TEMPLETON INSTITUTIONAL FUNDS INC, 497, 1999-05-05

TEMPLETON INSTITUTIONAL FUNDS INC
497, 1999-05-05

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PROSPECTUS

TEMPLETON INSTITUTIONAL FUNDS, INC.

INVESTMENT STRATEGY
GLOBAL GROWTH

May 1, 1999

Growth Series
Foreign Equity Series Primary Shares
Emerging Markets Series
Emerging Fixed Income Markets Series

THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE

PAGE

CONTENTS

THE FUND
- -------------------------------------------------------------------------------
[BEGIN CALLOUT]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[END CALLOUT]

2 Growth Series
12 Foreign Equity Series
22 Emerging Markets Series
32 Emerging Fixed Income Markets Series
43 Distribution and Taxes;

Year 2000 Problem

YOUR ACCOUNT
- -------------------------------------------------------------------------------
[BEGIN CALLOUT]
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
[END CALLOUT]

45 Qualified Investors
47 Buying Shares
49 Investor Services
51 Selling Shares
53 Account Policies
55 Questions

FOR MORE INFORMATION
- -------------------------------------------------------------------------------

[BEGIN CALLOUT]
WHERE TO LEARN MORE ABOUT EACH FUND
[END CALLOUT]

Back Cover

PAGE

GROWTH SERIES

[INSERT GRAPHIC OF BULLSEYE AND ARROWS] GOAL AND STRATEGIES

GOAL The fund's investment goal is long-term capital growth.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the equity securities of companies located anywhere in the world,
including emerging markets. The fund normally will invest at least 65% of total
assets in at least three different nations.

[BEGIN CALLOUT]
The fund invests primarily in a globally diversified portfolio of equity
securities.
[END CALLOUT]

Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks. The
fund may invest a portion of its assets in smaller companies. For this fund,
smaller company stocks are generally those with market capitalizations of less
than $1 billion. The fund also invests in American, European and Global
Depositary Receipts, which are certificates typically issued by a bank or trust
company that give their holders the right to receive securities issued by a
foreign or domestic company. The fund may enter into forward foreign currency
contracts and may buy and sell (write) put and call options on foreign
currencies. For hedging purposes, the fund may buy and sell financial futures
contracts, stock index futures contracts and foreign currency futures contracts
and options on these futures contracts.

Depending upon current market conditions, the fund generally may invest up to
35% of its total assets in debt securities of companies and governments located
anywhere in the world. Debt securities represent an obligation of the issuer to
repay a loan of money to it, and generally provide for the payment of interest.
These include bonds, notes and debentures.

The Templeton investment philosophy is "bottom-up", value-oriented, and
long-term. In choosing equity investments, the fund's manager will focus on the
market price of a company's securities relative to its evaluation of the
company's long-term earnings, asset value and cash flow potential. A company's
historical value measures, including price/earnings ratio, profit margins and
liquidation value, will also be considered.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other adverse conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goal, because it may not invest or may invest substantially less in
global equity securities.

PAGE

[INSERT GRAPHIC OF CHART WITH LINES GOING UP AND DOWN] MAIN RISKS

STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or the securities markets as a whole. Value stock prices are
considered "cheap" relative to the company's perceived value. They may not
increase in value, as anticipated by the manager, if other investors fail to
recognize the company's value and bid up the price or in markets favoring
faster-growing companies.

[BEGIN CALLOUT]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money over
short or even extended periods.
[END CALLOUT]

FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in Depositary Receipts also involve some or all of the following
risks.

COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. These movements will affect the fund's share price and
fund performance.

The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.

DEVELOPING OR EMERGING MARKETS. The fund's investments in developing or emerging
markets are subject to all of the risks of foreign investing generally, and have
additional heightened risks due to a lack of established legal, political,
business and social frameworks to support securities markets. Some of the
additional significant risks, include:

o Political and social uncertainty (for example, regional conflicts and
risk of war)

o Currency exchange rate volatility

PAGE

o Pervasiveness of corruption and crime

o Delays in settling portfolio transactions

o Risk of loss arising out of systems of share registration and custody

o Involves markets that are comparatively smaller and less liquid than
developed markets. While short-term volatility in these markets can be
disconcerting, declines in excess of 50% are not unusual.

o Less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States

o Currency and capital controls

ALL OF THESE FACTORS MAKE DEVELOPING MARKET EQUITY SECURITIES' PRICES GENERALLY
MORE VOLATILE THAN SECURITIES ISSUED IN DEVELOPED MARKETS.

COMPANY. Foreign companies are not subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies and
their securities may not be as liquid as securities of similar U.S. companies.
Foreign stock exchanges, trading systems, brokers and companies generally have
less government supervision and regulation than in the U.S. The fund may have
greater difficulty voting proxies, exercising shareholder rights, pursuing legal
remedies and obtaining judgments with respect to foreign investments in foreign
courts than with respect to U.S. companies in U.S. courts.

CURRENCY Many of the fund's investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what the
fund owns and the fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of a currency by
a country's government or banking authority also will have a significant impact
on the value of any securities denominated in that currency. Currency markets
generally are not as regulated as securities markets.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.

Because this change to a single currency is new and untested, it is not possible
to predict the impact of the euro on the business or financial condition of
European issuers which the fund may hold in its portfolio, and their impact on
fund performance. To the extent the fund holds non-U.S. dollar (euro or other)
denominated securities, it will still be exposed to currency risk due to
fluctuations in those currencies versus the U.S. dollar.

SMALLER COMPANIES Historically, smaller company securities have been more
volatile in price than larger company securities, especially over the
short-term. Among the reasons for the greater price volatility are the less
certain growth prospects of smaller companies, the lower degree of liquidity in
the markets for such securities, and the greater sensitivity of smaller
companies to changing economic conditions.

In addition, small companies may lack depth of management, they may be unable to
generate funds necessary for growth or development, or they may be developing or
marketing new products or services for which markets are not yet established and
may never become established.

Therefore, while smaller companies may offer greater opportunities for capital
growth than larger, more established companies, they also involve greater risks
and should be considered speculative.

ILLIQUID SECURITIES The fund may not invest more than 10% of its total assets in
securities which are not publicly traded or which cannot be readily resold
because of legal or contractual restrictions, or which are not otherwise readily
marketable (including repurchase agreements having more than seven days
remaining to maturity).

INTEREST RATE When interest rates rise, debt security prices fall. When interest
rates fall, debt security prices go up. Generally, interest rates rise during
times of inflation or a growing economy, and fall during an economic slowdown or
recession. Securities with longer maturities usually are more sensitive to
interest rate changes than securities with shorter maturities.

CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.

DERIVATIVE SECURITIES Forward foreign currency contracts, futures contracts,
options on these contracts and options on foreign currencies are considered
derivative investments, since their value depends on the value of the underlying
asset to be purchased or sold. The fund's investment in derivatives may involve
a small investment relative to the amount of risk assumed. To the extent the
fund enters into these transactions, their success will depend on the manager's
ability to predict market movements.

