr.
7230 Jonestown Rd.
Harrisburg, PA 17112...................... 4,162.125 16.40%
First Financial Trust Co. TTEE
Allen Charitable Remainder Unitrust
P.O. Box 537
Franklin Lakes, NJ 07417.................. 1,563.967 6.16%

IX. The following is added after the last paragraph on page 27:

Financial

FRANKLIN VALUEINVESTORS TRUST

Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited)
<TABLE>
<CAPTION>

Shares Franklin Value Fund
Common Stocks 87.5%

Banks & Thrifts 10.7%
<S> <C> <C>
1,100a Associates First Capital Corp...................................................................... $ 41,388
2,100 BankAtlantic Bancorp, Inc. - Class B .............................................................. 29,400
12,100a Bank Plus Corp. ................................................................................... 105,875
35,000c Christiania Bank Og Kreditkasse (Norway)........................................................... 82,511
2,000 Fidelity Financial of Ohio, Inc.................................................................... 20,000
3,200 Financial Security Assurance Holdings Ltd. ........................................................ 87,600
5,000a GA Financial, Inc.................................................................................. 55,000
421,774
Food 5.2%
5,000 Nash-Finch Co. .................................................................................... 80,000
1,000 Schultz Sav-o Stores, Inc.......................................................................... 12,875
12,000 Super Food Services, Inc........................................................................... 114,000
206,875
Furniture & Homebuilders 5.1%
7,400a American Woodmark Corp. ........................................................................... 41,625
5,400a Beazer Homes USA, Inc.............................................................................. 86,400
5,000 Ryland Group, Inc.................................................................................. 75,000
203,025
Industrial 7.7%
9,000 Haskel International, Inc.......................................................................... 67,500
5,600 Oil-Dri Corporation of America..................................................................... 83,300
2,500 Rochester & Pittsburgh Coal Co. ................................................................... 78,750
12,500 United Industrial Corp. ........................................................................... 76,563
306,113
Insurance-Life & Specialty 6.6%
1,100 American National Insurance Co. ................................................................... 71,500
8,800 Presidential Life Corp. ........................................................................... 91,300
3,000 USLIFE Corp. ...................................................................................... 98,625
261,425
Insurance-Property & Casualty 3.5%
2,000a PICOM Insurance Co. ............................................................................... 50,000
3,700 RLI Corp. ......................................................................................... 90,188
140,188
Manufacturing 11.5%
8,000a American Pacific Corp. ............................................................................ 50,000
1,500a CasTech Aluminum Group, Inc. ...................................................................... 22,125
1,750 Douglas & Lomason Co. ............................................................................. 24,938
10,000 Ennis Business Forms .............................................................................. 113,750
3,100 Flexsteel Industries, Inc. ........................................................................ 36,425
6,000 Medex, Inc. ....................................................................................... 77,250
9,100 Oshkosh Truck Corp. ............................................................................... 128,538
453,026
Miscellaneous 1.8%
6,000a Aztar Corp. ....................................................................................... 69,000
Real Estate 5.4%
4,500 Rouse Co. ......................................................................................... 116,438
4,000a U.S. Home Corp. ................................................................................... 98,500
214,938

Retail 7.1%
10,000a Allou Health and Beauty, Inc. ..................................................................... $ 68,750
8,000a Little Switzerland, Inc. .......................................................................... 42,000
10,700a S & K Famous Brands, Inc. ......................................................................... 102,988
4,000 Strawbridge & Clothier, Class A.................................................................... 65,000
278,738
Technology 21.4%
4,000 Adobe Systems, Inc. ............................................................................... 143,500
10,900a Advanced Logic Research, Inc. ..................................................................... 91,288
4,600 Analysis & Technology, Inc. ....................................................................... 63,250
3,800a Cray Research, Inc. ............................................................................... 91,675
6,900a ESCO Electronics Corp. ............................................................................ 78,488
8,200 Health Images, Inc. ............................................................................... 95,325
7,700a Quantum Corp. ..................................................................................... 112,613
7,300a Symantec Corp. .................................................................................... 91,250
16,900a Video Lottery Technologies, Inc. .................................................................. 76,050
843,439
Utilities 1.5%
7,500a Niagara Mohawk Power Corp. ........................................................................ 58,120
Total Long Term Investments (Cost $3,382,253)................................................ 3,456,661
Face
Amount
bReceivables from Repurchase Agreement 13.3%
$ 522,768 Joint Repurchase Agreement, 5.439%, 07/01/96 (Maturity Value $ 525,418) (Cost $525,179)
Chase Securities, Inc., (Maturity Value $75,510 )
Collateral: U.S. Treasury Notes, 5.375%, 11/30/97
Daiwa Securities America, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00
Donaldson, Lufkin & Jenrette Securities Corp.,(Maturity Value $72,358)
Collateral: U.S. Treasury Bills, 05/29/97
U.S. Treasury Notes, 5.125% - 6.75%, 07/31/97 - 07/31/00
Fuji Securities, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99
Lehman Government Securities, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01
SBC Capital Markets, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 5.75%, 09/30/97
UBS Securities, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%, 11/15/98 - 11/30/99.............................. 525,179
Total Investments (Cost $3,907,432) 100.8%.............................................. 3,981,840
Liabilities in Excess of Other Assets (.8)%............................................. (32,157)
Net Assets 100.0%....................................................................... $3,949,683

At June 30, 1996, the net unrealized appreciation based on the cost
of investments for income tax purposes of $3,907,432 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost..................................................................... $ 179,384
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value..................................................................... (104,976)
Net unrealized appreciation...................................................................... $ 74,408

</TABLE>

aNon-income producing.
bFace amount for repurchase agreements is for the underlying collateral. See
Note 1( h ) regarding joint repurchase agreement.
cSecurities traded in foreign currency and valued in U.S. dollars.

The accompanying notes are an integral part of these financial statements.

FRANKLIN VALUE INVESTORS TRUST

Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited)
(cont.)

Shares Franklin Value Fund
Common Stocks (cont.)

The accompanying notes are an integral part of these financial statements.

FRANKLIN VALUEINVESTORS TRUST

Financial Statements

Statement of Assets and Liabilities
June 30, 1996 (unaudited)

Statement of Operations
for the period March 11, 1996 (effective date)
to June 30, 1996 (unaudited)

Franklin
Value Fund
Assets:
Investments in securities:
At identified cost $3,382,253

At value 3,456,661
Receivables from repurchase agreements,
at value and cost 525,179
Cash 122,930
Receivables:
Dividends and interest 3,333
Capital shares sold 81,690
Unamortized organization costs (Note 2) 2,798

Total assets 4,192,591

Liabilities:
Payables:
Investment securities purchased 237,219
Distributions payable to shareholders 8
Management fees 1,882
Distribution fees 1,741
Shareholder servicing costs 65
Accrued expenses and other liabilities 1,993

Total liabilities 242,908

Net assets, at value $3,949,683

Net assets consist of:
Undistributed net investment income $ 3,656
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies 74,408
Undistributed net realized gains from investment
and foreign currency transactions 5,894
Capital shares 3,865,725

Net assets, at value $3,949,683

Shares outstanding 246,165

Net asset value per share* $16.04

Maximum offering price per share 100/95.5,
of net asset value per share) $16.80

Value Fund
Investment income:
Dividends $11,799
Interest (Note 1) 6,918

Total income 18,717

Expenses:
Management fees (Note 6) 5,001
Distribution fees (Note 6) 1,811
Shareholder servicing costs (Note 6) 182
Reports to shareholders 270
Custodian fees 6
Professional fees 1,271
Trustees' fees and expenses 9
Amortization of organization costs (Note 2) 202
Other 1,425
Management fees waived by manager (Note 6) (1,288)

Total expenses 8,889

Net investment income 9,828

Realized and unrealized gain (loss)
from investments and foreign currency:
Net realized gain from investments 5,939
Net unrealized appreciation on:
Investments 74,408
Translation of assets and liabilities

denominated in foreign currencies (45)

Net realized and unrealized gain from

investments and foreign currencies 80,302

Net increase in net assets resulting from operations $90,130

*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.

The accompanying notes are an integral part of these financial statements.

FRANKLIN VALUE INVESTORS TRUST

Financial Statements

Statements of Changes in Net Assets for the period March 11, 1996 (effective
date) to June 30, 1996 (unaudited)
<TABLE>
<CAPTION>

Value Fund
For the period
ended 6/30/96
Increase in net assets:
Operations:
<S> <C>
Net investment income.......................................................................................... $ 9,828
Net realized gain from investments and foreign currency transactions........................................... 5,894
Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 74,408

Net increase in net assets resulting from operations....................................................... 90,130
Distributions to shareholders from:
Undistributed net investment income............................................................................. (6,172)
Increase in net assets from capital share transactions (Note 3).................................................. 3,865,725

Net increase in net assets................................................................................. 3,949,683
Net assets:
Beginning of period............................................................................................. --

End of period................................................................................................... $3,949,683

Undistributed net investment income included in net assets:
Beginning of period............................................................................................. --

End of period................................................................................................... $ 3,656

The accompanying notes are an integral part of these financial statements.
</TABLE>

Notes to Financial Statements (unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Franklin Value Trust (the Trust) is an open-end, non-diversified management
investment company (mutual fund), registered under the Investment Company Act of
1940 as amended. The Trust currently consists of three separate and distinct
portfolios. This report pertains only to the Franklin Value Fund (the Fund). The
Fund issues a separate series of the Trust's shares and maintains a totally
separate and distinct investment portfolio. The investment objective of the Fund
is capital growth and income.

The Value Fund became effective March 11, 1996.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.

a. Security Valuation:

Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. The Trust may utilize a pricing service, bank or broker/dealer
experienced in such matters to perform any of the pricing functions, under
procedures approved by the Board of Trustees (the Board). Securities for which
market quotations are not available are valued in accordance with procedures
established by the Board.

The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That 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 mean between the current bid and asked price is used.
Occasionally, events which 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 Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, then
these securities will be valued in accordance with procedures established by the
Board.

The fair values of securities restricted as to resale are determined following
procedures established by the Board.

b. Income Taxes:

The Fund intends to qualify for the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and to make the requisite
distributions to shareholders which will be sufficient to relieve the Fund from
income and excise taxes. The Fund is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

c. Security Transactions:

Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.

d. Investment Income, Expenses and Distributions:

Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.

e. Accounting Estimates:

The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the amounts of income and expense during
the reporting period. Actual results could differ from those estimates.

f. Expense Allocation:

Common expenses incurred by the Trust are allocated to the Fund based on the
ratio of net assets of the Fund to the combined net assets. In all other
respects, expenses are charged to the Fund as incurred on a specific
identification basis.

g. Foreign Currency Translation:

The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.

The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.

Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade date and settlement dates on security transactions, the
difference between the amounts of dividends and interest, and foreign
withholding taxes recorded on the Trust's books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized appreciation or
depreciation on translation of assets and liabilities denominated in foreign
currencies arise from changes in the value of assets and liabilities other than
investments in securities at the end of the reporting period, resulting from
changes in exchange rates.

h. Repurchase Agreements:

The Fund may enter into a joint repurchase agreement whereby their uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements with government securities dealers recognized
by the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the joint repurchase agreement are allocated to the
Fund based on their pro-rata interest.

A repurchase agreement is accounted for as a loan by the Fund to the seller,
collateralized by underlying U.S. government securities, which are delivered to
the Fund's custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Fund, with the value of the underlying securities marked to
market daily to maintain coverage of at least 100%. At June 30, 1996, all
outstanding repurchase agreements held by the Fund had been entered into on June
28, 1996.

2. UNAMORTIZED ORGANIZATION COSTS

The organization costs of the Fund are amortized on a straight-line basis over a
period of five years from the effective date of registration under the
Securities Act of 1933. In the event Franklin Resources, Inc. (Resources), which
was the sole shareholder prior to the effective date of registration, redeems
its shares within the five-year period, the pro-rata share of the
then-unamortized deferred organization cost will be deducted from the redemption
price paid to Resources. New investors purchasing shares of the Fund subsequent
to that date bear such costs during the amortization period only as such charges
are accrued daily against investment income.

3. TRUST SHARES

At June 30, 1996, there were an unlimited number of .01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares were
as follows:
<TABLE>
<CAPTION>

Value Fund
-----------------
Shares Amount
------ --------
For the period March 11, 1996 (effective date) to June 30, 1996
<S> <C> <C>
Shares sold........................................................................................... 246,552 $3,871,760
Shares issued in reinvestment of distributions........................................................ 330 5,332
Shares redeemed....................................................................................... (717) (11,367)

Net increase........................................................................................... 246,165 3,865,725

</TABLE>

4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

For tax purposes, the aggregate cost of securities and unrealized appreciation
of the Fund are the same as for financial reporting purposes at June 30, 1996.

5. PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the period March 11, 1996 (effective date) to June 30, 1996,
were as follows:

Value Fund
--------
Purchases...........................................................$3,414,839
Sales.................................................................$ 38,525

6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

a. Management Agreement:

Under the terms of a management agreement, Franklin Advisory Services, Inc.
(Advisory) provides investment advice, administrative services, office space and
facilities to the Fund and receives fees computed daily on the net assets of the
Fund as follows:

Value Fund
Annualized Fee Rate Daily Net Assets
------------- --------------------------------
0.75% First $500 million
0.625% Over $500 million, up to and including $1 billion
0.50% Over $1 billion

The terms of the management agreement provide that annual aggregate expenses of
the Fund be limited to the extent necessary to comply with the limitations set
forth in the laws, regulations, and administrative interpretations of the states
in which the Fund's shares are registered. For the four months ended June 30,
1996, the Fund's expenses did not exceed these limitations. However, Advisory
agreed in advance to waive management fees for the Value Fund, as noted in the
statement of operations, in an effort to minimize the Value Fund's expenses.

b. Shareholder Services Agreement:

Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Fund for
the four months ended June 30, 1996, aggregated $182, all of which was paid to
Investor Services.

c. Distribution Plans and Underwriting Agreement:

Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Value Fund reimburses Franklin/Templeton
Distributors, Inc. (Distributors), in an amount up to 0.35% per annum, of
average daily net assets for costs incurred in the promotion,offering and
marketing of the Fund's shares.

The Plans do not permit nor require payments of excess costs after termination.

In its capacity as underwriter for the shares of the Fund, Distributors receives
commissions on sales of the Fund's shares of beneficial interest. Commissions
are deducted from the gross proceeds received from the sale of the shares of the
Fund, and as such are not expenses of the Fund. Distributors may also make
payments, out of its own resources, to the dealers for certain sales of the
Fund's shares. Commissions received by Distributors, the amounts paid to other
dealers, and any applicable contingent deferred sales charges for the four
months ended June 30, 1996, were as follows:

Value Fund
--------
Total commissions received................................... $58,215

d. Other Affiliates and Related Party Transactions:

Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisory, and Investor Services, all wholly-owned subsidiaries of
Resources.

At June 30, 1996, Resources owned 27% of the Value Fund.

FRANKLIN
VALUE FUND

Franklin Value Investors Trust

STATEMENT OF
ADDITIONAL INFORMATION

777 Mariners Island Blvd., P.O. Box 7777 MARCH 11, 1996
San Mateo, CA 94403-7777 1-800/DIAL BEN

Contents Page

How Does the Fund Invest Its Assets? 2
What Are the Fund's Potential Risks? 7
Investment Restrictions........... 9
Officers and Trustees............. 10
Investment Advisory and Other Services 13
How Does the Fund Purchase
Securities For Its Portfolio?.... 13
How Do I Buy and Sell Shares?..... 14
How Are Fund Shares Valued?....... 17
Additional Information Regarding Taxation 18
The Fund's Underwriter............ 20
General Information............... 22
Financial Statements.............. 26

The Franklin Value Fund (the "Fund") is a non-diversified, open-end series of
Franklin Value Investors Trust (the "Trust"), a management investment company.
The Fund's investment objective is to seek long-term total return. It seeks to
achieve that objective by investing in the securities of companies that the
Fund's investment manager believes are undervalued.

A Prospectus for the Fund, dated March 11, 1996 as may be amended from time to
time, provides the basic information you should know before investing in the
Fund and may be obtained without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"), at the
address or telephone number shown above.

How Does the Fund Invest Its Assets?

The Fund seeks long-term total return. The Fund seeks to achieve its objective
by investing at least 65% of its assets in the securities of companies that the
Fund's investment manager believes are undervalued. As with any other
investment, there can be no assurance that this technique will be successful for
the Fund or that the Fund will achieve its investment objective. Income is a
secondary consideration of the Fund, although it is not part of the Fund's
investment objective.

The following information supplements "How Does the Fund Invest Its Assets?" in
the Prospectus.

Options and Futures

Options. The Fund may write covered call options that are listed on a national
securities exchange and buy listed options on securities and securities indices
for portfolio hedging purposes. The Fund may also write covered call options and
buy put options that are traded over-the-counter ("OTC"). In addition, the Fund
may enter into closing transactions with respect to its open option positions.

Call Options. The Fund may buy call options on securities which it intends to
buy. By buying these options, the Fund limits the risk of a substantial increase
in the market price of these securities. The Fund may also buy call options on
securities held in its portfolio and on which it has written call options as
described below.

A writer of a call option retains the amount of the premium paid by the buyer of
the option regardless of whether it is exercised. The premium amount reflects,
among other things, the relationship of the exercise price to the market price,
the volatility of the underlying security, the remaining term of the option,
supply and demand, and interest rates. A premium received by the writer of a
covered call option may be offset by a decline in the market value of the
underlying security during the option period. Because the writer of a call
option may be assigned an exercise notice at any time before the termination of
the call, the writer may have no control over when the underlying securities
must be sold. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. Also, by writing a covered call
option, the Fund gives up the opportunity to profit from any price increase in
the underlying security above the option exercise price while the option is in
effect.

Unless a writer of an option has already been notified of the exercise of an
option, the writer may terminate its obligation by buying an option of the same
series as the option previously written. This is known as a "closing purchase
transaction," and it allows the writer's position to be canceled by the clearing
corporation. A holder of an option liquidates its position by selling an option
of the same series as the option previously purchased, which is known as a
"closing sale transaction." There is no guarantee that either a closing purchase
or a closing sale transaction can be completed.

The Fund may conduct a closing transaction on a written call option to permit
the Fund to (i) write another call option on the underlying security with either
a different exercise price, expiration date or both or (ii) use the cash or
proceeds from the sale of the underlying security for other Fund investments. If
the Fund wants to sell a security from its portfolio on which it has written a
call option, it may conduct a closing transaction before or at the same time as
it sells the security. Profit or loss from such a sale will depend on whether
the amount received is more or less than the premium paid for the call option
plus any related transaction costs.

If the price of a closing transaction is less than the premium received from
writing the option or the premium paid to buy the option, the Fund makes a
profit on the transaction; if the price is more, the Fund realizes a loss.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the purchase of a call option is likely to be offset by appreciation of the
underlying security owned by the Fund.

Put Options. The Fund may also buy put options. The Fund may enter into closing
sale transactions with respect to such options, exercise them, or permit them to
expire. The Fund may buy a put option on an underlying security (a "protective
put") owned by the Fund as a hedging technique in order to protect against an
anticipated decline in the value of the security. This allows the Fund to sell
the underlying security at the put exercise price, regardless of any decline in
the underlying security's market price, until the put expires. If the investment
manger decides to hold the underlying security for tax considerations, for
example, a put option may be purchased in order to protect any unrealized
appreciation. Of course any capital gain realized when the security is sold
would be reduced by the premium paid for the put option and any transaction
costs.

Options on Indices. Options on indices, which are described in the Prospectus,
give the holder the right to receive cash 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. Options on indices differ from
options on individual securities in that 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 on price movements in
individual securities.

Forward Conversions. In a forward conversion, the Fund buys securities and
writes call options and buys put options on such securities. By purchasing puts,
the Fund protects the underlying security from depreciation in value. By selling
or writing calls on the same security, the Fund receives premiums which may
offset part or all of the cost of purchasing the puts while forgoing the
opportunity for appreciation in the value of the underlying security. The Fund
will not exercise a put it has purchased while a call option on the same
security is outstanding.

Forward conversions are intended to hedge against fluctuations in the market
value of the underlying security. Although it is generally intended that the
exercise price of put and call options would be identical, situations might
occur in which some option positions are acquired with different exercise
prices. Therefore, the Fund's return may depend in part on movements in the
price of the underlying security. The Fund's return on forward conversions may
be greater or less than it would otherwise have been if it had hedged the
security only by purchasing put options.

Spread and Straddle Options Transactions. In "spread" transactions, the Fund
buys and writes a put or buys and writes a call on the same underlying security
with the options having different exercise prices and/or expiration dates. In
"straddles," the Fund purchases or writes combinations of put and call options
on the same security. When the Fund engages in spread and straddle transactions,
it seeks to profit from differentials in the option premiums paid and received
and in the market prices of the related options positions when they are closed
out or sold. Because these transactions require the Fund to buy and/or write
more than one option simultaneously, the Fund's ability to enter into such
transactions and to liquidate its positions when necessary or deemed advisable
may be more limited than if the Fund was to buy or sell a single option.
Similarly, costs incurred by the Fund in connection with these transactions will
in many cases be greater than if the Fund was to buy or sell a single option.

Futures. The Fund may enter into contracts for the purchase or sale for future
delivery of securities, contracts based upon financial indices, and the Fund may
buy options on such contracts ("financial futures"). Financial futures contracts
are 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. A "sale" of a futures contract means the seller has a contractual
obligation to deliver the securities described in the contract at a specified
price on a specified date. A "purchase" of a futures contract means the buyer
has a contractual obligation to acquire the securities described in the contract
at a specified price on a specified date. Futures contracts have been designed
by exchanges which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC") and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market.

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to take
delivery of the securities. 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
purchases or sells futures contracts.

The Fund will not engage in transactions in futures contracts or related options
for speculation but only as a hedge against changes resulting from market
conditions in the values of its securities or securities which it intends to
purchase. The Fund will not enter into any stock index future or related option
if, immediately thereafter, more than one-third of the Fund's net assets would
be represented by futures contracts or related options. In addition, the Fund
may not buy or sell futures contracts or buy or sell related options if,
immediately thereafter, the sum of the amount of margin deposits on its existing
futures and related options positions, and premiums paid for related options,
would exceed 5% of the market value of the Fund's total assets.

The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security. To the extent the Fund
enters into futures contracts or related options, it will deposit in a
segregated account with its custodian cash or other United States ("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. If the value of the futures contract declines relative to the Fund's
position, the Fund will be required to pay the futures commission merchant an
amount equal to the change in value.

Stock Index Futures Contracts. The Fund may purchase and sell stock index
futures contracts traded on domestic exchanges and, to the extent such contracts
have been approved by the CFTC for sale to customers in the U.S., on foreign
exchanges. A stock index futures contract obligates the seller to deliver (and
the purchaser 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.
Open futures contracts are valued on a daily basis and the Fund may be obligated
to provide or receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index is made in the
future.

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

Future Developments. The Fund may take advantage of opportunities in the area of
options and futures contracts and any other derivative investments that are not
presently contemplated for use by the Fund or which are not currently available
but which may be developed, to the extent such opportunities are both consistent
with the Fund's investment objective and legally permissible for the Fund. Prior
to investing in any such investment vehicle, the Fund will supplement its
Prospectus, if appropriate.

Other Types of Securities and Policies

Depositary Receipts. Many securities of foreign issuers are represented by
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
and Global Depositary Receipts ("GDRs") (collectively "Depositary Receipts").
ADRs evidence ownership of, and represent the right to receive, securities of
foreign issuers deposited in a domestic bank or trust company or a foreign
correspondent bank. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also 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.

Convertible Securities. The Fund may invest in convertible securities. 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 an operating company-issued
convertible stock 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. If the convertible security is issued by an investment bank,
the securities are obligations of and are convertible through the issuing
investment banks.

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 stocks are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.

Enhanced Convertibles. The Fund may invest in enhanced convertibles such as
PERCS, which provide the Fund with the opportunity to earn higher dividend
income than is available from a company's common stock. A PERCS is a preferred
stock that generally features a mandatory conversion date, as well as a capital
appreciation limit which is usually expressed in terms of a stated price. Most
PERCS expire three years from the date of issue, at which time they are
convertible into common stock of the issuer (PERCS are generally not convertible
into cash at maturity). Under a typical arrangement, if after three years the
issuer's common stock is trading at a price below that set by the capital
appreciation limit, each PERCS would convert to one share of common stock. If,
however, the issuer's common stock is trading at a price above that set by the
capital appreciation limit, the holder of the PERCS would receive less than one
full share of common stock. The amount received by the PERCS holder is
determined by dividing the price set by the capital appreciation limit of the
PERCS by the market price of the issuer's common stock. PERCS can be called at
any time prior to maturity, and hence do not provide call protection. However,
if a PERCS is called early, the issuer must pay a call premium over the market
price to the investor. This call premium declines at a preset rate daily, up to
the maturity date of the PERCS.

The Fund may also invest in other enhanced convertible securities. These include
but are not limited to ACES (Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred Redeemable Increased
Dividend Equity Securities), SAILS (Stock Appreciation Income Linked
Securities), TECONS (Term Convertible Notes), QICS (Quarterly Income Cumulative
Securities), and DECS (Dividend Enhanced Convertible Securities). ACES, PEPS,
PRIDES, SAILS, TECONS, QICS, and DECS all have the following features: they are
issued by the company, the common stock of which will be received in the event
the convertible preferred stock is converted; unlike PERCS they do not have a
capital appreciation limit; they seek to provide the investor with high current
income with some prospect of future capital appreciation; they are typically
issued with three to four-year maturities; they typically have some built-in
call protection for the first two to three years; investors have the right to
convert them into shares of common stock at a preset conversion ratio or hold
them until maturity; and upon maturity they will automatically convert to either
cash or a specified number of shares of common stock.

Similarly, there may be enhanced convertible debt obligations issued by the
operating company whose common stock is to be acquired in the event the security
is converted or by a different issuer, such as an investment bank. These
securities may be identified by names such as ELKS (Equity Linked Securities).
Typically they share most of the salient characteristics of enhanced convertible
preferred stocks but will be ranked as senior or subordinated debt in the
issuer's corporate structure, according to the terms of the debt indenture.
There may be additional types of convertible securities not specifically
referred to herein that may be similar to those described above in which the
Fund may invest, consistent with its objective and policies. The Fund will not
invest in enhanced convertible securities that are issued by investment
companies. For more information, see "What Are the Fund's Potential Risks? -
Enhanced Convertibles" below.

