FRANKLIN INTERNATIONAL TRUST, 497, 1995-03-16

FRANKLIN INTERNATIONAL TRUST
497, 1995-03-16

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SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN INTERNATIONAL EQUITY FUND

FRANKLIN INTERNATIONAL TRUST
DATED MARCH 1, 1994
AS AMENDED JULY 1, 1994

The following sections of the prospectus are revised to reflect changes to the
operational policies of the Fund, effective February 1, 1995:

1. EXPENSE TABLE

Revised to reflect that investments of $1,000,000 or more are not subject to a
front-end sales charge but a contingent deferred sales charge of 1% will be
imposed on certain redemptions within 12 months of the calendar month following
such investments. See "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."

2. MANAGEMENT OF THE FUND

Revised to add the definition "Franklin Templeton Group" to describe the
subsidiaries of Resources.

3. HOW TO BUY SHARES OF THE FUND

(a) The following is added at the end of the first paragraph:

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

(b) Substitute the following for the sales charge table and the ensuing two
paragraphs:
<TABLE>
<CAPTION>

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

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

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

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

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

<PAGE>

the Franklin Group of Funds(R) and the Templeton Group of Funds. Included
for these aggregation purposes are (a) the mutual funds in the Franklin
Group of Funds except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"), (b) other investment products
underwritten by Distributors or its affiliates (although certain investments
may not have the same schedule of sales charges and/or may not be subject to
reduction) and (c) the U.S. mutual funds in the Templeton Group of Funds
except Templeton American Trust, Inc., Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund (the "Templeton Funds"). (Franklin Funds and Templeton Funds are
collectively referred to as the "Franklin Templeton Funds.") Sales charge
reductions based upon aggregate holdings of (a), (b) and (c) above
("Franklin Templeton Investments") may be effective only after notification
to Distributors that the investment qualifies for a discount. References
throughout the Prospectus, for purposes of aggregating assets or describing
the exchange privilege, refer to the above descriptions.

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

PURCHASES AT NET ASSET VALUE

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

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund or another
of the Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. An
investor may reinvest an amount not exceeding the redemption proceeds. While
credit will be given for any contingent deferred sales charge paid on the
shares redeemed, a new contingency period will begin. Shares of the Fund
redeemed in connection with an exchange into another fund (see "Exchange
Privilege") are not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to
run on redemption proceeds placed immediately after redemption in a Franklin
Bank Certificate of Deposit ("CD") until the CD (including any rollover)
matures. Reinvestment at net asset value may also be handled by a securities
dealer or other financial institution, who may charge the shareholder a fee
for this service. The redemption is a taxable transaction but reinvestment
without a sales charge may

<PAGE>

affect the amount of gain or loss recognized and the tax basis of the shares
reinvested. If there has been a loss on the redemption, the loss may be
disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.

Dividends and capital gains received in cash by the shareholder may also be
used to purchase shares of the Fund or another of the Franklin Templeton
Funds at net asset value and without the imposition of a contingent deferred
sales charge within 120 days of the payment date of such distribution. To
exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be obtained from
Shareholder Services at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have,
within the past 60 days, redeemed an investment in an unaffiliated mutual
fund which charged the investor a contingent deferred sales charge upon
redemption and which has investment objectives similar to those of the Fund.

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

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including former participants of the Franklin
Templeton Profit Sharing 401(k) plan), to the extent of such distribution.
In order to exercise this privilege a written order for the purchase of
shares of the Fund must be received by Franklin Templeton Trust Company (the
"Trust Company"), the Fund or Investor Services, within 120 days after the
plan distribution. A prospectus outlining the investment objectives and
policies of a fund in which the shareholder wishes to invest may be obtained
by calling toll free at 1-800/DIAL BEN (1-800/342-5236).

Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or
city, or any instrumentality, department, authority or agency thereof which
has determined that the Fund is a legally permissible investment and which
is prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND
TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the effect, if
any, of various payments made by the Fund or its investment manager on
arbitrage rebate calculations. If an investment by an eligible governmental
authority at net asset value is made through a securities dealer who has
executed a dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to such
securities dealer in an amount not to exceed 0.25% of the amount invested.
Contact Franklin's Institutional Sales Department for additional
information.

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

<PAGE>

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

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or
to be invested during the subsequent 13-month period in this Fund or any of
the Franklin Templeton Investments must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly from the bank
or trust company, with payment by federal funds received by the close of
business on the next business day following such order.

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

Refer to the SAI for further information.

4. EXCHANGE PRIVILEGE

(a) The following language is added at the end of the first paragraph:

Investors should review the prospectus of the fund they wish to exchange
from and the fund they wish to exchange into for all specific requirements
or limitations on exercising the exchange privilege, for example, minimum
holding periods or applicable sales charges.

(b) The following option is added to "Exchanges by Telephone":

The automatic TeleFACTS(R) system at 1-800/247-1753 is available for
processing exchanges (day or night). During periods of drastic economic or
market changes, however, this option may not be available, in which event
the shareholder should follow other exchange procedures discussed in this
Prospectus.

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

<PAGE>

5. HOW TO SELL SHARES OF THE FUND

Add the following subsection:

CONTINGENT DEFERRED SALES CHARGE

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

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

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

<PAGE>
FRANKLIN
INTERNATIONAL
EQUITY FUND

FRANKLIN INTERNATIONAL TRUST

PROSPECTUS MARCH 1, 1994
AS AMENDED JULY 1, 1994

[FRANKLIN LOGO]

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

Franklin International Trust (the "Trust") is an open-end management investment
company consisting of two separate diversified series. This Prospectus pertains
only to the Franklin International Equity Fund (the "Fund"), a diversified
series, which seeks long-term growth of capital. Under normal conditions, the
Fund invests at least 65% of its total assets in an internationally mixed
portfolio of equity securities which trade on markets in countries other than
the United States ("U.S.") and are (i) issued by companies domiciled in
countries other than the U.S. or (ii) issued by companies that derive at least
50% of either their revenues or pre-tax income from activities outside of the
U.S. There can, of course, be no assurance that the Fund's objective will be
achieved.

Under normal market conditions, the Fund's assets are substantially invested in
equity securities consisting of common and preferred stock, securities (bonds or
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as American Depositary
Receipts or ADRs, and European Depositary Receipts or EDRs ("Equity
Securities").

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

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

A Statement of Additional Information concerning the Trust, dated March 1, 1994,
as may be amended from time to time, provides a further discussion of certain
areas in this Prospectus and other matters which may be of interest to some
investors. It has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is available without
charge from the Fund or the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address or telephone number listed
above.

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

<PAGE>

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

</TABLE>
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Expense Table ............................................................ 3

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

About the Fund ........................................................... 5

Investment Objective and Policies of the Fund ............................ 5

Management of the Fund ................................................... 18

Distributions to Shareholders ............................................ 20

Taxation of the Fund and Its Shareholders ................................ 22

How to Buy Shares of the Fund ............................................ 23

Purchasing Shares of the Fund in Connection with
Retirement Plans Involving Tax-Deferred Investments .................... 29

Other Programs and Privileges Available to Fund Shareholders ............. 30

Exchange Privilege ....................................................... 32

How to Sell Shares of the Fund ........................................... 34

Telephone Transactions ................................................... 37

Valuation of Fund Shares ................................................. 38

How to Get Information Regarding an Investment in the Fund ............... 40

Performance .............................................................. 40

General Information ...................................................... 41

Account Registrations .................................................... 42

Important Notice Regarding Taxpayer IRS Certifications ................... 43

Portfolio Operations ..................................................... 43
</TABLE>

<PAGE>

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

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on the
aggregate operating expenses of the Fund (including fees set by contract) for
the Fund's fiscal year ended October 31, 1993.

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

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ................................................... 1.00%**
12b-1 Fees ........................................................ 0.25%**,***
Other Expenses:
Registration Fees ...................................... 0.31%
Custodian Fees ......................................... 0.19%
Other .................................................. 0.52%
-----
Total Other Expenses .............................................. 1.02%
-----
Total Fund Operating Expenses ..................................... 2.27%**
=====

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

**Represents the amount that would have been payable to the investment manager,
absent a fee waiver by the investment manager, and a reimbursement of a portion
of the amount payable for 12b-1 fees. However, the investment manager has
voluntarily limited its management fees and reimbursed 12b-1 fees and other
operating expenses otherwise payable by the Fund. With this reduction,
management fees were 0.00% of the Fund's average net assets, and total operating
expenses, including such management fees, were 0.50% of the Fund's average net
assets for the fiscal year ended October 31, 1993. This arrangement may be
terminated by the investment manager at any time.

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

EXAMPLE

<PAGE>

(1) a 5% annual rate of return and (2) redemption at the end of each time
period. As noted in the table above, the Fund charges no redemption fees:

</TABLE>
<TABLE>
<CAPTION>

1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$ 67 $113 $161 $294
</TABLE>

THIS EXAMPLE IS BASED ON THE AGGREGATE OPERATING EXPENSES OF THE FUND (INCLUDING
FEES SET BY CONTRACT) FOR THE FUND'S FISCAL YEAR ENDED OCTOBER 31, 1993 SHOWN
ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES,
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by
the Fund and only indirectly by shareholders as a result of their investment in
the Fund. In addition, federal regulations require the example to assume an
annual return of 5%, but the Fund's actual return may be more or less than 5%.

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

The information for each of the two fiscal years ended October 31, 1993 and 1992
and for the fiscal period from September 20, 1991 (effective date of
registration) to October 31, 1991 has been audited by Coopers & Lybrand,
independent auditors, whose audit report appears in the financial statements in
the Fund's Statement of Additional Information, a copy of which may be obtained
as noted on the front cover of this prospectus.

PER SHARE OPERATING PERFORMANCE**
- ----------------------------------------------------------------

NET ASSET NET REALIZED
YEAR VALUES AT NET & UNREALIZED TOTAL FROM
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT
OCT. 31 OF YEAR INCOME ON SECURITIES OPERATIONS
- ----------------------------------------------------------------
FRANKLIN INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C>
1991+ $10.01 $.06 $ -- $ .060
1992 10.07 .19 (.038) .152
1993 10.02 .42 2.253 2.673
</TABLE>

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE**
- ------------------------------------------------------------------

DISTRIBUTIONS NET ASSET
YEAR FROM NET DISTRIBUTIONS VALUES AT
ENDED INVESTMENT FROM TOTAL END OF TOTAL
OCT. 31 INCOME CAPITAL GAINS DISTRIBUTIONS YEAR RETURN
- -----------------------------------------------------------------------------
FRANKLIN INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C> <C>
1991+ $ -- $ -- $ -- $10.07 .60%
1992 (.202) -- (.202) 10.02 1.46
1993 (.413) -- (.413) 12.28 27.40
</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
YEAR AT END EXPENSES INCOME PORTFOLIO
ENDED OF PERIOD TO AVERAGE TO AVERAGE TURNOVER
OCT. 31 (IN 000'S) NET ASSETS*** NET ASSETS RATE
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991+ $ 1,286 --% 4.92%* --%
1992 6,944 .29 2.36 48.78
1993 19,217 .50 4.22 52.99
</TABLE>

*Annualized.

**Selected data for a share of beneficial interest outstanding throughout the
year.

+For the period September 20, 1991 (effective date of registration) to October
31, 1991.

++Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.5% initial sales charge and assumes
reinvestment of dividends and capital gains at net asset value.

<TABLE>
<CAPTION>
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
FRANKLIN INTERNATIONAL EQUITY
<S> <C>
1991 ...................................... 2.50%*
1992 ...................................... 2.50
1993 ...................................... 2.27
</TABLE>

<PAGE>

ABOUT THE FUND
- --------------------------------------------------------------------------------

The Trust is an open-end management investment company which consists of two
diversified, open-end series, commonly called mutual funds. The Trust is a
Delaware business trust, organized on March 22, 1991 and registered under the
Investment Company Act of 1940 (the "1940 Act"). The Fund is managed by Franklin
Advisers, Inc. (the "Manager" or "Advisers"). Templeton Investment Counsel, Inc.
("TICI" or the "Sub-adviser"), an indirect subsidiary of Templeton Worldwide,
Inc., which is a direct, wholly owned subsidiary of Franklin Resources, Inc.
("Resources"), serves as the Sub-adviser under a contract with the Manager
(together, the "Fund's Advisers"). (See "Management of the Fund.")

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge
based upon a variable percentage (ranging from 4.50% to less than 1 .15% of the
offering price) depending upon the amount invested. (See "How to Buy Shares of
the Fund.")

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

The Fund's principal investment objective is to seek long-term growth of
capital. Under normal market conditions, the Fund seeks its objective by
investing at least 65% of its total assets in a diverse international portfolio
of Equity Securities which trade on markets in countries other than the U .S.
and which are issued by companies (i) domiciled in countries other than the
U.S., or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the U.S. Thus it is possible, although not
anticipated, that up to 35% of the Fund's assets could be invested in U.S.
companies. The investment objective of the Fund is a fundamental policy and may
not be changed without the approval of a majority of the Fund's outstanding
shares. There is, of course, no assurance that the Fund's objective will be
achieved.

In selecting portfolio securities, the Fund attempts to take advantage of the
difference between economic trends and the anticipated performance of securities
and securities markets in various countries. Up to 35% of the Fund's total
assets may be invested in fixed-income debt securities rated "Ba a" or better by
Moody's Investors Service ("Moody's") or "BBB" or better by Standard & Poor's
Corporation ("S&P") or that are not rated but determined by management to be of
comparable quality.

The Fund may invest in securities of issuers in the following countries:
Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile,
Columbia, Denmark, Finland, France, Germany, Greece, Hong Kong, India,
Indonesia, Italy, Japan, Korea, Luxembourg, Malaysia, Mexico, the Netherlands,
New Zealand, Norway, the Philippines, Portugal, Singapore, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, and the United Kingdom. (See Appendix B
to the Trust's Statement of Additional Information for a brief discussion
regarding the countries in which the Fund expects to invest.) Normally, the Fund
will invest at least 65% of its total assets in securities traded in at least
three foreign countries listed herein.

<PAGE>

cluding Samurai and Yankee bonds, Eurobonds and depositary receipts. The Fund
will limit its purchases of debt securities to investment grade obligations. For
long-term debt obligations this includes securities that are rated "Baa" or
better by Moody's or "BBB" or better by S&P, or that are not rated but
determined by management to be of comparable quality.

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

Generally, when interest rates rise, the value of the Fund's fixed-income and
convertible investments will decline. Conversely, when rates fall, the value of
such investments may rise. As a result, the presence of debt or convertible
securities in the Fund's portfolio may contribute to fluctuation both in the
value of the Fund's shares and the dividends per share paid by the Fund.

In the event the rating on an issue held in the Fund's portfolio is lowered by a
rating service, such change will be considered by the Fund in its evaluation of
the overall investment merits of that security but will not necessarily result
in an automatic sale of the security.

The Fund may temporarily invest cash in short-term debt instruments of U.S. or
foreign issuers for cash management purposes or pending investment. (See
"Investment Objective and Policies of the Fund-Short-Term Investments" below.)

The systematic method employed by the Sub-adviser to identify opportunities in
the equity markets may result in frequent recommendations to add or remove
securities from the Fund's portfolio, thus increasing the portfolio turnover
rate. High portfolio turnover increases transaction costs which must be paid by
the Fund. High turnover may also result in the realization of net capital gains,
which are taxable when distributed to shareholders.

RISKS RELATED TO INVESTING IN FOREIGN SECURITIES

Foreign securities involve certain risks which should be considered carefully by
prospective investors in the Fund. 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, restrictions 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). Such securities may be subject to greater fluctuations in
price than securities issued by U.S. corporations or issued or guaranteed by the
U.S. government, its instrumentalities or agencies. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the U.S. In addition, there may be less publicly
available information about a foreign company than about a U.S. domiciled
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries.

<PAGE>

In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its instrumentalities or agencies.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for the Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of the Fund's securities denominated in that currency.
Such changes will also affect the Fund's income and distributions to
shareholders. In addition, although the Fund will receive income on foreign
securities in such currencies, the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the exchange rate for any
such currency declines materially after the Fund's income has been accrued and
translated into U.S. dollars, the Fund could be required to liquidate portfolio
securities to make required distributions. Similarly, if an exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be greater.

An example of the volatility of the international currency markets was the
September 1992 currency crisis in Europe. The failure of the Maastricht Treaty
to receive unanimous approval by the nations involved made a common European
currency under the direction of a central European bank seem unachievable. This
created exceptional volatility in international currency markets. In spite of
this turmoil, over the 12-month period ending December 31, 1992, many currencies
were stronger against the dollar, which improved the performance of their
underlying equity markets.

The relative performance of foreign currencies in which securities held by the
Fund are denominated is an important factor in the Fund's overall performance.
TICI intends to manage the Fund's exposure to various currencies to take
advantage of different yield, risk, and return characteristics that different
currencies, currency denominations, and countries can provide for U.S.
investors.

To hedge exposure to currency fluctuations or to increase income, the Fund may
enter into forward foreign currency exchange contracts, and may buy and sell
options, futures contracts and options on futures contracts relating to foreign
currencies. The Fund will use forward currency exchange contracts in the normal
course of business to lock in an exchange rate in connection with purchases and
sales of securities denominated in foreign currencies. Other currency management
strategies allow the Sub-adviser to hedge portfolio securities, to shift
investment exposure from one currency to another, or to attempt to profit from
anticipated declines in the value of a foreign currency relative to the U.S.
dollar. Some of these strategies will require the Fund to set aside liquid
assets in a segregated custodial account to cover its obligations. (See
"Currency Hedging Transactions" below. Options and Futures and Options on
Futures are limited as discussed below.)

<PAGE>

Although the Fund will not invest more than 25% of its assets in any one
industry or the government of any one country, the Fund may invest more than 25%
of its assets in the securities of issuers in one or more countries. Investors
should consider the greater risk of such policy versus the safety that comes
with an investment that does not involve potential geographic concentration and
should compare the Fund with other investment vehicles before making an
investment decision. There is, of course, no assurance that the Fund's objective
will be achieved.

Some of the countries in which the Fund invests may not permit direct
investment. Investments in such countries may only be permitted through
government approved investment vehicles. Investing through such vehicles may
involve duplicative or layered fees or expenses and may, as well, be subject to
limitations under the 1940 Act. Under the 1940 Act, the Fund may invest up to
10% of its assets in shares of other investment companies and up to 3% of its
assets in any one investment company as long as the investment does not
represent more than 5% of the voting stock of the acquired investment company.

TRADING IN OPTIONS

The Fund may purchase put and call options and write covered put and call
options on securities and securities indices. Such options may be traded on U.S.
exchanges and, to the extent permitted by law, over-the-counter and on foreign
exchanges. Broadly speaking, to comply with SEC asset coverage requirements, no
more than one third of the Fund's assets will be invested in options or other
assets which, as discussed below, must be "covered."

Writing Call and Put Options on Securities. The Fund may write options to
generate additional income and to hedge its investment portfolio against
anticipated adverse market and/or exchange rate movements. Call options written
by the Fund give the holder the right to buy the underlying securities from the
Fund at a stated exercise price. Put options written by the Fund give the holder
the right to sell the underlying security to the Fund at a stated exercise
price. All options written by the Fund will be "covered."

A call option written by the Fund is "covered" if the Fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) up on conversion or
exchange of other securities held in its portfolio. 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 where the exercise price of the call held (i) is
equal to or less than the exercise price of the call written or (ii) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash and high-grade debt securities in a segregated account with its
custodian.

A put option written by the Fund is "covered" if the Fund maintains cash and
high-grade debt securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
The premium paid by the purchaser of an option will reflect, 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. The writer of an option that wishes to terminate its obligation
may effect a "closing purchase transaction." This is accomplished by buying an
option

<PAGE>

of the same series as the option previously written. The effect of the purchase
is that the writer's position will be cancelled by the clearing corporation.
However, a writer may not effect a closing purchase transaction 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 accomplished by selling an option of the same series as
the option previously purchased.

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.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected when the Fund so desires.

The writing of covered put options involves certain risks. For example, if the
market price of the underlying security rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security
declines or otherwise is below the exercise price, the Fund may attempt to close
the position or take delivery of the security at the exercise price and the
Fund's return will be the premium received from the put options minus the amount
by which the market price of the security is below the exercise price.

Purchasing Call Options. 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 portfolios and on which it has written call options. A
call option gives the holder the right to buy the underlying securities from the
option writer at a stated exercise price. 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 the related transaction costs.

Purchasing Put Options. The Fund may purchase put options on particular
securities in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option. 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 ability
to purchase put options will allow the Fund to protect the unrealized gain in an
appreciated security in its portfolio without actually selling the security. In
addition, the Fund will continue to receive interest or dividend income on the
security. The Fund may sell a put option which it has previously purchased prior
to the sale of the securities underlying such option. Such sales will result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid for the put option
that is sold. Such gain or loss may be wholly or partially offset by a change in
the value of the underlying security which the Fund owns or has the right to
acquire.

Options on Stock Indices. The Fund may also purchase and write call and
put options on stock indices in order to hedge against the risk of market or
industry-wide stock price fluctuations or to in-

<PAGE>

crease income to the Fund. Call and put options on stock indices are similar to
options on securities except that, rather than the right to purchase or sell
particular securities at a specified price, options on a stock index give the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the underlying stock index is greater than (or less than,
in the case of puts) the exercise price of the option. This amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the option, expressed in dollars multiplied by a specified number.
Thus, unlike 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 price movements in
individual securities.

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

Forward Conversions. The Fund may engage in "forward conversion" transactions.
In a forward conversion, the Fund will purchase securities and write call
options and purchase put options on such securities. All options written by the
Fund will be covered. 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 foregoing 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. The use of
options in connection with forward conversions is intended to hedge against
fluctuations in the market value of the underlying security. Although it is
generally intended in forward conversion transactions 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 because of the different exercise prices of the call and put options.
Such price movements may also affect the Fund's total return if the conversion
is terminated prior to the expiration date of the options. In such event, the
Fund's return may be greater or less than it would otherwise have been if it had
hedged the security only by purchasing put options.

Over-the-counter Options on Securities ("OTC" options). The Fund may write
covered put and call options and purchase put and call options which trade in
the over-the-counter market to the same extent that it may engage in exchange
traded options. OTC options differ from exchange traded options in certain
material respects. OTC options are arranged directly with dealers and not, as is
the case with exchange traded options, with a clearing corporation. Thus, there
is a risk of non-performance by the dealer. Because there is no exchange,
pricing is typically done by reference to information from market makers.
However, OTC options are available for a greater variety of securities and in a
wider range of expiration dates and exercise prices than exchange traded
options; and the writer of an OTC option is paid the premium in advance by the
dealer.

<PAGE>

issued the option. 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 whom the Fund originally wrote
the option.

The Fund understands the current position of the staff of the SEC to be that
purchased OTC options and the assets used as "cover" for written OTC options are
illiquid securities. The Fund and its advisers disagree with this position.
Nevertheless, pending a change in the staff's position, the Fund will treat OTC
options as subject to the Fund's limitation on illiquid securities. (See
"Investment Objective and Policies of the Fund - Illiquid Investments.")