[BEGIN CALLOUT]
Mutual fund shares 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. Mutual fund shares involve investment risks, including the possible
loss of principal.
[END CALLOUT]

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may be more susceptible to Year 2000 risks and
may not be required to make the same level of disclosure about Year 2000
readiness as is required in the U.S. The manager, of course, cannot audit each
company and its major suppliers to verify their Year 2000 readiness.

If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the fund's performance. Please see page 8
for more information.

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

PAGE

[INSERT GRAPHIC OF BULL AND A BEAR] PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 5 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

ANNUAL TOTAL RETURNS/1/

[INSERT BAR GRAPH]

- -1.32% 17.59% 22.57% 12.27% 2.98%
94 95 96 97 98
YEAR

[BEGIN CALLOUT]
BEST QUARTER:
Q4 '98 18.07%

WORT QUARTER:
Q3 '98 -18.24%
[END CALLOUT]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR 5 YEARS (5/3/93)
- ---------------------------------------------------------------------------
Growth Series 2.98% 10.46% 12.76%
MSCIWorld Index/2/ 24.80% 16.19% 15.74%

1. As of March 31, 1999, the fund's year-to-date return was 0.76%.

2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index tracks
the performance of approximately 1500 securities in 22 countries and is designed
to measure world stock market performance. It includes reinvested dividends. One
cannot invest directly in an index, nor is an index representative of the fund's
portfolio.

PAGE

[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Maximum sales charge (load) imposed on purchases None
Exchange fee/1/ $5.00

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- ------------------------------------------------------------------------------
Management fees/2/ 0.70%
Other expenses 0.19%
--------
Total annual fund operating expenses/2/ 0.89%
========

1. This fee is only for market timers (see page 54).
2. For the fiscal year ended December 31, 1998, the manager and administrator
had agreed in advance to reduce their respective fees in order to limit the
total expenses of the fund to an annual rate of 0.90% of average net assets. If
these fee reductions are insufficient to so limit the fund's expenses, the
administrator has agreed to assume as its own expense certain expenses otherwise
payable by the fund. These voluntary agreements did not result in any fee
reductions for the fund for the fiscal year ended December 31, 1998. After May
1, 2000, the manager and administrator may end this arrangement at any time.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
--------------------------------------------
$91 $284 $493 $1,096

PAGE

[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT

Templeton Investment Counsel, Inc. (Investment Counsel), 500 East Broward Blvd.,
Ft. Lauderdale, Florida 33394-3091, is the fund's investment manager. Together,
Investment Counsel and its affiliates manage over $216 billion in assets.

The fund's lead portfolio manager is:

GARY P. MOTYL CFA, DIRECTOR AND EXECUTIVE VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Motyl has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1981.

The following individuals have secondary portfolio management responsibilities:

MARK R. BEVERIDGE CFA, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Beveridge has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1985.

GARY CLEMONS, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Clemons has been a manager of the fund since 1994. He joined the Franklin
Templeton Group in 1990.

SIMON RUDOLPH, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Rudolph has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1997.

GUANG YANG, VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Yang has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1995.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund paid
0.70% of its average daily net assets to the manager. The manager voluntarily
agreed to reduce its fees in order to limit total expenses of the fund, however,
this voluntary agreement did not result in any management fee reductions for the
fund. After May 1, 2000, the manager may end this arrangement at any time upon
notice to the fund's Board of Directors.

[INSERT GRAPHIC OF DOLLAR BILL] FINANCIAL HIGHLIGHTS

This table presents the fund's financial performance for the past five years.
This information has been audited by McGladrey & Pullen, LLP.

YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 13.62 13.41 11.86 10.94 11.80
---------------------------------------
Net investment income .19 .73 .30 .27 .20
Net realized and unrealized gains (losses) .46 .89 2.32 1.62 (.36)
---------------------------------------
Total from investment operations .65 1.62 2.62 1.89 (.16)
---------------------------------------
Distributions from net investment income (.19) (.87) (.29) (.27) (.20)
Distributions from net realized gains (7.47) (.54) (.74) (.70) (.50)
---------------------------------------
In excess of net realized gains -- -- (.04) -- --
---------------------------------------
Total distributions (7.66) (1.41) (1.07) (.97) (.70)
---------------------------------------
Net asset value, end of year 6.61 13.62 13.41 11.86 10.94
=======================================
Total return (%)/1/ 2.98 12.27 22.57 17.59 (1.32)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000 55,779 120,370 268,158 226,963 194,059
Ratios to average net assets: (%)
Expenses .89 .86 .87 .88 .95
Net investment income 2.27 2.15 2.34 2.28 1.69
Portfolio turnover rate (%) 13.00 16.73 15.61 30.20 17.23
</TABLE>

1. Total return is not annualized.

PAGE

FOREIGN EQUITY SERIES

[INSERT GRAPHIC OF BULLSEYE AND ARROWS] GOAL AND STRATEGIES

GOAL The fund's investment goal is long-term capital growth.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest
primarily in the equity securities of companies located outside the U.S.,
including emerging markets. The fund normally will invest at least 65% of total
assets in at least three different nations.

Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks. The
fund may invest a portion of its assets in smaller companies. For this fund,
smaller company stocks are generally those with market capitalizations of less
than $1 billion. The fund also invests in American, European and Global
Depository Receipts, which are certificates typically issued by a bank or trust
company that give their holders the right to receive securities issued by a
foreign or domestic company. The fund may enter into forward foreign currency
contracts and may buy and sell (write) put and call options on foreign
currencies. For hedging purposes, the fund may buy and sell financial futures
contracts, stock index futures contracts and foreign currency futures contracts
and options on these futures contracts.

[BEGIN CALLOUT]
The fund invests primarily in an internationally diversified portfolio of equity
securities.
[END CALLOUT]

PAGE

[INSERT GRAPHIC OF CHART WITH LINES GOING UP AND DOWN] MAIN RISKS

FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in Depository Receipts also involve some or all of the following
risks.

The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of established legal, political, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
While short-term volatility in these markets can be disconcerting, declines in
excess of 50% are not unusual.

PAGE

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.

Therefore, while smaller companies may offer greater opportunities for capital
growth than larger, more established companies, they also involve greater risks
and should be considered speculative.

CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
securities credit rating may affect its value and, thus, impact the value of
fund shares.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

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

PAGE

[INSERT GRAPHIC OF BULL AND A BEAR] PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 8 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

PRIMARY SHARES ANNUAL TOTAL RETURNS/1/

[INSERT BAR GRAPH]

21.39% -1.33% 34.03% 0.24% 12.97% 21.58% 11.43% 10.16%
91 92 93 94 95 96 97 98
YEAR

[BEGIN CALLOUT]
BEST QUARTER:
Q1 '98 15.58%

WORST QUARTER:
Q3 '98 -15.88%
[END CALLOUT]

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR 5 YEARS (10/18/90)
- --------------------------------------------------------------------------------
Foreign Equity Series - Primary Shares 10.16% 11.07% 12.55%
MSCI - EAFE Index/2/ 20.33% 9.50% 9.57%

1. As of March 31, 1999, the fund's year-to-date return was 1.90%.

2. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI Europe Australia
Far East (EAFE) Index tracks the performance of approximately 1000 securities in
20 countries. It includes reinvested dividends. One cannot invest directly in an
index, nor is an index representative of the fund's portfolio.

PAGE

[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (fEES PAID DIRECTLY FROM YOUR INVESTMENT)

Maximum sales charge (load) imposed on purchases None
Exchange fee/1/ $5.00

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

Management fees/2/ 0.70%
Other expenses 0.13%
--------
Total annual fund operating expenses/2/ 0.83%
========

1. This fee is only for market timers (see page 54).

2. For the fiscal year ended December 31, 1998, the manager and administrator
had agreed in advance to reduce their respective fees in order to limit the
total expenses of the fund to an annual rate of 1.00% of average net assets. If
these fee reductions are insufficient to so limit the fund's expenses, the
administrator has agreed to assume as its own expense certain expenses otherwise
payable by the fund. These voluntary agreements did not result in any fee
reductions for the fund for the fiscal year ended December 31, 1998. After May
1, 2000, the manager and administrator may end this arrangement at any time.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------
$85 $265 $460 $1,025

PAGE

[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT

The fund's lead portfolio manager is:

GARY P. MOTYL CFA, DIRECTOR AND EXECUTIVE VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Motyl has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1981.

The following individuals have secondary portfolio management responsibilities:

MARK R. BEVERIDGE CFA, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Beveridge has been a manager of the fund since 1996. He joined the Franklin
Templeton Group in 1985.

GARY CLEMONS, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Clemons has been a manager of the fund since 1994. He joined the Franklin
Templeton Group in 1990.

SIMON RUDOLPH, SENIOR VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Rudoph has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1997.

GUANG YANG, VICE PRESIDENT OF INVESTMENT COUNSEL

Mr. Yang has been a manager of the fund since 1998. He joined the Franklin
Templeton Group in 1995.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund paid
0.70% of its average daily net assets to the manager. The manager voluntarily
agreed to reduce its fees in order to limit total expenses of the fund. This
voluntary agreement did not result in any management fee reductions for the
fund. After May 1, 2000, the manager may end this arrangement at any time upon
notice to the fund's Board of Directors.

PAGE

[INSERT GRAPHIC OF A DOLLAR BILL] FINANCIAL HIGHLIGHTS

This table presents the fund's financial performance for the past five years.
This information has been audited by McGladrey & Pullen, LLP.

YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 17.36 16.34 14.04 12.86 13.32
-----------------------------------------
Net investment income .42 .42 .45 .31 .20
Net realized and unrealized gains (losses) 1.29 1.43 2.54 1.35 (.16)
-----------------------------------------
Total from investment operations 1.71 1.85 2.99 1.66 .04
-----------------------------------------
Dividends from net investment income (.40) (.43) (.45) (.31) (.19)
In excess of net investment income -- -- (.02) -- --
Distributions from net realized gains (.91) (.40) (.14) (.17) (.31)
----------------------------------------
In excess of net realized gains -- -- (.08) -- --
----------------------------------------
Total distributions (1.31) (.83) (.69) (.48) (.50)
-----------------------------------------
Net asset value, end of year 17.76 17.36 16.34 14.04 12.86
=========================================
Total return (%)/1/ 10.16 11.43 21.58 13.00 0.24
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1 million) 4,552 3,706 2,858 1,818 1,093
Ratios to average net assets: (%)
Expenses .83 .84 .87 .88 .95
Net investment income 2.33 2.49 3.20 2.70 2.03
Portfolio turnover rate (%) 15.40 15.25 7.39 20.87 7.90
</TABLE>

1. Total return is not annualized.

PAGE

EMERGING MARKETS SERIES

[INSERT GRAPHIC OF BULLSEYE AND ARROWS] GOAL AND STRATEGIES

GOAL The fund's investment goal is long-term capital growth.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest at
least 65% of its total assets in equity securities of developing market issuers.
The fund normally will invest in at least three developing market countries.

For purposes of the fund's investments, developing or emerging market countries
include those considered such by the World Bank, the International Finance
Corporation, the United Nations, or the countries' authorities.

[BEGIN CALLOUT]
The fund invests primarily in developing market companies' equity securities.
[END CALLOUT]

In addition, developing or emerging market equity securities means those issued
by:

o companies with their principal securities trading market within a
developing or emerging market country, as defined above; or

o companies that derive 50% or more of their total revenue from either
goods or services produced or sales made in developing or emerging market
countries; or

o companies organized under the laws of, or with principa offices in,
developing or emerging market countries.

Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks. The
fund also invests in American, Global, and European Depositary Receipts, which
are certificates typically issued by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic
corporation.

Depending upon current market conditions, the fund generally invests a portion
of its total assets in rated and unrated debt securities. Debt securities
represent an obligation of the issuer to repay a loan of money to it, and
generally provide for the payment of interest. These include bonds, notes and
debentures.

The Templeton investment philosophy is "bottom-up", value-oriented, and
long-term. In choosing equity investments, the fund's manager will focus on the
market price of a company's securities relative to its evaluation of a company's
long-term earnings, asset value and cash flow potential. A company's historical
value measures, including price/earnings ratios, profit margins and liquidation
value, will also be considered.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economies of countries where
the fund invests are experiencing excessive volatility or a prolonged general
decline, or other adverse conditions exist. Under these circumstances, the fund
may be unable to pursue its investment goal because it may not invest or may
invest substantially less in developing market companies' equity securities.

PAGE

[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS

STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole. Value stock prices are
considered "cheap" relative to the company's perceived value. They may not
increase in value, as anticipated by the manager, if other investors fail to
recognize the company's value and bid up the price or if they trade in markets
favoring faster-growing companies.

Some of the additional significant risks, include:

PAGE

o Political and social uncertainty (for example, regional conflicts and
risk of war)

o Currency exchange rate volatility

o Pervasiveness of corruption and crime

o Delays in settling portfolio transactions

o Risk of loss arising out of systems of share registration and custody

o Involves markets that are comparatively smaller and less liquid than
developed markets. While short-term volatility in these markets can be
disconcerting, declines in excess of 50% are not unusual.

o Less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States

o Currency and capital controls

ALL OF THESE FACTORS MAKE DEVELOPING MARKET EQUITY SECURITIES' PRICES GENERALLY
MORE VOLATILE THAN SECURITIES ISSUED IN DEVELOPED MARKETS.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.