Synthetic Convertibles. A synthetic convertible is created by combining
different securities, which together have the two principle characteristics of a
true convertible security: fixed income and the right to acquire the underlying
equity security. This combination is achieved by investing in nonconvertible
fixed-income securities and in warrants or stock or stock index call options
that grant the holder the right to purchase a specified quantity of securities
within a specified period of time at a specified price or, in the case of stock
index options, the right to receive cash.

Synthetic convertible securities differ from true convertible securities in
several respects. The value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertibility component. Thus, the values
of a synthetic convertible and a true convertible security will respond
differently to market fluctuations. Further, although the investment manager
normally expects to create synthetic convertibles whose two components represent
one issuer, the character of a synthetic convertible allows the Fund to combine
components representing distinct issuers, or to combine a fixed-income security
with a call option on a stock index, when the investment manager determines that
such a combination would better promote the Fund's investment objective. In
addition, the component parts of a synthetic convertible security may be
purchased simultaneously or separately, and the holder of a synthetic
convertible faces the risk that the price of the stock, or the level of the
market index underlying the convertibility component will decline.

Trade Claims. Trade claims are bought from creditors of companies in financial
difficulty who seek to reduce the number of debt obligations they are owed. Such
trade creditors generally sell their claims in an attempt to improve their
balance sheets and reduce uncertainty regarding payments. For buyers, trade
claims offer the potential for profits since they are often purchased at a
significantly discounted value and, consequently, have the potential for higher
income and capital appreciation should the debt issuer's financial position
improve. Trade claims are generally liquid, as there is a secondary market, but
the Board of Trustees (the "Board") will monitor their liquidity. An investment
in trade claims is speculative and there can be no guarantee that the debt
issuer will ever be able to satisfy the obligation. Further, trading in trade
claims is not regulated by federal securities laws but primarily by bankruptcy
and commercial laws. Because trade claims are unsecured obligations, holders may
have a lower priority than secured or preferred creditors.

Warrants. A warrant is typically a long-term option issued by a corporation
which gives the holder the privilege of buying a specified number of shares of
the underlying common stock at a specified exercise price at any time on or
before an expiration date. Stock index warrants entitle the holder to receive,
upon exercise, an amount in cash determined by reference to fluctuations in the
level of a specified stock index. If the Fund does not exercise or dispose of a
warrant prior to its expiration, it will expire worthless. Further, the Fund
does not intend to invest directly in warrants (valued at the lower of cost or
market) in excess of 5% of the value of the Fund's net assets. No more than 2%
of the value of the Fund's net assets may be invested in warrants (valued at the
lower of cost or market) which are not listed on the New York or American Stock
Exchange.

Loans of Portfolio Securities. The lending of securities is a common practice in
the securities industry. The Fund may engage in security loan arrangements with
the primary objective of increasing the Fund's income either through investing
the cash collateral in short-term interest-bearing obligations or by receiving a
loan premium from the borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially.

Short-Selling. In a short sale, the Fund sells a security it does not own in
anticipation of a decline in the market value of that security. The security
sold must be listed on a national exchange. To complete the transaction, the
Fund must borrow the security to make delivery to the buyer. The Fund is then
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. Until the security is replaced, the Fund must pay
the lender any dividends or interest that accrue during the period of the loan.
To borrow the security, the Fund may also be required to pay a premium, which
would increase the cost of the security sold. The proceeds of the short sale
will be retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out.

The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security, and the Fund will realize a gain if the
security declines in price between those same dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any
premium, dividends or interest the Fund is required to pay in connection with
the short sale.

In addition to the short sales discussed above, the Fund may also make short
sales "against the box." A short sale is "against the box" to the extent that
the Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short. The Fund at no time will have more
than 15% of the value of its net assets in deposits on short sales against the
box.

No securities will be sold short if, after the sale, the total market value of
all the Fund's open short positions, including short sales against the box,
would exceed 25% of the value of the Fund's net assets. In addition, short sales
of the securities of any one issuer may not exceed the lesser of 2% of the
Fund's net assets or 2% of the securities of any class of the issuer.

Non-diversification. As a non-diversified investment company under the 1940 Act,
the Fund may invest more than 5% and up to 25% of its assets in the securities
of any one issuer at the time of purchase. For purposes of the Internal Revenue
Code of 1986, as amended (the "Code"), however, as of the last day of any fiscal
quarter, the Fund may not have more than 25% of its total assets invested in any
one issuer, and, with respect to 50% of its total assets, the Fund may not have
more than 5% of its total assets invested in any one issuer, nor may it own more
than 10% of the outstanding voting securities of any one issuer. These
limitations do not apply to investments in securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities or to securities of
investment companies that qualify as regulated investment companies under the
Code.

What Are the Fund's Potential Risks?

Options, Futures and Options on Futures. The Fund's ability to hedge effectively
all or a portion of its securities through transactions in options on stock
indices, financial futures and related options depends on the degree to which
price movements in the underlying index or underlying securities correlate with
price movements in the relevant portion of the Fund's portfolio. Inasmuch as
these securities will not duplicate the components of the index or such
underlying securities, 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 or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument. Accordingly, successful use by
the Fund of options on stock indices, financial futures and other options will
be subject to the investment manager's ability to predict correctly movements in
the direction of the securities markets generally or a particular segment. This
requires different skills and techniques than predicting changes in the price of
individual stocks.

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

OTC options may be subject to more risks than exchange-traded options because
OTC options are arranged with dealers, not with a clearing corporation, and
because pricing of OTC options is typically done by reference to information
from market makers. 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 prior to its expiration only by entering
into a closing purchase transaction with the dealer to which the Fund originally
wrote it. 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 purchaser of such
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
which any person may hold or control in a particular futures contract. Trading
limits are imposed on the maximum number of contracts which 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 trading and positions 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 natures 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 which 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 interest rate trends by the investment manager may
still not result in a successful transaction.

In addition, futures contracts entail risks. Although the Fund believes that use
of such contracts will benefit the Fund, if the investment manager's judgment
about the general direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such 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 which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
from its portfolio to meet daily variation margin requirements. Such sales may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.

The Fund's sale of futures contracts and purchase of put options on futures
contracts will be solely to protect its investments against declines in value.
The Fund expects that in the normal course it will purchase securities upon
termination of long futures contracts and long call options on future contracts,
but under unusual market conditions it may terminate any of such positions
without a corresponding purchase of securities.

Depositary Receipts. Depositary Receipts, such as American Depositary Receipts
and Global Depositary Receipts, reduce but do not eliminate all the risk
inherent in investing in the securities of foreign issuers. To the extent that
the Fund acquires Depositary Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying the
Depositary Receipt to issue and service such Depositary Receipts, there may be
an increased possibility that the Fund would not become aware of and be able to
respond to corporate actions such as stock splits or rights offerings involving
the foreign issuer in a timely manner.

Enhanced Convertibles. An investment in enhanced convertible securities or any
other securities may involve additional risks to the Fund. The Fund may have
difficulty disposing of such securities because there may be a thin trading
market for a particular security at any given time. Reduced liquidity may have
an adverse impact on market price and the Fund's ability to dispose of
particular securities, when necessary, to meet the Fund's liquidity needs or in
response to a specific economic event, such as the deterioration in the
creditworthiness of an issuer. Reduced liquidity in the secondary market for
certain securities may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
The Fund, however, intends to acquire liquid securities, though there can be no
assurances that this will be achieved.

High Yielding, Fixed Income Securities. The premature disposition of a high
yielding security due to a call or buy-back feature, the deterioration of the
issuer's creditworthiness, or a default may make it more difficult for the Fund
to manage the timing of its receipt of income, which may have tax implications.
The Fund may be required under the Code and U.S. Treasury regulations to accrue
income for income tax purposes on defaulted obligations and to distribute such
income to the Fund's shareholders even though the Fund is not currently
receiving interest or principal payments on such obligations. In order to
generate cash to satisfy any or all of these distribution requirements, 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.

Generally, purchasers of high yielding securities are dealers and other
institutional buyers, rather than individuals. To the extent the secondary
trading market for a particular high yielding, fixed-income security does exist,
it is generally not as liquid as the secondary market for higher-rated
securities.

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 such restricted securities before the securities have been
registered, it may be deemed an underwriter of such securities under the
Securities Act of 1933, as amended ("1933 Act"), which entails special
responsibilities and liabilities. The Fund may incur special costs in disposing
of such securities; however, the Fund will generally incur no costs when the
issuer is responsible for registering the securities.

The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recession that began in 1990
disrupted the market for high yielding securities and adversely affected the
value of outstanding securities and the ability of issuers of such securities to
meet their obligations. Although the economy has improved considerably and high
yielding securities have performed more consistently since that time, there is
no assurance that the adverse effects previously experienced will not recur. For
example, the highly publicized defaults of some high yield issuers during 1989
and 1990 and concerns regarding a sluggish economy which continued into 1993,
depressed the prices for many of these securities. While market prices may still
be temporarily somewhat depressed due to these factors, the ultimate price of
any security will generally reflect the true operating results of the issuer.
Factors adversely impacting the market value of high yielding securities owned
by the Fund will adversely impact the Fund's net asset value. In addition, the
Fund may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holdings. The Fund will rely on the Manager's judgment, analysis and experience
in evaluating the creditworthiness of an issuer. In this evaluation, the Manager
will take 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.

Restricted Securities. The Board has authorized the Fund to invest in restricted
securities and to consider them liquid (and thus not subject to the 10%
limitation on illiquid securities) to the extent the Manager determines that
there is a liquid institutional or other market for these securities. For
example, restricted securities may be freely transferred among qualified
institutional buyers under Rule 144A of the 1933 Act, and in some cases a liquid
institutional market has developed.

On an ongoing basis, the Board will review the Manager's decisions to treat
restricted securities as liquid - including the Manager's assessment of current
trading activity and the availability of reliable price information. In
determining whether a restricted security can be considered liquid, the Manager
and the Board will take into account the following factors: (i) the frequency of
trades and quotes for the security, (ii) the number of dealers willing to buy or
sell the security and the number of potential buyers, (iii) dealer undertakings
to make a market in the security, and (iv) the nature of the security and nature
of the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). To the extent the
Fund invests in restricted securities that are deemed to be liquid, the general
level of illiquidity in the Fund may be increased if qualified institutional
buyers become uninterested in buying these securities or the market for these
securities contracts.

Investment Restrictions

The Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the Investment Company Act of
1940, as amended (the "1940 Act"), a "vote of a majority of the voting
securities" of the Fund means the affirmative vote of the lesser 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. The
Fund may not:

1. Borrow money, except that the Fund may borrow money in a manner consistent
with the Fund's investment objective and policies in an amount not exceeding
331/3% of the value of the Fund's total assets (including the amount borrowed).
The Fund may borrow in connection with short-sales and short-sales "against the
box," and the Fund may borrow from banks, other Franklin Templeton Funds or
other persons to the extent permitted by applicable law.

2. Underwrite securities of other issuers, except insofar as the Fund may be
technically deemed an underwriter under the federal securities laws in
connection with the disposition of portfolio securities. (This does not preclude
the Fund from obtaining such short-term credit as may be necessary for the
clearance of purchases and sales of its portfolio securities.)

3. Invest directly in interests in real estate, oil, gas or other mineral
leases, exploration or development programs, including limited partnership
interests. This restriction does not preclude investments in marketable
securities of issuers engaged in such activities.

4. Loan money, except as consistent with the Fund's investment objectives, and
except that the Fund may (a) purchase a portion of an issue of publicly
distributed bonds, debentures, notes and other evidences of indebtedness, (b)
enter into repurchase agreements, (c) lend its portfolio securities, and (d)
participate in an interfund lending program with other Franklin Templeton Funds
to the extent permitted by the 1940 Act and any rules or orders thereunder.

5. Purchase or sell commodities or commodity contracts; except that the Fund may
enter into interest rate and financial futures contracts, options thereon, and
forward contracts.

6. Issue securities senior to the Fund's presently authorized shares of
beneficial interest.

7. Invest more than 25% of the Fund's assets (at the time of the most recent
investment) in any single industry.

Additional Restrictions. The Fund has adopted the following additional
restrictions which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:

1. Invest in any company for the purpose of exercising control or management,
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and policies as the Fund.

2. Purchase securities on margin, except that the Fund may make margin payments
in connection with futures, options and currency transactions.

3. Purchase or retain securities of any company in which officers or directors
of the Fund, or of its investment manager, individually owning more than 1/2 of
1% of the securities of such company, in the aggregate own more than 5% of the
securities of such company.

4. Purchase securities of open-end or closed-end investment companies, except in
compliance with the 1940 Act, and except that the Fund may invest in another
registered investment company as described in Restriction 1, above.

5. Invest more than 5% of its assets in securities of issuers with less than
three years continuous operation, including the operations of any predecessor
companies.

6. Hold or purchase the securities of any issuer if, as a result, in the
aggregate, more than 10% of the value of the Fund's net assets would be invested
in (i) securities that are not readily marketable or (ii) repurchase agreements
maturing in more than seven days. The Fund may, however, invest in registered
investment companies as described in Restriction 1, above.

If a percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in value of portfolio securities or the amount of net assets will not be
considered a violation of any of the foregoing restrictions.