Spread and Straddle Transactions. The Fund may engage in "spread" transactions
in which it purchases and writes a put or call option on the same underlying
security, with the options having different exercise prices and/or expiration
dates. All options written by the Fund will be covered. The Fund may also engage
in so-called "straddles," in which it purchases or writes combinations of put
and call options on the same security. Because the purchase of options by the
Fund in connection with these transactions may, under certain circumstances,
involve a limited degree of investment leverage, the Fund will not enter into
any spreads or straddles if, as a result, more than 5% of its net assets will be
invested at any time in such option transactions. The Fund's ability to engage
in spread or straddle transactions may be further limited by state securities
laws.

FUTURES TRANSACTIONS

The Fund may purchase or sell (i) financial futures contracts; (ii) interest
rate futures contracts; (iii) options on interest rate futures contracts; (iv)
stock index futures contracts; and (v) options on stock index futures contracts
(collectively, "Futures Transactions") for bona fide hedging purposes. The Fund
may enter into such Futures Transactions on domestic exchanges and, to the
extent such transactions have been approved by the Commodity Futures Trading
Commission ("CFTC") for sale to customers in the U.S., on foreign exchanges. The
Fund will not engage in Futures Transactions for speculation but only as a hedge
against changes resulting from market conditions in the value of its securities
or securities which it intends to purchase. The Fund will not enter into any
Futures Transactions if, immediately thereafter, more than 20% of the Fund's net
assets would be represented by futures contracts or options thereon. In
addition, the Fund will not engage in any Futures Transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
futures positions and premiums paid for options on its futures contracts would
exceed 5% of the market value of the Fund's total assets.

Financial Futures Contracts. Financial futures are commodity contracts that
obligate the holder to take or make delivery of a specified quantity of a
financial instrument, such as a U.S. Treasury security or foreign currencies,
during a specified future period at a specified price. A "sale" of a financial
futures contract means the acquisition of a contractual obligation to deliver
the securities called for by the contract at a specified price on a specified
date. A "purchase" of a financial futures contract means the acquisition of a
contractual obligation to acquire the securities call ed for by the contract at
a specified price on a specified date.

At the same time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment ("initial deposit"). The futures
contract is valued daily thereafter and the payment of some amount of "variation
margin" may be required, reflecting any decline or increase in the contract's
value.

<PAGE>

To the extent the Fund enters into contracts for the purchase or sale for
future delivery of financial futures and to the extent required by the rules of
the SEC, the Fund will maintain, with its custodian, assets in a segregated
account to cover its obligations with respect to such contracts, which assets
will consist of cash, cash equivalents or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Fund with respect to such futures
contracts.

Interest Rate Futures Contracts. Interest Rate Futures Contracts are futures
contracts on debt securities. The value of these instruments changes in response
to changes in the value of the underlying debt security, which depends primarily
on prevailing interest rates.

The Fund may enter into interest rate futures contracts in order to protect its
portfolio securities from fluctuations in interest rates without necessarily
buying or selling the underlying fixed-income securities. For example, if the
Fund owns bonds, and interest rates are expected to increase, it might sell
futures contracts on debt securities having characteristics similar to those
held in the portfolio. Such a sale would have much the same effect as selling an
equivalent value of the bonds owned by the Fund. If interest rates did increase,
the value of the debt securities in the portfolio would decline, but the value
of the futures contracts to the Fund would increase at approximately the same
rate, thereby keeping the net asset value of the Fund from declining as much as
it otherwise would have.

Options on Interest Rate Futures Contracts. The Fund may also purchase put and
call options and write covered put and call options on interest rate futures
contracts to hedge against risks associated with shifts in interest rates.

Stock Index Futures Contracts. 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 was 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
Equity 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.

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

<PAGE>

the exercise price of the option and the closing price of the futures contract
on the expiration date.

The need to hedge against such risks will depend on the extent of
diversification of the Fund's common stock portfolio and the sensitivity of such
investments to factors influencing the stock market as a whole.

CURRENCY HEDGING TRANSACTIONS

In order to hedge against currency exchange rate risks, the Fund may enter into
forward currency exchange contracts and currency futures contracts and options
on such futures contracts, as well as purchase put or call options and write
covered put and call options on currencies traded in U.S. or foreign markets.

A forward currency exchange contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks). A currency
futures contract is a standardized contract for the future delivery of a
specified amount of currency at a future date at a price set at the time of the
contract. The Fund may enter into currency futures contracts traded on regulated
commodity exchanges, including non-U.S. exchanges.

The Fund may either accept or make delivery of the currency specified at the
maturity of a forward or futures contract or, prior to maturity, enter into a
closing transaction involving the purchase or sale of an offsetting contract.
Closing transactions with respect to forward contracts are usually effected with
the currency trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts and options thereon are effected
on the exchange on which the contract was entered into (or on a linked
exchange).

The Fund may enter into forward currency exchange contracts and currency futures
contracts in several circumstances. For example, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency (or options contracts with respect to such futures contracts), or when
the Fund anticipates the receipt in a foreign currency of dividends or interest
payments on such a security that it holds, it may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. In addition, when the Sub-adviser
believes that the currency of a particular country may suffer a substantial
decline against the U.S. dollar, it may enter into a forward or futures contract
to sell, for a fixed amount of U.S. dollars, the amount of that currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such currency. In addition, the Fund may engage in cross-hedging
transactions by using forward contracts in one currency to hedge against
fluctuations in value of securities denominated in a different currency when
there is a pattern of correlation between the two currencies.

<PAGE>

of option transactions, however, the writing of a foreign currency option will
constitute only a partial hedge, up to the amount of the premium received, and
the Fund could be required to purchase or sell currencies at disadvantageous
exchange rates, thereby incurring losses. Likewise, with respect to foreign
currency options purchased by the Fund, the Fund may forfeit the entire amount
of the premium plus related transaction costs if exchange rates move in a manner
adverse to the Fund's position. The Fund may use foreign currency options to
cross-hedge, which involves writing or purchasing options on one currency to
hedge against changes in exchange rates for a different currency with a pattern
of correlation to the first currency. Foreign currency options to be written or
purchased by the Fund will be traded on U.S. or foreign exchanges or
over-the-counter.

The Fund will not enter into such forward currency exchange contracts or
currency futures contracts or purchase or write such options or maintain a net
exposure to such contracts where the completion of the contracts would obligate
the Fund to deliver an amount of currency other than U.S. dollars in excess of
the value of the Fund's portfolio securities or other assets denominated in that
currency or, in the case of cross-hedging, in a currency closely correlated to
that currency.

RISKS OF OPTIONS AND FUTURES CONTRACTS AND RELATED OPTIONS

The purchase and sale of futures contracts and options thereon, as well as the
purchase and writing of options on securities and securities indices and
currencies, involve risks different from those involved with direct investments
in securities. While utilization of options, futures contracts and similar
instruments may be advantageous to the Fund, the Fund's ability to hedge
effectively all or a portion of its securities through such transactions and to
increase income to the Fund through the use of options on securities and
securities indices depends on the degree to which price movements in the
underlying index, securities or currencies correlate with price movements in the
relevant portion of the Fund's securities. Perfect correlation is generally not
attainable. 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, securities or currencies underlying the hedging instrument and the
hedged securities which would result in a loss on both such securities and the
hedging instrument. In addition, it is not possible to hedge fully or perfectly
against currency fluctuations affecting the value of securities denominated in
foreign currencies because the value of such securities is also likely to
fluctuate as a result of independent factors not related to currency
fluctuations. Therefore, perfect correlation between the Fund's futures
positions and portfolio positions will be impossible to achieve. Accordingly,
successful use by the Fund of options on stock indices, financial and currency
futures contracts and related options, and currency options will be subject to
Advisers' and the Sub-adviser's ability to predict correctly movements in the
direction of the securities and currency markets generally or of a particular
segment. If Advisers or the Sub-adviser is not successful in employing such
instruments in managing the Fund's investments, the Fund's performance will be
worse than if it did not employ such strategies. In addition, the Fund will pay
commissions and other costs in connection with such investments, which may
increase the Fund's expenses and reduce the return. In writing options on
futures, the Fund's loss is potentially unlimited and may exceed the amount of
the premium received.

<PAGE>

In certain cases the options and futures markets provide investment or risk
management opportunities that are not available from direct investments in
securities. In addition, some strategies can be performed more effectively and
at lower cost by utilizing the options and futures markets rather than
purchasing or selling portfolio securities. However, there are risks involved in
these transactions as discussed above.

Positions in stock index options, stock index futures contracts, financial
futures contracts, foreign currency futures contracts, related options on
futures and options on currencies 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, futures contract or option thereon
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 could have
an adverse impact on the Fund's ability to effectively hedge its securities or
foreign currency exposure. The Fund will enter into options or futures positions
only if TICI believes that a liquid secondary market for such options or futures
contracts exist.

In the case of OTC options on securities 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 the Fund, on a covered call option, cannot
effect a closing transaction, it cannot sell the underlying security until the
option expires or the option is exercised. Therefore, when the Fund writes an
OTC call option, it may not be able to sell the underlying security even though
it might otherwise be advantageous to do so. Likewise, the Fund may be unable
to sell the securities it has pledged to secure OTC put options while it is
obligated as a put writer. Similarly, when the Fund is a purchaser of such put
or call option, the Fund might find it difficult to terminate its position on a
timely basis in the absence of a secondary market.

The risk of loss in trading foreign futures contracts and foreign options can be
substantial. Investors should be aware of the following:

(1) Participation in foreign futures contracts and foreign options transactions
involves the execution and clearing of trades on, or subject to, the rules of a
foreign board of trade.

(2) Neither the CFTC, the National Futures Association nor any domestic exchange
regulates activities of any foreign boards of trade, including the execution,
delivery and clearing of transactions, or has the power to compel enforcement of
the rules of a foreign board of trade or any applicable foreign laws. Generally,
the foreign transaction will be governed by applicable foreign law. This is true
even if the exchange is formally linked to a domestic market so that a position
taken on the market may be liquidated by a transaction on another market.
Moreover, such laws or regulations will vary, depending on the foreign country
in which the foreign futures or foreign options transaction occurs.

<PAGE>

futures exchange. In particular, funds received from the Fund for foreign
futures or foreign options transactions may not be provided the same protections
as funds received in respect of transactions on U.S. futures exchanges.

(4) The price of any foreign futures or foreign options contract and, therefore,
the potential profit and loss thereon, may be affected by any variance in the
foreign exchange rate between the time a particular order is placed and the time
it is liquidated, offset or exercised.

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

The Fund's investment in options, futures contracts and forward contracts,
options on futures contracts and stock indices, including transactions involving
actual or deemed short sales or foreign exchange gains or losses, may give rise
to taxable income, gain or loss and will be subject to special tax treatment
under certain mark-to-market and straddle rules, the effect of which may be to
accelerate income to the Fund, defer Fund losses, cause adjustments in the
holding periods of Fund securities, convert capital gains and losses into
ordinary income and losses, convert long-term capital gains into short-term
capital gains, and convert short-term capital losses into long-term capital
losses. These rules could, therefore, affect the amount, timing and character of
distributions to shareholders. Certain elections may be available to the Fund to
mitigate some of the unfavorable consequences of the provisions described in
this paragraph. These investments and transactions are discussed in the
Statement of Additional Information.

For further discussion regarding the Fund's investments in options, futures and
options on futures, see the Statement of Additional Information.

SECURITIES WARRANTS

The Fund may invest up to 10% of its net assets in warrants, including such
warrants that are not listed on an exchange. 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.

SYNTHETIC CONVERTIBLES

The Fund may invest up to 35% of its assets in "synthetic convertible"
securities. A synthetic convertible is created by combining distinct securities
which together possess the two principal characteristics of a true convertible,
that is, 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 which grant the
holder the right to purchase a specified quantity of securities within a
specified period of time at a specified price or to receive cash in the case of
stock index options. Synthetic convertible securities are not considered to be
Equity Securities for purposes of the Fund's 65% investment policy.

Synthetic convertible securities differ from the true convertible security in
several respects. The value of a synthetic convertible is the sum of the values

<PAGE>

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 Fund expects normally
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 it is determined that such a combination
would better promote the Fund's investment objectives. 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.

LOANS OF PORTFOLIO SECURITIES

With approval of the Board of Trustees and subject to the following conditions,
the Fund may lend its portfolio securities to qualified securities dealers or
other institutional investors, provided that such loans do not exceed 33% of the
value of the Fund's total assets at the time of the most recent loan, and
further provided that the borrower deposits and maintains at least 102% cash
collateral for the benefit of the Fund. The lending of securities is a common
practice in the securities industry. The Fund engages 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 will continue 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 will not borrow money or mortgage or pledge
any of its assets, except that borrowings and the pledging of assets therefor to
meet redemption requests and for other temporary or emergency purposes may be
made from banks in an amount up to 10% of total asset value. While borrowings
exceed 5% of the Fund's total assets, it will not make any additional
investments.

Illiquid Investments. The Fund reserves the right to invest up to 10% of its net
assets in illiquid securities (a term which means 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). It is the current
policy of the Fund, however (which may be changed without the approval of the
Fund's shareholders), to limit any such investments (including illiquid Equity
Securities, repurchase agreements of more than seven days duration, OTC options,
illiquid real estate investment trusts, securities of issuers with less than
three years continuous operation and other securities which are not readily
marketable) to 5% of the Fund's net assets. The Board of Trustees has authorized
the Fund to invest in restricted securities where such investments are
consistent with the Fund's investment objective and has authorized such
securities to be considered to be liquid and thus not within the foregoing 10%
limit, to the extent the Sub-adviser or the Manager, as the case may be,
determines on a daily basis that there is a liquid institutional or other market
for such securities. Notwithstanding the determinations of the Manager and the
Sub-adviser in this regard, the Board of Trustees remains responsible for such
determinations and considers appropriate action to maximize the Fund's liquidity
and its ability to meet redemption demands if a security should become illiquid
subsequent to its purchase. To the extent the Fund invests in

<PAGE>

restricted securities that are deemed liquid, the general level of illiquidity
in the Fund may be increased if qualified institutional buyers become
uninterested in purchasing these securities or the market for these securities
contracts. (See "Investment Objectives, Policies and Restrictions - Other
Investment Policies" in the Statement of Additional Information.)

SHORT-TERM INVESTMENTS

Occasionally, in order to honor redemptions, pending investment of proceeds from
new sales of Fund shares or to satisfy other short-term needs, the Fund may hold
cash (U.S. dollars, foreign currencies or multinational currency units) and/or
invest a portion of its assets in high quality money market instruments. In any
period of market weakness or of uncertain market or economic conditions, the
Fund may establish a temporary defensive position by investing in high quality
money market instruments if the Manager or Sub-adviser anticipates that
developments in any market may seriously jeopardize the value of most Equity
Securities in such market. Any decision to substantially withdraw from the
equity market is reviewed by the Board of Trustees. Money market instruments in
which the Fund may invest include, but are not limited to, the following
instruments of U.S. or foreign issuers: government securities; commercial
paper; bank certificates of deposit; bankers' acceptances; and repurchase
agreements secured by any of the foregoing. It is impossible to predict when or
for how long the Fund would employ defensive strategies. All such securities
will be rated "A1" or "A2" by S&P or "P1" or "P2" by Moody's or, if not rated,
determined by the Fund's Advisers to be of comparable quality.

REPURCHASE AGREEMENTS

For cash management or other short-term purposes as listed above, the Fund may
engage in repurchase transactions, in which the Fund purchases a U.S. government
security subject to resale to a bank or dealer at an agreed-upon price and date.
The transaction requires the collateralization of the seller's obligation by the
transfer of securities with an initial market value, including accrued interest,
equal to at least 102% of the dollar amount invested by the Fund in each
agreement, with the value of the underlying security marked to market daily to
maintain coverage of at least 100%. A default by the seller might cause the
Fund to experience a loss or delay in the liquidation of the collateral securing
the repurchase agreement. The Fund might also incur disposition costs in
liquidating the collateral. However, the Fund intends to enter into repurchase
agreements only with government securities dealers recognized by the Federal
Reserve Board or with member banks of the Federal Reserve System. Under the 1940
Act, a repurchase agreement is deemed to be the loan of money by the Fund to the
seller, collateralized by the underlying security. The U.S. government security
subject to resale (the collateral) will be held pursuant to a written agreement,
and the Fund's custodian will take title to, or actual delivery of, the
security.

The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see the Statement of
Additional Information.

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

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

<PAGE>

Franklin Advisers, Inc. serves as the Fund's investment manager. Advisers is a
wholly owned subsidiary of Resources, a publicly owned holding company, the
principal shareholders of which are Charles B. Johnson, Rupert H. Johnson, Jr.
and R. Martin Wiskemann, who own approximately 20%, 16% and 10%, respectively,
of Resources' outstanding shares. Through its subsidiaries, Resources is engaged
in various aspects of the financial services industry. Advisers acts as
investment manager to 34 U.S. registered investment companies (112 separate
series) with aggregate assets of over $75 billion. Under a management agreement,
the Manager also serves as investment manager and adviser to the Trust's
Franklin Pacific Growth Fund.

TICI is an indirect subsidiary of Templeton Worldwide, Inc., which, operating
through its subsidiaries, is a major investment management organization with
approximately $28.4 billion of assets currently under management and a long
history of global investing. Under a sub-advisory agreement, TICI al so serves
as sub-adviser to the Trust's Franklin Pacific Growth Fund.

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

Pursuant to the sub-advisory agreement between Advisers and TICI, and subject to
the overall policies, control, direction and review of the Board of Trustees and
to the instructions and supervision of Advisers, TICI is responsible for
recommending an optimal geographic equity allocation, for providing advice with
respect to the Fund's investments and, subject to the Board's and Advisers'
direction and supervision, for determining which securities will be purchased,
retained or sold, as well as for execution of portfolio transactions.
Investments may be shifted among the world's various capital markets and among
different types of securities in accordance with ongoing analysis of trends and
developments affecting such markets and securities.

Under the management agreement with the Fund, for the services provided and
expenses assumed by it the Manager is entitled to receive a fee, computed and
payable monthly, based upon the Fund's average net assets. The management fee is
higher than the management fees paid by most mutual funds, although the Board
of Trustees believes it to be comparable to fees paid by many international
funds having similar investment objectives and policies.

Under the sub-advisory agreement with the Manager, for its sub-advisory fee TICI
is entitled to receive from the Manager an amount equal to approximately 50% of
the fees paid by the Fund to the Manager (subject to certain adjustments). The
sub-advisory fees paid by the Manager have no effect on the fees payable by the
Fund to the Manager.

During the fiscal year ended October 31, 1993, the Manager voluntarily agreed to
waive payment of its management fee and assume responsibility for other expenses
related to the operations of the Fund. Had such action not been taken, fees
totaling 1.00% of the average daily net assets of the Fund would have accrued
to Advisers. Total operating expenses, including management fees, would have
represented 2.27% of the average net assets of the Fund. This action by Advisers
may be terminated by Advisers at any time.

Further information on the services provided by Advisers and TICI and the fees
payable by the Fund for these services is included in the Statement of
Additional Information under "Investment Advisory and Other Services."

Among the responsibilities of Advisers and TICI under their respective
agreements are the selection

<PAGE>

of brokers and dealers through which transactions in the Fund's portfolio
securities for which each is responsible are effected. Advisers and TICI seek to
obtain the best execution on all such transactions. If it is felt that more
than one broker is able to provide the best execution, Advisers and TICI will
consider the furnishing of quotations and of other market services, research,
statistical and other data for Advisers and TICI and their affiliates, as well
as the sale of shares of the Fund, as factors in selecting a broker. Further
information is included under "Policies Regarding Brokers Used on Portfolio
Transactions" in the Statement of Additional Information.

Except as noted above and in the Statement of Additional Information under
"Investment Advisory and Other Services", the Fund's service contractors bear
all expenses in connection with the performance of their services, except that
the Distributor is reimbursed for expenses incurred under the Plan of
Distribution (as described below). Similarly, the Fund bears the expenses
incurred in its operation. For the fiscal year ended October 31, 1993, the
Fund's total expenses per share were 0.50% of the average net assets, after fee
waivers and expenses reimbursed by the Manager totalling 1.77% of the average
net assets. (See the Statement of Additional Information - "Investment Advisory
and Other Services" for further information describing the Fund's expenses.)

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

PLAN OF DISTRIBUTION

The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan"), whereby it may reimburse Distributors or others for all expenses
actually incurred by Distributors or others in the promotion and distribution of
the Fund's shares, including, but not limited to, the printing of prospectuses
and reports used for sales purposes, expenses of preparing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributor's overhead expenses attributed to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others which have executed a
servicing with the Fund, Distributors or its affiliates. The maximum amount
which the Fund may pay under the Plan (and which may be reallowed to securities
dealers participating in the sale of shares) for such distribution expenses is
0.25% per annum of the average daily net assets, payable on a quarterly basis.
All expenses of distribution and marketing in excess of 0.25% per annum are
borne by Distributors without reimbursement from the Fund. The Plan also covers
any payments to or by the Fund, Distributors, or other parties on behalf of the
Fund or Distributors, to the extent such payments are deemed to be for the
financing of any activity primarily intended to result in the sale of shares
issued by the Fund within the context of Rule 12b-1. The payments under the Plan
are included in t he maximum operating expenses which may be borne by the Fund.

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

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

1. Income dividends. The Fund receives income 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 divi-

<PAGE>

dends may be distributed. Thus, the amount of dividends paid per share may vary
with each distribution.

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

DISTRIBUTION DATE

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

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

DIVIDEND REINVESTMENT

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

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

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

The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will

<PAGE>

also decline. In this way, shareholders participate in any change in the value
of the securities owned by the Fund.

DISTRIBUTION IN CASH

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

Shareholders may be able to change their distribution options by telephone. See
the section titled "Telephone Transactions."

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

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

Each separate series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code, qualified as such and intends
to continue to so qualify. 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.

Foreign securities, which meet the definition in the Code of a Passive Foreign
Investment Company ("PFIC"), may subject the Fund to an income tax and interest
charge with respect to such investment. To the extent possible, the Fund will
avoid such treatment by not investing in PFIC securities or by adopting other
tax strategies for any PFIC securities it does purchase.

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

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

<PAGE>

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

For corporate shareholders, it is anticipated that only a small portion, if any,
of the Fund's dividends during the current fiscal year will qualify for the
corporate dividends-received deduction because of the Fund's principal
investment objective of investing in foreign equity securities and non-equity
domestic investments. To the extent that the Fund pays dividends which qualify
for this deduction, the availability of the deduction is subject to certain
holding period and debt financing restrictions imposed under the Code on the
corporation claiming the deduction.

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

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

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

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

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

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price, which is the net
asset value per share, plus a sales charge, next computed (i) after the
shareholder's securities dealer receives the order which is promptly transmitted
to the Fund, or (ii) after receipt of an order by mail from the shareholder
directly in proper form (which generally means a completed Shareholder
Application accompanied

<PAGE>

by a negotiable check). The sales charge is a variable percentage of the
offering price depending upon the amount of the sale. On orders for 100,000
shares or more, the offering price will be calculated to four decimal places.
On orders for less than 100,000 shares, the offering price will be calculated to
two decimal places using standard rounding criteria. A description of the method
of calculating net asset value per share is included under the caption
"Valuation of Fund Shares."