ILLIQUID SECURITIES The fund may not invest more than 15% of its total assets in
securities which are not publicly traded or which cannot be readily resold
because of legal or contractual restrictions, or which are not otherwise readily
marketable (including repurchase agreements having more than seven days
remaining to maturity).

INTEREST RATE When interest rates rise, debt security prices fall. When interest
rates fall, debt securities go up. Generally, interest rates rise during times
of inflation or a growing economy, and fall during an economic slowdown or
recession. Securities with longer maturities usually are more sensitive to
interest rate changes than securities with shorter maturities.

PAGE

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

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

PAGE

[INSERT GRAPHIC OF A BULL AND A BEAR] PERFORMANCE

ANNUAL TOTAL RETURNS/1/

[INSERT BAR GRAPH]

- -11.39% -1.23% 18.86% -11.32% -18.03%
94 95 96 97 98
YEAR

[BEGIN CALLOUT]
BEST QUARTER:
Q4 '98 23.62%

WORST QUARTER:
Q4 '97 -25.71%
[END CALLOUT]

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR 5 YEARS (5/3/93)
- -------------------------------------------------------------------------------
Emerging Markets Series -18.03% -5.44% 0.09%
IFC - Investable Composite Index/2/ -22.02% -10.14% -0.67%
MSCI - Emerging Markets Free Index/2/ -25.34% -9.27% -0.12%

1. As of March 31, 1999, the fund's year-to-date return was 8.49%.

2. Source: Standard & Poor's(R) Micropal. The unmanaged IFC - Investable
Composite Index tracks the performance of approximately 2,000 securities in
emerging market countries. It includes reinvested dividends. The unmanaged MSCI
- - Emerging Markets Free Index measures the performance of securities located in
25 emerging market countries such as Brazil, China, Korea and Poland. It
includes reinvested dividends. One cannot invest directly in an index, nor is an
index representative of the fund's portfolio.

PAGE

[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Maximum sales charge (load) imposed on purchases None
Exchange fee/1/ $5.00

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

Management fees/2/ 1.25%
Other expenses 0.26%
-------
Total annual fund operating expenses/2/ 1.51%
=======

1. This fee is only for market timers (see page 54).

2. For the fiscal year ended December 31, 1998, the manager and administrator
had agreed in advance to reduce their respective fees in order to limit the
total expenses of the fund to an annual rate of 1.60% of average net assets. If
these fee reductions are insufficient to so limit the fund's expenses, the
administrator has agreed to assume as its own expense certain expenses otherwise
payable by the fund. These voluntary agreements did not result in any fee
reductions for the fund for the fiscal year ended December 31, 1998. After May
1, 2000, the manager and administrator may end this arrangement at any time.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------
$154 $477 $824 $1,802

PAGE

[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT

Templeton Asset Management Ltd. - - Hong Kong Branch (Asset Management Hong
Kong), Two Exchange Square, Hong Kong, is the fund's investment manager.
Together, Asset Management Hong Kong and its affiliates manage over $216 billion
in assets.

The fund's lead portfolio manager is:

DR. J. MARK MOBIUS, MANAGING DIRECTOR OF TEMPLETON ASSET MANAGEMENT LTD.

Dr. Mobius has been a manager of the fund since inception. He joined the
Franklin Templeton Group in 1987.

The following individuals have secondary portfolio management responsibilities:

H. ALLAN LAM, PORTFOLIO MANAGER OF TEMPLETON ASSET MANAGEMENT LTD.

Mr. Lam has been a manager of the fund since inception. He joined the Franklin
Templeton Group in 1987.

TOM WU, DIRECTOR OF TEMPLETON ASSET MANAGEMENT LTD.

Mr. Wu has been a manager of the fund since inception. He joined the Franklin
Templeton Group in 1987.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund paid
1.25% of its average daily net assets to the manager. The manager voluntarily
agreed to reduce its fees in order to limit total expenses of the fund, however,
this voluntary agreement did not result in any management fee reductions for the
fund. After May 1, 2000, the manager may end this arrangement at any time upon
notice to the fund's Board of Directors.

PAGE

[INSERT GRAPHIC OF A DOLLAR BILL] FINANCIAL HIGHLIGHTS

This table presents the fund's financial performance for the past five years.
This information has been audited by McGladrey & Pullen, LLP.

YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 10.37 12.45 10.75 11.21 13.22
----------------------------------------
Net investment income .18 .18 .15 .19 .17
Net realized and unrealized gains (losses) (2.05) (1.60) 1.86 (.34) (1.65)
----------------------------------------
Total from investment operations (1.87) (1.42) 2.01 (.15) (1.48)
----------------------------------------
Distributions from net investment income (.19) (.18) (.15) (.17) (.17)
Distributions from net realized gains -- (.48) (.16) (.14) (.36)
----------------------------------------
Total distributions (.19) (.66) (.31) (.31) (.53)
-----------------------------------------
Net asset value, end of year 8.31 10.37 12.45 10.75 11.21
========================================
Total return (%)/1/ (18.03) (11.32) 18.86 (1.23)(11.39)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 1,733,607 1,923,881 1,565,537 798,515 582,878
Ratios to average net assets: (%)
Expenses 1.51 1.57 1.56 1.52 1.60
Expenses excluding waiver
and payments by affiliate 1.51 1.57 1.56 1.52 1.66
Net investment income 2.03 1.42 1.56 2.00 1.59
Portfolio turnover rate (%) 38.11 24.72 7.92 13.47 12.51
</TABLE>

1. Total return is not annualized

PAGE

EMERGING FIXED INCOME MARKETS SERIES

[INSERT GRAPHIC OF BULLSEYE AND ARROWS] GOAL AND STRATEGIES

GOAL The fund's investment goal is high total return, consisting of current
income and capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest at
least 65% of total assets in debt securities of emerging markets issuers, which
include companies, governments and government agencies located in emerging
market countries and entities organized for the purpose of restructuring
securities issued by these issuers. The fund may invest up to 35% of total
assets in securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities. The fund normally will invest at least 65% of total
assets in at least three different nations.

[BEGIN CALLOUT]
The fund invests primarily in debt securities of emerging market issuers, which
include companies, governments and government agencies located in emerging
market countries.
[END CALLOUT]

In addition, developing or emerging market equity securities means those issued
by:

o companies with their principal securities trading market within a
developing or emerging market country, as defined above; or

o companies that derive 50% or more of their total revenue from either goods
or services produced or sales made in developing or emerging market
countries; or

o companies organized under the laws of, or with principal offices in,
developing or emerging market countries.