Officers and Trustees

The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
trustees, in turn, elect the officers of the Fund who are responsible for
administering day-to-day operations of the Fund. The affiliations of the
officers and trustees and their principal occupations for the past five years
are listed below. Trustees who are deemed to be "interested persons" of the
Fund, as defined in the 1940 Act, are indicated by an asterisk (*).

Positions and Offices
Name, Age and Address with the Trust Principal Occupations During Past Five
Years

Frank T. Crohn (71) Trustee
7251 West Palmetto Park Road
Boca Raton, FL 33433

*William J. Lippman (71) President, Chief
One Parker Plaza Executive Officer
Fort Lee, NJ 07024 and Trustee

Charles Rubens II (65) Trustee
18 Park Road
Scarsdale, NY 10583

Private Investor; and trustee of three of the investment companies in the
Franklin Group of Funds.

Leonard Rubin (70) Trustee
501 Broad Avenue
Ridgefield, NJ 07657

Harmon E. Burns (51) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404

Kenneth V. Domingues (63) Vice President -
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 and Accounting Standards

Martin L. Flanagan (35) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer

Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404

Senior Vice President and General Counsel, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc. and
officer of 37 of the investment companies in the Franklin Group of Funds.

Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404

Diomedes Loo-Tam (57) Treasurer
777 Mariners Island Blvd. and Principal
San Mateo, CA 94404 Accounting Officer

Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.

Edward V. McVey (58) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404

Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.

R. Martin Wiskemann (69) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404

The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and the investment manager. Trustees not
affiliated with the investment manager ("nonaffiliated trustees") are currently
paid fees of $600 per quarter plus $300 per meeting attended. As indicated
above, certain of the Trust's nonaffiliated trustees also serve as directors,
trustees or managing general partners of other investment companies in the
Franklin Group of Funds(R) from which they may receive fees for their services.
The following table indicates the total fees paid to nonaffiliated trustees by
the Trust and by other funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>

Number of
Total Fees Boards in the
Total Fees Received from Franklin Group of
Received the Franklin Funds on Which
Name from the Trust* Group of Funds**Each Serves***
<S> <C> <C> <C>
Frank T. Crohn........................... $3,900 $15,600 3
Charles Rubens, II....................... $3,900 $15,600 3
Leonard Rubin............................ $3,900 $15,600 3

</TABLE>

*For the fiscal year ended October 31, 1995.

**For the calendar year ended December 31, 1995.

***The number of boards is based on the number of registered investment
companies in the Franklin Group of Funds and does not include the total number
of series or funds within each investment company for which the trustees are
responsible.

Nonaffiliated trustees are reimbursed for expenses incurred in connection with
attending board meetings, paid pro rata by each fund in the Franklin Group of
Funds and the Templeton Group of Funds (the "Franklin Templeton Group of Funds")
for which they serve as director, trustee or managing general partner. No
officer or trustee received any other compensation directly from the Trust.
Certain officers or trustees who are shareholders of Franklin Resources, Inc.
("Resources") may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.

From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. As of the
date of this document, Resources owned substantially all of the outstanding
shares of the Fund as a result of having provided the Fund's initial
capitalization.

Investment Advisory and Other Services

The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Resources, a publicly owned
holding company whose shares are listed on the New York Stock Exchange (the
"Exchange"). Resources owns several other subsidiaries that are involved in
investment management and shareholder services.

The management agreement is in effect until March 11, 1997. Thereafter, it may
continue in effect for successive annual periods providing such 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 trustees who are not parties to the
management agreement or interested persons of any such party (other than as
trustees of the Fund), 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 or by the Manager on 60 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.

Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors. During the fiscal year ended October 31,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report to Shareholders
dated October 31, 1995.

How Does the Fund Purchase
Securities For Its Portfolio?

When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services, and through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total brokerage as may reasonably
be required.

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

How Do I Buy and Sell Shares?

All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of 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.

If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to the Fund, the Fund 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 such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such 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.

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

Sales
Size of Purchase - U.S. dollars Charge
Up to $100,000................. 3%
$100,000 to $1,000,000......... 2%
Over $1,000,000................ 1%

Purchases and Redemptions through Securities Dealers

Other Payments to Securities Dealers

As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust departments of
banks, certain designated retirement plans (excluding IRA and IRA Rollovers),
certain non-designated plans, and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, as described below.
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 securities dealer, in the event shares are redeemed 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.

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 made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers): 1% on sales of $1 million but less than $2
million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more.
These payment breakpoints are reset every 12 months for purposes of additional
purchases. With respect to purchases made at net asset value by certain trust
companies and trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $1 million or more,
either Distributors or one of its affiliates, out of its own resources, may pay
up to 1% of the amount invested.

Letter of Intent

You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the first
investment which you want to qualify for a reduced sales charge, you may file
with the Fund a signed Shareholder Application, with the Letter of Intent (the
"Letter") 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 upon purchases
in more than one of the Franklin Templeton Funds will be effective only after
notification to Distributors that the investment qualifies for a discount. Your
holdings in the Franklin Templeton Funds, including Class II shares, acquired
more than 90 days before the Letter is filed will be counted towards completion
of the Letter but will not be entitled to a retroactive downward adjustment in
the sales charge. Any redemptions you make, unless by a designated retirement
plan, during the 13-month period 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 upon the amount actually
purchased (less redemptions) during the period. The upward adjustment does not
apply to designated retirement plans. If you execute a Letter prior to a change
in the sales charge structure for the Fund you will be entitled to 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.

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 Securities and Exchange Commission ("SEC"). In
the case of redemption requests in excess of these amounts, the trustees reserve
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 such
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. Should it happen, however, you may not be able to recover your investment
in a timely manner.

Redemptions by the Fund

Due to the relatively high cost of handling small investments, the Fund reserves
the right to involuntarily redeem your shares at net asset value if your account
has a value of less than one-half of your initial required minimum investment,
but only where the value of your account has been reduced by the prior voluntary
redemption of shares. Until further notice, it is the present policy of the Fund
not to exercise this right if your account has a value of $1,250 or more. In any
event, before the Fund redeems your shares and sends you the proceeds, it will
notify you that the value of the shares in your account is less than the minimum
amount and allow you 30 days to make an additional investment in an amount which
will increase the value of your account to at least $2,500.

Reinvestment Date

Reports to Shareholders

The Fund sends annual and semiannual reports regarding its performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report you may phone Fund Information at 1-800/DIAL BEN.

Special Services

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 Exchange, if that is earlier, and that 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 mean between the current bid and ask prices is used.
Occasionally, events which 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 Fund's net asset value. If events which materially affect the values of
these foreign securities occur during such period, then these securities will be
valued in accordance with procedures established 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 trustees, the
Fund may utilize a pricing service, bank or securities dealer to perform any of
the above described functions.

Additional Information Regarding Taxation

Generally. The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Code. The trustees reserve the
right not to maintain the qualification of the Fund as a regulated investment
company if they determine such course of action to be beneficial to
shareholders. In such case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.

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 provided by
the Fund annually in a notice to shareholders mailed shortly after the end of
the Fund's fiscal year.

Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividend-received deduction. For example, any interest income and net short-term
capital gain (in excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and distributed by the
Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless Fund shares have been held (or deemed held)
for at least 46 days in a substantially unhedged manner. The dividends-received
deduction may also be reduced to the extent interest paid or accrued by a
corporate shareholder is directly attributable to its investment in Fund shares.
The entire dividend, including the portion which is treated as a deduction, is
includable in the tax base on which the federal alternative minimum tax is
computed and may also result in a reduction in the your tax basis in its Fund
shares, under certain circumstances, if the shares have been held for less than
two years. Corporate shareholders whose investment in the Fund is "debt
financed" for these tax purposes should consult with their tax advisors
concerning the availability of the dividends-received deduction.

Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between your basis in the 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 the sales charge incurred in purchasing shares of the Fund
will not be included in the federal tax basis of shares sold or exchanged within
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 Group of 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. You should consult
with your tax advisor concerning the tax rules applicable to the redemption or
exchange of Fund shares.

The Fund's Investments - Generally. The Fund's investment in options, futures
and forward conversions, options on futures, stock indices, foreign currencies
and securities, synthetic and enhanced convertible securities, structured notes,
zero coupon/deferred interest securities and pay-in-kind bonds, and its
participation in spread and straddle transactions, or actual or deemed short
sales may be limited by the Code and may require the application of many complex
and special tax rules.

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 capital gain or loss and
40% short-term capital gain or loss. 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 you by the Fund.

Options and Related Tax Rules. When the Fund holds an option or contract which
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.

Foreign Securities. The Fund may invest in foreign securities. These
investments, if made, will have the following tax consequences.

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 which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses, and may
affect the amount and timing of the Fund's income or loss from such transactions
and in turn it distributions to you.

The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. Because the Fund intends to invest 50% or less of its
total assets in securities of foreign corporations, it will not be entitled
under the Code to pass-through to its shareholders their pro rata share of the
foreign taxes paid by the Fund. These taxes will be taken as a deduction by the
Fund.

Conversion Transactions. Gain realized by the Fund from transactions that are
deemed to constitute "conversion transactions" under the Code and which would
otherwise produce capital gain may be recharacterized as ordinary income to the
extent that such gain does not exceed an amount defined by the Code as the
"applicable imputed income amount." A conversion transaction is any transaction
in which substantially all of the Fund's expected return is attributable to the
time value of the Fund's net investment in such transaction and any one of the
following criteria are met: 1) there is an acquisition of property with a
substantially contemporaneous agreement to sell the same or substantially
identical property in the future; 2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the Fund on the basis that it would
have the economic characteristics of a loan but would be taxed as capital gain;
or 4) the transaction is specified in Treasury regulations to be promulgated in
the future. The applicable imputed income amount, which represents the deemed
return on the conversion transaction based upon the time value of money, is
computed using a yield equal to 120 percent of the applicable federal rate,
reduced by any prior recharacterizations under this provision or Section 263(g)
of the Code concerning capitalized carrying costs.

Zero Coupon and Pay-in-Kind Bonds. The Fund's investment in zero coupon or
pay-in-kind bonds that provide for the payment of delayed interest may cause the
Fund to recognize income and make distributions to shareholders prior to the
receipt of cash payments on these obligations. These debt instruments are
subject to special tax rules concerning the amount, character and timing of
income required to be accrued by the Fund. The Fund may be required to accrue
income for income tax purposes on these obligations and to distribute such
income to shareholders even though the Fund is not currently receiving interest
or principal payments on the obligations. In order to generate cash to satisfy
distribution requirements, 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.

U.S. Government Securities. The Fund may also invest for temporary or defensive
purposes in securities of the U.S. Government and certain of its agencies or
instrumentalities. Many states grant tax-free status to dividends paid to
shareholders of regulated investment companies from interest earned by the fund
from direct obligations of the U.S. Government, subject in some states to
minimum investment requirements that must be met by the Fund. Investments in
mortgage-backed securities and repurchase agreements collateralized by U.S.
Government securities do not generally qualify for tax-free treatment. At the
end of each calendar year, the Fund will provide you with the percentage of any
dividends paid which may qualify for such tax-free treatment. You should then
consult with your tax advisers with respect to the application of your state and
local income tax laws to these distributions.

The Fund's Underwriter

Pursuant to an underwriting agreement in effect until March 31, 1997,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Fund. The underwriting agreement will continue in effect for
successive annual periods provided that 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 Trust's trustees who are not parties to the underwriting
agreement or interested persons of any such party (other than as trustees of the
Trust), 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.

Distribution Plan

The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan") whereby the Fund may pay up to a maximum of 0.25% per annum of
its average daily net assets, payable quarterly, for expenses incurred in the
promotion and distribution of its shares. In addition, the Fund is permitted to
pay Distributors up to an additional 0.10% per annum of its average daily net
assets for reimbursement of such distribution expenses.

Pursuant to the Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum stated above) for actual expenses incurred in
the distribution and promotion of the Fund's shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates.

The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1.

The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan is effective through March 11, 1997 and renewable annually by a vote of the
Board, including a majority vote of the trustees who are non-interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Plan, cast in person at a meeting called for that purpose. It
is also required that the selection and nomination of such trustees be done by
the non-interested trustees. The Plan and any related agreement may be
terminated at any time, without penalty, by vote of a majority of the
non-interested trustees on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with the Manager, or by
vote of a majority of the Fund's outstanding shares. Distributors or any dealer
or other firm may also terminate their respective distribution or service
agreement at any time upon written notice.

General Information

Performance

Total Return

The average annual compounded rates of return for the Fund will be 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

Current Yield

Current yield figures will be obtained using the following SEC formula:

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

where:

a = dividends and interest earned during the period

b = expenses accrued for the period (net of reimbursements)

c = the average daily number of shares outstanding during the period that were
entitled to receive dividends

d = the maximum offering price per share on the last day of the period

Current Distribution Rate

Current yield, which is calculated according to a formula prescribed by the SEC,
is not indicative of the amounts which were or will be paid to the shareholders
of the Fund. Amounts paid to shareholders are reflected in the quoted current
distribution rate. The current distribution rate is computed by dividing the
total amount of dividends per share paid by the Fund during the past 12 months
by a current maximum offering price. Under certain circumstances, such as when
there has been a change in the amount of dividend payout or a fundamental change
in investment policies, it might be appropriate to annualize the dividends paid
over the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing and short-term capital gains, and is calculated over a different
period of time.