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

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
--------------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- ------------------------------------- ----------------- --------------- ------------------
<S> <C> <C> <C>

Less than $100,000 ................. 4.50% 4.71% 4.00%
$100,000 but less than $250,000 .... 3.75% 3.90% 3.25%
$250,000 but less than $500,000 .... 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 .. 2.25% 2.30% 2.00%
$1,000,000 through $2,500,000 ...... 1.00% 1.01%* 1.00%
- ------------------------------------------------------------------------------------------------------
</TABLE>

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

The sales charges on purchases in excess of $2,500,000 is 1% of the offering
price on the first $2,500,000, plus 0.5% on the next $2,500,000, plus 0.25% on
the excess over $5,000,000. Sales charges on purchases of $1,000,000 or more are
paid to the securities dealer, if any, involved in the trade, who may therefore
be deemed an "underwriter" under the Securities Act of 1933, as amended.

The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the many funds in the
Franklin Group of Funds and in the Templeton Group of Funds. Included for these
purposes are (a) the open-end investment companies in the Franklin Group (except
Franklin Valuemark II and Franklin Government Securities Trust) (the "Franklin
Group of Funds") (b) other investment products in the Franklin Group
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) (hereinafter the products in subparagraphs (i) and (ii) are referred
to as the "Franklin Group") and (c) the open-end U.S. registered investment
companies in the Templeton Group of Funds except Templeton American Trust, Inc.,
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Group"). Purchases under
a Letter of Intent for more than $2,500,000 will be at a 1.15% (1% effective
July, 1994) sales charge until cumulative purchases reach $2,500,000 and at the
incremental sales charge on amounts in excess of $2,500,000. Purchases pursuant
to the Rights of Accumulation will be at the applicable sales charge of 1.15%
(1% effective July, 1994) or more until the additional purchase, plus the value
of the account or the amount previously invested, less redemptions, exceeds
$2,500,000, in which event the sales charge

<PAGE>

on the excess will be calculated as stated above. Sales charge reductions based
upon purchases in more than one of the funds in the Franklin Group or Templeton
Group (the "Franklin/Templeton Group") will be effective only after notification
to Distributors that the investment qualifies for a discount.

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

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

QUANTITY DISCOUNTS IN SALES CHARGES

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

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

<PAGE>

company in the Franklin/Templeton Group will be effective only after
notification to Distributors that the investment qualifies for a discount. The
shareholder's holdings in the Franklin/Templeton Group acquired more than 90
days before the Letter of Intent is filed will be counted towards completion of
the Letter of Intent but will not be entitled to a retroactive downward
adjustment of the sales charge. Any redemptions made by the shareholder during
the 13-month period will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter of Intent have been
completed. If the Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge as specified below,
depending upon the amount actually purchased (less redemptions) during the
period. An investor who executes a Letter of Intent prior to the change in the
sales charge structure for the Fund will be entitled to complete the Letter at
the lower of (i) the new sales charge structure; or (ii) the sales charge
structure in effect at the time the Letter was filed with the Fund.

AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%)
of the amount of the total intended purchase will be reserved in shares of the
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as reflected on
periodic statements; income and capital gain distributions on the reserved
shares will be paid as directed by the investor. The reserved shares will not be
available for disposal by the investor until the Letter of Intent has been
completed, or the higher sales charge paid. If the total purchases, less
redemptions, equal the amount specified under the Letter, the reserved shares
will be deposited to an account in the name of the investor or delivered to the
investor or the investor's 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 dealer through whom purchases were made pursuant to
the Letter of Intent (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, the investor 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 the investor's account
will be deposited to an account in the name of the investor or delivered to the
investor or to the investor's 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 of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the investor. By completing
the Letter of Intent section of the Shareholder Application, an investor grants
to Distributors a security interest in the reserved shares and irrevocably
appoints Distributors as attorney-in-fact with full power of substitution to
surrender for redemption any or all shares for the purpose of paying any
additional

<PAGE>

sales charge due. Purchases under the Letter of Intent will conform with the
requirements of Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors that this Letter
is in effect each time a purchase is made.

Additional terms concerning the offering of the Fund's shares are included in
the Statement of Additional Information.

GROUP PURCHASES

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

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

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

PURCHASES AT NET ASSET VALUE

Shares of the Fund may be purchased at net asset value (without sales charge) by
employee benefit plans qualified under Section 401 of the Code, including salary
reduction plans qualified under Section 401(k) of the Code, subject to minimum
requirements with respect to number of employees or amount of purchase, which
may be established by Distributors. Currently those criteria require that the
employer establishing the plan have 500 or more employees or that the amount
invested or to be invested during the subsequent 13-month period in the Fund or
other company(ies) in the Franklin Group of Funds or the Templeton Group totals
at least $1,000,000. Employee benefit plans not qualified under Section 401 of
the Code may be afforded the same privilege if they meet the above requirements
as well as the uniform criteria for qualified groups previously described under
"Group Purchases" which enable Distributors to realize economies of scale in
its sales efforts and sales related expenses. If investments by employee benefit
plans at net asset value are made through a dealer who has executed a dealer
agreement with Distributors, Distributors or one of its affiliates may make a
payment, out of their own resources, to such dealer in an amount not to exceed
0.25% of the amount invested. Please contact Franklin's Institutional Sales
Department for additional information.

<PAGE>

Shares of the Fund may be purchased at net asset value by trust companies and
bank trust departments for funds over which they exercise exclusive
discretionary investment authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to the amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in this Fund or another
company or companies in the Franklin/Templeton Group must total at least
$1,000,000. Orders for such accounts will be accepted by mail accompanied by a
check, or by telephone or other means of electronic data transfer directly from
the bank or trust company, with payment by federal funds received by the close
of business on the next business day following such order. If an investment by
a trust company or bank trust department at net asset value is made through a
dealer who has executed a dealer agreement with Distributors, Distributors or
one of its affiliates may make payment, out of their own resources, to such
dealer in an amount not to exceed 0.2 5% of the amount invested. Contact
Franklin's Institutional Sales Department for additional information.

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

Shares of the Fund may also be purchased at net asset value by (1) officers,
trustees or directors and full-time employees of the Trust or any fund in the
Franklin Group of Funds or the Templeton Group, the Manager, Sub-adviser and
Distributors and affiliates of such companies, if they have been such for at
least 90 days, and by their spouses and family members, (2) former participants
in the Franklin/Templeton Profit Sharing/401(k) plan, who elect to make a direct
rollover of all, or a portion of, their eligible distribution account balance
from such plan, (3) registered securities dealers and their affiliates, for
their investment account only, and (4) registered personnel and employees of
securities dealers and by their spouses and family members in accordance with
the internal policies and procedures of the employing securities dealer. Such
sales are made upon the written assurance of the purchaser that the purchase is
made for investment purposes and that the securities will not be transferred or
resold except

<PAGE>

through redemption or repurchase by or on behalf of the Fund. Employees of
securities dealers must obtain a special application from their employers or
from Franklin's Sales Department in order to qualify.

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

GENERAL

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

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

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

Franklin Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for various types of retirement plans. The brochures for each of the
plans sponsored by Franklin contain important information regarding
eligibility, contribution limits and IRS requirements.

The Franklin IRA is an individual retirement account in which the contributions,
which are for the most part still deductible for the majority of wage earners,
accumulate on a tax-deferred basis until withdrawn. Pursuant to the Code,
individuals who are not active participants (and who do not have a spouse who is
an active participant) in an employer or joint employer/union-maintained
retirement plan may deduct their full amount of IRA contribution, the lesser of
$2,000 or 100% of compensation. For taxpayers who are active participants (or
whose spouse is an active participant) in such a retirement plan, the IRA
deduction is gradually phased out to the extent that their adjusted gross
incomes exceed certain specified limits.

For taxpayers filing a joint return, even if one spouse received less than $250
in compensation for the year, two IRAs, with an aggregate contribution not
exceeding the lesser of 100% of compensation or $2,250, may be established for
both spouses, provided that no more than $2,000 be contributed to either one.

<PAGE>

The Franklin IRA Rollover account is designed to maintain the tax-deferred
status of lump-sum or qualifying partial distributions from an
employer-sponsored retirement plan which are eligible for rollover treatment.

The Franklin Simplified Employee Pension Plan (SEP-IRA) and Salary Reduction
Simplified Employee Pension Plan (SAR-SEP) are for use by small employers
(generally 25 or fewer employees) who want to make deductible retirement
contributions to an employee's IRA in an amount to be determined annually at
the discretion of the employer up to the lesser of $30,000 or 15% of
compensation per employee. The SAR-SEP allows employees to defer a pre-taxed
portion of their salary to an IRA through their employer in an amount determined
by the employee. The maximum annual salary deferral limit for a SAR-SEP is the
lesser of 15% of compensation (adjusted for deferrals) or $9,240 (1994 limit;
indexed for inflation).

The Franklin 403(b) Retirement Plan is a salary deferral plan for employees of
educational and certain non-profit institutions (501(c)(3) organizations). The
403(b) Plan allows participants to determine the annual amount of salary they
wish to defer. The maximum annual salary deferral amount is generally the
lesser of 25% or $9,500. Franklin Trust Company may provide billing information
and other support services for the employer.

The Franklin Business Retirement Plans may be used individually, in combination,
or with custom designed features. The Profit Sharing Plan allows an employer to
make contributions, at its discretion, of up to the lesser of $30,000 or 15% of
compensation per employee each year. The Money Purchase Pension Plan allows the
employer to contribute up to the lesser of $30,000 or 25% of compensation per
employee; however, a fixed contribution rate must be elected by the employer at
the outset. The Money Purchase Pension Plan may be used in conjunction with a
Profit Sharing Plan to achieve a combined contribution rate of 25%, up to 15% in
the Profit Sharing Plan and a fixed contribution rate of 10% in the Money
Purchase Pension Plan.

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

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

For additional information about the Franklin retirement plans, shareholders may
request brochures describing each of the plans from their securities dealer,
investment advisor or Distributors. The brochures contain more specific
information about the retirement plans available from Franklin. Individuals and
employers should consult with a competent tax or financial advisor before
choosing a retirement plan.

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

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

SHARE CERTIFICATES

Shares for an initial investment as well as subsequent investments, including
the reinvestment

<PAGE>

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

CONFIRMATIONS

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

AUTOMATIC INVESTMENT PLAN

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

The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit nor protect against a loss.

SYSTEMATIC WITHDRAWAL PLAN

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

<PAGE>

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

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

INSTITUTIONAL ACCOUNTS

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

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

The Franklin Group of Funds and the Templeton Group consist of a number of
investment companies with various investment objectives or policies. The shares
of most of these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for the securities
markets changes, the Fund shares may be exchanged for shares of other mutual
funds in the Franklin Group of Funds or the Templeton Group (as defined under
"How to Buy Shares of the Fund") which are eligible for sale in the
shareholder's state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.

EXCHANGES BY MAIL

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

EXCHANGES BY TELEPHONE

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

<PAGE>

Privilege is available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The Fund and Investor
Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."

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

EXCHANGES THROUGH SECURITIES DEALERS

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

ADDITIONAL INFORMATION REGARDING EXCHANGES

Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of a fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of a fund which were purchased
with a lower sales charge to a fund which has a higher sales charge will be
charged the difference, unless the shares were held in the original fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, declared but unpaid income
dividends and capital gain distributions will be transferred to the fund being
exchanged into and will be invested at net asset value. Because the exchange is
considered a redemption and purchase of shares, the shareholder may realize a
gain or loss for federal income tax purposes. Backup withholding and information
reporting may also apply. Information regarding the possible tax consequences of
such an exchange is included in the tax section in this Prospectus and in the
Statement of Additional Information.

There are differences among the many funds in the Franklin Group of Funds and
the Templeton Group. Before making an exchange, a shareholder should obtain and
review a current prospectus of the fund into which the shareholder wishes to
transfer. Exchanges will be effected upon receipt of written instructions
signed by all account owners and accompanied by any outstanding share
certificates properly endorsed.

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

If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to invest this money initially in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment op-

<PAGE>

portunities consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.

RETIREMENT ACCOUNTS

The equivalent of an exchange involving retirement accounts (including IRAs)
between the Franklin Group of Funds and the Templeton Group can be accomplished
through a trustee-to-trustee (or custodian-to-custodian) transfer and requires
the completion of additional documentation before it can be effected. Please
call 1-800/527-2020 for further information and forms.

TIMING ACCOUNTS

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

RESTRICTIONS ON EXCHANGES

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

Effective September 1, 1994, the Fund will amend its policy in regard to
Timing Accounts, to reflect the following:

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

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

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

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

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

REDEMPTIONS BY MAIL

Send a written request in proper form, signed by all registered owners, to
Investor Services at the address shown on the back cover of this Prospectus
(accompanied by any share certificates which have been issued, properly endorsed
and in order for transfer). The shareholder will then receive from the Fund the
value of the shares based upon the net asset value per share next computed after
the written request in proper form is received by the Shareholder Services
Agent. Redemption requests

<PAGE>

received after the time at which the net asset value is calculated (at 1:00 p.m.
Pacific time) each day that the New York Stock Exchange (the "Exchange") is open
for business will receive the price calculated on the following business day.
Shareholders are requested to provide a telephone number(s) where they may be
reached during business hours or in the evening if preferred. Investor
Services's ability to contact a shareholder promptly when necessary will speed
the processing of the redemption.

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

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

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

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

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

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

Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (i) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (ii) national securities exchanges,
registered securities associations and clearing agencies; (iii) securities
broker/dealers which are members of a national securities exchange or a clearing
agency or which have minimum net capital of $100,0 00; or (iv) institutions that
participate in the Securities Transfer Agent Medallion Program ("STAMP") or
other recognized signature guarantee medallion program. A notarized signature is
not sufficient for the request to be in proper form.

Where shares to be redeemed are represented by share certificates and the
redemption proceeds exceed $50,000, the request for redemption must be
accompanied by the share certificate and a share assignment form signed by the
registered shareholders exactly as the account is registered, with the
signature(s) guaranteed as referenced above. Shareholders are advised, for their
own protection, to send the share certificate and assignment form in separate
envelopes if they are being mailed in for redemption.

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

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

Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent

<PAGE>

pages from the partnership agreement identifying the general partners or a
certification for a partnership agreement.

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

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

Accounts under court jurisdiction - Please check the court documents and
applicable state law since these accounts have varying requirements, depending
upon the document and/or the state of residence.

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

REDEMPTIONS BY TELEPHONE

Shareholders who file a Telephone Transaction Application (the "Application")
may redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts." THE
APPLICATION MAY BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT THE
ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND INVESTOR
SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS GIVEN BY
TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN CERTAIN
CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION PROCEDURES.

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

REDEEMING SHARES THROUGH SECURITIES DEALERS

The Fund will accept redemption orders by telephone or other means of electronic
transmission from securities dealers who have entered into a dealer or similar
agreement with Distributors. This is known as a repurchase. The only difference
between a normal redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net asset value next
calculated after the shareholder's dealer receives the order which is promptly
transmitted to the Fund, rather than on the day the Fund receives the
shareholder's written request in proper form. After receipt of a repurchase
order from the dealer, the Fund will still require a signed letter of
instruction and all other documents set forth above. A shareholder's letter
should reference the Fund, the account number, the fact that the repurchase was
ordered by a dealer and the dealer's name. Details of the dealer-ordered trade,
such as trade date, confirmation number, and the amount

<PAGE>

of shares or dollars, will help speed processing of the redemption. The
seven-day period within which the proceeds of the shareholder's redemption will
be sent will begin when the Fund receives all documents required to complete
("settle") the repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the dealer's repurchase
order and the date the redemption is processed upon receipt of all documents
necessary to settle the repurchase. Thus, it is in a shareholder's best
interest to have the required documentation completed and forwarded to the Fund
as soon as possible. The shareholder's dealer may charge a fee for handling the
order. The Statement of Additional Information contains more information on the
redemption of shares.

MISCELLANEOUS INFORMATION

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

RETIREMENT ACCOUNTS

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

OTHER

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

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

Shareholders of the Fund and their investment representative of record, if any,
may execute various transactions by calling the Fund's Shareholder Services
Agent at 1-800/632-2301.

All shareholders may: (i) effect a change in address, (ii) change a dividend
option (see "Restricted Accounts" below), (iii) transfer Fund shares in one
account to another identically registered account in the Fund, (iv) exchange
Fund shares.

In addition, shareholders who complete and file an Application as described
under "How to Sell Shares of the Fund - Redemptions by Telephone" will be able
to redeem shares of the Fund.

VERIFICATION PROCEDURES

The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the

<PAGE>

address of record each time account activity is initiated by telephone. So long
as the Fund and Investor Services follow instructions communicated by telephone
which were reasonably believed to be genuine at the time of their receipt,
neither they nor their affiliates will be liable for any loss to the shareholder
caused by an unauthorized transaction. The Fund or Investor Services may only be
liable for losses due to an unauthorized or fraudulent instruction if the Fund
or Investor Services failed to follow reasonable procedures to detect such
unauthorized instructions. Shareholders are, of course, under no obligation to
apply for telephone transaction privileges. In any instance where the Fund or
Services is not reasonably satisfied that instructions received by telephone are
genuine, the requested transaction will not be executed, and neither the Fund
nor Investor Services will be liable for any losses which may occur because of a
delay in implementing a transaction.

RESTRICTED ACCOUNTS

Telephone redemptions and dividend option changes may not be accepted on
Franklin Trust Company ("FTC") or Templeton Funds Trust Company ("TFTC")
retirement accounts. To assure compliance with all applicable regulations,
special forms are required for any distribution, redemption, or dividend
payment. Although the telephone exchange privilege is extended to these
retirement accounts, a Franklin/Templeton Transfer Authorization Form must be on
file in order to transfer retirement plan assets between a Franklin fund and a
Templeton fund within the same plan type. Changes to dividend option s must also
be made in writing.

To obtain further information regarding distribution or transfer procedures,
including any required forms, FTC retirement account shareholders may call
1-800/527-2020 (toll free), and TFTC retirement account shareholders may call
1-800/354-9191 (press "2") (also toll free).

GENERAL

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

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

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

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

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

The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, including, without limitation, the current
market value of any outstanding options written by the Fund, accrued expenses
and taxes and any necessary reserves, is deducted from the aggregate gross
value of all assets, and the difference is divided by the number of shares of
the Fund outstanding at the time. For the purpose of determining the aggregate
net assets of the Fund, cash and receivables are valued at their realizable
amounts. Interest is recorded as accrued and dividends are recorded on the
ex-dividend date. Portfolio securities listed on a securities exchange or on the
NASDAQ National Market System for which market quota-

<PAGE>

tions are readily available are valued at the last quoted sale price of the day
or, if there is no such reported sale, at the mean between the most recent
quoted bid and ask prices. Over-the-counter portfolio securities for which
market quotations are readily available are valued at the mean between the most
recent bid and ask prices as obtained from one or more dealers that make markets
in the securities. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market as determined by the Manager. If the
Fund should have an open option position as to a security, the valuation of the
contract is at the average of the bid and ask prices. Portfolio securities
underlying actively traded call options are valued at their market price as
determined above. The current market value of any option held by the Fund is its
last sales price on the relevant exchange prior to the time when assets are
valued. Lacking any sales that day or if the last sale price is outside the bid
and ask prices and such valuation is believed to fairly reflect the contract's
market value, the options are valued at the mean between the current closing bid
and ask prices. Other securities for which market quotations are readily
available are valued at the current market price, which may be obtained from a
pricing service, based on a variety of factors, including recent trades,
institutional size trading in similar types of securities (considering yield,
risk and maturity) and/or developments related to specific issues. Securities
and other assets for which market prices are not readily available are valued at
fair value as determined following procedures approved by the Board of Trustees.
All money market instruments with a maturity of more than 60 days are valued at
current market, as discussed above. All money market instruments with a maturity
of 60 days or less are valued at their amortized cost, which the Board of
Trustees has determined in good faith constitutes fair value for purposes of
complying with the 1940 Act. This valuation method will continue to be used
until such time as the Trustees determine that it does not constitute fair value
for such purposes. With the approval of Trustees, the Fund may utilize a pricing
service, bank or broker/dealer to perform any of the above described functions.

Securities denominated in foreign currencies and traded on foreign exchanges or
in foreign markets will be valued in a similar manner and their value translated
into U.S. dollars at the bid price of their respective currency denomination
against U.S. dollars last quoted by a major bank or, if no such quotation is
available, at the rate of exchange determined in accordance with policies
established in good faith by the Board of Trustees. Because the value of
securities denominated in foreign currencies must be translated into U.S.
dollars, fluctuations in the value of such currencies in relation to the U.S.
dollar will affect the net asset value of Fund shares even though there has not
been any change in the values of such securities.

Because foreign securities markets may close prior to the time the Fund
determines its net asset value, events affecting the value of portfolio
securities occurring between the time prices are determined and the time the
Fund calculates its net asset value will not be reflected in the Fund's
calculation of net asset value unless Advisers or the Sub-adviser, under
supervision of the Board of Trustees, determines that the particular event would
materially affect the Fund's net asset value. The Fund's portfolio securities
listed on foreign exchanges may trade on days other than the Fund's normal
business days, such as Saturdays. As a result, the net asset value of the Fund
may be significantly affected by such trading on days when shareholders have no
access to the Fund.

<PAGE>

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

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

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

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

HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
---------------------- -------------- ---------------------------------
<S> <C> <C>

Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6.00 a.m. to 8.00 p.m.
</TABLE>

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

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

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

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

Yield which is calculated according to a formula prescribed by the SEC (see the
Statement of Additional Information) is not indicative of the dividends or
distributions which were or will be paid to the Fund's shareholders. Dividends
or distributions paid to shareholders are reflected in the current distribution
rate, which may be quoted to shareholders. The current distribution rate is
computed

<PAGE>

by dividing the total amount of dividends per share paid by the Fund during the
past 12 months by a current maximum offering price. Under certain circumstances,
such as when there has been a change in the amount of dividend payout, or a
fundamental change in investment policies, it might be appropriate to annualize
the dividends paid during the period such policies were in effect, rather than
using the dividends during the past 12 months. The current distribution rate
differs from the current yield computation because it may include distributions
to shareholders from sources other than dividends and interest, such as premium
income from option writing and short-term capital gain, and is calculated over a
different period of time.

In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares and reinvestment of income dividends.
When there has been a change in the sales charge structure, the historical
performance figures will be restated to reflect the new rate. The investment
results of the Fund, like all other investment companies, will fluctuate over
time; thus, performance figures should not be considered to represent what an
investment may earn in the future or what the Fund's yield, distribution rate or
total return may be in any future period. Additional information is contained in
the Fund's annual report, which is available without charge upon request.