Debt securities represent an obligation of the issuer to repay a loan of money
to it, and generally provide for the payment of interest. These include bonds,
notes and debentures. Debt securities issued by emerging market companies and
governments are generally rated below "investment grade" debt securities, which
means they are not in the top four rating categories as determined by
independent rating agencies such as Standard & Poor's Corporation (S&P) or
Moody's Investors Services, Inc. (Moody's). The fund may buy securities rated in
any category and anticipates that a substantial percentage of its assets will be
invested in debt securities rated below investment grade or unrated securities
determined by the fund's manager to be comparable. As of December 31, 1998,
approximately 75.7% of the fund's net assets were invested in lower rated and
comparable quality unrated debt securities.

The fund may invest in various types of debt securities, such as Eurobonds,
Global Bonds, Yankee Bonds, bonds sold under SEC Rule 144A, and Brady Bonds. The
fund generally invests a substantial portion of its assets in Eurobonds and
Brady Bonds. Brady Bonds are public-issue bonds that are created through an
exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with a debt restructuring plan introduced by former
U.S. Secretary of the Treasury, Nicholas F. Brady.

The fund may buy securities on a "when issued" or "delayed delivery" basis. This
means that the securities will be paid for and delivered to the fund at a future
date.

The fund's manager allocates its assets based upon its assessment of changing
market, political and economic conditions. It will consider various factors,
including evaluation of interest and currency exchange rate changes and credit
risks, in seeking to identify those markets and issuers which are anticipated to
provide the opportunity for high current income and capital appreciation.

PAGE

[INSERT GRAPHIC OF CHART WITH LINE GOING UP AND DOWN] MAIN RISKS

Securities rated below investment grade, sometimes called "junk bonds" or "high
yield debt securities," generally have more risk than higher-rated securities.
The principal risks of investing in these securities include:

o SUBSTANTIAL CREDIT RISK. Companies and governments issuing high yield
debt securities are not as strong financially as those with higher credit
ratings. They are more likely to encounter financial difficulties and are
more vulnerable to changes in the economy, such as a recession or a
sustained period of rising interest rates, that could prevent them from
making interest and principal payments.

o DEFAULTED DEBT RISK. If an issuer is not paying or stops paying interest
and/or principal on its securities, payments on the securities may never
resume. These securities may be worthless and the fund could lose its
entire investment.

o VOLATILITY RISK. The prices of high yield debt securities fluctuate more
than higher-quality securities. The entire high yield securities market can
experience sudden and sharp price swings due to changes in economic
conditions, stock market activity, large sustained sales by major
investors, a high-profile default, or other factors. The price of a
company's debt securities is especially sensitive to developments affecting
the company's business and to changes in the ratings assigned by ratings
organizations. Prices are often closely linked with a company's stock
prices and typically rise and fall in response to factors that affect stock
prices. High yield securities are also generally less liquid than
higher-quality bonds. Many of these securities do not trade frequently, and
when they do trade their prices may be significantly higher or lower than
expected. At times, it may be difficult to sell these securities promptly
at an acceptable price, which may limit the fund's ability to sell
securities in response to specific economic events or to meet redemption
requests.

PAGE

INTEREST RATE When interest rates rise, fixed-income security prices fall. When
interest rates fall, fixed-income security prices rise. Generally, interest
rates rise during times of inflation or a growing economy, and will fall during
an economic slowdown or recession. Securities with longer maturities usually are
more sensitive to interest rate changes than securities with shorter maturities.

If a security's credit rating is downgraded or an issuer's financial condition
deteriorates, the price of the security will fall and so too will the fund's
share price. If interest rates rise, the value of the fund's debt securities
will also fall. Because the value of the fund's holdings fluctuate in price, the
value of your investment in the fund will go up and down. This means you could
lose money over short or even extended periods.

BRADY BONDS Brady Bonds may be collateralized or uncollateralized and issued in
various currencies (although most are dollar-denominated). Brady Bonds have been
issued relatively recently, and, accordingly, do not have a long payment
history. Because of the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are considered speculative. The fund may also invest
in restructured external debt that has not undergone a Brady-style debt
exchange, or other types of instruments structured or denominated as bonds.

Some of the significant, additional risks include:

o Political and social uncertainty (for example, regional conflicts and risk
of war)

o Currency exchange rate volatility

o Pervasiveness of corruption and crime

o Delays in settling portfolio transactions

o Risk of loss arising out of systems of share registration and custody

o Markets that are comparatively smaller and less liquid than developed
markets. While short-term volatility in these markets can be disconcerting,
declines in excess of 50% are not unusual.

o Less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States

o Currency and capital controls

ALL OF THESE FACTORS MAKE DEVELOPING MARKET DEBT SECURITIES' PRICES GENERALLY
MORE VOLATILE THAN SECURITIES ISSUED IN DEVELOPED MARKETS.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.

ILLIQUID SECURITIES The fund may not invest more than 15% of its total assets in
securities which are not publicly traded or which cannot be readily resold
because of legal or contractural restrictions, or which are not otherwise
readily marketable (including repurchase agreements having more than seven days
remaining to maturity).

DIVERSIFICATION The fund is non-diversified under federal securities laws. It
may invest a greater portion of its assets in the securities of one issuer and,
therefore in a smaller number of individual issuers, than diversified funds.
Therefore, it may be more sensitive to economic, business, political or other
changes affecting similar issuers or securities. The fund intends, however, to
meet certain tax diversification requirements.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

PAGE

The manager will rely upon public filings and other statements made by issuers
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may be more susceptible to Year 2000 risks and
may not be required to make the same level of disclosure about Year 2000
readiness as is required in the U.S. The manager, of course, cannot audit any
company and its major suppliers to verify their Year 2000 readiness.

If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares. Please
see page 38 for more information.

PORTFOLIO TURNOVER The manager's attempt to seek high total return may cause the
fund's portfolio turnover rate to be high. High turnover will increase the
fund's transaction costs and may increase your tax liability.

More detailed information about the fund, its policies, including temporary
investments, risks and the ratings of debt securities can be found in the fund's
Statement of Additional Information (SAI).

PAGE

[INSERT GRAPHIC OF A BULL AND A BEAR] PERFORMANCE

This information gives some indication of the risks of investing in the fund by
comparing the fund's performance with a broad-based securities market index. Of
course, past performance cannot predict or guarantee future results.

ANNUAL TOTAL RETURNS/1/

[INSERT BAR GRAPH]

-3.87%
98
YEAR

[BEGIN CALLOUT]
BEST QUARTER:
Q4 '98 12.69%

WORST QUARTER:
Q3 '98 -14.45%
[END CALLOUT]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR (6/4/97)
- --------------------------------------------------------------------------------
Emerging Fixed Income Markets Series -3.87% 5.05%
J.P. Morgan Emerging Markets Plus Index/2/ -14.35% -6.79%

1. As of March 31, 1999, the fund's year-to-date return was 2.56%.

2. Source: Standard & Poor's(R) Micropal. The unmanaged J. P. Morgan Emerging
Markets Plus Index tracks the total returns of broker-traded external debt
instruments that are issued by governments and corporations in the emerging
markets and have at least $500 million outstanding. It includes reinvested
interest. One cannot invest directly in an index, nor is an index representative
of the fund's portfolio.