Volatility

Occasionally statistics may be used to specify Fund volatility or risk. Measures
of volatility or risk are generally used to compare Fund net asset value or
performance relative 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

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.

Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.

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 New York Stock Exchange.

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 equity funds.

h) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.

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 First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg L.P.

m) Standard & Poor's 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.

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

Such advertisements and sales literature may also note that deeply discounted
securities offer growth potential, but that finding these deeply discounted
securities involves expensive and extensive research generally available only to
large institutional investors and very affluent investors.

Other Features and Benefits

Miscellaneous Information

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 48 years and
now services more than 2.5 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 Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $135
billion in assets under management for more than 3.9 million U.S. based mutual
fund shareholder and other accounts. The Franklin Group of Funds and the
Templeton Group of Funds offer to the public 114 U.S. based mutual funds. The
Fund may identify itself by its NASDAQ symbol or CUSIP number.

The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past seven years.

Employees of Resources or its subsidiaries 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 within 24
hours after clearance; (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.

Ownership and Authority Disputes

FRANKLIN VALUE FUND

Report of Independent Auditors

To the Shareholders and Board of Trustees of FRANKLIN VALUE INVESTORS TRUST:

We have audited the accompanying statement of assets and liabilities of Franklin
Value Fund (one of the funds constituting the Franklin Value Investors Trust) as
of March 4, 1996. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of cash held as of March 4, 1996 with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Franklin Value Fund as of March
4, 1996 in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

March 5, 1996
San Francisco, California

FRANKLIN VALUE FUND

Statement of Assets and Liabilities

March 4, 1996

Assets:

Cash held by custodian............................................... $100,000
Unamortized organization costs....................................... 3,000
---------
Total assets.................................................... 103,000
---------
Liabilities:
Accrued expenses for organization costs.............................. 3,000
---------
Net assets............................................................ $100,000
=========
Shares of beneficial interest outstanding, $0.01 par value, unlimited shares
authorized............................................................ 6,667
=========
Net asset value per share............................................. $15.00
=========
Computation of net asset value and offering price per share:
Net asset value, and redemption price per share ($100,000/6,667).... $15.00
=========
Maximum offering price (100/95.5 of $15.00).......................... $15.71
=========

Note: Franklin Value Fund ("the Fund") is an open-end, non-diversified series of
the Franklin Value Investors Trust, a management investment company registered
under the Investment Company Act of 1940 and organized as a Massachusetts
business trust on September 11, 1989. Organization expenses are being amortized
over a five-year period from the effective date of its registration under the
Securities Act of 1933. As part of its organization, the Fund has issued, in a
private placement, 6,667 shares of beneficial interest to Franklin Resources,
Inc. at $15.00 per share. These shares have been designated as "initial shares."

o189 STKSA

SUPPLEMENT DATED
December 1, 1996

TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN MICROCAP VALUE FUND
Dated December 12, 1995

I. The section "Officers and Trustees" is revised to add the following:

As of November 4, 1996, the officers and trustees, as a group, owned of record
and beneficially approximately 3,247 shares, or less than 1% of the Fund's
total outstanding shares. Many of the officers and trustees also own shares in
other funds in the Franklin Templeton Group of Funds.

Administrative Services. Under an agreement with Advisory Services,
Franklin Templeton Services, Inc. ("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, Advisory Services 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 Advisory Services. It is not a separate
expense of the Fund.

III. The fourth paragraph on page 10 is replaced with the following:

Custodians. 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. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Fund shares. Citibank Delaware, One Penn's Way, New
Castle, Delaware 19720, acts as custodian in connection with transfer services
through bank automated clearing houses. The custodians do not participate in
decisions relating to the purchase and sale of portfolio securities.

IV. The two paragraphs under "How Do I Buy and Sell Shares? - Other Payments to
Securities Dealers" are replaced in their entirety with the following:

Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases 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 by certain retirement plans pursuant to a sales
charge waiver, 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.

V. The following is added under "General Information."

Total Return

The Fund's total rate of return for the period from inception (December 12,
1995) to April 30, 1996, was 18.22%.

Current Yield

The Fund's yield for the 30-day period ended April 30, 1996, was 0.37%.

Current Distribution Rate

The Fund's current distribution rate for the 30-day period ended April 30,
1996, was 0.16%.

VI. The following is added as the last paragraph on page 22:

The unaudited financial statements contained in the Semi-Annual Report to
Shareholders of the Trust, for the six month period ended April 30, 1996, are
incorporated herein by reference.

FRANKLIN MICROCAP VALUE FUND
STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 12, 1995

777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777EE1-800/DIAL BEN

CONTENTS PAGE

How Does the Fund Invest Its Assets?

What Are the Fund's Potential Risks?

Investment Restrictions

Officers and Trustees

Investment Advisory and Other Services

How Does the Fund Purchase Securities
For Its Portfolio?

How Do I Buy and Sell Shares?

How Are Fund Shares Valued?

Additional Information
Regarding Taxation

The Fund's Underwriter

General Information

Appendix

Financial Statements

Franklin MicroCap Value Fund (the "Fund") is a non-diversified, open-end series
of Franklin Value Investors Trust (the "Trust"), a management investment
company. The Fund's investment objective is to seek high total return, of which
capital appreciation and income are components. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in securities of
companies with market capitalization under $100 million at the time of purchase
and which the Fund's investment manager believes represent intrinsic values not
reflected in the current market price of such securities.

A Prospectus for the Fund, dated December 12, 1995 as may be amended from time
to time, provides the basic information you should know before investing in the
Fund and may be obtained without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"), at the
address or telephone number shown above.

THIS STATEMENT OF ADDITIONAL INFORMATION (THE "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 FUND'S PROSPECTUS.

HOW DOES THE FUND INVEST ITS ASSETS?

As noted in the Prospectus, the Fund seeks to provide high total return, of
which capital appreciation and income are components. This objective is a
fundamental policy and may not be changed without approval of shareholders. The
Fund seeks to accomplish its objective by investing primarily in securities of
companies with market capitalization under $100 million at the time of purchase
and which the Fund's investment manager believes represent intrinsic values not
reflected in the current market price of such securities.

The Fund's emphasis on securities believed to be undervalued by the market uses
a technique followed by certain very wealthy investors highlighted by the media
and a number of private partnerships with very high minimum investments. It
requires not only the resources to undertake exhaustive research of little
followed, out-of-favor securities, but also the patience and discipline to hold
these investments until their intrinsic values are ultimately recognized by
others in the marketplace. There can be no assurance that such technique will be
successful for the Fund or that the Fund will achieve its investment objective.

The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus entitled "How Does the Fund Invest Its Assets?"

LOANS OF PORTFOLIO SECURITIES. As stated in the Prospectus, the Fund may make
loans of its portfolio securities up to 25% of its total assets, in accordance
with guidelines adopted by the Fund's Board of Trustees. The Fund will not lend
its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale. Loans will
be subject to termination by the Fund in the normal settlement time, currently
three business days after notice, or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to the Fund and its shareholders. The Fund may pay reasonable
finders', borrowers', administrative and custodial fees in connection with a
loan of its securities.

ENHANCED CONVERTIBLE SECURITIES. The Fund may invest in convertible preferred
stocks that offer enhanced yield features, such as Preferred Equity Redemption
Cumulative Stock ("PERCS"), which provide an investor, such as the Fund, with
the opportunity to earn higher dividend income than is available on a company's
common stock. A PERCS is a preferred stock which generally features a mandatory
conversion date, as well as a capital appreciation limit that is usually
expressed in terms of a stated price. Most PERCS expire three years from the
date of issue, at which time they are convertible into common stock of the
issuer. PERCS are generally not convertible into cash at maturity. Under a
typical arrangement, if after three years the issuer's common stock is trading
at a price below that set by the capital appreciation limit, each PERCS would
convert to one share of common stock. If, however, the issuer's common stock is
trading at a price above that set by the capital appreciation limit, the holder
of the PERCS would receive less than one full share of common stock. The amount
of that fractional share of common stock received by the PERCS holder is
determined by dividing the price set by the capital appreciation limit of the
PERCS by the market price of the issuer's common stock. PERCS can be called at
any time prior to maturity. If called early, however, the issuer must pay a call
premium over the market price to the investor. This call premium declines at a
preset rate daily, up to the maturity date of the PERCS.

The Fund may also invest in other classes of enhanced convertible securities.
These include but are not limited to ACES (Automatically Convertible Equity
Securities), PEPS (Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock Appreciation
Income Linked Securities), TECONS (Term Convertible Notes), QICS (Quarterly
Income Cumulative Securities), and DECS (Dividend Enhanced Convertible
Securities), all of which have the following features. They are company issued
convertible preferred stock; unlike PERCS they do not have a capital
appreciation limit; they seek to provide the investor with high current income
with some prospect of future capital appreciation; they are typically issued
with three or four-year maturities; they typically have some built-in call
protection for the first two to three years; investors have the right to convert
them into shares of common stock at a preset conversion ratio or hold them until
maturity; and upon maturity they will mandatorily convert into either cash or a
specified number of shares of common stock.

Similarly, there may be enhanced convertible debt obligations issued by the
operating company or by a different issuer, such as an investment bank company.
These securities may be identified by names such as ELKS (Equity Linked
Securities). Typically they share most of the characteristics of an enhanced
convertible preferred stock but will be ranked as senior or subordinated debt in
the issuer's capital structure according to the terms of the debt indenture.

There may be additional types of convertible securities which are similar to
those described above in which the Fund may invest, consistent with its
objective and policies.

AMERICAN DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored
American Depositary Receipts ("ADRs"), which are certificates issued by U.S.
banks representing the right to receive securities of a foreign issuer deposited
with that bank or a correspondent bank. A sponsored ADR is an ADR where
establishment of the issuing facility is brought about by the participation of
the issuer and the depositary institution pursuant to a deposit agreement that
sets out the rights and responsibilities of the issuer, the depositary and the
ADR holder. Under the terms of most sponsored arrangements, depositaries agree
to distribute notices of shareholder meetings and voting instructions, thereby
ensuring that ADR holders will be able to exercise voting rights through the
depositary with respect to the deposited securities.

An unsponsored ADR has no sponsorship by the issuing facility and more than one
depositary institution may be involved in its issuance. An unsponsored ADR
typically clears through the Depository Trust Company and therefore, there
should be no additional delays in selling the security or in obtaining
dividends. Although not required, the depositary normally requests a letter of
non-objection from the issuer and is not required to distribute notices of
shareholder's meetings or financial information to the holder.

OPTIONS. As noted in the Prospectus, the Fund may write covered call options,
which are listed on a national securities exchange, and purchase listed call and
put options on securities and securities indices for portfolio hedging purposes.

The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, since the writer may be assigned an
exercise notice at any time prior to the termination of the obligation. Whether
or not an option expires unexercised, the writer retains the amount of the
premium paid by the purchaser of the option, which amount reflects, among other
things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates. This amount may, in the case of a covered call
option, be offset by a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer experiences
a profit or loss from the sale of the underlying security.

The writer of an option that wishes to terminate its obligation 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 the
writer's position will be canceled by the clearing corporation. A writer may not
effect a closing purchase transaction, however, after being notified of the
exercise of an option. Likewise, an investor who is 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 permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. In addition, effecting a
closing transaction will permit the cash or proceeds from the sale of any
securities subject to the option to be used for other Fund investments. If the
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will effect a closing transaction prior to or at the
same time as the sale of the security.

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 or is more
than the premium paid to purchase 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 or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, 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 owned by the Fund.

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

The Fund may also purchase put options. The Fund may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Fund may purchase a put option on an underlying security (a
"protective put") owned by the Fund as a hedging technique in order to protect
against an anticipated decline in the value of the security. Such 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 at the put
exercise price, regardless of any decline in the underlying security's market
price. For example, a put option may be purchased in order to protect unrealized
appreciation of a security when the investment manager deems it desirable to
continue to hold the security because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security is eventually sold.

WHAT ARE THE FUND'S POTENTIAL RISKS?

HIGH YIELDING, FIXED-INCOME SECURITIES. The Fund may invest up to 25% of its
total assets, at the time of investment, in lower rated, fixed-income securities
and unrated securities of comparable quality, commonly known as "junk bonds",
although the Fund's current investment strategy is to limit such investments to
less than 5% of the Fund's total assets. Because of the Fund's policy of
investing in higher yielding, higher risk securities, an investment in the Fund
is accompanied by a higher degree of risk than is present with an investment in
higher rated, lower yielding securities. 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. If you are on a fixed-income or retired, you should also consider the
increased risk of loss to principal which is present with an investment in
higher risk securities such as those in which the Fund invests.

The market value of lower rated, fixed-income securities tend to reflect
individual developments affecting the issuer to a greater extent than do higher
rated securities, which react primarily to fluctuations in the general level of
interest rates. Lower rated securities also tend to be more sensitive to
economic conditions than higher rated securities. These lower rated fixed-income
securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even bonds rated BBB by Standard & Poor's Corporation ("S&P") or Baa
by Moody's Investors Service ("Moody's"), ratings which are considered
investment grade, possess some speculative characteristics.

The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent the secondary trading market for
a particular high yielding, fixed-income security does exist, it is generally
not as liquid as the secondary market for higher rated securities. Reduced
liquidity in the secondary market may have an adverse impact on market price and
the Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales. (See "How Are Fund Shares Valued?" in the
Prospectus and this SAI.)