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

The Trust is a Delaware business trust, organized on March 22, 1991. The Trust
is authorized to issue an unlimited number of shares of beneficial interest,
with a par value of $.01 per share, in various series. All shares have one vote,
and, when issued for the consideration described in the prospectus, are fully
paid, non-assessable, and redeemable. Currently, the Trust issues shares in two
series or funds. Additional series may be added in the future by the Board of
Trustees. Shares of each fund vote separately as to issues affecting that fund
or the Trust, unless otherwise permitted by the 1940 Act. Shares have
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of trustees can elect 100% of the trustees if
they choose to do so, and, in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board of
Trustees. Delaware corporate law does not require corporations registered as
management investment companies under the 1940 Act to hold routine annual
meetings of shareholders, and the Fund does not intend to hold such routine
annual meetings. The Fund may, however, hold a meeting for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by a majority of the Board of
Trustees or by shareholders holding at least ten percent of the shares entitled
to vote at the meeting. Shareholders may receive assistance in communicating
with other shareholders in connection with the election or removal of trustees
such as that provided in Section 16(c) of the 1940 Act.

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

<PAGE>

holder. More information is included in the Statement of Additional Information.

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

The following persons are primarily responsible for the day-to-day
management of the Fund's portfolio: Marc Joseph, Mark Beveridge and Gary
Clemons.

Marc S. Joseph
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.

Mr. Joseph holds a Doctor of Jurisprudence degree from Harvard Law School. He
earned a Master of Business Administration degree from Harvard Business School
and a Bachelor of Science degree in computer science from William and Mary.
Prior to joining Templeton, Mr. Joseph was a vice president with Pacific
Financial Research and management consultant at McKinsey Co. He started managing
the International Equity Fund since joining Templeton in September 1993.

Mark R. Beveridge
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.

Mr. Beveridge is a Chartered Financial Analyst and holds a Bachelor of Business
Administration degree in finance from the University of Miami. He joined
Templeton in 1985 and started managing the Fund in January 1994.

Gary Clemmons
Portfolio Manager
Templeton Investment Counsel, Inc.

Mr. Clemmons is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of Wisconsin at Madison. He earned his
Bachelor of Science degree in Earth Science from the University of Nevada at
Reno. Mr. Clemmons was a research analyst for Structured Asset Management. He
joined Templeton in 1990.

<PAGE>
SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE PROSPECTUS OF
FRANKLIN PACIFIC GROWTH FUND

FRANKLIN INTERNATIONAL TRUST
DATED MARCH 1, 1994
AS AMENDED NOVEMBER 4, 1994

The following sections of the prospectus are revised to reflect changes to the
operational policies of the Fund, effective February 1, 1995:

1. EXPENSE TABLE

2. MANAGEMENT OF THE FUND

Revised to add the definition "Franklin Templeton Group" to describe the
subsidiaries of Resources.

3. HOW TO BUY SHARES OF THE FUND

(a) The following is added at the end of the first paragraph:

(b) Substitute the following for the sales charge table and the ensuing three
paragraphs:
<TABLE>
<CAPTION>

TOTAL SALES CHARGE
----------------------------------------------------------
AS A AS A DEALER CONCESSION
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF NET AS A PERCENTAGE
AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE*,***
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

Less than $100,000.................................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000....................... 3.75% 3.90% 3.25%
$250,000 but less than $500,000....................... 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000..................... 2.25% 2.30% 2.00%
$1,000,000 or more ................................... none none (see below)**

</TABLE>

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

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

<PAGE>

and (c) the U.S. mutual funds in the Templeton Group of Funds except
Templeton American Trust, Inc., Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, and Templeton Variable Products Series Fund
(the "Templeton Funds"). (Franklin Funds and Templeton Funds are
collectively referred to as the "Franklin Templeton Funds.") Sales charge
reductions based upon aggregate holdings of (a), (b) and (c) above
("Franklin Templeton Investments") may be effective only after notification
to Distributors that the investment qualifies for a discount. References
throughout the Prospectus, for purposes of aggregating assets or describing
the exchange privilege, refer to the above descriptions.

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

PURCHASES AT NET ASSET VALUE

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

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

<PAGE>

may be obtained from Shareholder Services at 1-800/632-2301. See
"Distributions in Cash" under "Distributions to Shareholders."

Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge #by any state, county, or
city, or any instrumentality, department, authority or agency thereof which
has determined that the Fund is a legally permissible investment and which
is prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND
TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the effect, if
any, of various payments made by the Fund or its investment manager on
arbitrage rebate calculations. If an investment by an eligible governmental
authority at net asset value is made through a securities dealer who has
executed a dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to such
securities dealer in an amount not to exceed 0.25% of the amount invested.
Contact Franklin's Institutional Sales Department for additional
information.

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES.

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

<PAGE>

the subsequent 13-month period in this Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with
payment by federal funds received by the close of business on the next
business day following such order.

Refer to the SAI for further information.

4. EXCHANGE PRIVILEGE

(a) The following option is added to "Exchanges by Telephone":

(b) Add the following paragraph under the subsection "Additional Information
Regarding Exchanges":

5. HOW TO SELL SHARES OF THE FUND

Add the following subsection:

CONTINGENT DEFERRED SALES CHARGE

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

<PAGE>
FRANKLIN
PACIFIC
GROWTH FUND

PROSPECTUS MARCH 1, 1994
AS AMENDED NOVEMBER 4, 1994

[FRANKLIN LOGO]

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

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

This Prospectus pertains only to the Franklin Pacific Growth Fund (the "Fund"),
a diversified series, which seeks long-term growth of capital. Under normal
market conditions, the Fund invests at least 65% of its total assets in equity
securities which trade on markets in the Pacific Rim and are (i) issued by
companies domiciled in the Pacific Rim or (ii) issued by companies that derive
at least 50% of either their revenues or pre-tax income from activities in the
Pacific Rim. There can, of course, be no assurance that the Fund's objective
will be achieved.

A Statement of Additional Information concerning the Trust, dated March 1, 1994,
as may be amended from time to time, provides a further discussion of certain
areas in this Prospectus and other matters which may be of interest to some
investors. It has been filed with the Securities and Exchange Commission ("SEC")
and is incorporated herein by reference. A copy is available without charge from
the Fund or the Fund's principal underwriter, Franklin/

<PAGE>
Templeton Distributors, Inc. ("Distributors"), at the address or telephone
number listed above.

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

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

About the Fund................................... 4

Investment Objective and
Policies of the Fund............................ 5

Management of the Fund........................... 19

Distributions to Shareholders.................... 21

Taxation of the Fund
and Its Shareholders............................ 22

How to Buy Shares of the Fund.................... 23

Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments.............. 29

Other Programs and Privileges
Available to Fund Shareholders.................. 30

Exchange Privilege............................... 32

How to Sell Shares of the Fund................... 34

Telephone Transactions........................... 37

Valuation of Fund Shares......................... 38

How to Get Information Regarding
an Investment in the Fund....................... 39

Performance...................................... 40

General Information.............................. 41

Account Registrations............................ 42

Important Notice Regarding
Taxpayer IRS Certifications..................... 43

Portfolio Operations............................. 43
</TABLE>

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

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund (including fees set by contract) for the Fund's
fiscal year ended October 31, 1993.

<TABLE>

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

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

<PAGE>

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................... 1.00%**
12b-1 Fees................................................ 0.25%**,***
Other Expenses:
Registration Fees................................... 0.41%
Custodian Fees...................................... 0.21%
Other............................................... 0.44%
-----
Total Other Expenses...................................... 1.06%
-----
Total Fund Operating Expenses............................. 2.31%**
=====
</TABLE>

**Represents the amount that would have been payable to the investment manager,
absent a fee waiver by the investment manager and a reimbursement of the amount
payable for 12b-1 fees. However, the investment manager has voluntarily limited
its management fees and reimbursed 12b-1 fees and other operating expenses
otherwise payable by the Fund. With this reduction, management fees were 0.00%
of the Fund's average net assets, and total operating expenses, including such
management fees, were 0.50% of the Fund's average net assets for the fiscal year
ended October 31, 1993. This arrangement may be terminated by the investment
manager at any time.

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

EXAMPLE

As required by regulations of the SEC, the following example illustrates the
expenses, including the initial sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period. As noted in the table above,
the Fund charges no redemption fees:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$67 $114 $163 $298
</TABLE>

THIS EXAMPLE IS BASED ON THE AGGREGATE OPERATING EXPENSES OF THE FUND (INCLUDING
FEES SET BY CONTRACT) FOR THE FISCAL YEAR ENDED OCTOBER 31, 1993 SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY
BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund
and only indirectly by shareholders as a result of their investment in the Fund.
In addition, federal regulations require the example to assume an annual return
of 5%, but the Fund's actual return may be more or less than 5%.

<PAGE>

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

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE**
- --------------------------------------------------------------------------------------------
NET NET
ASSETS REALIZED & TOTAL DISTRI- DISTRI-
VALUES NET UNREALIZED FROM BUTIONS BUTIONS
YEAR AT BEGIN- INVEST- GAIN INVEST- FROM NET FROM
ENDED NING MENT (LOSS)ON MENT INVESTMENT CAPITAL TOTAL
OCT. 31 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN PACIFIC GROWTH FUND
1991+ $10.01 $.06 $ -- $ .060 $ -- $ -- $ --
1992 10.07 .14 .836 .976 (.146) -- (.146)
1993 10.90 .19 3.825 4.015 (.193) (.282) (.475)
</TABLE>

<TABLE>
<CAPTION>
PER SHARE
OPERATING
PERFORMANCE** RATIOS/SUPPLEMENTAL DATA
- -------------------- -----------------------------------------------
RATIO
NET RATIO OF OF NET
ASSET NET ASSETS EXPENSES INVESTMENT
YEAR VALUES AT END TO AVERAGE INCOME PORTFOLIO
ENDED AT END TOTAL OF PERIOD NET TO AVERAGE TURNOVER
OCT. 31 OF YEAR RETURN++ (IN 000'S) ASSETS*** NET ASSETS RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FRANKLIN PACIFIC GROWTH FUND
1991+ $10.07 .60% $ 1,165 --% 5.01% --%
1992 10.90 9.77 5,724 .29 1.80 62.96
1993 14.44 38.46 22,619 .50 2.03 47.52
</TABLE>

*Annualized.

**Selected data for a share of beneficial interest outstanding throughout the
year.
For the period September 20, 1991 (effective date of registration) to October
31, 1991.
Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.5% initial sales charge and assumes
reinvestment of dividends and capital gains at net asset value.

***During the periods indicated below, Franklin Advisers, Inc., the investment
manager, reduced its management fees and reimbursed other expenses incurred by
the Funds. Had such action not been taken, ratios of operating expenses to
average net assets would have been as follows:
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS
----------
<S> <C>
FRANKLIN PACIFIC GROWTH
1991+............................... 2.50%*
1992................................ 2.50
1993................................ 2.31
</TABLE>

ABOUT THE FUND
- --------------------------------------------------------------------------------

The Trust is an open-end management investment company which consists of two
diversified, open-end series, commonly called mutual funds. The Trust is a
Delaware business trust, organized on March 22, 1991, and registered under the
Investment Company Act of 1940 (the "1940 Act"). The Fund is managed by Franklin
Advisers, Inc. (the "Manager" or "Advisers") and up until December 31, 1992
received portfolio advice and management assistance from Barclays de Zoete Wedd
Investment Management Inc. ("BZWIM"). Since January 1, 1993, Templeton
Investment Counsel, Inc. ("TICI" or the "Sub-adviser"), an indirect subsidiary
of Templeton Worldwide, Inc., which is a direct, wholly owned subsidiary of
Franklin Resources, Inc. ("Resources"), has served as the sub-adviser under a
contract with the Manager (together, the "Fund's Advisers") providing services
similar to those provided by BZWIM and with no increase in fees to shareholders.
(See "Management of the Fund.")

<PAGE>
age (ranging from 4.50% to less than 1.15% of the offering price) depending upon
the amount invested. (See "How to Buy Shares of the Fund.")

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

The Fund's principal investment objective is to seek to provide long-term growth
of capital. Under normal market conditions, the Fund invests at least 65% of its
total assets in Equity Securities which trade on markets in the Pacific Rim, and
which are (i) issued by companies domiciled in the Pacific Rim or (ii) issued by
companies that derive at least 50% of either their revenues or pre-tax income
from activities in the Pacific Rim. The investment objective of the Fund is a
fundamental policy and may not be changed without the approval of a majority of
the Fund's outstanding shares. There is, of course, no assurance that the Fund's
objective will be achieved.

For purposes of the Fund's 65% investment policy, the countries in the Pacific
Rim are Australia, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand,
Singapore and Thailand. (Appendix B to the Trust's Statement of Additional
Information contains a brief discussion regarding the countries in which the
Fund expects to invest.)

The Fund may invest up to 35% of its assets in the securities of issuers
domiciled outside of the Pacific Rim. The investments may consist of: (i)
securities of issuers in countries that are not located in the Pacific Rim but
are linked by tradition, economic markets, cultural similarities or geography to
the countries in the Pacific Rim; and (ii) securities of issuers located
elsewhere in the world which have operations in the Pacific Rim or which stand
to benefit from political and economic events in the Pacific Rim. For example,
the Fund may invest in a company outside of the Pacific Rim when the Sub-adviser
believes at the time of investment that the value of the company's securities
may be enhanced by conditions or developments in the Pacific Rim even though the
company's production facilities are located outside of the Pacific Rim.

Up to 35% of the Fund's total assets may be invested in fixed-income debt
securities rated "Baa" or better by Moody's Investors Service ("Moody's") or
"BBB" or better by Standard & Poor's Corporation ("S&P") or that are not rated
but determined by management to be of comparable quality.

Normally, the Fund invests at least 65% of its total assets in securities traded
in at least three foreign countries, including the countries listed herein.

Up to 35% of the Fund's assets may be invested in bonds, fixed-income debt
securities and synthetic securities, as discussed below. The Fund may seek
capital appreciation by investing in such debt securities which would occur
through changes in relative foreign currency exchange rates, changes in relative
interest rates or improvement in the creditworthiness of an issuer. The receipt
of income from such debt securities is incidental to the Fund's investment
objective of growth of capital. These debt obligations consist of U.S. and
foreign government securities and corporate debt securities, including Samurai
and Yankee bonds, Eurobonds and depository receipts. The issuers of such debt
securities may or may not be domiciled in the Pacific Rim. The Fund will limit
its purchases of debt securities to investment grade obligations. For long-term
debt obligations, this includes securities that are rated "Baa" or better by
Moody's or "BBB" or better by S&P, or that are not rated but determined by
management to be of comparable quality.

<PAGE>

grade bonds (i.e., "BBB" by S&P or "Baa" by Moody's) are regarded as having an
adequate capacity to pay principal and interest but with greater vulnerability
to adverse economic conditions and some speculative characteristics. An Appendix
discussing these ratings is included in the Statement of Additional Information.

RISKS RELATED TO INVESTING IN FOREIGN SECURITIES

<PAGE>

trol regulations, and costs will be incurred in connection with conversions
between currencies. A change in the value of any foreign currency against the
U.S. dollar will result in a corresponding change in the U.S. dollar value of
the Fund's securities denominated in that currency. Such changes will also
affect the Fund's income and distributions to shareholders. In addition,
although the Fund will receive income on foreign securities in such currencies,
the Fund will be required to compute and distribute its income in U.S. dollars.
Therefore, if the exchange rate for any such currency declines materially after
the Fund's income has been accrued and translated into U.S. dollars, the Fund
could be required to liquidate portfolio securities to make required
distributions. Similarly, if an exchange rate declines between the time the Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater.

Although the Fund will not invest more than 25% of its assets in any one
industry or the government of any one country, the Fund may invest more than 25%
of its assets in the securities of issuers in one or more countries. Investors
should consider the greater risk of such policy versus the safety that may come
with an investment that involves a wider range of geographic localities and
countries. Accordingly, an investor should compare the Fund with other
investment vehicles before making an investment decision. There is, of course,
no assurance that the Fund's objective will be achieved.

<PAGE>

under the 1940 Act. Under the 1940 Act, the Fund may invest up to 10% of its
assets in shares of other investment companies and up to 3% of its assets in any
one investment company as long as the investment does not represent more than 5%
of the voting stock of the acquired investment company.

TRADING IN OPTIONS

A call option written by the Fund is "covered" if the Fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. 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 where the exercise price of the call held (i) is
equal to or less than the exercise price of the call written or (ii) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash and high-grade debt securities in a segregated account with its
custodian.

The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be cancelled by the clearing corporation. However, a
writer may not effect a closing purchase transaction 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
accomplished by selling an option of the same series as the option previously
purchased.

<PAGE>

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. There is no guarantee that either a
closing purchase or a closing sale transaction can be effected when the Fund so
desires.

The writing of covered put options involves certain risks. For example, if the
market price of the underlying security rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund may attempt to close the
position or take delivery of the security at the exercise price and the Fund's
return will be the premium received from the put options minus the amount by
which the market price of the security is below the exercise price.

Options on Stock Indices. The Fund may also purchase and write call and put
options on stock indices in order to hedge against the risk of market or
industry-wide stock price fluctuations or to increase income to the Fund. Call
and put options on stock indices are similar to options on securities except
that, rather than the right to purchase or sell particular securities at a
specified price, options on a stock index give the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
underlying stock index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike 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 price movements in individual securities.

<PAGE>

its custodian in an amount at least equal to the market value of the option and
will maintain the account while the option is open or will otherwise cover the
transaction.

There can be no assurance that a continuous, liquid secondary market will exist
for any particular 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 the
option. 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 whom the Fund originally wrote the option.

<PAGE>

or writes combinations of put and call options on the same security. Because the
purchase of options by the Fund in connection with these transactions may, under
certain circumstances, involve a limited degree of investment leverage, the Fund
will not enter into any spreads or straddles if, as a result, more than 5% of
its net assets will be invested at any time in such option transactions. The
Fund's ability to engage in spread or straddle transactions may be further
limited by state securities laws.

FUTURES TRANSACTIONS

Financial Futures Contracts. Financial futures are commodity contracts that
obligate the holder to take or make delivery of a specified quantity of a
financial instrument, such as a U.S. Treasury security or foreign currencies,
during a specified future period at a specified price. A "sale" of a financial
futures contract means the acquisition of a contractual obligation to deliver
the securities called for by the contract at a specified price on a specified
date. A "purchase" of a financial futures contract means the acquisition of a
contractual obligation to acquire the securities called for by the contract at a
specified price on a specified date.

To the extent the Fund enters into contracts for the purchase or sale for future
delivery of financial futures and to the extent required by the rules of the
SEC, the Fund will maintain, with its custodian, assets in a segregated account
to cover its obligations with respect to such contracts, which assets will
consist of cash, cash equivalents or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Fund with respect to such futures
contracts.

<PAGE>

curities. For example, if the Fund owns bonds, and interest rates are expected
to increase, it might sell futures contracts on debt securities having
characteristics similar to those held in the portfolio. Such a sale would have
much the same effect as selling an equivalent value of the bonds owned by the
Fund. If interest rates did increase, the value of the debt securities in the
portfolio would decline, but the value of the futures contracts to the Fund
would increase at approximately the same rate, thereby keeping the net asset
value of the Fund from declining as much as it otherwise would have.

Stock Index Futures Contracts. 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 was 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.

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

CURRENCY HEDGING TRANSACTIONS

<PAGE>

ducted directly between currency traders (usually large commercial banks). A
currency futures contract is a standardized contract for the future delivery of
a specified amount of currency at a future date at a price set at the time of
the contract. The Fund may enter into currency futures contracts traded on
regulated commodity exchanges, including non-U.S. exchanges.

The Fund may enter into forward currency exchange contracts and currency futures
contracts in several circumstances. For example, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency (or options contracts with respect to such futures contracts), or when
the Fund anticipates the receipt in a foreign currency of dividends or interest
payments on such a security that it holds, it may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. In addition, when the Sub-adviser believes
that the currency of a particular country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward or futures contract to
sell, for a fixed amount of U.S. dollars, the amount of that currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such currency. In addition, the Fund may engage in cross-hedging
transactions by using forward contracts in one currency to hedge against
fluctuations in value of securities denominated in a different currency when
there is a pattern of correlation between the two currencies.

The Fund may attempt to accomplish objectives similar to those described above
with respect to forward and futures contracts for currency by means of
purchasing put or call options and writing, on a covered basis, put and call
options on currencies traded on exchanges. A put option can give the Fund the
right to sell a currency at the exercise price on or before the expiration of
the option. A call option can give the purchaser of the option the right to
purchase a currency at the exercise price on or before the expiration of the
option. The purchase or writing of a foreign currency option may constitute an
effective hedge against foreign exchange rate fluctuations. As with other kinds
of option transactions, however, the writing of a foreign currency option will
constitute only a partial hedge, up to the amount of the premium received, and
the Fund could be required to purchase or sell currencies at disadvantageous
exchange rates, thereby incurring losses. Likewise, with respect to foreign
currency options purchased by the Fund, the Fund may forfeit the entire amount
of the premium plus related transaction costs if exchange rates move in a manner
adverse to the Fund's position. The Fund may use foreign currency options to
cross-hedge, which involves writing or purchasing options on one currency to
hedge against changes in exchange rates for a different currency with a pattern
of correlation to the first currency. Foreign currency options to be written or
purchased by the Fund will be traded on U.S. or foreign exchanges or
over-the-counter. The Fund will not enter into such forward currency exchange
contracts or currency futures contracts or purchase or write such options or
maintain a net exposure to such contracts where the completion

<PAGE>

of the contracts would obligate the Fund to deliver an amount of currency other
than U.S. dollars in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency or, in the case of cross-hedging, in a
currency closely correlated to that currency.

RISKS OF OPTIONS AND FUTURES CONTRACTS AND RELATED OPTIONS

<PAGE>

TICI believes that a liquid secondary market for such options or futures
contracts exist.

In the case of OTC options on securities 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 the Fund, on a covered call option, cannot
effect a closing transaction, it cannot sell the underlying security until the
option expires or the option is exercised. Therefore, when the Fund writes an
OTC call option, it may not be able to sell the underlying security even though
it might otherwise be advantageous to do so. Likewise, the Fund may be unable to
sell the securities it has pledged to secure OTC put options while it is
obligated as a put writer. Similarly, when the Fund is a purchaser of such put
or call option, the Fund might find it difficult to terminate its position on a
timely basis in the absence of a secondary market.

The risk of loss in trading foreign futures contracts and foreign options can be
substantial. Investors should be aware of the following:

(1) Participation in foreign futures contracts and foreign options transactions
involves the execution and clearing of trades on, or subject to, the rules of a
foreign board of trade.

(3) For these reasons, if the Fund trades foreign futures or foreign options
contracts, it might not be afforded certain of the protective measures provided
by the Commodity Exchange Act, the CFTC's regulations and the rules of the
National Futures Association and any domestic exchange, including the right to
use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, funds received from the Fund for foreign futures or foreign
options transactions may not be provided the same protections as funds received
in respect of transactions on U.S. futures exchanges.

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

<PAGE>

For a further discussion regarding the Fund's investments in options, futures
and options on futures, see the Statement of Additional Information.

SECURITIES WARRANTS

SYNTHETIC CONVERTIBLES

Synthetic convertible securities differ from the true convertible security 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 Fund expects normally
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 it is determined that such a combination would
better promote the Fund's investment objectives. 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.