PAGE

[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Maximum sales charge (load) imposed on purchases None
Exchange fee/1/ $5.00

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

Management fees/2/ 0.70%
Other expenses 3.04%
------
Total annual fund operating expenses/2/ 3.74%

1. This fee is only for market timers (see page 54).

2. For the fiscal year ended December 31, 1998, the manager and administrator
had agreed in advance to limit their respective fees and to assume as their own
expense certain expenses otherwise payable by the fund. With this reduction, the
fund paid no management fees and total annual fund operating expenses were
1.25%. After May 1, 2000, the manager and administrator may end this arrangement
at any time.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------
$376 $1,143 $1,930 $3,984

PAGE

[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT

Templeton Investment Counsel, Inc. (Investment Counsel), 500 East Broward Blvd.,
Ft. Lauderdale, Florida 33394-3091, through its Templeton Global Bond Managers
division (Global Bond Managers), is the fund's investment manager. Together,
Investment Counsel and its affiliates manage over $216 billion in assets. A team
from Global Bond Managers is responsible for the day-to-day management of the
fund.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended December 31, 1998, management
fees, before any advance waiver, were 0.70% of the fund's average daily net
assets. Under an agreement by the manager to waive its fees, the fund did not
pay any management fees. After May 1, 2000, the manager may end this arrangement
at any time upon notice to the fund's Board of Directors.

PAGE

[INSERT GRAPHIC OF A DOLLAR SIGN] FINANCIAL HIGHLIGHTS

This table presents the fund's financial performance for the past two years.
This information has been audited by McGladrey & Pullen, LLP.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31
1998 1997/1/
- -------------------------------------------------------------------------------
<S> <C> <C>

PER SHARE DATA ($)
Net asset value, beginning of year 10.47 10.00
--------------------
Net investment income .84 .44
Net realized and unrealized gains (losses) (1.27) .79
--------------------
Total from investment operations (.43) 1.23
--------------------
Distributions from net investment income (.86) (.44)
Distributions from net realized gains (.56) (.32)
-------------------
Tax return of capital (.03) -
-------------------
Total distributions (1.45) (.76)
-------------------
Net asset value, end of year 8.59 10.47
===================
Total return (%)/2/ (3.98) 12.42
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 1,881 2,249
Ratios to average net assets: (%)
Expenses 1.25 1.25/3/
Expenses excluding waiver and payments by affiliate 3.74 6.40/3/
Net investment income 8.55 7.26/3/
Portfolio turnover rate (%) 525.94 172.62
</TABLE>

1. For the period June 4, 1997 (commencement of operations) to December 31,
1997.
2. Total return is not annualized.
3. Annualized

[INSERT GRAPHIC OF DOLLAR SIGNS AND STACKS OF COINS] DISTRIBUTIONS AND TAXES;
YEAR 2000 PROBLEM

INCOME AND CAPITAL GAINS DISTRIBUTIONS The funds intend to pay a dividend at
least annually representing substantially all of their net investment income and
any net realized capital gains. The amount of these distributions will vary and
there is no guarantee the funds will pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record date for the funds' distributions will vary. Please keep in mind that if
you invest in the funds shortly before the record date of a distribution, any
distribution will lower the value of the funds' shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the funds' distributions, please call Institutional Services at 1-800/321-8563.

[BEGIN CALLOUT]
BACKUP WITHHOLDING
By law, a fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct taxpayer identification number (TIN) or certify
that your TIN is correct, or if the IRS instructs the fund to do so.
[END CALLOUT]

TAX CONSIDERATIONS In general, fund distributions are taxable to you as either
ordinary income or capital gains. This is true whether you reinvest your
distributions in additional fund shares or receive them in cash. Any capital
gains a fund distributes are taxable to you as long-term capital gains no matter
how long you have owned your shares.

Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.

When you sell your shares of the fund, you may have a capital gain or loss. For
tax purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale. The individual tax rate on any gain from
the sale or exchange of your shares depends on how long you have held your
shares.

Fund distributions and gains from the sale or exchange of your shares generally
will be subject to state and local income tax. Any foreign taxes paid by a fund
that invests more than 50% of its assets in foreign securities may be passed
through to you as a foreign tax credit. Non-U.S. investors may be subject to
U.S. withholding and estate tax. You should consult your tax advisor about the
federal, state, local or foreign tax consequences of your investment in a fund.

YEAR 2000 PROBLEM The funds' business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a leap year may
create difficulties for some systems.

When the Year 2000 arrives, the funds' operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the funds'
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The funds could
experience difficulties in effecting transactions if any of their foreign
subcustodians, or if foreign broker-dealers or foreign markets are not ready for
Year 2000.

The funds' managers and their affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to address
their Year 2000 problems. Of course, the funds' ability to reduce the effects of
the Year 2000 problem is also very much dependent upon the efforts of third
parties over which the funds and their managers may have no control.

PAGE

YOUR ACCOUNT

[INSERT GRAPHIC OF PENCIL MARKING AND "X"] QUALIFIED INVESTORS

[BEGIN CALLOUT]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Valuemark Funds, Templeton Capital
Accumulator Fund, Inc., and Templeton Variable Products Series Fund.
[END CALLOUT]

The following investors may qualify to buy shares of the funds.

o Defined contribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section
401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 1,000 employees (10,000 for the
Foreign Equity Series), or (ii) with retirement plan assets of $10 million
or more ($100 million or more for the Foreign Equity Series). Minimum
investments: No initial or additional minimums. Minimum investments for
plans with less than 1,000 employees or $10 million in plan assets
(excluding Foreign Equity Series): $1 million initial investment or an
investment of $1 million over the subsequent 13-month period in the funds
or any of the Franklin Templeton Funds and no additional minimum.

o Trust companies and bank trust departments initially investing in the
Franklin Templeton Funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. Minimum investments: $1 million initial investment
or an investment of $1 million over the subsequent 13-month period in the
funds or any of the Franklin Templeton Funds and no additional minimum.

o Defined benefit plans, governments, municipalities, and tax-exempt entities
that meet the requirement for qualification under section 501 of the
Internal Revenue Code Minimum investments: $1 million initial investment.

o Service agents and broker-dealers who have entered into an agreement with
Franklin Templeton Distributors, Inc. (Distributors) may purchase shares of
the funds for clients of associated registered investment advisors
participating in fee-based programs until May 31, 1997. After this date,
additional purchases of a fund may be made only for clients who already own
or hold shares of that fund.

o An investor who executes a Letter of Intent (Letter) which expresses the
investor's intention to invest at least $5 million within a 13-month period
in the Franklin Templeton Funds, including at least $1 million in the
funds. See the Institutional Application. Minimum investments: $1 million.
If the investor does not invest at least $5 million in shares of the funds
or other Franklin Templeton Funds within the 13-month period, the shares
actually purchased will be involuntarily redeemed and the proceeds sent to
the investor at the address of record. Any redemptions made by the
shareholder during the 13-month period will be subtracted from the amount
of purchases for purposes of determining whether the terms of the Letter
have been completed.

o Any investor, including a private investment vehicle such as a family trust
or foundation, who is a member of a qualified group. Minimum investments:
$5 million initial investment. For minimum investment purposes, the group's
investments are added together. The group may combine all of its shares in
the Franklin Templeton Funds for purposes of determining whether it meets
the $5 million minimum, as long as $1 million is invested or to be invested
in the funds. There are certain other requirements and the group must have
a purpose other than buying fund shares.

o Other investors. Minimum investments: $5 million initial.