The Fund is authorized to acquire high yielding, fixed-income securities that
are sold without registration under the federal securities laws and therefore
carry restrictions on resale. While many recent high yielding securities have
been sold with registration rights, covenants and penalty provisions for delayed
registration, if the Fund is required to sell such restricted securities before
the securities have been registered, it may be deemed an underwriter of such
securities as defined in the Securities Act of 1933, which entails special
responsibilities and liabilities. The Fund may incur special costs in disposing
of such securities. The Fund, however, will generally incur no costs when the
issuer is responsible for registering the securities.

The Fund may acquire high yielding, fixed-income securities during an initial
underwriting. Such securities involve special risks because they are new issues.
The Fund has no arrangement with its underwriter or any other person concerning
the acquisition of such securities, and the investment manager will carefully
review the credit and other characteristics pertinent to such new issues.

The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recent recession disrupted the
market for high yielding securities and adversely affected the value of
outstanding securities and the ability of issuers of such securities to meet
their obligations. Those adverse effects may continue even as the economy
recovers. Factors adversely impacting the market value of high yielding
securities will, to the extent the Fund has invested in such securities,
adversely impact the Fund's net asset value. For example, adverse publicity
regarding lower rated bonds, which appeared during 1989 and 1990, along with
highly publicized defaults by some high yield issuers, and concerns regarding a
sluggish economy which continued in 1993, depressed the prices for many such
securities. In addition, the Fund may also incur additional expenses to the
extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings. The Fund will rely on the
investment manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the investment manager will
take 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.

OPTIONS. The Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on securities and securities indices
depends on the degree to which price movements in the underlying index or
underlying securities correlate with price movements in the relevant portion of
the Fund's portfolio. Inasmuch as such securities will not duplicate the
components of any index or such underlying securities, 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 or other securities underlying the hedging instrument and the hedged
securities which would result in a loss on both such securities and the hedging
instrument. Accordingly, successful use by the Fund of options on securities and
securities indices will be subject to the investment manager's ability to
predict correctly movements in the direction of the securities markets generally
or of a particular segment. This requires different skills and techniques than
predicting changes in the price of individual stocks.

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

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the Investment Company Act of
1940, as amended (the "1940 Act"), a "vote of a majority of the outstanding
voting securities" of the Fund means the affirmative vote of the lesser of (i)
more than 50% of the outstanding voting securities of the Fund or (ii) 67% or
more of the shares of the Fund present at a shareholders meeting if more than
50% of the outstanding voting securities of the Fund are represented at the
meeting in person or by proxy. The Fund MAY NOT:

1. Invest in securities for purposes of exercising management or control of the
issuer, except that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same investment
objective and policies as the Fund.

2. Borrow money, except in the form of reverse repurchase agreements or from
banks in order to meet redemption requests that might otherwise require the
untimely disposition of portfolio securities or for other temporary or emergency
purposes in an amount up to 15% of the value of the Fund's total assets
(including the amount borrowed) based on the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the Fund's total assets, the Fund will not
make any additional investments.

3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure borrowings for temporary or emergency purposes and permissible options,
short selling or other hedging transactions.

4. Purchase securities on margin or underwrite securities of other issuers,
except insofar as the Fund may be technically deemed an underwriter under the
federal securities laws in connection with the disposition of portfolio
securities. (This does not preclude the Fund from obtaining such short-term
credit as may be necessary for the clearance of purchases and sales of its
portfolio securities.)

5. Invest directly in interests in real estate, oil, gas or other mineral
leases, exploration or development programs, including limited partnership
interests. (This restriction does not preclude investments in marketable
securities of issuers engaged in such activities.)

6. Make loans to other persons, except by the purchase of debt obligations, or
through loans of the Fund's portfolio securities, or to the extent the entry
into a repurchase agreement or similar transaction may be deemed a loan.

7. Purchase or sell commodities or commodity futures contracts or financial
futures contracts; or invest in put, call, straddle or spread options on
financial or other futures contracts or stock index futures contracts.

8. Invest directly in warrants (valued at the lower of cost or market) in excess
of 5% of the value of the Fund's net assets. No more than 2% of the value of the
Fund's net assets may be invested in warrants (valued at the lower of cost or
market) which are not listed on the New York or American Stock Exchanges.

9. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but the Fund may
deal with such persons or firms as brokers and pay a customary brokerage
commission; nor invest in securities of any issuer if any officer, director or
trustee of the Fund or the investment advisor owns beneficially more than
one-half of 1% of the outstanding securities of such issuer and all such
officers, directors and trustees together own beneficially more than 5% of such
securities.

10. Purchase or hold securities of any issuer if, as a result, in the aggregate,
more than 10% of the value of the Fund's total assets would be invested in
securities that are subject to legal or contractual restrictions on resale, in
securities that are not readily marketable (including over-the-counter options)
or in repurchase agreements maturing in more than seven days.

11. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges or (ii) entering into repurchase
transactions.

12. Engage in the short sales of securities, except short sales "against the
box," if the cash or securities deposited in the segregated account with the
Fund's custodian to collateralize its short positions in the aggregate exceed
25% of the Fund's net assets.

13. Invest in the securities of other investment companies, except where there
is no commission other than the customary brokerage commission or sales charge,
or except that securities of another investment company may be acquired pursuant
to a plan of reorganization, merger, consolidation or acquisition; except that
all or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund. Pursuant to available exemptions from the 1940 Act, the Fund may
invest in shares of one or more money market funds managed by Franklin Advisers,
Inc. or its affiliates.

In addition to the restrictions above, the Fund does not intend to invest more
than 5% of its assets in securities of issuers with less than three years
continuous operation, including the operations of any predecessor companies.
Pursuant to a comment by the state of Ohio and so long as required to sell
shares in Ohio, the Fund may not purchase the securities of any issuer if, as to
75% of its assets at the time of purchase, more than 10% of the voting
securities of any issuer would be held by the Fund.

If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
value of assets will not constitute a violation of that restriction, except as
otherwise noted.

OFFICERS AND TRUSTEES

NAME, AGE POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ----------- -------------- ----------------------

Frank T. Crohn (71)
7251 West Palmetto Park Road
Boca Raton, FL 33433

Trustee

*William J. Lippman (70)
One Parker Plaza
Fort Lee, NJ 07024

President, Chief Executive Officer and Trustee

Charles Rubens II (65)
18 Park Road
Scarsdale, NY 10583

Trustee

Private Investor; and trustee of three of the investment companies in the
Franklin Group of Funds.

Leonard Rubin (70)
501 Broad Avenue
Ridgefield, NJ 07657

Trustee

Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President - Financial Reporting and Accounting Standards

Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Chief Financial Officer

Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Secretary

Rupert H. Johnson, Jr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404

Treasurer and Principal Accounting Officer

Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.

Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.

R. Martin Wiskemann (68)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and Advisers. Trustees not affiliated with
the investment manager ("nonaffiliated trustees") are currently paid fees of
$600 per quarter plus $300 per meeting attended. As indicated above, certain of
the Trust's nonaffiliated trustees also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Group of Funds(R)
from which they may receive fees for their services. The following table
indicates the total fees paid to nonaffiliated trustees by the Trust and by
other funds in the Franklin Group of Funds.

<TABLE>
<CAPTION>
NUMBER OF BOARDS IN THE
TOTAL FEES RECEIVED FROM FRANKLIN GROUP OF FUNDS ON
THE FRANKLIN GROUP OF WHICH EACH SERVES***
TOTAL FEES RECEIVED FUNDS**
FROM THE TRUST*
NAME
<S> <C> <C> <C>
Frank T. Crohn $3,900 $14,700 3
Charles Rubens, II $3,900 $15,900 3
Leonard Rubin $3,900 $15,900 3

</TABLE>

*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1994.
***The number of boards is based on the number of registered investment
companies in the Franklin Group of Funds and does not include the total number
of series or funds within each investment company for which the trustees are
responsible.

Nonaffiliated trustees 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, trustee or managing general
partner. No officer or trustee received any other compensation directly from the
Trust. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.

From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. As of the
date of this document, Franklin Resources, Inc. owned substantially all of the
outstanding shares of the Fund as a result of having provided the Fund's initial
capitalization.

INVESTMENT ADVISORY AND OTHER SERVICES

The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange (the "Exchange"). Resources owns several other
subsidiaries which are involved in investment management and shareholder
services.

Pursuant to a management agreement with the Fund, the Manager provides
investment research and portfolio management services, including the selection
of securities for the Fund to purchase, hold or sell and the selection of
brokers through whom the Fund's portfolio transactions are executed. The
Manager's activities are subject to the review and supervision of the Board to
whom the Manager renders periodic reports of the Fund's investment activities.
Under the terms of the management agreement, the Manager provides office space
and office furnishings, facilities and equipment required for managing the
business affairs of the Fund; maintains all internal bookkeeping, clerical,
secretarial and administrative personnel and services; and provides certain
telephone and other mechanical services. The Manager is covered by fidelity
insurance on its officers, directors and employees for the protection of the
Fund.

Pursuant to the management agreement, the Fund is obligated to pay the Manager a
fee computed and accrued daily and paid monthly at the annual rate of 0.75% of
the Fund's average daily net assets.

The management agreement is in effect until December 11, 1997. Thereafter, it
may continue in effect for successive annual periods providing such 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 trustees who are not parties to the
management agreement or interested persons of any such party (other than as
trustees of the Fund), 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 or by the Manager on 60 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.

Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Fund 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.

Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of the
Fund. Citibank Delaware, One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank automated clearing
houses. The custodians do not participate in decisions relating to the purchase
and sale of portfolio securities.

Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors.

HOW DOES THE FUND PURCHASE SECURITIES FOR ITS PORTFOLIO?

Under the current management agreement with Advisers, the selection of brokers
and dealers to execute transactions in the Fund's portfolio is made by the
Manager in accordance with criteria set forth in the management agreement and
any directions which the Board may give.

When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions which are
done on a securities exchange, the amount of commission paid by the Fund is
negotiated between the Manager and the broker executing the transaction. The
Manager seeks to obtain the lowest commission rate available from brokers which
are felt to be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage commissions
paid in connection with portfolio transactions are based to a large degree on
the professional opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on the basis of, among
other things, the experience of these individuals in the securities industry and
information available to them concerning the level of commissions being paid by
other institutional investors of comparable size. The Manager will ordinarily
place orders for the purchase and sale of over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of the Manager, 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. The Fund seeks to obtain
prompt execution of orders at the most favorable net price.

The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Fund's best
interests, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will have to
pay a higher commission than would be the case if no weight were given to the
broker's furnishing of these services. This will be done only if, in the opinion
of the Manager, the amount of any additional commission is reasonable in
relation to the value of the services. Higher commissions will be paid only when
the brokerage and research services received are bona fide and produce a direct
benefit to the Fund or assist the Manager in carrying out its responsibilities
to the Fund, or when it is otherwise in the best interest of the Fund to do so,
whether or not such data may also be useful to the Manager in advising other
clients.

When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services, and through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total brokerage as may reasonably
be required.

It is not possible to place a dollar value on the special executions or on the
research services received by Advisers 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 staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. Provided that
the officers of the Trust are satisfied that the best execution is obtained, the
sale of Fund shares may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.

HOW DO I BUY AND SELL SHARES?

All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of 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.

In connection with exchanges (see the Prospectus "What If My Investment Outlook
Changes? - Exchange Privilege"), it should be noted that since the proceeds from
the sale of shares of an investment company generally are not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Fund to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective.

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

Dividend checks which are returned to the Fund marked "unable to forward" by the
postal service will be deemed to be a request by you to change the dividend
option and the proceeds will be reinvested in additional shares at net asset
value until new instructions are received.

The Fund may deduct from your account the cost of its efforts to locate you if
mail is returned as undeliverable or the Fund is otherwise unable to locate you
or verify your current mailing address. These costs may include a percentage of
the account when a search company charges a percentage fee in exchange for its
location services.

Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, or an affiliate of Distributors, to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.

SIZE OF PURCHASE - IN U.S. DOLLARS SALES CHARGE
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%

PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS

Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to the customer resulting from failure to do so must be settled between
the customer and the securities dealer.

SPECIAL NET ASSET VALUE PURCHASES

As discussed in the Prospectus under "How Do I Buy Shares? - Description of
Special Net Asset Value Purchases," certain categories of investors may purchase
shares of the Fund without a front-end sales charge ("net asset value") or a
contingent deferred sales charge. Either Distributors or one of its affiliates
may make payments, out of its own resources, to securities dealers who initiate
and are responsible for such purchases, as indicated below. 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 securities dealer, in the event of investor redemptions made 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 its
affiliates, and the securities dealer.

The following amounts may be paid by Distributors or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
purchases of shares of the Fund made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers): 1% on sales of $1 million
but less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25%
on sales of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. These payment breakpoints are reset every 12 months for
purposes of additional purchases. With respect to purchases made at net asset
value by certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of $10
million or more, either Distributors or one of its affiliates, out of its own
resources, may pay up to 1% of the amount invested.