<PAGE>

LOANS OF PORTFOLIO SECURITIES

As approved by the Board of Trustees and subject to the following conditions,
the Fund may lend its portfolio securities to qualified securities dealers or
other institutional investors, provided that such loans do not exceed 33-1/3 of
the value of the Fund's total assets at the time of the most recent loan. The
borrower must deposit with the Fund's custodian collateral with an initial
market value of at least 102% of the initial market value of the securities
loaned, including any accrued interest, with the value of the collateral and
loaned securities marked-to-market daily to maintain collateral coverage of at
least 100%. Such collateral shall consist of cash, securities issued by the U.S.
Government, its agencies or instrumentalities, or irrevocable letters of credit.
The lending of securities is a common practice in the securities industry. The
Fund engages 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.

BORROWING

SHORT-TERM INVESTMENTS

Occasionally, in order to honor redemptions, pending investment of proceeds from
new sales of Fund

<PAGE>
shares or to satisfy other short-term needs, the Fund may hold cash (U.S.
dollars, foreign currencies or multinational currency units) and/or invest a
portion of its assets in high quality money-market instruments. In any period
of market weakness or of uncertain market or economic conditions, the Fund may
establish a temporary defensive position by investing in high quality
money-market instruments if the Manager or Sub-adviser anticipates that
developments in any market may seriously jeopardize the value of most Equity
Securities in such market. Any decision to substantially withdraw from the
equity market is reviewed by the Board of Trustees. Money-market instruments in
which the Fund may invest include, but are not limited to, the following
instruments of U.S. or foreign issuers: government securities, commercial
paper, bank certificates of deposit, bankers' acceptances, and repurchase
agreements secured by any of the foregoing. It is impossible to predict when or
for how long the Fund would employ defensive strategies. All such securities
will be rated "A-1" or "A-2" by S&P or "P-1" or "P-2" by Moody's or, if not
rated, determined by the Fund's Advisers to be of comparable quality.

REPURCHASE AGREEMENTS

For cash management or other short-term purposes as listed above, the Fund may
engage in repurchase transactions, in which the Fund purchases a U.S. government
security subject to resale to a bank or dealer at an agreed-upon price and date.
The transaction requires the collateralization of the seller's obligation by the
transfer of securities with an initial market value, including accrued interest,
equal to at least 102% of the dollar amount invested by the Fund in each
agreement, with the value of the underlying security marked to market daily to
maintain coverage of at least 100%. A default by the seller might cause the Fund
to experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. The Fund might also incur disposition costs in liquidating
the collateral. The Fund, however, intends to enter into repurchase agreements
only with government securities dealers recognized by the Federal Reserve Board
or with member banks of the Federal Reserve System. Under the 1940 Act, a
repurchase agreement is deemed to be the loan of money by the Fund to the
seller, collateralized by the underlying security. The U.S. government security
subject to resale (the collateral) will be held pursuant to a written agreement,
and the Fund's custodian will take title to, or actual delivery of, the
security.

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

A decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the Fund's share price. Changes in currency
valuations will also affect the price of Fund shares. History reflects both
decreases and increases in worldwide stock markets and currency valuations, and
these may reoccur unpredictably in the future.

<PAGE>

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

Franklin Advisers, Inc. serves as the Fund's investment manager. Advisers is a
wholly owned subsidiary of Resources, a publicly owned holding company, the
principal shareholders of which are Charles B. Johnson, Rupert H. Johnson, Jr.
and R. Martin Wiskemann, who own approximately 20%, 16% and 10%, respectively,
of Resources' outstanding shares. Through its subsidiaries, Resources is engaged
in various aspects of the financial services industry. Advisers acts as
investment manager or administrator to 34 U.S. registered investment companies
(111 separate series) with aggregate assets of over $75 billion. Under a
management agreement, the Manager also serves as investment manager and adviser
to the Trust's Franklin International Equity Fund.

TICI is an indirect subsidiary of Templeton Worldwide, Inc., which, operating
through its subsidiaries, is a major investment management organization with
approximately $28.4 billion of assets currently under management and a long
history of global investing. Under a sub-advisory agreement, TICI also serves as
sub-adviser to the Trust's Franklin International Equity Fund.

Under the management agreement with the Fund, for the services provided and
expenses assumed by it the Manager is entitled to receive a fee, computed and
payable monthly, based upon the Fund's average net assets. The management fee is
higher than the management fees paid by most mutual funds, although the Board of
Trustees believes it to be comparable to fees paid by many international funds
having similar investment objectives and policies.

During the fiscal year ended October 31, 1993, the Manager voluntarily agreed to
waive payment of its management fee and assume responsibility for other expenses
related to the operations of the Fund. Had such action not been taken, fees
totaling 1.00% of the average daily net assets of the Fund would have accrued to
Advisers. Total operating expenses, including management fees, would have
represented 2.31% of the average net assets of the Fund. This action by Advisers
to limit its management fees and assume responsibility for payment

<PAGE>

of expenses related to the operations of the Fund may be terminated by Advisers
at any time.

Further information on the services provided by the Fund's Advisers and the fees
payable by the Fund for these services is included in the Statement of
Additional Information under "Investment Advisory and Other Services."

Among the responsibilities of the Fund's Advisers under their respective
agreement are the selection of brokers and dealers through which transactions in
the Fund's portfolio securities for which each is responsible are effected. The
Fund's Advisers seek to obtain the best execution on all such transactions. If
it is felt that more than one broker is able to provide the best execution, the
Fund's Advisers will consider the furnishing of quotations and of other market
services, research, statistical and other data for the Fund's Advisers and their
affiliates, as well as the sale of shares of the Fund, as factors in selecting a
broker. Further information is included under "Policies Regarding Brokers Used
on Portfolio Transactions" in the Statement of Additional Information.

Except as noted above and in the Statement of Additional Information under
"Investment Advisory and Other Services", the Fund's service contractors bear
all expenses in connection with the performance of their services, except that
the Distributor is reimbursed for expenses incurred under the Plan of
Distribution (as described below). Similarly, the Fund bears the expenses
incurred in its operation. For the fiscal year ended October 31, 1993, the
Fund's total expenses per share were 0.50% of the average net assets, after fee
waivers and expenses reimbursed by the Manager totalling 1.81% of the average
net assets. (See the Statement of Additional Information - "Investment Advisory
and Other Services" for further information describing the Fund's expenses.)

PLAN OF DISTRIBUTION

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

<PAGE>

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

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

DISTRIBUTION DATE

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

DIVIDEND REINVESTMENT

<PAGE>

DISTRIBUTIONS IN CASH

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

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

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

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

<PAGE>

with respect to such shares) if the sales proceeds are reinvested in the Fund or
in another fund in the Franklin/Templeton Group 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.

For corporate shareholders, it is anticipated that only a small portion, if any,
of the Fund's dividends during the current fiscal year will qualify for the
corporate dividends-received deduction because of the Fund's principal
investment objective of investing in foreign Equity Securities and non-equity
domestic investments. To the extent that the Fund pays dividends which qualify
for this deduction, the availability of the deduction is subject to certain
holding period and debt financing restrictions imposed under the Code on the
corporation claiming the deduction.

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

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

PURCHASE PRICE OF FUND SHARES

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

<PAGE>

Set forth below is a table of total sales charges or underwriting commissions
and dealer concessions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TOTAL SALES CHARGE
-------------------------------------------------------
AS A PERCENTAGE DEALER CONCESSION
SIZE OF TRANSACTION AS A PERCENTAGE OF NET AMOUNT AS A PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE INVESTED OF OFFERING PRICE*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $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 through $2,500,000 1.00% 1.01% 1.00%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

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

On purchases in excess of $2,500,000, the sales charge is 1.00% of the offering
price on the first $2,500,000, plus 0.58% on the next $2,500,000 (with a dealer
concession of 0.5%), plus 0.29% on the excess over $5,000,000 (with a dealer
concession of 0.25%). Sales charges on purchases of $1,000,000 or more are paid
to the securities dealer, if any, involved in the trade, who may therefore be
deemed an "underwriter" under the Securities Act of 1933, as amended.

The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the many funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds. Included for these
purposes are (a) the open-end investment companies in the Franklin Group (except
Franklin Valuemark Funds and Franklin Government Securities Trust) (the
"Franklin Group of Funds"); (b) other investment products in the Franklin Group
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) (the products in subparagraphs (a) and (b) are referred to as the
"Franklin Group"); and (c) the open-end U.S. registered investment companies in
the Templeton Group of Funds except Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Group"). Purchases pursuant to a
Letter of Intent for more than $2,500,000 will be at a 1.00% sales charge until
cumulative purchases reach $2,500,000 and at the incremental sales charge on the
excess of $2,500,000. Purchases pursuant to the Rights of Accumulation will be
at the applicable sales charge of 1.00% or more until the additional purchase,
plus the value of the account or the amount previously invested, less
redemptions, exceeds $2,500,000, in which event the sales charge on the excess
will be calculated as stated above. Sales charge reductions based upon purchases
in more than one of the funds in the Franklin Group or Templeton Group (the
"Franklin/Templeton Group") may be effective only after notification to
Distributors that the investment qualifies for a discount.

<PAGE>

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

Certain officers and Trustees of the Trust are also affiliated with
Distributors. A detailed description is included in the Statement of Additional
Information.

QUANTITY DISCOUNTS IN SALES CHARGES

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

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

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

2. Letter of Intent. An investor may immediately qualify for a reduced sales
charge on a purchase of shares of the Fund by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which if made at one time would qualify for a
reduced sales charge. At any time within 90 days after the first investment
which the investor wants to qualify for the reduced sales charge, a signed
Shareholder Application, with the Letter of Intent section completed, may be
filed with the Fund. After the Letter of Intent is filed, each additional
investment made will be entitled to the sales charge applicable to the level of
investment indicated on the Letter of Intent as described above. Sales charge
reductions based upon purchases in more than one company in the
Franklin/Templeton Group will be effective only after notification to
Distributors that the investment qualifies for a discount. The shareholder's
holdings in the Franklin/Templeton Group acquired more than 90 days before the
Letter of Intent is filed will be counted towards completion of the Letter of
Intent but will not be entitled to a retroactive downward adjustment of the
sales charge. Any redemptions made by the shareholder during the 13-month period
will be subtracted from the amount of the purchases for purposes of determining
whether the terms of the Letter of Intent have been completed. If the Letter of
Intent is not completed within the 13-month

<PAGE>

period, there will be an upward adjustment of the sales charge as specified
below, depending upon the amount actually purchased (less redemptions) during
the period. An investor who executes a Letter of Intent prior to the change in
the sales charge structure for the Fund will be entitled to complete the Letter
at the lower of (i) the new sales charge structure; or (ii) the sales charge
structure in effect at the time the Letter was filed with the Fund.

Additional terms concerning the offering of the Fund's shares are included in
the Statement of Additional Information.

GROUP PURCHASES

An individual who is a member of a qualified group may also purchase shares of
the Fund at the reduced sales charge applicable to the group as a whole. The

<PAGE>

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

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

PURCHASES AT NET ASSET VALUE

Shares of the Fund may be purchased at net asset value (without sales charge) by
employee benefit plans qualified under Section 401 of the Code, including salary
reduction plans qualified under Section 401(k) of the Code, subject to minimum
requirements with respect to number of employees or amount of purchase, which
may be established by Distributors. Currently those criteria require that the
employer establishing the plan have 500 or more employees or that the amount
invested or to be invested during the subsequent 13-month period in the Fund or
another company or companies in the Franklin/Templeton Group totals at least
$1,000,000. Employee savings plans and employee benefit plans not qualified
under Section 401 of the Code may be afforded the same privilege if they meet
the above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales related expenses. If
investments by employee benefit plans at net asset value are made through a
dealer who has executed a dealer agreement with Distributors, Distributors or
one of its affiliates may make a payment, out of their own resources, to such
dealer in an amount not to exceed 1% of the amount invested.

<PAGE>

from the bank or trust company, with payment by federal funds received by the
close of business on the next business day following such order. If an
investment by a trust company or bank trust department at net asset value is
made through a dealer who has executed a dealer agreement with Distributors,
Distributors or one of its affiliates may make payment, out of their own
resources, to such dealer in an amount not to exceed 0.25% of the amount
invested. Contact Franklin's Institutional Sales Department for additional
information.

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

Shares of the Fund may be purchased at net asset value by investors who have,
within the past 60 days, redeemed an investment in a registered management
investment company which charges a contingent deferred sales charge and which
has investment objectives similar to those of the Fund.

Shares of the Fund may also be purchased at net asset value by (1) officers,
trustees or directors and full-time employees of the Trust or any fund in the
Franklin Group of Funds or the Templeton Group, the Manager, Sub-adviser and
Distributors and affiliates of such companies, if they have been such for at
least 90 days, and by their spouses and family members, (2) registered
securities dealers and their affiliates, for their investment account only, and
(3) registered personnel and employees of securities dealers and by their
spouses and family members in accordance with the internal policies and
procedures of the employing securities dealer. Such sales are made upon the
written assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be transferred or resold except
through redemption or repurchase by or on behalf of the Fund. Employees of
securities dealers must obtain a special application from their employers or
from Franklin's Sales Department in order to qualify.

Shares of the Fund may be purchased at net asset value by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Group of Funds or the Templeton Group (including former participants of the
Franklin/Templeton Profit Sharing 401(k) plan). In order to exercise this
privilege a written order for the purchase

<PAGE>

of shares of the Fund must be received by Franklin/Templeton Trust Company
("FTTC"), the Fund or Investor Services, within 120 days after the plan
distribution. A prospectus outlining the investment objectives and policies of a
fund in which the shareholder wishes to invest may be obtained by calling toll
free at 1-800/DIAL BEN (1-800/342-5236).

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

GENERAL

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

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

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

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

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

<PAGE>

A Franklin Rollover IRA account is designed to maintain the tax-deferred status
of a qualifying distribution from an employer-sponsored retirement plan, such as
a 401(k) plan or qualified pension plan. Additionally, if the eligible
distribution is directly transferred to a rollover IRA account, the distribution
will be exempt from 20% mandatory federal withholding, a new withholding law
enacted in 1993.

The Franklin Simplified Employee Pension Plan (SEP-IRA) and Salary Reduction
Simplified Employee Pension Plan (SAR-SEP) are for use by small businesses
(generally 25 or fewer employees) to provide a retirement plan for their
employees and, at the same time, provide for a tax-deduction to the employer.
SEP-IRA contributions are made to an employee's IRA, at the discretion of the
employer, up to the lesser of $30,000 or 15% of compensation* per employee. The
SAR-SEP allows employees to contribute a portion of their salary to an IRA on a
pre-tax basis through salary deferrals. The maximum annual salary deferral limit
for a SAR-SEP is the lesser of 15% of compensation (adjusted for deferrals) or
$9,240 (1994 limit; indexed for inflation).

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

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

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

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

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

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

<PAGE>

SHARE CERTIFICATES

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

CONFIRMATIONS

AUTOMATIC INVESTMENT PLAN

SYSTEMATIC WITHDRAWAL PLAN

<PAGE>

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

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

INSTITUTIONAL ACCOUNTS

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

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

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

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.

<PAGE>

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

During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement. In this event,
shareholders should follow the other exchange procedures discussed in this
section, including the procedures for processing exchanges through securities
dealers.

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

EXCHANGES THROUGH SECURITIES DEALERS

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

ADDITIONAL INFORMATION REGARDING EXCHANGES

Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account declared but unpaid income
dividends and capital gain distributions will be transferred to the fund being
exchanged into and will be invested at net asset value. Because the exchange is
considered a redemption and purchase of shares, the shareholder may realize a
gain or loss for federal income tax purposes. Backup withholding and information
reporting may also apply. Information regarding the possible tax consequences of
such an exchange is included in the tax section in this Prospectus and in the
Statement of Additional Information.

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

<PAGE>

with the Fund's investment objectives exist immediately. Subsequently, this
money will be withdrawn from such short-term money market instruments and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise.

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

RETIREMENT ACCOUNTS

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

TIMING ACCOUNTS

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

RESTRICTIONS ON EXCHANGES

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

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

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

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

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

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

REDEMPTIONS BY MAIL

Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share next
computed after the written request in proper form is received by the Shareholder
Services Agent. Redemption requests received after the time at which the net
asset value is calcu-

<PAGE>

lated (at 1:00 p.m. Pacific time) each day that the New York Stock Exchange (the
"Exchange") is open for business will receive the price calculated on the
following business day. Shareholders are requested to provide a telephone
number(s) where they may be reached during business hours or in the evening if
preferred. Investor Service's ability to contact a shareholder promptly when
necessary will speed the processing of the redemption.

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

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

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

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

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

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

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

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

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

<PAGE>

the general partners or a certification for a partnership agreement.

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

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

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

REDEMPTIONS BY TELEPHONE

Shareholders who complete the Franklin/Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN
CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."

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

REDEEMING SHARES THROUGH SECURITIES DEALERS

The Fund will accept redemption orders by telephone or other means of electronic
transmission from securities dealers who have entered into a dealer or similar
agreement with Distributors. This is known as a repurchase. The only difference
between a normal redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net asset value next
calculated after the shareholder's dealer receives the order which is promptly
transmitted to the Fund, rather than on the day the Fund receives the
shareholder's written request in proper form. These documents, as described in
the preceding section, are required even if the shareholder's securities dealer
has placed the repurchase order. After receipt of a repurchase order from the
dealer, the Fund will still require a signed letter of instruction and all other
documents set forth above. A shareholder's letter should reference the Fund, the
account number, the fact that the repurchase was ordered by a dealer

<PAGE>

and the dealer's name. Details of the dealer-ordered trade, such as trade date,
confirmation number, and the amount of shares or dollars, will help speed
processing of the redemption. The seven-day period within which the proceeds of
the shareholder's redemption will be sent will begin when the Fund receives all
documents required to complete ("settle") the repurchase in proper form. The
redemption proceeds will not earn dividends or interest during the time between
receipt of the dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the repurchase.
Thus, it is in a shareholder's best interest to have the required documentation
completed and forwarded to the Fund as soon as possible. The shareholder's
dealer may charge a fee for handling the order. The Statement of Additional
Information contains more information on the redemption of shares.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

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

RETIREMENT ACCOUNTS

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

OTHER

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

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

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

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

VERIFICATION PROCEDURES

<PAGE>

tion statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Fund and Investor Services
follow instructions communicated by telephone which were reasonably believed to
be genuine at the time of their receipt, neither they nor their affiliates will
be liable for any loss to the shareholder caused by an unauthorized transaction.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or Investor
Services is not reasonably satisfied that instructions received by telephone are
genuine, the requested transaction will not be executed, and neither the Fund
nor Investor Services will be liable for any losses which may occur because of a
delay in implementing a transaction.

RESTRICTED ACCOUNTS

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

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

GENERAL

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

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

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

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

The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, including, without limitation, the current
market value of any outstanding options written by the Fund, accrued expenses
and taxes and any necessary reserves, is deducted from the aggregate gross value
of all assets, and the difference is divided by the number of shares of the Fund
outstanding at the time. For the purpose of determining the aggregate net assets
of the Fund, cash and receivables are valued at their realizable amounts.
Interest is recorded as accrued, and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such reported
sale, within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities for which market quotations are readily
available are valued

<PAGE>

within the range of the most recent bid and ask prices as obtained from one or
more dealers that make markets in the securities. Portfolio securities which are
traded both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market as determined by the
Manager. Portfolio securities underlying actively traded call options are valued
at their market price as determined above. The current market value of any
option held by the Fund is its last sales price on the relevant exchange prior
to the time when assets are valued. Lacking any sales that day or if the last
sale price is outside the bid and ask prices, the options are valued within the
range of the current closing bid and ask prices if such valuation is believed to
fairly reflect the contract's market value. Other securities for which market
quotations are readily available are valued at the current market price, which
may be obtained from a pricing service, based on a variety of factors, including
recent trades, institutional size trading in similar types of securities
(considering yield, risk and maturity) and/or developments related to specific
issues. Securities and other assets for which market prices are not readily
available are valued at fair value as determined following procedures approved
by the Board of Trustees. All money market instruments with a maturity of more
than 60 days are valued at current market, as discussed above. All money market
instruments with a maturity of 60 days or less are valued at their amortized
cost, which the Board of Trustees has determined in good faith constitutes fair
value for purposes of complying with the 1940 Act. This valuation method will
continue to be used until such time as the trustees determine that it does not
constitute fair value for such purposes. With the approval of trustees, the Fund
may utilize a pricing service, bank or securities dealer to perform any of the
above described functions.

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

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

<PAGE>

From a touch-tone phone, shareholders may obtain current price, yield or
performance information specific to a fund in the Franklin Group of Funds(R) by
calling the automated Franklin TeleFACTS system (day or night) at
1-800/247-1753. Information about the Fund may be accessed by entering Fund Code
90 followed by the # sign, when requested to do so by the automated operator.

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

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

</TABLE>

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

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

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

<PAGE>

tribution rate, which may be quoted to shareholders. The current distribution
rate is computed by dividing the total amount of dividends per share paid by the
Fund during the past 12 months by a current maximum offering price. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid during the period such policies were
in effect, rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gain, and is calculated over a different period of time.

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

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

REPORTS TO SHAREHOLDERS

The Fund's fiscal year ends October 31. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this Prospectus.

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

ORGANIZATION

VOTING RIGHTS

Shares of each fund vote separately as to issues affecting that fund or the
Trust, unless otherwise permitted by the 1940 Act. Shares have non-cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of trustees can elect 100% of the trustees if they choose to do
so, and, in such event, the holders of the remaining shares voting will not be
able to elect any person or persons to the Board of Trustees. Delaware corporate
law does not require corporations registered as management investment companies
under the 1940 Act to hold routine annual meetings of shareholders, and the Fund
does not intend to hold such routine annual meetings. The Fund may, however,
hold a meeting for such purposes as changing fundamental investment
restrictions, approving a new management agreement or any other matters which
are required to be acted on by shareholders under the 1940 Act. A meeting may
also be called by a majority of the Board of Trustees or by shareholders of a
Fund holding at least ten percent of the shares

<PAGE>

entitled to vote at the meeting. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees such as that provided in Section 16(c) of the 1940 Act.

REDEMPTION BY THE FUND

OTHER INFORMATION

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

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

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

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

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

<PAGE>

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

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

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

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

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

The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio: William T. Howard, Jr., Mark Beveridge and Gary Clemons.

BIOGRAPHICAL INFORMATION

William T. Howard, Jr.
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.

Mr. Howard is a Chartered Financial Analyst and holds a Master of Business
Administration degree from Emory University. He earned his Bachelor of Arts
degree from Rhodes College. Prior to joining Templeton, Mr. Howard was a
portfolio manager and analyst with the State of Tennessee Consolidated
Retirement System. He started managing the Fund upon joining Templeton in
1993.

Mark R. Beveridge
Vice President and Portfolio Manager
Templeton Investment Counsel, Inc.

<PAGE>

Gary Clemmons
Portfolio Manager
Templeton Investment Counsel, Inc.

Mr. Clemmons is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of Wisconsin at Madison. He earned
his Bachelor of Science degree in Earth Science from the University of Nevada
at Reno. Mr. Clemmons was a research analyst for Structured Asset Management.
He joined Templeton in 1990.