Shares of the funds may be purchased at net asset value without a sales charge
through any broker that has a dealer agreement with Distributors, the principal
underwriter of the shares of the funds, or directly from Distributors, upon
receipt by Distributors of an Institutional Account Application Form and
payment. Distributors may establish minimum requirements with respect to amount
of purchase.

Certain Franklin Templeton Funds offer multiple share classes not offered by the
funds. Please note that for selling or exchanging your shares, or for other
purposes, the funds' shares are considered Advisor Class shares.

PAGE

[INSERT GRAPHIC OF A PAPER WITH LINES AND SOMEONE WRITING] BUYING SHARES

For defined contribution plans that meet the requirements for qualification
under section 401 of the Internal Revenue Code and that are sponsored by an
employer with at least 1,000 employees or with retirement plan assets of $10
million or more, you may continue to add to your Foreign Equity Series account
or buy additional shares through the reinvestment of dividend or capital gains
distributions if you were a shareholder of record of Foreign Equity Series as of
May 1, 1999.

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
an Institutional Account Application Form.

BUYING SHARES
- -----------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[ISNERT GRAPHIC OF
HANDS SHAKING]

THROUGH YOUR Contact your investment representative Contact your investment
INVESTMENT representative
REPRESENTATIVE
- -----------------------------------------------------------------------------------------------------------------
[INSERT GRAPHIC OF ENVELOPE

BY MAIL Make your check, Federal Make your check, Federal Reserve
Reserve draft or negotiable bank negotiable bank draft payable to
draft payable to the fund. the fund. Include your account
number.

Mail the check, Federal Reserve Fill out the deposit slip from
draft or negotiable bank draft and your account statement. If you
your signed Institutional Account do not have a slip, include a
Application Form to Institutional note with your name, the fund
Services. name, and your account number.

Mail the check, Federal
Reserve draft or negotiable
bank draft and deposit slip
or note to Institutional
Services.
- -------------------------------------------------------------------------------------------------------------------
[INSERT GRAPHIC OF PHONE]
BY PHONE Call to receive a wire control Call to receive a wire control
number and wire instructions. number and wire instructions.

1-800/321-8563 or On the next business day, wire To make a same day wire
1-650/312-3600 the funds to Bank of America, please call us by 1:00 p.m.
ABA Routing No. 121000358, pacific time and make sure
for credit to account no. 1493304779, your wire arrives by 3:00 p.m.
and mail your signed Institutional
Account Application Form to
Institutional Services. Please include
the wire control number or your new
account number on the application.

To make a same day wire investment,
please call us by 1:00 p.m. pacific time
and make sure your wire arrives by 3:00
p.m.
- ---------------------------------------------------------------------------------------------------------------------
[INSERT GRAPHIC OF TWO ARROWS
POINTING IN OPPOSITE DIRECTIONS]

BY EXCHANGE Call Institutional Services at the Call Institutional Services at the
number below, or send signed number below, or send signed written
written instructions. instructions. (Please see page
(Please see page 49 for information 49 for information on exchanges.)
on exchanges.)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

FRANKLIN TEMPLETON INSTITUTIONAL SERVICES
777 MARINERS ISLAND BLVD., P.O. BOX 7777,
SAN MATEO, CA 94403-7777
CALL TOLL-FREE: 1-800/321-8563
(MONDAY THROUGH FRIDAY 6:00 A.M. TO 5:00 P.M., PACIFIC TIME)

Orders mailed to Franklin Templeton Distributors, Inc. (Distributors) by dealers
or individual investors do not require advance notice. Checks or negotiable bank
drafts must be in U.S. currency drawn on a commercial bank in the U.S. and, if
over $100,000, may not be deemed to have been received until the proceeds have
been collected, unless the check is certified or issued by such bank. Any
subscription may be rejected by Distributors or by Templeton Institutional
Funds, Inc. (Company).

Shares of the funds may be purchased with "in-kind" securities, if approved in
advance by the Company. Securities used to purchase fund shares must be
appropriate investments for that fund, consistent with its investment objective,
policies and limitations, as determined by the Company, and must have readily
available market quotations. The securities will be valued in accordance with
the Company's policy for calculating net asset value, determined as of the close
of the day on which the securities are received by the Company in salable form.
A prospective shareholder will receive shares of the applicable fund next
computed after such receipt. To obtain the approval of the Company, call
Institutional Services. Investors who are affiliated persons of the Company (as
defined in the Investment Company Act of 1940) may not purchase shares in this
manner in the absence of SEC approval.

PAGE

[INSERT GRAPHIC OF PERSON WITH A HEADSET] INVESTOR SERVICES

TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.

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

For accounts with more than one registered owner, telephone privileges also
allow a fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.

As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class and between funds in Templeton Institutional Funds, Inc.
You also may exchange your shares for Class A shares of a fund that does not
currently offer an Advisor Class (without any sales charge)* or for Class Z
shares of Franklin Mutual Series Fund Inc.

[BEGIN CALLOUT]
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequences as ordinary sales and purchases.
[END CALLOUT]

If you do not qualify to buy Advisor Class shares of a Franklin Templeton Fund,
you also may exchange your shares for Class A shares of the fund (without any
sales charge).*

* If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class or Class Z, you may exchange
your Class A shares for Advisor Class or Class Z shares if you otherwise qualify
to buy the fund's Advisor Class or Class Z shares.

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.

Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
54).

PAGE

[INSERT GRAPHIC OF A CERTIFICATE] SELLING SHARES

You can sell your shares at any time.

SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. If you have completed and returned
the Institutional Telephone Privileges Agreement, amounts over $100,000 may also
be redeemed. Sometimes, however, to protect you and the funds we will need
written instructions signed by all registered owners, with a signature guarantee
for each owner, if:

o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of record,
or preauthorized bank or brokerage firm account

We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the funds
against potential claims based on the instructions received.

[BEGIN CALLOUT]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[END CALLOUT]

SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.

REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.

RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Trust Company retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Plan Services at 1-800/527-2020
for details.