LETTER OF INTENT

You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the first
investment which you want to qualify for the reduced sales charge, a signed
Shareholder Application, with the Letter of Intent (the "Letter") section
completed, may be filed with the Fund. 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 upon
purchases in more than one of the Franklin Templeton Funds will be effective
only after notification to Distributors that the investment qualifies for a
discount. Your holdings in the Franklin Templeton Funds, including Class II
shares, acquired more than 90 days before the Letter is filed will be counted
towards completion of the Letter but will not be entitled to a retroactive
downward adjustment in the sales charge. Any redemptions made, other than by a
designated benefit plan, during the 13-month period 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 upon
the amount actually purchased (less redemptions) during the period. The upward
adjustment does not apply to designated benefit plans. If you execute a Letter
prior to a change in the sales charge structure for the Fund you will be
entitled to 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 with
the Fund.

As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name, unless you are a designated benefit plan. If the 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 your order.
If the total purchases, less redemptions, exceed the amount specified under the
Letter and is an amount which 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 which
would have applied to the aggregate purchases if the total of such purchases had
been made at a single time. Upon such remittance the reserved shares held for
your account will be deposited to an account in your name or delivered to you or
your order. If within 20 days after written request such difference in sales
charge is not paid, the redemption of an appropriate number of reserved shares
to realize such difference will be made. In the event of a total redemption of
the account prior to 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 of Intent is executed on behalf of a benefit plan (such plans are
described under "Description of Special Net Asset Value Purchases" in the
Prospectus), the level and any reduction in sales charge for these designated
benefit plans will be based on actual plan participation and the projected
investments in the Franklin Templeton Funds under the Letter. Benefit 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 benefit
plans entitled to receive retroactive adjustments in price for investments made
before executing the Letter.

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 such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission ("SEC"). In the
case of requests for redemption in excess of such amounts, the trustees reserve
the right to make payments in whole or in part in securities or other assets of
the Fund from which you are redeeming, 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 such circumstances, the securities distributed
would be valued at the price used to compute the Fund's net assets. Should the
Fund do so, you may incur brokerage fees in converting the securities to cash.
The Fund does not intend to redeem illiquid securities in kind; however, should
it happen, you may not be able to timely recover your investment and may also
incur brokerage costs in selling such securities.

REDEMPTIONS BY THE FUND

Due to the relatively high cost of handling small investments, the Fund reserves
the right to redeem, involuntarily, at net asset value, your shares if your
account has a value of less than one-half of the initial minimum investment
required for you, but only where the value of such account has been reduced by
the prior voluntary redemption of shares. Until further notice, it is the
present policy of the Fund not to exercise this right if your account has a
value of $1,250 or more. In any event, before the Fund redeems such shares and
sends you the proceeds, it will notify you that the value of the shares in your
account is less than the minimum amount and allow you 30 days to make an
additional investment in an amount which will increase the value of the account
to at least $2,500.

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 "ex-dividend date"). The processing date for the
reinvestment of dividends may vary from month to month and does not affect the
amount or value of the shares acquired.

REPORTS TO SHAREHOLDERS

The Fund sends annual and semiannual reports to you regarding the Fund's
performance and its portfolio holdings. If you would like to receive an interim
quarterly report you may phone Fund Information at 1-800/DIAL BEN.

SPECIAL SERVICES

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

HOW ARE FUND SHARES VALUED?

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. 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 Exchange, if that is
earlier, and that 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
mean between the current bid and asked price is used. Occasionally, events which
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 Fund's net asset
value. If events materially affecting the value of these foreign securities
occur during such period, then these securities will be valued in accordance
with procedures established by the Board.

Over-the-counter securities are valued within the range of the most recent
quoted bid and ask price. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market as determined by the Manager. Portfolio
securities underlying actively traded call options are valued at their market
price as determined above. The current market value of any option held by the
Fund is its last sale price on the relevant exchange prior to the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, the options are valued within the range of the
current closing bid and ask prices if such valuation is believed to fairly
reflect the contract's market value. Other securities for which market
quotations are readily available are valued at the current market price, which
may be obtained from a pricing service, based on a variety of factors including
recent trades, institutional size trading in similar types of securities
(considering yield, risk and maturity) and/or developments related to specific
issues. Securities and other assets for which market prices are not readily
available are valued at fair value as determined following procedures approved
by the Board. With the approval of trustees, the Fund may utilize a pricing
service, bank or securities dealer to perform any of the above described
functions.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the scheduled close of the Exchange. The value of such securities used in
computing the net asset value of the Fund's shares is determined as of such
times. Occasionally, events affecting the value of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange which will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith by the Board.

ADDITIONAL INFORMATION
REGARDING TAXATION

As stated in the Prospectus, the Fund intends to qualify and elect to be treated
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). The trustees reserve the right not to
maintain the qualification of the Fund as a regulated investment company if they
determine such course of action to be beneficial to shareholders. In such case,
the Fund will be subject to federal and possibly state corporate taxes on its
taxable income and gains, and distributions to shareholders will be taxable to
the extent of the Fund's available earnings and profits.

Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividend-received deduction. For example, any interest income and net short-term
capital gain (in excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and distributed by the
Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless Fund shares have been held (or deemed held)
for at least 46 days in a substantially unhedged manner. The dividends-received
deduction may also be reduced to the extent interest paid or accrued by a
corporate shareholder is directly attributable to its investment in Fund shares.
The entire dividend, including the portion which is treated as a deduction, is
includable in the tax base on which the federal alternative minimum tax is
computed and may also result in a reduction in the shareholder's tax basis in
its Fund shares, under certain circumstances, if the shares have been held for
less than two years. Corporate shareholders whose investment in the Fund is
"debt financed" for these tax purposes should consult with their tax advisors
concerning the availability of the dividends-received deduction.

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 twelve 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 the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared. 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.

All or a portion of the sales charge incurred in purchasing shares of the Fund
will not be included in the federal tax basis of such shares sold or exchanged
within 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 Group of Funds and the 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.
Shareholders should consult with their tax advisors concerning the tax rules
applicable to the redemption or exchange of Fund shares.

The Fund's investment in options and certain transactions involving actual or
deemed short sales are subject to many complex and special tax rules. For
example, over-the-counter options on debt securities and equity options,
including options on stock and on narrow-based stock indices, 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. The Fund's treatment of
certain other options 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, and options on
securities indexes.

Absent a tax election to the contrary, each such 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 capital gain or loss
and 40% short-term capital gain or loss. 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 time of income distributed to shareholders by the Fund.

This requirement may limit the Fund's ability to engage in options and hedging
transactions 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, as in the case of short sales of portfolio securities, reduce the
holding periods of certain securities within the Fund, resulting in additional
short-short income for the Fund.

Gain realized by the Fund from transactions that are deemed to constitute
"conversion transactions" under the Code and which would otherwise produce
capital gain may be recharacterized as ordinary income to the extent that such
gain does not exceed an amount defined by the Code as the "applicable imputed
income amount." A conversion transaction is any transaction in which
substantially all of the Fund's expected return is attributable to the time
value of the Fund's net investment in such transaction and any one of the
following criteria are met: 1) there is an acquisition of property with a
substantially contemporaneous agreement to sell the same or substantially
identical property in the future; 2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the Fund on the basis that it would
have the economic characteristics of a loan but would be taxed as capital gain;
or 4) the transaction is specified in Treasury regulations to be promulgated in
the future. The applicable imputed income amount, which represents the deemed
return on the conversion transaction based upon the time value of money, is
computed using a yield equal to 120 percent of the applicable federal rate,
reduced by any prior recharacterizations under this provision or Section 263(g)
of the Code concerning capitalized carrying costs.

THE FUND'S UNDERWRITER

Pursuant to an underwriting agreement in effect until March 31, 1996,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Fund. The underwriting agreement will continue in effect for
successive annual periods provided that 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 trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as trustees of the Fund),
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 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.

DISTRIBUTION PLAN

The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan") whereby the Fund may pay up to a maximum of 0.25% per annum of
its average daily net assets, payable quarterly, primarily as a service fee to
reimburse Distributors or others for personal services to shareholders of the
Fund and/or the maintenance of shareholder accounts and also for other marketing
purposes, if necessary.

The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1.

Certain banking institutions are permitted to receive fees under the Plan for
administrative servicing or for agency transactions. If a bank were prohibited
from providing such services, its customers who are shareholders would be
permitted to remain shareholders of the Fund, and alternate means for continuing
the servicing of such shareholders would be sought. In such an event, changes in
the services provided might occur and such shareholders might no longer be able
to avail themselves of any automatic investment or other services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these changes.

The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan is effective through December 11, 1996, and renewable annually by a vote of
the Board, including a majority vote of the trustees who are non-interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan, cast in person at a meeting called for that purpose.
It is also required that the selection and nomination of such trustees be done
by the non-interested trustees. The Plan and any related agreement may be
terminated at any time, without any penalty, by vote of a majority of the
non-interested trustees on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with the Manager, or by
vote of a majority of the Fund's outstanding shares. Distributors or any dealer
or other firm may also terminate their respective distribution or service
agreement at any time upon written notice.

GENERAL INFORMATION

PERFORMANCE

As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance. It may
occasionally cite statistics to reflect its volatility or risk.

TOTAL RETURN

The average annual compounded rates of return for the Fund will be calculated
according to the SEC formula:

P(1+T)n = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. Such quotations are computed in the
same manner as the Fund's average annual compounded rate, except that such
quotations will be based on the Fund's actual return for a specified period
rather than on its average return over one-, five- and ten-year periods, or
fractional portion thereof.

YIELD

Current yield reflects the income per share earned by the Fund's portfolio
investments.

Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.

Current yield figures will be obtained using the following SEC formula:

Yield = 2 [( A-B + 1)6 -1]
cd

where:

a = dividends and interest earned during the period

b = expenses accrued for the period

c = the average daily number of shares outstanding during the period that were
entitled to receive dividends

d = the maximum offering price per share on the last day of the period

CURRENT DISTRIBUTION RATE

Yield, which is calculated according to a formula prescribed by the SEC, is not
indicative of the amounts which were or will be paid to the Fund's shareholders.
Amounts paid to shareholders are reflected in the quoted "current distribution
rate." The current distribution rate is computed by dividing the total amount of
dividends per share paid by the Fund during the past 12 months by a current
maximum offering price. Under certain circumstances, such as when there has been
a change in the amount of dividend payout or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gains, and is calculated over a different period of time.

VOLATILITY

Occasionally statistics may be used to specify Fund volatility or risk. Measures
of volatility or risk are generally used to compare Fund net asset value or
performance relative 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 the
Standard & Poor's 500 Stock Index. 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 premise is that
greater volatility connotes greater risk undertaken in achieving performance.

OTHER PERFORMANCE QUOTATIONS

With respect to those categories of investors who are permitted to purchase
shares of the Fund at net asset value, sales literature pertaining to the Fund
may quote a current distribution rate, yield, 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.

Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.

COMPARISONS

To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements and other materials regarding the
Fund may discuss various 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.
Such comparisons may include, but are not limited to, the following examples:

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

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

h) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.

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 First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Pierce, Fenner & Smith, Lehman Brothers and Bloomberg L.P.

From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.

In assessing such 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, that the indices and averages are generally
unmanaged, and that the items included in the calculations of such 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 this performance
as compared to such other averages.

OTHER FEATURES AND BENEFITS

The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college cost and/or
other long-term goals. The Franklin College Costs Planner may assist 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 such goals will be met.

MISCELLANEOUS INFORMATION

The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the United States 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 47 years and
now services more than 2.5 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 Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $130
billion in assets under management for more than 3.9 million U.S. based mutual
fund shareholder and other accounts. The Franklin Group of Funds and the
Templeton Group of Funds offer to the public 114 U.S. based mutual funds. The
Fund may identify itself by its NASDAQ symbol or CUSIP number.

The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past seven years.

Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j)
under the 1940 Act, who are employees of Resources or its subsidiaries, are
permitted to engage in personal securities transactions subject to the following
general restrictions and procedures: (1) The trade must receive advance
clearance from a compliance officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be sent to the
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; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also 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.

Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets for any shareholder held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Fund and satisfy any judgment thereon. All such
rights are limited to the assets of the Fund. The Declaration of Trust further
provides that the Fund may maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to the unlikely circumstances in which both inadequate insurance exists
and the Fund itself is unable to meet its obligations.

OWNERSHIP AND AUTHORITY DISPUTES

APPENDIX

CORPORATE BOND RATINGS

MOODY'S

AAA - Bonds which are 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 by an 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 which are rated Aa are judged to be of 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 which make the long-term risks
appear somewhat larger than in Aaa securities.

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

BAA - Bonds which are rated Baa are considered as medium grade obligations,
i.e., 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. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

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

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

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

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 they
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.

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 investment
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. The
relative degree of safety is, however, not as overwhelming as for issues
designated A-1.

FINANCIAL STATEMENTS

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of
Franklin Value Investors Trust:

We have audited the accompanying statement of assets and liabilities of Franklin
MicroCap Value Fund (one of the Funds constituting the Franklin Value Investors
Trust) as of November 29, 1995. This financial statement is the responsibility
of the Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of cash held as of November 29, 1995 with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Franklin MicroCap Value Fund as
of November 29, 1995 in conformity with generally accepted accounting
principles.