44
<PAGE>

SUPPLEMENT DATED FEBRUARY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN INTERNATIONAL TRUST

FRANKLIN INTERNATIONAL EQUITY FUND
FRANKLIN PACIFIC GROWTH FUND
DATED MARCH 1, 1994

1. The caption "Purchases and Redemptions Through Securities Dealers" is
changed to be a subcaption under "Additional Information Regarding Fund Shares."

2. The following substitutes for the subsection "Purchases at Net Asset Value"
under "Additional Information Regarding Fund Shares":

ADDITIONAL INFORMATION REGARDING PURCHASES

Special Net Asset Value Purchases. As discussed in each Fund's Prospectus
under "How to Buy Shares of the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase shares of the Funds
at net asset value (without a front-end or contingent deferred sales charge).
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. As a condition for these payments,
Distributors or its affiliates may require reimbursement from the securities
dealers with respect to certain redemptions made within 12 months of the
calendar month following purchase, as well as other conditions, all of which
may be imposed by an agreement between Distributors, or its affiliates, and
the securities dealer.

The following amounts will be paid by Distributors or one of its affiliates,
out of its own resources, to securities dealers who initiate and are
responsible for (i) purchases of most equity and fixed-income Franklin
Templeton Funds made at net asset value by certain designated retirement
plans (excluding IRA and IRA rollovers): 1.00% on sales of $1 million but
less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus
0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales
of $100 million or more; and (ii) purchases of most fixed-income Franklin
Templeton Funds made at net asset value by non-designated retirement plans:
0.75% on sales of $1 million but less than $2 million, plus 0.60% on sales of
$2 million but less than $3 million, plus 0.50% on sales of $3 million but
less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more. 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, Distributors,
or one of its affiliates, out of its own resources, may pay up to 1% of the
amount invested.

Letter of Intent. An investor may qualify for a reduced sales charge on the
purchase of shares of the Funds, as described in the Prospectuses. At any
time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with
the Letter of Intent section completed, may be filed with a Fund. After the
Letter of Intent 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. The shareholder's holdings in
the Franklin Templeton Funds acquired more than 90 days before the Letter of
Intent is filed will be counted towards completion of the Letter of Intent
but will not be entitled to a retroactive downward adjustment in the sales
charge. Any redemptions made by the shareholder, 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 of
Intent have been completed. If the Letter of Intent 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. An
investor who executes a Letter of Intent prior to a change in the sales
charge structure for a Fund will be entitled to complete the Letter of Intent
at the lower of (i) the new sales charge structure; or (ii) the sales charge
structure in effect at the time the Letter of Intent was filed with the Fund.

As mentioned in the Prospectuses, five percent (5%) of the amount of the
total intended purchase will be reserved in shares of a Fund registered in
the investor's name, unless the investor is 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 the name of
the investor or delivered to the investor or the investor's order. If the
total purchases, less redemptions, exceed the amount specified under the
Letter of Intent and is an amount which would qualify for a further quantity
discount, a retroactive price adjustment will be made by Distributors and the
dealer through whom purchases were made pursuant to the Letter of Intent (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 ap-

<PAGE>

plied 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, the investor 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 the investor's account will be deposited to an
account in the name of the investor or delivered to the investor or to the
investor's 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 of Intent, the
additional sales charge due will be deducted from the proceeds of the
redemption, and the balance will be forwarded to the investor.

If a Letter of Intent is executed on behalf of a benefit plan (such plans are
described under "Purchases at Net Asset Value" in the Prospectuses), 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 of Intent. 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 of Intent.

3. The paragraph "Reinvestment Date" under "Additional Information Regarding
Fund Shares" is substituted with the following language:

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.

<PAGE>
FRANKLIN
INTERNATIONAL
TRUST [FRANKLIN LOGO]

STATEMENT OF
ADDITIONAL INFORMATION 777 MARINERS ISLAND BLVD., P.O. BOX 7777
MARCH 1, 1994 SAN MATEO, CA 94403-7777 1-800/DIAL BEN
- --------------------------------------------------------------------------------

<PAGE>

FRANKLIN
INTERNATIONAL
TRUST [FRANKLIN LOGO]

CONTENTS PAGE

About the Funds and the Trust
(See also each Prospectus
"About the Fund")................................ 1

The Funds' Investment Objectives,
Policies and Restrictions (See also
each Prospectus "Investment Objective
and Policies of the Fund")....................... 2

Officers and Trustees............................. 10

Investment Advisory and Other Services
(See also each Prospectus

"Management of the Fund")........................ 13

The Funds' Policies Regarding
Brokers Used on Portfolio Transactions........... 14

Additional Information Regarding Fund Shares
(See also each Prospectus "How to
Buy Shares of the Fund", "How to Sell
Shares of the Fund",
and "Valuation of Fund Shares").................. 16

Purchases and Redemptions
Through Securities Dealers....................... 16

Additional Information Regarding
Taxation (See also each Prospectus
"Taxation of the Fund and Its
Shareholders")................................... 17

The Funds' Underwriter............................ 20

General Information............................... 22

Appendix.......................................... 26

Financial Statements.............................. 27

ABOUT THE FUNDS AND THE TRUST
- --------------------------------------------------------------------------------

Franklin International Trust (the "Trust") is an open-end management investment
company consisting of two separate series or funds: the Franklin International
Equity Fund (the "International Fund") and the Franklin Pacific Growth Fund (the
"Pacific Fund" and together, the "Funds").

The International Fund is a diversified, open-end management series, the
objective of which is to seek long-term growth of capital. Under normal
conditions, the International Fund invests at least 65% of its total assets in
an internationally mixed portfolio of equity securities which trade on markets
in countries other than the United States ("U.S.") and which (i) are issued by
companies domiciled in countries other than the U.S. or (ii) are issued by
companies that derive at least 50% of either their revenues or pre-tax income
from activities outside of the U.S. Generally, the International Fund's assets
are invested primarily in common and preferred stock, securities (bonds or
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as American Depository
Receipts and European Depository Receipts.

The Pacific Fund is a diversified, open-end management fund, the objective of
which is to seek long-term growth of capital. Under normal conditions, the
Pacific Fund invests at least 65% of its total assets in equity securities which
trade on markets in the Pacific Rim, that is (i) issued by companies domiciled
in the Pacific Rim or (ii) issued by companies that derive at least 50% of
either their revenues or pre-tax income from activities in the Pacific Rim.
Securities in which the Pacific Fund may invest include common and preferred
stock, securities (bonds or preferred stock) convertible into common stock,
warrants and securities representing underlying international securities such as
American Depository Receipts.

Prospectuses for each Fund, dated March 1, 1994, as may be amended from time to
time, which provide the basic information you should know before investing in
either Fund, may be obtained without charge from the Trust at the address listed
above or from the Funds' principal underwriter, Franklin/Templeton Distributors,
Inc., 777 Mariners Island Blvd., P.O. Box 777, San Mateo, California 94403-7777.

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

<PAGE>
Franklin International Trust is an open-end management investment company,
commonly called a "mutual fund," and registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Trust has two series of
shares of beneficial interest, one series representing shares of beneficial
interest in the International Fund and the other series representing shares of
beneficial interest in the Pacific Fund.

Each Fund is managed by Franklin Advisers, Inc. (the "Manager" or "Advisers")
and by Templeton Investment Counsel, Inc. ("Sub-adviser" or "TICI")
(together, the "Funds' Advisers").

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------

As noted in their respective Prospectuses, each Fund's principal investment
objective is to seek long-term growth of capital. That is, each Fund seeks to
purchase securities with the potential to increase in value, so that shares of
each Fund will in turn increase in value.

Foreign Investments. Each Fund invests in securities of foreign issuers.
Investing in the securities of foreign issuers involves certain special
considerations, including those set forth below, which are not typically
associated with investing in U.S. issuers. Since investments in the securities
of foreign issuers may involve currencies of foreign countries, and since each
Fund may temporarily hold funds in bank deposits in foreign currencies during
completion of investment programs, a Fund may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations and
may incur costs in connection with conversions between various currencies.

Since foreign companies are not subject to uniform accounting, auditing and
financial reporting practices and requirements comparable to those applicable to
U.S. companies, there may be less publicly available information about a foreign
company than about a U.S. company. Volume and liquidity in most foreign bond
markets are less than in the U.S., and securities of many foreign companies are
less liquid and more volatile than securities of comparable U.S. companies.
Fixed commissions on foreign securities exchanges are generally higher than
negotiated commissions on U.S. exchanges, although each Fund endeavors to
achieve the most favorable net results on their portfolio transactions. There is
generally less government supervision and regulation of securities exchanges,
brokers, dealers and listed companies than in the U.S., thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities.

Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Such delays in settlement could result in temporary periods
when a portion of the assets of each Fund is uninvested and no return is earned
thereon. The inability of each Fund to make intended security purchases due to
settlement problems could cause a Fund to miss attractive investment
opportunities. Losses to each Fund due to subsequent declines in the value of
portfolio securities, or losses arising out of a Fund's inability to fulfill a
contract to sell such securities, could result in potential liability to the
Fund. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a Fund's investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.

As noted in each Fund's prospectus, on occasion each Fund may invest more than
25% of its assets in the securities of issuers in one industrialized country
which, in the view of the Sub-adviser, poses no unique investment risk.
Consistent with this policy, each Fund may invest up to 30% of its assets in
securities issued by Hong Kong companies. However, neither Fund will invest more
than 25% of its assets in any one industry or securities issued by any foreign
government.

Forward Foreign Currency Exchange Contracts. Each Fund may enter into forward
foreign currency exchange contracts in several circumstances, as indicated in
the Funds' Prospectuses. Additionally, when the Funds' Advisers believe that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, a Fund may enter into a forward contract to sell, for a
fixed amount of dollars, the amount of foreign currency approximating the value
of some or all of a Fund's portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved is not generally possible because the future value of
such securities in foreign currencies changes as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not

<PAGE>
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which each Fund can achieve at some future point
in time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the dollar value of
only a portion of each Fund's foreign assets.

Each Fund may engage in cross-hedging by using forward contracts in one currency
to hedge against fluctuations in the value of securities denominated in a
different currency if the Funds' Advisers determine that there is a pattern of
correlation between the two currencies. Each Fund may also purchase and sell
forward contracts (to the extent they are not deemed "commodities") for
non-hedging purposes when the Funds' Advisers anticipate that the foreign
currency will appreciate or depreciate in value, but securities denominated in
that currency do not present attractive investment opportunities and are not
held in a Fund's portfolio.

The Funds' custodian will place cash or liquid high grade debt securities (i.e.,
securities rated in one of the top three ratings categories by Moody's Investors
Service ("Moody's") or Standard & Poor's Corporation ("S&P") or, if unrated,
deemed by the Funds' Advisers to be of comparable credit quality) into a
segregated account of each Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts requiring each Fund to purchase foreign currencies. If the value of
the securities placed in the segregated account declines, additional cash or
securities is placed in the account on a daily basis so that the value of the
account equals the amount of each Fund's commitments with respect to such
contracts. The segregated account is marked-to-market on a daily basis. Although
the contracts are not presently regulated by the Commodity Futures Trading
Commission (the "CFTC"), the CFTC may in the future assert authority to regulate
these contracts. In such event, a Fund's ability to utilize forward foreign
currency exchange contracts may be restricted.

Each Fund generally will not enter into a forward contract with a term of
greater than one year.

While each Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while each Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for each Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between each Fund's portfolio holdings of securities denominated in
a particular currency and forward contracts entered into by the Fund. Such
imperfect correlation may cause a Fund to sustain losses which will prevent the
Fund from achieving a complete hedge or expose the Fund to risk of foreign
exchange loss.

Writing and Purchasing Currency Call and Put Options. Each Fund may write
covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
portfolio securities and against increases in the dollar cost of securities to
be acquired. Each Fund may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different currency with a pattern of correlation. In
addition, a Fund may purchase call options on currency for non-hedging purposes
when the Fund's Advisers anticipate that the currency will appreciate in value,
but the securities denominated in that currency do not present attractive
investment opportunities and are not included in a Fund's portfolio.

A call option written by a Fund obligates the Fund to sell specified currency to
the holder of the option at a specified price at any time before the expiration
date. A put option written by a Fund would obligate the Fund to purchase
specified currency from the option holder at a specified time before the
expiration date. The writing of currency options involves a risk that a Fund
will, upon exercise of the option, be required to sell currency subject to a
call at a price that is less than the currency's market value or be required to
purchase currency subject to a put at a price that exceeds the currency's market
value.

A Fund may terminate its obligations under a call or put option by purchasing an
option identical to the one it has written. Such purchases are referred to as
"closing purchase transactions." A Fund would also be able to enter into closing
sale transactions in order to realize gains or minimize losses on options
purchased by the Fund.

A Fund would normally purchase call options in anticipation of an increase in
the dollar value of the currency in which securities to be acquired by the Fund
are denominated. The purchase of a call option would entitle a Fund, in return
for the premium paid, to purchase specified currency at a specified price during
the option period. A Fund would ordinarily realize a gain if, during the option
period, the value of such currency exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the call option.

<PAGE>
A Fund would normally purchase put options in anticipation of a decline in the
dollar value of currency in which securities in its portfolio are denominated
("protective puts"). The purchase of a put option would entitle a Fund, in
exchange for the premium paid, to sell specific currency at a specified price
during the option period. The purchase of protective puts is designed merely to
offset or hedge against a decline in the dollar value of a Fund's portfolio
securities due to currency exchange rate fluctuations. A Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
currency decreased below the exercise price sufficiently to more than cover the
premium and transaction costs; otherwise the Fund would realize either no gain
or a loss on the purchase of the put option. Gains and losses on the purchase of
protective put options would tend to be offset by countervailing changes in the
value of the underlying currency.

OPTIONS ON SECURITIES AND SECURITIES INDICES

Writing Covered Options. Each Fund may write (sell) covered call and put options
on any securities in which it may invest. Each Fund may purchase and write such
options on securities that are listed on domestic or foreign securities
exchanges or traded in the over-the-counter market. All call options written by
each Fund are covered, which means that each Fund will own the securities
subject to the option so long as the option is outstanding. The purpose of
writing covered call options is to realize greater income than would be realized
on portfolio securities transactions alone. However, in writing covered call
options for additional income, a Fund may forego the opportunity to profit from
an increase in the market price of the underlying security.

All put options written by a Fund will be covered, which means that each Fund
will have deposited with its custodian cash, U.S. government securities or other
high-grade debt securities (i.e., securities rated in one of the top three
categories by Moody's or S&P or, if unrated, deemed by the Funds' Advisers to be
of comparable credit quality) with a value at least equal to the exercise price
of the put option. The purpose of writing such options is to generate additional
income for each Fund. However, in return for the option premium, each Fund
accepts the risk that it may be required to purchase the underlying securities
at a price in excess of the securities market value at the time of purchase.

Each Fund may terminate its obligations under a written call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions."

Purchasing Options. Each Fund may purchase put and call options on any
securities in which it may invest or options on any securities index based on
securities in which it may invest. A Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it has purchased.

The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, or purchased, in the case of a put
option, since, with regard to certain options, 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. 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. If a put option is exercised, the writer must
fulfill its obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security.

A Fund would normally purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest. The purchase
of a call option would entitle the Fund, in return for the premium paid, to
purchase specified securities at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs. Otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.

Risks Associated With Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If a Fund is unable
to effect a closing purchase transaction with respect to covered options it has
written, the Fund will not be able to sell the underlying securities or dispose
of assets held in a segregated account until the options expire or are
exercised. Similarly, if a Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.

Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;

<PAGE>
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation (the "OCC") may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the OCC as a result of trades on that exchange would continue to
be exercisable in accordance with their terms.

Each Fund may purchase and sell both options that are traded on U.S. and foreign
exchanges and options traded over-the-counter with broker-dealers who make
markets in these options. The ability to terminate over-the-counter options is
more limited than with exchange-traded options and may involve the risk that
broker/dealers participating in such transactions will not fulfill their
obligations. Until such time as the staff of the Securities and Exchange
Commission (the "SEC") changes its position, each Fund will treat purchased
over-the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in U.S. government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to a formula approved by the staff
of the SEC.

Special Risks Associated With Options on Currency. An exchange-traded options
position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although each Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option or at any particular time. For
some options, no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that a Fund would have to exercise its options in order to realize
any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security
denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.

There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
OCC inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.

Each Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in restricted securities, as
described in its Prospectus. Trading in over-the-counter options is subject to
the risk that the other party will be unable or unwilling to close-out options
purchased or written by a Fund.

The amount of the premiums which each Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.

Futures Contracts and Options on Futures Contracts. To hedge against changes in
interest rates, securities prices or currency exchange rates, each Fund may
purchase and sell various kinds of futures contracts. Each Fund may also enter
into closing purchase and sale transactions with respect to any such contracts
and options. The futures contracts may be based on various securities (such as
U.S. government securities), securities indices, foreign currencies and other
financial instruments and indices. Each Fund will engage in futures and related
options transactions only for bona fide hedging or other appropriate risk
management purposes as defined below. All futures contracts entered into by each
Fund are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the CFTC or on foreign exchanges.

Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).

When interest rates are rising or securities prices are falling, each Fund can
seek, through the sale of futures contracts, to offset a decline in the value of

<PAGE>
its current portfolio securities. When rates are falling or prices are rising, a
Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it affects
anticipated purchases. Similarly, a Fund can sell futures contracts on a
specified currency to protect against a decline in the value of such currency
and its portfolio securities which are denominated in such currency. Each Fund
can purchase futures contracts on foreign currency to fix the price in U.S.
dollars of a security denominated in such currency that a Fund has acquired or
expects to acquire.

Although futures contracts by their terms generally call for the actual delivery
or acquisition of underlying securities or the cash value of the index, in most
cases the contractual obligation is fulfilled before the date of the contract
without having to make or take such delivery. The contractual obligation is
offset 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 make or take delivery of the securities or the cash value of the
index underlying the contractual obligations. A Fund may incur brokerage fees
when it purchases or sells futures contracts.

Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund's futures contracts on securities or currency
will usually be liquidated in this manner, a Fund may instead make or take
delivery of the underlying securities or currency whenever it appears
economically advantageous for it to do so. A clearing corporation associated
with the exchange on which futures on securities or currency are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.

Hedging Strategies With Futures. Hedging by use of futures contracts seeks to
establish with more certainty than would otherwise be possible with respect to
the effective price, rate of return or currency exchange rate on portfolio
securities or securities that a Fund owns or proposes to acquire. A Fund may,
for example, take a "short" position in the futures market by selling futures
contracts in order to hedge against an anticipated rise in interest rates or a
decline in market prices of foreign currency rates that would adversely affect
the dollar value of the Fund's portfolio securities. Such futures contracts may
include contracts for the future delivery of securities held by a Fund or
securities with characteristics similar to those of a Fund's portfolio
securities. Similarly, a Fund may sell futures contracts on currency in which
its portfolio securities are denominated or in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. If, in the opinion of the Funds' Advisers, there is a sufficient
degree of correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Funds' Advisers will attempt to estimate the extent of this
difference in volatility based on historical patterns and to compensate for it
by having each Fund enter into a greater or fewer number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting
each Fund's securities portfolio. When hedging of this character is successful,
any depreciation in the value of the portfolio securities will substantially be
offset by appreciation in the value of the futures position. On the other hand,
any unanticipated appreciation in the value of a Fund's portfolio securities
would be substantially offset by a decline in the value of the futures position.

On other occasions, a Fund may take a "long" position by purchasing such futures
contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.

The CFTC and U.S. commodities 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 Funds do not believe that these trading and positions limits
will have an adverse impact on its strategies for hedging its securities.

Options on Futures Contracts. The acquisition of put and call options on futures
contracts will give each Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures

<PAGE>
position if prices move in a favorable direction but limits its risk of loss in
the event of an unfavorable price movement to the loss of the premium and
transaction costs.

The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a Fund's assets. By writing a call
option, a Fund becomes obligated, in exchange for the premium, to sell a futures
contract, which may have a value higher than the exercise price. Conversely, the
writing of a put option on a futures contract generates a premium which may
partially offset an increase in the price of securities that a Fund intends to
purchase. However, a Fund becomes obligated to purchase a futures contract,
which may have a value lower than the exercise price. Thus, the loss incurred by
a Fund in writing options on futures is potentially unlimited and may exceed the
amount of the premium received. Each Fund will incur transaction costs in
connection with the writing of options on futures.

The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. Each Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.

Each Fund may use options on futures contracts solely for bona fide hedging or
other appropriate risk management purposes as defined below.

Other Considerations. Each Fund will engage in futures and related options
transactions only for bona fide hedging or other appropriate risk management
purposes in accordance with CFTC regulations which permit principals of an
investment company registered under the 1940 Act to engage in such transactions
without registering as commodity pool operators. "Appropriate risk management
purposes" means activities in addition to bona fide hedging which the CFTC deems
appropriate for operators of entities, including registered investment
companies, that are excluded from the definition of commodity pool operator.
Each Fund is not permitted to engage in speculative futures trading. Each Fund
will determine that the price fluctuations in the futures contracts and options
on futures used for hedging purposes are substantially related to price
fluctuations in securities held by a Fund or which it expects to purchase.
Except as stated below, each Fund's futures transactions will be entered into
for traditional hedging purposes - that is, futures contracts will be sold to
protect against a decline in the price of securities it intends to purchase (or
the currency will be purchased to protect a Fund against an increase in the
price of the securities (or the currency in which they are denominated)). As
evidence of this hedging intent, each Fund expects that on 75% or more of the
occasions on which it takes a long futures (or option) position involving the
purchase of futures contracts, the Fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities (or assets
denominated in the related currency) in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases when it
is economically advantageous for a Fund to do so, a long futures position may be
terminated (or an option may expire) without the corresponding purchase of
securities or other assets. In the alternative, a CFTC regulation permits each
Fund to elect to comply with a different test, under which (i) each Fund's long
futures positions will be used as part of its portfolio management strategy and
will be incidental to its activities in the underlying cash market and (ii) the
aggregate initial margin and premiums required to establish such positions will
not exceed 5% of the liquidation value of the Fund's investment portfolio (a)
after taking into account unrealized profits and losses on any such contracts
into which the Fund has entered and (b) excluding the in-the-money amount with
respect to any option that is in-the-money at the time of purchase.

Each Fund will engage in transactions in futures contracts and related options
only to the extent such transactions are consistent with the requirements of the
Internal Revenue Code for maintaining its qualification as a regulated
investment company for federal income tax purposes. (See "Taxation of the Fund
and Its Shareholders" in each Fund's Prospectus.)

Each Fund will not purchase or sell futures contracts or purchase or sell
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits on each Fund's
outstanding futures and related options positions and the amount of premiums
paid for outstanding options on futures would exceed 5% of the market value of
the Fund's total assets. These transactions involve brokerage costs, require
margin deposits and, in the case of contracts and options obligating a Fund to
purchase securities or currencies, require the Fund to segregate assets to cover
such contracts and options.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while each Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange

<PAGE>
rates may result in a poorer overall performance for each Fund than if it had
not entered into any futures contracts or options transactions. In the event of
an imperfect correlation between a future position and portfolio position which
is intended to be protected, the desired protection may not be obtained and the
Fund may be exposed to risk of loss.