PAGE

- --------------------------------------------------------------------------------
SELLING SHARES
- --------------------------------------------------------------------------------
To sell some or all of your shares
- --------------------------------------------------------------------------------
[INSERT GRAPHIC OF
HANDS SHAKING]
THROUGH YOUR Contact your investment representative
INVESTMENT
REPRESENTATIVE
- --------------------------------------------------------------------------------
[INSERT GRAPHIC OF Send written instructions and endorsed
ENVELOPE] share certificates (if you hold share
certificates) to Institutional Services.
BY MAIL Corporate, partnership or trust accounts may
need to send additional documents.

Specify the fund, the account number and the
dollar value or number of shares you wish to
sell. Be sure to include all necessary
signatures and any additional documents,
as well as signature guarantees if required.

A check will be mailed to the name(s) and
address on the account, or otherwise
according to your written instructions.
- --------------------------------------------------------------------------------
[INSERT GRAPHIC OF As long as your transaction is for $100,000
PHONE] or less, you do not hold share certificates
and you have not changed your address by
BY PHONE phone within the last 15 days, you can sell
your shares by phone.

1-800/321-8563 A check will be mailed to the name(s) and
(Only available if you have address on the account. Written instructions,
completed and sent the with a signature guarantee, are required to
Institutional Telephone send the check to another address or to make
Privileges Agreement) it payable to another person.

- --------------------------------------------------------------------------------
[INSERT GRAPHIC OF THREE You can call or write to have redemption
LIGHNING BOLTS] proceeds of $1,000 or more wired to a bank
or escrow account. See the policies above
BY WIRE for selling shares by mail or phone.

Before requesting a bank wire, please make
sure we have your wiring instructions (bank
information) on file. If we do not have this
information, you will need to send written
instructions with your bank's name and
address, your bank account number, the ABA
routing number, and a signature guarantee.

Requests received in proper form by 1:00 p.m.
pacific time will be wired the next business
day.
- -------------------------------------------------------------------------------
[INSERT GRAPHIC OF TWO ARROWS Obtain a current prospectus for the fund
POINTING IN OPPOSITE you are considering.
DIRECTIONS]
Call Institutional Services at the number
BY EXCHANGE below, or send signed written instructions.
See the policies above for selling shares
by mail or phone.

If you hold share certificates, you will
need to return them to the fund before your
exchange can be processed.
- -------------------------------------------------------------------------------

PAGE

[INSERT GRAPHIC OF PAPER AND PEN] ACCOUNT POLICIES

CALCULATING SHARE PRICE Each fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. pacific time). Each fund's NAV is calculated by dividing its
net assets by the number of its shares outstanding.

Each fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
a fund holds securities listed primarily on a foreign exchange that trades on
days when the funds are not open for business, the value of your shares may
change on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $1,000
because you sell some of your shares, we may mail you a notice asking you to
bring the account back up to $1,000. If you choose not to do so within 30 days,
we may close your account and mail the proceeds to the address of record.

STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You also will receive the funds' financial
reports every six months. To reduce fund expenses, we try to identify related
shareholders in a household and send only one copy of the financial reports. If
you need additional copies, please call 1-800/DIAL BEN.

If there is a dealer or other investment representative of record on your
account, he or she also will receive confirmations, account statements and other
information about your account directly from a fund.

STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.

JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.

MARKET TIMERS The funds may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the funds' transfer agent. You will
be considered a market timer if you have (i) requested an exchange out of a fund
within two weeks of an earlier exchange request, or (ii) exchanged shares out of
a fund more than twice in a calendar quarter, or (iii) exchanged shares equal to
at least $5 million, or more than 1% of a fund's net assets, or (iv) otherwise
seem to follow a timing pattern. Shares under common ownership or control are
combined for these limits.

ADDITIONAL POLICIES Please note that the funds maintain additional policies and
reserves certain rights, including:

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

o At any time, the funds may change its investment minimums or waive or lower
its minimums for certain purchases.

o The funds may modify or discontinue the exchange privilege on 60 days'
notice.

o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.

o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.

o For redemptions over a certain amount, the funds reserve the right to make
payments in securities or other assets of the funds, in the case of an
emergency or if the payment by check or wire would be harmful to existing
shareholders.

o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the funds promptly.

DEALER COMPENSATION Qualifying dealers who sell shares may receive up to 0.25%
of the amount invested. This amount is paid by Franklin Templeton Distributors,
Inc. from its own resources.

[INSERT GRAPHIC OF QUESTION MARK] QUESTIONS

If you have any questions about the funds or your account, you can write to us
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. You can
also call us at one of the following numbers. For your protection and to help
ensure we provide you with quality service, all calls may be monitored or
recorded.

HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- -------------------------------------------------------------------------------
<S> <C> <C>
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m.
(Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
</TABLE>

PAGE

This page left intentionally blank.

PAGE

FRANKLIN TEMPLETON FUNDS

LITERATURE REQUEST Call 1-800/DIAL BEN(R) (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, sales charges and
expenses, and should be read carefully before investing or sending money.

GLOBAL GROWTH

Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund

GLOBAL GROWTH
AND INCOME

Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund

GLOBAL INCOME

Franklin Global Government Income Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund

GROWTH

Franklin Biotechnology Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund

GROWTH AND INCOME

Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund/1/
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund/1/
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund

FUND ALLOCATOR SERIES

Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund

INCOME

Franklin Adjustable U.S. Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Strategic Income Fund
Franklin U.S. Government Securities Fund
Franklin Federal Money Fund/2/
Franklin Money Fund2

TAX-FREE INCOME

Federal Intermediate-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund/2/

STATE-SPECIFIC TAX-FREE INCOME

Alabama
Arizona/3/
California/3/
Colorado
Connecticut
Florida/3/
Georgia
Kentucky
Louisiana
Maryland
Massachusetts/4/
Michigan/4/
Minnesota/4/
Missouri
New Jersey
New York/3/
North Carolina
Ohio/4/
Oregon
Pennsylvania
Tennessee/5/
Texas
Virginia

VARIABLE ANNUITIES/6/
Franklin Valuemark(R)
Franklin Templeton Valuemark Income Plus (an immediate annuity)

1. These funds are now closed to new accounts, with the exception of retirement
plan accounts.

2. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.

3. Two or more fund options available: long-term portfolio; portfolio of insured
securities; high yield portfolio (CA); intermediate-term and money market
portfolios (CA and NY).

4. Portfolio of insured municipal securities.

5. The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.

6. Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.04/99

PAGE

FOR MORE INFORMATION

You can learn more about each fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about each fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
INSTITUTIONAL SERVICES 1-800/321-8563
TDD (Hearing Impaired) 1-800/851-0637
www.franklin-templeton.com

You can also obtain information about each fund by visiting the SEC's Public
Reference Room in Washington D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.

Investment Company Act file #811-6135 ZTIFI P 05/99