San Francisco, California
November 30, 1995

FRANKLIN VALUE INVESTORS TRUST
FRANKLIN MICROCAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
November 29, 1995

Assets:
Cash held by custodian $100,000
Unamortized organization costs 3,000
---------
Total assets 103,000
---------
Liabilities:
Accrued expenses for organization costs 3,000
---------
Net assets $100,000
=========
Shares of beneficial interest outstanding, $0.01
par value, unlimited shares authorized 6,667
=========
Net asset value per share $ 15.00
=========
Computation of net asset value and offering price
per share:

Net asset value, and redemption price per share
($100,000/6,667) $ 15.00
=========
Maximum offering price (100/95.5 of $15.00) $ 15.71
=========

Note: Franklin MicroCap Value Fund Fund ("the Fund") is an open- end,
non-diversified series of the Franklin Value Investors Trust, a management
investment company registered under the Investment Company Act of 1940 and
organized as a Massachusetts business trust on September 11, 1989. Organization
expenses are being amortized over a five year period from the effective date of
its registration under the Securities Act of 1933. As part of its organization,
the Fund has issued, in a private placement, 6,667 shares of beneficial interest
to Franklin Resources, Inc. at $15.00 per share. These shares have been
designated as "initial shares."

FRANKLIN VALUE INVESTORS TRUST

File Nos. 33-31326
811-5878
FORM N-1A
PART C
Other Information

Item 24 Financial Statements and Exhibits

a) 1. Unaudited Financial Statements incorporated herein by reference to
the Registrant's Semi-Annual Report to Shareholders dated April 30, 1996
as filed with the SEC on Form Type N-30D on June 21, 1996

(i) Statement of Investments in Securities and Net Assets - April 30,
1996

(ii) Statement of Assets and Liabilities - April 30, 1996

(iii)Statement of Operations - for the six months ended April 30, 1996

(iv) Statements of Changes in Net Assets - for the six months ended
April 30, 1996 and for the year ended October 31, 1995

(v) Notes to Financial Statements

2. Franklin Balance Sheet Investment Fund Audited Financial Statements
incorporated herein by reference to the Registrant's Annual Report to
Shareholders dated October 31, 1995 as filed with the SEC on Form Type
N-30D on December 28, 1995

(i) Report of Independent Auditors

(ii) Statement of Investments in Securities and Net Assets - October
31, 1995

(iii)Statement of Assets and Liabilities - October 31, 1995

(iv) Statement of Operations - for the year ended October 31, 1995

(v) Statements of Changes in Net Assets - for the years ended October
31, 1995 and 1994

(vi) Notes to Financial Statements

3. Franklin MicroCap Value Fund Audited Financial Statements filed in Part B

(i) Report of Independent Auditors

(ii) Statement of Assets and Liabilities dated November 29, 1996

4. Franklin Value Fund Audited Financial Statements filed in Part B

(i) Report of Independent Auditors

(ii) Statement of Assets and Liabilities dated March 4, 1996

5. Franklin Value Fund Unaudited Financial Statements filed in Part B

(i) Statement of Investments in Securities and Net Assets - June 30,
1996

(ii) Statement of Assets and Liabilities - June 30, 1996

(iii)Statement of Operations - for the period March 11, 1996 to June 30,
1996

(iv) Statement of Changes in Net Assets - for the period March 11, 1996
(effective date) to June 30, 1996

(v) Notes to Financial Statements

b)Exhibits:

The following exhibits are incorporated by reference to the filings noted,
with the exception of Exhibit 11(i) which is attached herewith:

(1) copies of the charter as now in effect;

(i) Agreement and Declaration of Trust dated September 11, 1989
Filing: Post Effective Amendment No. 8 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995

(ii) Certificate of Amendment of Agreement and Declaration of
Trust of Franklin Balance Sheet Investment Fund dated
September 21, 1995
Filing: Post Effective Amendment No. 9 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995

(2) copies of the existing By-Laws or instruments corresponding
thereto, defining the rights of the holders of such securities, and
copies of each security being registered;

(i) By-Laws
Filing: Post Effective Amendment No. 8 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: September 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;

N/A

(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;

N/A

(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;

(i) Management Agreement on behalf of Franklin Balance Sheet
Investment Fund and Franklin Advisory Services, Inc. dated
July 1, 1996
Filing: Post Effective Amendment No. 12 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: June 27, 1996

(ii) Management Agreement on behalf of Franklin MicroCap Value
Fund and Franklin Advisory Services, Inc. dated July 1, 1996
Filing: Post Effective Amendment No. 12 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: June 27, 1996

(iii)Management Agreement on behalf of Franklin Value Fund and
Franklin Advisory Services, Inc. July 1, 1996
Filing: Post Effective Amendment No. 12 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: June 27, 1996

(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. 12 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: June 27, 1996

(ii) Forms of dealer agreements between Registrant and
Franklin/Templeton Distributors, Inc.
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
trustees 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;

N/A

(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) Custodian Agreement between Registrant and Bank of America
NT & SA dated June 12, 1991
Filing: Post Effective Amendment No. 8 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995

(ii) Copy of Custodian Agreements between Registrant and Citibank
Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master Agreement
3. Short Form Bank Agreement - Deposit and Disbursements
of Funds
Incorporated herein by reference to:
Registrant: Franklin Premier Return Fund
Filing: Post Effective Amendment No. 54 to Registration on
Form N-1A
File No. 2-12647
Filing Date: March 1, 1996

(iii)Master Custodian Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post Effective Amendment No. 11 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: March 8, 1996

(iv) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post Effective Amendment No. 11 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: March 8, 1996

(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;

N/A

(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;

N/A

(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 Auditors

(12) all financial statements omitted from Item 23;

N/A

(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 relating to Initial Capital of
Franklin Balance Sheet Investment Fund dated November 17,
1989
Filing: Post Effective Amendment No. 7 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995

(ii) Letter of Understanding relating to Initial Capital of
Franklin MicroCap Value Fund dated November 29, 1995
Filing: Post Effective Amendment No. 8 to Registration
Statement on Form N-1A
File No. 33-31326
Filing date: December 1, 1995

(iii)Letter of Understanding relating to Initial Capital of
Franklin Value Fund
Filing: Post Effective Amendment No. 11 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: March 8, 1996

(iv) Letter of Understanding relating to Initial Capital of
Franklin Value Fund dated August 30, 1996
Filing: Post Effective Amendment No. 13 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: August 7, 1996

(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: AGE High Income Fund, Inc.
Filing: Post Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 2-30203
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) Amended and Restated Distribution Plan between Franklin
Balance Sheet Investment Fund and Franklin Distributors,
Inc. Pursuant to Rule 12b-1 dated July 1, 1993
Filing: Post Effective Amendment No. 8 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995

(ii) Distribution Plan between Franklin Value Investors Trust on
behalf of Franklin MicroCap Value Fund and Franklin
Templeton Distributors, Inc. pursuant to Rule 12b-1 dated
December 12, 1995
Filing: Post Effective Amendment No. 9 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995

(iii)Distribution Plan Pursuant to Rule 12b-1 between Franklin
Value Fund and Franklin Templeton Distributors, Inc. dated
March 11, 1996
Filing: Post Effective Amendment No. 9 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995

(iv) Class II Distribution Plan between Franklin Value Investors
Trust on behalf of Franklin Value Fund and
Franklin/Templeton Distributors, Inc. dated September 1, 1996
Filing: Post Effective Amendment No. 13 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: August 7, 1996

(16) schedule for computation of each performance quotation provided in
the registration statement in response to Item 22.

N/A

(17) Power of Attorney

(i) Power of Attorney dated December 11, 1995
Filing: Post Effective Amendment No. 9 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995

(ii) Certificate of Secretary dated December 11, 1995
Filing: Post Effective Amendment No. 9 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995

(18) Copies of any plan entered into by registrant pursuant to Rule
18f-3 under the 1940 Act

(i) Multiple Class Plan for Franklin Value Fund dated June 12,
1996
Filing: Post Effective Amendment No. 13 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: August 7, 1996

Item 25 Persons Controlled by or under Common Control with Registrant

None

Item 26 Number of Holders of Securities

As of October 31, 1996 the number of record holders of the only class of
securities of the Registrant was as follows:

Number of
Title of Class Record Holders

Franklin Balance Sheet 36,203
Investment Fund

Franklin MicroCap Value Fund 11,452

Franklin Value Fund - Class I 609

Franklin Value Fund - Class II 33

Item 27 Indemnification

Reference is made to Article VI of the Registrant's By-Laws previously filed,
which is incorporated herein by reference.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to officers and trustees 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 trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, 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 or 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.

Notwithstanding the provisions contained in the Registrant's By-Laws, in
the absence of authorization by the appropriate court on the merits
pursuant to Sections 4 and 5 of Article VI of said By-Laws, any
indemnification under said Article shall be made by Registrant only if
authorized in the manner provided in either subsection (a) or (b) of
Section 6 of Article VI.

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
Group of Funds(R). 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 Registrant's Investment Manager (SEC
File 801-51967), 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., 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 Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
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 Securities Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
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 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).

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 are 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 trustee or
trustees when requested in writing to do so by the record holders of not
less than 10 per cent of the Registrant's outstanding shares 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 N1-A 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 Post-Effective Amendment to its
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 27th day of November, 1996.

Franklin Value Investors Trust
(Registrant)

By: WILLIAM J. LIPPMAN*
William J. Lippman
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:

WILLIAM J. LIPPMAN* Trustee and Principal
William J. Lippman Executive Officer
Dated: November 27, 1996

MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: November 27, 1996

DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: November 27, 1996

FRANKLIN T. CROHN* Trustee
Franklin T. Crohn Dated: November 27, 1996

CHARLES RUBENS, II* Trustee
Charles Rubens, II Dated: November 27, 1996

LEONARD RUBIN* Trustee
Leonard Rubin Dated: November 27, 1996

*By Larry L. Greene, Attorney-in-Fact
Pursuant to Powers of Attorney previously filed

FRANKLIN VALUE INVESTORS TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX

EXHIBIT NO. DESCRIPTION LOCATION

EX-99.B1(i) Agreement and Declaration of Trust *
dated September 11, 1989

EX-99.B1(ii) Certificate of Amendment of Agreement *
and Declaration of Trust of Franklin
Balance Sheet Investment Fund dated
September 21, 1995

EX-99.B2(i) By-Laws *

EX-99.B5(i) Management Agreement on behalf of *
Franklin Balance Sheet Investment Fund
and Franklin Advisory Services, Inc.
dated July 1, 1996

EX-99.B5(ii) Management Agreement on behalf of *
Franklin MicroCap Value Fund and
Franklin Advisory Services, Inc. dated
July 1, 1996

EX-99.B5(iii) Form of Management Agreement on behalf *
of Franklin Value Fund and Franklin
Advisory Services, Inc. dated July 1,
1996

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) Custodian Agreement between Registrant *
and Bank of America dated June 12, 1991

EX-99.B8(ii) Copy of Custodian Agreement between *
Registrant and Citibank Delaware

EX-99.B8(iii) Master Custodian Agreement between *
Registrant and Bank of New York dated
February 16, 1996

EX-99.B8(iv) Terminal Link Agreement between *
Registrant and Bank of New York dated
February 16, 1996

EX-99.10(i) Opinion and Consent dated December 1, *
1989

EX-99.11(i) Consent of Independent Auditors Attached

EX-99.13(i) Letter of Understanding relating to *
Initial Capital of Franklin Balance
Sheet Investment Fund dated November
17, 1989

EX-99.13(ii) Letter of Understanding relating to *
Initial Capital of Franklin MicroCap
Value Fund dated November 29, 1995

EX-99.13(iii) Letter of Understanding relating to *
Initial Capital of Franklin Value Fund

EX-99.13(iv) Letter of Understanding relating to *
Initial Capital of Franklin Value Fund
dated August 30, 1996

EX-99.14(i) Copy of Model Retirement Plan *

EX-99.15(i) Amended and Restated Distribution Plan *
between Franklin Balance Sheet
Investment Fund and Franklin
Distributors, Inc. pursuant to Rule
12b-1 dated July 1, 1993

EX-99.15(ii) Distribution Plan between Franklin *
Value Investors Trust on behalf of
Franklin MicroCap Value Fund and
Franklin Templeton Distributors, Inc.
pursuant to Rule 12b-1 dated December
12, 1995

EX-99.15(iii) Distribution Plan Pursuant to Rule *
12b-1 between Franklin Value Fund and
Franklin Templeton Distributors, Inc.
dated March 11, 1996

EX-99.15(iv) Class II Distribution Plan between *
Franklin Value Investors Trust on
behalf of Franklin Value Fund and
Franklin/Templeton Distributors, Inc.
dated September 1, 1996

EX-99.17(i) Power of Attorney dated December 11, *
1995

Ex-99.17(ii) Certificate of Secretary dated *
December 11, 1995

EX-99.18(i) Multipla Class Plan for Franklin Value *
Fund dated June 12, 1996

*Incorporated by Reference

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Post-Effective Amendment No. 14
to the Registration Statement of Franklin Value Investors Trust on Form N-1A
File Nos. 33-31326 and 811-5878 of our report dated December 8, 1995 on our
audit of the financial statements and financial highlights of Franklin Value
Investors Trust, which report is included in the Annual Report to Shareholders
for the year ended October 31, 1995, which is incorporated by reference in the
Registration Statement. We also consent to the inclusion in the Registration
Statement of our reports dated November 29, 1995 and March 4, 1996 on our audit
of the statement of assets and liabilities of Franklin Microcap Value Fund and
Franklin Value Fund of Franklin Value Investors Trust.

/s/ COOPERS & LYBRAND L.L.P.

San Francisco, California
November 26, 1996