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 Funds' Advisers may
still not result in a successful transaction.

Perfect correlation between each Fund's futures positions and portfolio
positions may be difficult to achieve because no futures contracts based on
corporate fixed-income securities are currently available. In addition, it is
not possible to hedge fully or perfectly against currency fluctuations affecting
the value of securities denominated in foreign currencies because the value of
such securities is likely to fluctuate as a result of independent factors not
related to currency fluctuations.

OTHER INVESTMENT POLICIES

Securities which are acquired by a Fund outside the U.S. and which are publicly
traded in the U.S. or on a foreign securities exchange or in a foreign
securities market are not considered by the Fund to be illiquid assets, so long
as the Fund acquires and holds the securities with the intention of reselling
the securities in the foreign trading market, the Fund reasonably believes it
can readily dispose of the securities for cash in the U.S. or foreign market,
and current market quotations are readily available. Investments may be in
securities of foreign issuers, whether located in developed or undeveloped
countries.

Investments in foreign securities where delivery takes place outside the U.S.
will have to be made in compliance with any applicable U.S. and foreign currency
restrictions and tax laws (including laws imposing withholding taxes on any
dividend or interest income) and laws limiting the amount and types of foreign
investments. Changes of governmental administrations or of economic or monetary
policies, in the U.S. or abroad, or changed circumstances in dealings between
nations, or currency convertibility or exchange rates could result in investment
losses for each Fund. Investments in foreign securities may also subject each
Fund to losses due to nationalization, expropriation or differing accounting
practices and treatments. Moreover, investors should recognize that foreign
securities are often traded with less frequency and volume, and therefore may
have greater price volatility, than is the case with many U.S. securities.
Notwithstanding the fact that each Fund generally intends to acquire the
securities of foreign issuers where there are public trading markets,
investments by either Fund in the securities of foreign issuers may tend to
increase the risks with respect to the liquidity of a Fund's portfolio and a
Fund's ability to meet a large number of shareholder redemption requests should
there be economic or political turmoil in a country in which a Fund has a
substantial portion of its assets invested or should relations between the U.S.
and foreign countries deteriorate markedly. Furthermore, the reporting and
disclosure requirements applicable to foreign issuers may differ from those
applicable to domestic issuers, and there may be difficulties in obtaining or
enforcing judgments against foreign issuers.

Loans of Portfolio Securities. As discussed in each Prospectus, the Funds may
engage in loans of their portfolio securities. Up to one third of either Fund's
portfolio securities may be loaned to qualified borrowers who deposit and
maintain with the Fund cash collateral with a value at least equal to the value
of the securities loaned.

Repurchase Transactions. Each Fund may enter into repurchase agreements. A
repurchase agreement is an agreement in which the seller of a security agrees to
repurchase the security sold at a mutually agreed upon time and price. Under the
1940 Act, a repurchase agreement is deemed to be the loan of money by the Fund
to the seller, collateralized by the underlying security. The resale price is
normally in excess of the purchase price, reflecting an agreed upon interest
rate. The interest rate is effective for the period of time in which the Fund is
invested in the agreement and is not related to the coupon rate on the
underlying security. The period of these repurchase agreements will usually be
short, from overnight to one week, and at no time will a Fund invest in
repurchase agreements for more than one year. However, the securities which are
subject

<PAGE>
to repurchase agreements may have maturity dates in excess of one year from the
effective date of the repurchase agreements. The transaction requires the
initial collateralization of the seller's obligation by securities with a market
value, including accrued interest, equal to at least 102% of the dollar amount
invested by the Fund, with the value marked-to-market daily to maintain 100%
coverage. 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.
Each Fund might also incur disposition costs in liquidating the collateral. Each
Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of their custodian bank. Each
Fund may not enter into a repurchase agreement with more than seven days
duration if, as a result, the market value of each Fund's net assets, together
with investments in other securities deemed to be not readily marketable, would
be invested in such repurchase agreements in excess of each Fund's policy on
investments in illiquid securities.

Each Fund reserves the right to invest up to 10% of its net assets in illiquid
securities. It is the current policy of each Fund, however (which may be changed
without the approval of either Fund's shareholders), to limit any such
investments to 5% of each Fund's net assets. Generally an "illiquid security" is
any security that cannot be disposed of promptly and in the ordinary course of
business at approximately the amount at which the Fund has valued the
instrument. Subject to this limitation, the Board of Trustees has authorized
each Fund to invest in restricted securities where such investment is consistent
with the Fund's investment objective and has authorized such securities to be
considered to be liquid to the extent the Fund's Manager or Sub-adviser, as the
case may be, determines that there is a liquid institutional or other market for
such securities, for example, restricted securities which may be freely
transferred among qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "1933 Act"), and for which a liquid
institutional market has developed. The Board of Trustees reviews any
determination by the Funds' Advisers to treat a restricted security as liquid on
a monthly basis, including the Funds' Advisers' assessment of current trading
activity and the availability of reliable price information. In determining
whether a restricted security is properly considered a liquid security, the
Funds' Advisers and the Board of Trustees will take into account the following
factors: (i) the frequency of trades and quotes for the security; (ii) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (iii) dealer undertakings to make a market in the
security; and (iv) the nature of the security and the 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 a Fund invests
in restricted securities that are deemed liquid, the general level of
illiquidity in the applicable Fund may be increased if qualified institutional
buyers become uninterested in purchasing these securities or the market for
these securities contracts.

WHEN WILL EACH FUND ENGAGE IN SECURITIES TRANSACTIONS?

Normally, each Fund purchases securities for investment with a view to long-term
appreciation. Each Fund may, however, on occasion purchase securities with the
expectation of realizing gains over the short term. Changes in particular
portfolio holdings may be made whenever it is considered that a security no
longer has the optimum growth potential or has reached its anticipated level of
performance, or that another security appears to have a relatively greater
opportunity for capital appreciation, and will be made without regard to the
length of time a security has been held. The differences between the tax
treatment of long-term gains and short-term gains may, however, be considered in
determining the timing of sales of portfolio securities.

INVESTMENT RESTRICTIONS

Each Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of such
Fund's shareholders. In order to change any of these restrictions, the lesser of
(i) 67% or more of the voting securities of such Fund present at a meeting of
shareholders if the holders of more than 50% of the voting securities of the
Fund are represented at that meeting or (ii) more than 50% of the outstanding
voting securities of such Fund must vote to make the change.

Each Fund will not:

1. Purchase the securities of any one issuer (other than cash, cash items and
obligations of the U.S. government) if immediately thereafter and as a result of
the purchase, with respect to 75% of its total assets, the Fund would (a) have
invested more than 5% of the value of its total assets in the securities of the
issuer, or (b) hold more than 10% of any or all classes of the outstanding
voting securities of any one issuer;

2. Make loans to other persons, except by the purchase of bonds, debentures or
similar obligations which are publicly distributed or of a character usu-

<PAGE>
ally acquired by institutional investors or through loans of either Fund's
portfolio securities, or to the extent the entry into a repurchase agreement may
be deemed a loan;

3. Borrow money, except for temporary or emergency (but not investment)
purposes from banks and only in an amount up to 10% of the value of the assets.
While borrowings exceed 5% of a Fund's total assets, it will not make any
additional investments;

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

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

6. Purchase illiquid securities, including illiquid securities which, at the
time of acquisition, could be disposed of publicly by each Fund only after
registration under the 1933 Act, if as a result more than 10% of their net
assets would be invested in such illiquid securities;

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

8. Maintain a margin account with a securities dealer, except that either Fund
may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities, nor invest in commodities or commodities
contracts or interests (other than publicly-traded equity securities) or leases
with respect to any oil, gas or other mineral exploration or development
programs, except that either Fund may enter into contracts for hedging purposes
and make margin deposits in connection therewith;

9. Effect short sales, unless at the time the Fund owns securities equivalent
in kind and amount to those sold;

10. Invest more than 5% of total assets in companies which have a record of less
than three years continuous operation, including the operations of any
predecessor companies;

11. Invest directly in real estate or real estate limited partnerships (although
either Fund may invest in real estate investment trusts) or in the securities of
other investment companies, except to the extent permitted under the 1940 Act or
pursuant to any exemptions therefrom, including any exemption permitting either
Fund to invest in shares of one or more money market funds managed by Advisers
or its affiliates, or except that securities of another investment company may
be acquired pursuant to a plan of reorganization, merger, consolidation or
acquisition; or

12. Purchase or retain in either Fund's portfolio any security if any officer,
trustee or security holder of the issuer is at the same time an officer, trustee
or employee of the Trust or of its investment adviser and such person owns
beneficially more than 1/2 of 1% of the securities, and if all such persons
owning more than 1/2 of 1% own more than 5% of the outstanding securities of the
issuer.

In addition to these fundamental policies, it is the present policy of the Trust
(which may be changed without the approval of either Fund's shareholders) not to
pledge, mortgage or hypothecate either Fund's assets as security for loans nor
to engage in joint or joint and several trading accounts in securities, except
that an order to purchase or sell may be combined with orders from other persons
to obtain lower brokerage commissions. In addition, neither Fund will purchase
puts, calls, straddles, spreads or any combination thereof if by reason thereof
the value of its aggregate investment in such securities will exceed 5% of its
total assets.

Pursuant to an undertaking given to the Texas State Securities Board, neither
the International Fund nor the Pacific Fund will 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.

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 the value of portfolio securities or the amount of net assets will not
be considered a violation of any of the foregoing restrictions.

For the fiscal years ended October 31, 1992 and October 31, 1993, the rates of
portfolio turnover equaled 48.78% and 52.99%, respectively, for the
International Fund and 62.96% and 47.52%, respectively, for the Pacific Fund.

OFFICERS AND TRUSTEES
- --------------------------------------------------------------------------------

The Board of Trustees has the responsibility for the overall management of the
Trust and each Fund, including general supervision and review of each Fund's
investment activities. The trustees, in turn, elect the officers of the Trust
who are responsible for administering the day-to-day operations of the Trust.
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 Trust, as defined in the 1940 Act, are indicated by
an asterisk (*).

Positions and Offices
Name and Address with the Fund Principal Occupations During Past Five Years
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank H. Abbott, III Trustee President and Director, Abbott Corporation
1045 Sansome St. (an investment company); Director, Vacu-Dry
San Francisco, CA 94111 Co. (a food processing company) and Mother
Lode Gold Mines Consolidated; and director,
trustee or managing general partner, as the
case may be, of most of the investment
companies in the Franklin Group of
Funds(R).

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

Harris J. Ashton Trustee President, Chief Executive Officer and
General Host Corporation Chairman of the Board, General Host
Metro Center, 1 Station Place Corporation (nursery and craft centers);
Stamford, CT 06904-2045 Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; director
of certain of the investment companies in
the Templeton Group of Funds; and director,
trustee or managing general partner, as the
case may be, of most of the investment
companies in the Franklin Group of Funds.

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

S. Joseph Fortunato Trustee Member of the law firm of Pitney, Hardin,
Park Avenue at Morris County Kipp & Szuch; Director of General Host
P. O. Box 1945 Corporation; director of certain of the
Morristown, NJ 07962-1945 investment companies in the Templeton Group
of Funds; and director, trustee or managing
general partner, as the case may be, of
most of the investment companies in the
Franklin Group of Funds.

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

David W. Garbellano Trustee Private Investor; Assistant
111 New Montgomery St., #402 Secretary/Treasurer and Director, Berkeley
San Francisco, CA 94105 Science Corporation (a venture capital
company); and director, trustee or managing
general partner, as the case may be, of
most of the investment companies in the
Franklin Group of Funds.

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

*Charles B. Johnson President President and Director, Franklin Resources,
777 Mariners Island Blvd. and Trustee Inc. and Franklin/Templeton Distributors,
San Mateo, CA 94404 Inc.; Chairman of the Board and Director,
Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.
and General Host Corporation; director of
certain of the investment companies in the
Templeton Group of Funds; 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 most of the
investment companies in the Franklin Group
of Funds.

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

*Rupert H. Johnson, Jr. Vice President Executive Vice President and Director,
777 Mariners Island Blvd. and Trustee Franklin Resources, Inc. and
San Mateo, CA 94404 Franklin/Templeton Distributors, Inc.;
President and Director, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor
Services, Inc.; director of certain of the
investment companies in the Templeton Group
of Funds; 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 most of the
investment companies in the Franklin Group
of Funds.

- ---------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Positions and Offices
Name and Address with the Fund Principal Occupations During Past Five Years
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank W. T. LaHaye Trustee General Partner, Peregrine Associates and
20833 Stevens Creek Blvd. Miller & LaHaye, which are General Partners
Suite 102 of Peregrine Ventures and Peregrine
Cupertino, CA 95014 Ventures II (venture capital firms);
Chairman of the Board and Director,
Quarterdeck Office Systems, Inc.; Director,
FischerImaging Corporation; and director or
trustee, as the case may be, of most of the
investment companies in the Franklin Group
of Funds.

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

Gordon S. Macklin Trustee Chairman, White River Corporation
8212 Burning Tree Road (financial services); Director,
Bethesda, MD 20817 Fundamerican Enterprises Holdings, Inc.,
Martin Marietta Corporation, and MCI
Communications Corporation; director of
certain of the investment companies in the
Templeton Group of Funds; and director,
trustee or managing general partner, as the
case may be, of most of the investment
companies in the Franklin Group of Funds;
formerly, Chairman, Hambrecht and Quist
Group; Director, H & Q Healthcare
Investors; and President, National
Association of Securities Dealers, Inc.

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

Harmon E. Burns Vice President Executive Vice President, Secretary and
777 Mariners Island Blvd. Director, Franklin Resources, Inc.;
San Mateo, CA 94404 Executive Vice President and Director,
Franklin/Templeton Distributors, Inc.;
Executive Vice President, Franklin
Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.;
director of certain of the investment
companies in the Templeton Group of Funds;
officer and/or director, as the case may
be, of other subsidiaries of Franklin
Resources, Inc.; and officer and/or
director or trustee of all the investment
companies in the Franklin Group of Funds.

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

Kenneth V. Domingues Vice President Senior Vice President, Franklin Resources,
777 Mariners Island Blvd. and Treasurer Inc. and Franklin Advisers, Inc.; Vice
San Mateo, CA 94404 President Franklin/Templeton Distributors,
Inc.; officer 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 all the investment companies in the
Franklin Group of Funds.

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

Deborah R. Gatzek Vice President Senior Vice President - Legal, Franklin
777 Mariners Island Blvd. and Secretary Resources, Inc. and Franklin/Templeton
San Mateo, CA 94404 Distributors, Inc.; Vice President,
Franklin Advisers, Inc.; and officer of all
the investment companies in the Franklin
Group of Funds.

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

Charles E. Johnson Vice President Senior Vice President, Franklin Resources,
777 Mariners Island Blvd. Inc. and Franklin/Templeton Distributors,
San Mateo CA 94404 Inc.; President, Franklin Institutional
Services Corporation; director of certain
of the investment companies in the
Templeton Group of Funds; officer and/or
director, as the case may be, of some of
the subsidiaries of Franklin Resources,
Inc.; and officer and/or director or
trustee, as the case may be, of some of the
investment companies in the Franklin Group
of Funds.

- ---------------------------------------------------------------------------------------------------------
</TABLE>
12

<PAGE>

Positions and Offices
Name and Address with the Fund Principal Occupations During Past Five Years
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edward V. McVey Vice President Senior Vice President/National Sales
777 Mariners Island Blvd. Manager, Franklin/Templeton Distributors,
San Mateo, CA 94404 Inc.; and officer of many of the investment
companies in the Franklin Group of Funds.

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

R. Martin Wiskemann Vice President Senior Vice President, Portfolio Manager
777 Mariners Island Blvd. and Director , Franklin Advisers, Inc.;
San Mateo, CA 94404 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 many of the investment companies
in the Franklin Group of Funds.

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

</TABLE>

As indicated above, certain of the trustees and officers hold positions with
other companies in the Franklin Group of Funds. Trustees not affiliated with the
investment manager may be, but are not currently, paid fees or expenses incurred
in connection with attending meetings. 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. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers, and
father and uncle, respectively, of Charles E. Johnson.

As of December 7, 1993, the officers and trustees, as a group, owned less than
1% of the total outstanding shares of the Pacific Fund's 1,979,795.810
outstanding shares and less than 1% of the International Fund's 1,787,038.062
outstanding shares.

INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------------------------------------------------

The investment manager of each Fund is Franklin Advisers, Inc. The Manager is a
wholly owned subsidiary of Franklin Resources, Inc. ("Resources"), a publicly
owned holding company with shares listed on the New York Stock Exchange (the
"Exchange"). Resources owns several other subsidiaries which are involved in
investment management and shareholder services. The Manager and other subsidiary
companies of Resources currently manage over $113 billion in assets for over 3.3
million shareholders. Prior to January 1, 1993, sub-advisory services were
provided to each Fund by Barclays de Zoete Wedd Investment Management
Incorporated, a subsidiary of Barclays de Zoete Wedd U.S. Holdings Inc., which
is an indirect wholly owned subsidiary of Barclays Bank PLC. On that date,
pursuant to a contract, Templeton Investment Counsel, Inc. became each Fund's
Sub-adviser. The Sub-adviser is an indirect wholly owned subsidiary of
Resources. Please refer to the table above which indicates officers and trustees
who are affiliated persons of the Trust and who are also affiliated persons of
Franklin/Templeton Distributors, Inc. ("Distributors"), each Fund's principal
underwriter, and the Manager.

Pursuant to the management agreement between the Funds and Advisers and pursuant
to the sub-advisory agreement between Advisers and TICI (together the
"Agreements"), the Manager supervises and implements each Fund's investment
objective and provides certain administrative services and facilities which are
necessary to conduct each Fund's business. The Sub-adviser, subject to the
overall review by the Manager and the Board of Trustees, is responsible for
recommending an optimal geographic equity allocation and for providing advice
with respect to each Fund's investments. Investments may be shifted among
capital markets and different types of securities in accordance with ongoing
analysis of trends and developments affecting such markets and securities as
directed by the Manager or Sub-adviser. Under the management agreement, Advisers
receives a monthly fee equal to an annual rate of 1.0% of the value of each
Fund's average daily net assets up through $100,000,000; 0.90% of the value of
each Fund's average daily net assets over $100,000,000 up through $250,000,000;
0.80% of the value of each Fund's average daily net assets over $250,000,000 up
through $500,000,000; and 0.75% of the value of each Fund's average daily net
assets over $500,000,000. Under the sub-advisory agreement, TICI receives from
the Manager a fee equal to an annual rate of 0.50% of the value of each Fund's
average daily net assets up through $100,000,000; 0.40% of the value of each
Fund's average daily net assets over $100,000,000 up through $250,000,000; 0.30%
of the value of each Fund's average daily net assets over $250,000,000 up
through $500,000,000; and 0.25% of the value of each Fund's average daily net
assets over $500,000,000. The Manager, at its own expense,

<PAGE>
furnishes the Fund with 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 Trust.

Each Fund bears all of its expenses not assumed by the Manager. Each Fund is
responsible for its pro-rata portion of the Trust's operating expenses,
including, but not limited to, the Manager's fee; any 12b-1 distribution and
services expenses; taxes, if any; custodian, legal and auditing fees; fees and
expenses of trustees who are not members of, affiliated with or interested
persons of the Manager; salaries of any personnel not affiliated with the
Manager; insurance premiums; expenses of obtaining quotations for calculating
the value of the Fund's net assets; printing and other expenses which are not
expressly assumed by the Manager. TICI pays all expenses incurred by it in
connection with its activities under the sub-advisory agreement with Advisers,
other than the cost of securities purchased for each Fund and brokerage
commissions in connection with such purchases. (See the Statement of Operations
in the financial statements at the end of this Statement of Additional
Information for additional details of these expenses.)

The Manager has voluntarily agreed to waive its management fees and assume
responsibility for making payments, if necessary, to offset certain operating
expenses otherwise payable by each Fund. This action may be terminated by the
Manager at any time. For the fiscal years ended October 31, 1992 and October 31,
1993, management fees that the Pacific Fund was contractually obligated to pay
the Manager were $33,936 and $93,882, respectively, although after fee waivers,
no management fees were actually paid by the Fund. For the same periods,
management fees that the International Fund was contractually obligated to pay
the Manager were $42,990 and $108,434, respectively, although after fee waivers,
no management fees were actually paid by the Fund.

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 a 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 each Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise exceed in any
fiscal year 21/2% of the first $30 million of average net assets of each Fund,
2% of the next $70 million of net assets of each Fund, and 11/2% of average
annual net assets of each Fund in excess of $100 million.

The Agreements are in effect until April 30, 1993. Thereafter, they may continue
in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Board of Trustees or by
a vote of the holders of a majority of each Fund's outstanding voting
securities, and in either event by a majority vote of the trustees who are not
parties to the Agreements 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
Agreements may be terminated without penalty at any time by each Fund or by the
Funds' Advisers on 60-days' written notice and automatically terminate in the
event of 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 Funds and acts as the Funds' transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account. For the fiscal year ended October 31, 1993, costs under the
shareholder services agreement with Investor Services aggregated $16,296 of
which $16,028 was paid to Investor Services.

Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of each Funds' securities and other assets
of the Funds. 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, 333 Market Street, San Francisco, California 94105, are the
Funds' independent auditors. During the fiscal year ended October 31, 1993,
their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report and this Statement
of Additional Information.

THE FUNDS' POLICIES REGARDING BROKERS USED ON PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------

Under the management agreements with Advisers, the selection of brokers and
dealers to execute transactions in each Fund's portfolio is made by Advisers or
the Sub-adviser, as the case may be,

<PAGE>
in accordance with the Agreements and any directions which the Board of Trustees
may give.

When placing a portfolio transaction, the Funds' Advisers attempt 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 each Fund is
negotiated between Advisers or the Sub-adviser and the broker executing the
transaction. Advisers or the Sub-adviser 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.
Advisers or the Sub-adviser ordinarily places 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 Funds' Advisers, a better
price and execution can otherwise be obtained. Purchases of portfolio securities
from underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid and ask
prices. Each 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 each Fund's
best interests, Advisers or the Sub-adviser may place portfolio transactions
with brokers who provide the types of services described below, even if it means
a Fund has to pay a higher commission than is the case if no weight were given
to the broker's furnishing of these services. However, this is done only if, in
the opinion of Advisers or the Sub-adviser, the amount of any additional
commission is reasonable in relation to the value of the services. Higher
commissions are paid only when the brokerage and research services received are
bona fide and produce a direct benefit to the Fund or assist its advisers in
carrying out their 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 Funds' Advisers in advising other clients.

When it is felt that several brokers are equally able to provide the best net
price and execution, Advisers or the Sub-adviser may decide to execute
transactions through brokers who provide quotations and other services to each
Fund, specifically including the quotations necessary to determine the value of
each 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 each Fund and the Funds' Advisers 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 Funds' Advisers from dealers effecting
transactions in portfolio securities. The allocation of transactions in order to
obtain additional research services permits the Funds' Advisers to supplement
their 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 Funds' Advisers and their
affiliates may use this research and data in their investment advisory
capacities with other clients. Provided that the Funds' officers are satisfied
that the best execution is obtained, the sale of each Fund's shares may also be
considered as a factor in the selection of broker/dealers to execute each 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 either Fund
tenders portfolio securities pursuant to a tender-offer solicitation. As a means
of recapturing brokerage for the benefit of each Fund, any portfolio securities
tendered by a 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 is 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 either Fund and one or more other
investment companies or clients supervised by Advisers or advised by the
Sub-adviser are considered at or about the same time, transactions in such
securities are allocated among the several investment companies and clients in a
manner deemed equitable to all by Advisers or the Sub-adviser, taking into
account the respective sizes of the funds and/or clients 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 either Fund is concerned. In other cases,

<PAGE>
it is possible that the ability to participate in volume transactions and to
negotiate lower brokerage commissions would be beneficial to each Fund.

For the fiscal period from September 20, 1991 (the effective date of the Funds'
registration statement) to October 31, 1991, neither Fund paid brokerage
commissions. During the fiscal years ended October 31, 1992 and October 31,
1993, the Pacific Fund paid total brokerage commissions of $45,362 and $102,203,
respectively, and the International Fund paid total brokerage commissions of
$18,523 and $57,590, respectively. As of October 31, 1993, the International
Fund and the Pacific Fund held a total of $1,655,000 and $3,805,000,
respectively, in debt securities of Daiwa Securities of America, Inc. Under the
1940 Act, Daiwa Securities of America, Inc. may be deemed to be one of the
Trust's regular broker dealers.

ADDITIONAL INFORMATION REGARDING FUND SHARES
- --------------------------------------------------------------------------------

All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of either Fund must be denominated in U.S. dollars. Each Fund
reserves the right, in its sole discretion, to either (i) reject any order for
the purchase or sale of shares denominated in any other currency or (ii) to
honor the transaction or make adjustments to a shareholder's account for the
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank.

Dividend (and distribution) checks which are returned to either Fund marked
"unable to forward" by the postal service are deemed to be a request by the
shareholder to change the distribution option, and the proceeds will be
reinvested in additional shares at net asset value until new instructions are
received.

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

Under agreements with certain banks in Taiwan, Republic of China, each 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.

Shares of each Fund may also 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 each Fund will
be offered with the following schedule of sales charges:
<TABLE>
<CAPTION>

SALES
SIZE OF PURCHASE CHARGE
- ---------------------------------------------- ------
<S> <C>
Up to U.S. $100,000........................... 3%
U.S. $100,000 to U.S. $1,000,000.............. 2%
Over U.S. $1,000,000.......................... 1%
</TABLE>

PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
- --------------------------------------------------------------------------------

Orders for the purchase of shares of each Fund received in proper form prior to
1:00 p.m. Pacific time any business day that the Exchange is open for trading
and promptly transmitted to the Fund are based upon the public offering price
determined that day. Purchase orders received by securities dealers or other
financial institutions after 1:00 p.m. Pacific time are effected at the Fund's
public offering price on the day it is next calculated. The use of the term
"securities dealer" hereinafter includes other financial institutions which
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 the customer resulting from failure to do so must be settled
between the customer and the dealer.

PURCHASES AT NET ASSET VALUE

As discussed in each Fund's Prospectus, certain categories of investors may
purchase shares of either Fund at net asset value (without a sales charge) or at
a reduced sales charge. The reason for this is that there is minimal or no sales
effort required with respect to these investors. If certain investments at net
asset value are made through a dealer who has executed a dealer or similar
agreement with respect to the Franklin Group of Funds, Distributors or its
affiliates may make a payment, out of their own resources, to such dealer in an
amount not to exceed 0.25% of the amount invested, paid pro rata on a quarterly
basis on average quarterly balances for a period of one year.

<PAGE>
REDEMPTIONS IN KIND

Each 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 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 the shareholder is
redeeming, in case of an emergency or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of each Fund. In such
circumstances, the securities distributed would be valued at the price used to
compute each Fund's net assets. Should either Fund do so, a shareholder might
incur brokerage fees in converting the securities to cash. Neither Fund intends
to redeem illiquid securities in kind; however, should it happen, shareholders
might not be able to timely recover their investment and might also incur
brokerage costs in selling such securities.

REDEMPTIONS BY EACH FUND

Due to the relatively high cost of handling small investments, each Fund
reserves the right to redeem, involuntarily, at net asset value, the shares of
any shareholder whose account has a value of less than one-half of the initial
minimum investment required for that shareholder, but only where the value of
such account has been reduced by the shareholder's prior voluntary redemption of
shares. Until further notice, it is the present policy of each Fund not to
exercise this right with respect to any shareholder whose account has a value of
$50 or more. In any event, before a Fund redeems such shares and sends the
proceeds to the shareholder, it would notify the shareholder that the value of
the shares in the account is less than the minimum amount and allow the
shareholder 30 days to make an additional investment in an amount which would
increase the value of the account to at least $100.

CALCULATION OF NET ASSET VALUE

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

Each Fund's portfolio securities are valued as stated in its Prospectus.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the close of the Exchange. The values of such securities used in computing the
net asset value of a Fund's shares are determined as of such times.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and 1:00 p.m.
Pacific time which will not be reflected in the computation of a 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 of Trustees.

REINVESTMENT DATE

The dividend reinvestment date is the date on which the additional shares are
purchased for the investor who has elected to have dividends reinvested. This
date may vary from month to month, based on operational considerations, and is
not necessarily the same date as the record date or payable date for cash
dividends.

SPECIAL SERVICES

The Trust and Institutional Services Division of Distributors provides
specialized services, including recordkeeping, for institutional investors of
each Fund. The cost of these services is not borne by either Fund.

Investor Services may pay certain financial institutions and record keepers
which maintain omnibus accounts with each 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, each Fund may
reimburse Investor Services an amount not to exceed the per account fee which
each Fund normally pays Investor Services. Such financial institutions may also
charge a fee for their services directly to their clients.

ADDITIONAL INFORMATION REGARDING TAXATION
- --------------------------------------------------------------------------------

As stated in each Fund's Prospectus, each Fund has elected 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 either Fund as a regulated investment company if they
determine such course of action to be beneficial to the shareholders. In such
case, the Fund will be subject to federal and possibly state

<PAGE>
corporate taxes on its taxable income and gains, and distributions to
shareholders will be ordinary dividend income 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 (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)
received by a Fund are less than 100% of its distributable income, then the
amount of each Fund's dividends paid to corporate shareholders which may be
designated as eligible for such deduction will not exceed the aggregate
qualifying dividends received by the Fund for the taxable year. The amount or
percentage of income qualifying for the corporate dividends-received deduction
will be declared by each 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 a Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividends-received deduction. For example, any interest income and short-term
capital gain (in excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and distributed by a
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 which is treated as a
deduction, is includable in the tax base on which the alternative minimum tax is
computed and may also result in a reduction in the shareholder's tax basis in
its Fund's shares, under certain circumstances, if the shares have been held for
less than two years. Corporate shareholders whose investment in a 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 either 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 each Fund and received by
the shareholder on December 31 of the calendar year in which they are declared.
Each 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 realized from such a transaction, 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 a loss realized upon a redemption of shares will be
disallowed to the extent other shares of each 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.

Any loss realized upon the redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
amounts treated as distributions of net long-term capital gain during such
six-month period.

Each Fund's investment in options, futures contracts and forward contracts,
options on futures contracts and stock indices and certain other securities,
including transactions involving actual or deemed short sales or foreign
exchange gains or losses, 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. By contrast, each Fund's
treatment of certain other options, fu-

<PAGE>
tures and forward contracts entered into by the Fund is generally governed by
Section 1256 of the Code. These "Section 1256" positions generally include
listed options on debt securities, options on broad-based stock indices, options
on securities indices, options on futures contracts, regulated futures contracts
and certain foreign currency contracts and options thereon.

Absent a tax election to the contrary, each such Section 1256 position held by
either Fund will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of each 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 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 either Fund. The acceleration of
income on Section 1256 positions may require each Fund to accrue taxable income
without the corresponding receipt of cash. In order to generate cash to satisfy
the distribution requirements of the Code, each Fund may be required to dispose
of portfolio securities that it otherwise would have continued to hold or to use
cash flows from other sources such as the sale of Fund shares. In these ways,
any or all of these rules may affect the amount, character and time of income
distributed to shareholders by either Fund.

When either Fund holds an option or contract which substantially diminishes its
risk of loss with respect to other positions (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 securities owned by either Fund and conversion of short-term
capital losses into long-term capital losses. Certain tax elections exist for
mixed straddles, i.e., straddles comprised of at least one Section 1256 position
and at least one non-Section 1256 position which may reduce or eliminate the
operation of these straddle rules.

As a regulated investment company, each Fund is also subject to the requirement
that less than 30% of their 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 either Fund's ability to engage in options, spreads,
straddles, hedging transactions, forward or futures contracts or options on any
of these positions 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 either Fund, resulting in
additional short-short income for either Fund.

Each 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.

Foreign exchange gains and losses realized by the Funds 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 Funds' income or loss from such transactions
and in turn its distributions to shareholders.

In order for each Fund to qualify as a regulated investment company, at least
90% of the Fund's annual gross income must consist of dividends, interest and
certain other types of qualifying income and no more than 30% of its annual
gross income may be derived from the sale or other disposition of securities or
certain other instruments held for less than three months. Foreign exchange
gains derived by a Fund with respect to the Fund's business of investing in
stock or securities, or options or futures with respect to such stock or
securities is qualifying income for purposes of this 90% limitation.

Currency speculation or the use of currency forward contracts or other currency
instruments for non-hedging purposes may generate gains deemed to be not derived
with respect to each Fund's business of investing in stock or securities and
related options or futures. Under current law, non-directly-related gains
arising from foreign currency positions or instruments held for less than three
months are treated as derived from the disposition of securities held less than
three months in determining each Fund's compliance with the 30% limitation. Each
Fund will limit its activities involving foreign exchange gains to the extent
necessary to comply with these requirements.

The federal income tax treatment of interest rate and currency swaps is unclear
in certain respects and may in some circumstances result in the real-

<PAGE>
ization of income not qualifying under the 90% test described above or be deemed
to be derived from the disposition of securities held less than three months in
determining each Fund's compliance with the 30% limitation. Each Fund will limit
its interest rate and currency swaps to the extent necessary to comply with
these requirements.

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

Legislation introduced in the U.S. House of Representatives would unify, and, in
some cases, modify the anti-deferral rules contained in various provisions of
the Code, including the provisions dealing with PFICs, related to the taxation
of U.S. shareholders of foreign corporations. In the case of passive foreign
company, as defined in the proposed legislation ("PFC"), having "marketable
stock," the proposed legislation would require U.S. shareholders, such as the
Funds, owning less than 25% of a PFC that is not U.S.-controlled to
mark-to-market PFC stock annually, unless the shareholders elected to include in
income currently their proportionate shares of the PFC's income and gain.
Otherwise, U.S. shareholders would be treated substantially the same as under
current law. Special rules applicable to mutual funds would classify as
"marketable stock" all stock in PFCs held by a Fund; however, a Fund would not
be liable for tax on income from PFCs that is distributed to its shareholders.
It is unclear if or when the proposed legislation will become law and if enacted
what form it will take. On April 1, 1992, the U.S. Internal Revenue Service
released proposed regulations regarding a mark-to-market election for regulated
investment companies that would have effects similar to the proposed
legislation. These regulations would be effective for taxable years ending after
promulgation of the regulations as final regulations. The IRS subsequently
issued a notice indicating that final regulations will provide that regulated
investment companies may elect the mark-to-market election for tax years ending
after March 31, 1992 and before April 1, 1993. Whether and to what extent the
notice will apply to taxable years of a Fund is unclear.

The Funds may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the total assets of the Fund at the
end of its fiscal year are invested in securities of foreign corporations, the
Fund may elect to pass-through to its shareholders the pro rata share of foreign
taxes paid by the Fund. If this election is made, shareholders will be (i)
required to include in their gross income their pro rata share of foreign source
income (without deduction of foreign taxes paid by the Fund) and (ii) entitled
to either deduct their share of such foreign taxes in computing their taxable
income or to claim a credit for such taxes against their U.S. income tax,
subject to certain limitations under the Code. Shareholders will be informed by
the Funds at the end of each calendar year regarding the availability of any
credits and the amount of foreign source income (including any foreign taxes
paid by the Funds) to be included on their income tax returns.

THE FUNDS' UNDERWRITER
- --------------------------------------------------------------------------------

Pursuant to an underwriting agreement in effect until September 18, 1994,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Funds.

Distributors pays the expenses of distributing each Fund's shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each Fund pays the expenses of preparing and
printing amendments to the registration statement and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.

The underwriting agreement continues in effect for successive annual periods
provided that its continuance is specifically approved at least annually by a
vote of the Board of Trustees or by a vote of the holders of a majority of each
Fund's outstanding voting securities, and in either event by a majority of the
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

<PAGE>
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 allows a portion of the underwriting commission on the sale of Fund
shares to the securities dealer of record, if any, on an account.

In connection with the offering of the Pacific Fund's shares, aggregate
underwriting commissions for the fiscal period ended October 31, 1991 and the
fiscal years ended October 31, 1992 and 1993 were $3231, $58,483 and $214,144,
respectively. After allowances to dealers, Distributors retained $0, $2437 and
$27,047, respectively. For the International Fund's shares, aggregate
underwriting commissions for the same fiscal periods were $6549, $147,885 and
$170,962, respectively. After allowances to dealers, Distributors retained $0,
$5245 and $25,157, respectively. Distributors received no other compensation
from the Fund for acting as underwriter.

DISTRIBUTION PLAN

Each Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940
Act (collectively, "the Plans"), whereby each Fund may pay up to a maximum of
0.25% per annum (1/4 of 1%) of its average daily net assets for expenses
incurred in the distribution of its shares.

Pursuant to the Plans, Distributors is entitled to be reimbursed each month (up
to the maximum of 0.25% per annum of average net assets) for its actual expenses
incurred in the distribution and promotion of each Fund's shares, including but
not limited to the printing of prospectuses and reports used for sales purposes,
advertisements, expenses of preparation and printing of sales literature and
other such distribution-related expenses, including any distribution or service
fees paid to securities dealers or other firms who have executed a distribution
or service agreement with Distributors. As stated in the Funds' Prospectuses,
the Plans covers not only payments to Distributors for expenses incurred in the
promotion and distribution of the Funds' shares but also payments to or by
Distributors, the Manager, TICI, or their affiliates and any other payments made
by each Fund in the ordinary course of its business to the extent such payments,
although primarily intended to cover operational and not distribution-related
activities, may be deemed (for example, by a court of law) to be payments for
the financing of an activity primarily intended to result in the sale of either
Fund's shares within the context of Rule 12b-1 under the 1940 Act. The Plans do
not permit unreimbursed expenses incurred in a particular year to be carried
over to or reimbursed in subsequent years.

To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks are not
currently entitled to participate in the Plans as a result of applicable federal
law prohibiting certain banks from engaging in the distribution of mutual fund
shares. However, such banking institutions are permitted to receive fees from
Distributors under the Plans 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 each
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. Securities laws of states in which either Fund's shares
are offered for sale may differ from the interpretations of federal law
expressed herein, and banks and financial institutions selling shares of either
Fund may be required to register as dealers pursuant to state law.

The Board of Trustees has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities of portfolio securities without having to
make unwarranted liquidations of other portfolio securities. The Board of
Trustees, therefore, believed that it would benefit each Fund to have monies
available for the direct distribution activities of Distributors in promoting
the sale of its shares. The Board of Trustees, including the non-interested
trustees, concluded that, in the exercise of their reasonable business judgment
and in light of their fiduciary duties, there is a reasonable likelihood that
the Plans will benefit each Fund and its shareholders.

The Plans have been approved by Resources, each Fund's initial shareholder, and
by the trustees, including those trustees who are not interested persons, as
defined in the 1940 Act. The Plans are effective through April 30, 1994, and
renewable annually by the Trust's Board of Trustees, including a majority vote
of the trustees who are non-interested persons of each Fund and who have no
direct or indirect financial interest in the operation of the Plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such trustees be done by the non-interested
trustees. The Plans and any distribution or service agreement may be terminated
at any time, without

<PAGE>
any penalty, by such trustees on 60-days' written notice, by Distributors, by
any act that terminates the underwriting agreement with Distributors, or by vote
of a majority of the each 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 Plans and any distribution or service agreements may not be amended to
increase materially the amount spent for distribution expenses or in any other
material way without approval by a majority vote of each Fund's outstanding
shares, and all such material amendments to the Plans or any distribution or
service agreements also shall be approved by 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 of Trustees at least
quarterly on the amounts and purpose of any payment made under the Plans and any
distribution or service agreements, as well as to furnish the Board with such
other information as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether the Plans should be
continued.

During the fiscal year ended October 31, 1993, fees incurred under the Plans for
the Pacific Fund and International Fund aggregated $23,351 (.248% of average net
assets) and $26,475 (.244% of average net assets), respectively.

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

PERFORMANCE

As noted in the Prospectuses, each Fund may from time to time quote various
performance figures to illustrate the Fund's past performance. They may
occasionally cite statistics to reflect their volatility or risk.

Performance quotations by investment companies are subject to rules adopted by
the SEC, including the use of standardized performance quotations or,
alternatively, in the case of non-standardized performance quotation furnished
by either Fund, the inclusion of certain standardized performance information
computed as required by the SEC. Current yield and average annual compounded
total return quotations used by each Fund are based on the standardized methods
of computing performance mandated by the SEC. An explanation of those and other
methods used by each 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 sales charge is
deducted from the initial $1,000 purchase order, and that income dividends and
capital gains are reinvested at net asset value on the reinvestment dates during
the period. The quotation assumes that the account was completely redeemed at
the end of each one-, five- and ten-year period and that all applicable charges
and fees were deducted.

In considering the quotations set forth below, investors should remember that
the 4.5% maximum sales charge reflected in each quotation is the maximum one
time fee (charged on all direct purchases) which has its greatest impact during
the early stages of an investor's investment in either Fund. The actual
performance of an investment is affected less by this charge the longer an
investor retains the investment in such Fund.

The average annual compounded rates of return for each Fund for the indicated
periods ended on the date of the financial statements included herein was as
follows:
<TABLE>
<CAPTION>

AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------
ONE-YEAR PERIOD SINCE INCEPTION
FUND NAME PERIOD ENDING (9/20/91 TO 10/31/93)
----------------------------------------------------- ------------- ----------------------
<S> <C> <C>
PUBLIC OFFERING PRICE
Pacific Fund......................................... 32.27% 19.58%
International Fund................................... 21.69% 10.78%
NET ASSET VALUE
Pacific Fund......................................... 38.46% 22.20%
International Fund................................... 27.40% 13.20%

</TABLE>

The above figures were calculated according to the following SEC formula:

P(1 + T)n = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

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

As discussed in each Prospectus, a 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 average annual compounded rate, except that such quotations
are based on actual return for a specified period instead of the average return
over one-, five- or ten-year periods, or fractional portion thereof. The rates
of total return from commencement of operations of each Fund to October 31, 1993
were as follows:
<TABLE>
<CAPTION>

AGGREGATE TOTAL RETURNS
-------------------------------------
ONE-YEAR PERIOD SINCE INCEPTION
FUND NAME PERIOD ENDING (9/20/91 TO 10/31/93)
------------------------------------------------------ ------------- ----------------------
<S> <C> <C>
PUBLIC OFFERING PRICE
Pacific Fund......................................... 32.27% 46.04%
International Fund................................... 21.69% 24.20%
NET ASSET VALUE
Pacific Fund......................................... 38.46% 52.90%
International Fund................................... 27.40% 30.03%

</TABLE>

YIELD

Current yield reflects the income per share earned by each 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.

The yield for the Funds for the 30-day period ended on the date of the financial
statements included herein was as follows:

FUND NAME 30-DAY YIELDS*
- --------------------------------------- --------------
<S> <C>
Pacific Fund........................... 1.89%
International Fund..................... 1.90%

</TABLE>

* Figures are net of fee waivers and expense reimbursements.

The above figures were obtained using the following SEC formula:

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

where

a = income distributions 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 income distributions

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 each 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 each 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.
<TABLE>
<CAPTION>

FISCAL YEAR-END DISTRIBUTION RATES*
-----------------------------------
PUBLIC NET ASSET
FUND NAME OFFERING PRICE VALUE
- ----------------------- -------------- ---------
<S> <C> <C>
Pacific Fund........... 1.28% 1.34%
International Fund..... 3.21% 3.36%

</TABLE>

*Figures are net of fee waivers and expense reimbursements.

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
S&P 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

<PAGE>
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 each Fund at net asset value, sales literature pertaining to each Fund
may quote a current distribution rate, yield, total return, average annual total
return and other measures of performance as described above in this Statement of
Additional Information with the substitution of net asset value for the public
offering price.

Sales literature referring to the use of each Fund as a potential investment for
Individual Retirement Accounts (or 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.

A 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 Funds' Advisers
and underwriter of both the Franklin Group of Funds and Templeton Group of
Funds.

COMPARISONS

To help investors better evaluate how an investment in either Fund might satisfy
the investor's investment objective, advertisements and other materials
regarding either 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:

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) S&P 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 - unmanaged
indices 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. 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) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines - provide
performance statistics over specified time periods.

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

j) Salomon Brothers Broad Bond Index or its component indices - The Broad Index
measures yield, price, and total return for Treasury, Agency, Corporate, and
Mortgage bonds.

k) Salomon Brothers World Government Bond Index - measures capitalization and
performance return of foreign bond markets.

l) Lehman Brothers Aggregate Bond Index or its component indices - the Aggregate
Bond Index measures yield, price and total return for Treasury, Agency,
Corporate, Mortgage, and Yankee bonds.

m) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Pierce, Fenner & Smith, Data Stream International, Frank Russell, Goldman Sachs,
Morgan Stanley Capital International, Lehman Brothers and Bloomberg L.P.

n) Yields and total return of other taxable investments including certificates
of deposit (CDs), money market deposit accounts (MMDAs), checking accounts,
savings accounts, money market mutual funds, and repurchase agreements.

<PAGE>

o) Yields of other countries' government and corporate bonds as compared
to U.S. government and corporate bonds to illustrate the potentially higher
returns available outside the U.S.

p) 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.

q) 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.

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

s) Morgan Stanley Capital International Indices, including the EAFE Index (and
components thereof), which are based on stocks in major equity markets in
Europe, Australia, and the Far East.

In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to each 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 each Fund to calculate its
figures. In addition there can be no assurance that either Fund will continue
its performance as compared to such other averages.

OTHER FEATURES AND BENEFITS

Each Fund may help investors 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 an investor 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 costs estimates are based upon
current cost published by the College Board.) The Franklin Retirement Income
Planning Guide leads an investor through the steps to start a retirement savings
program. Of course, an investment in either Fund cannot guarantee that such
goals will be met.

The Funds of the Trust are members of the Franklin/Templeton Group, 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 45 years and
now services more than 2.4 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 $113
billion in assets under management for more than 3.3 million shareholder
accounts and offers 97 U.S.-based mutual funds. A Fund may identify itself by
its Quotron or CUSIP number.

The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one of
36 mutual fund groups in service quality for 1993. One other fund group was also
ranked number one. Franklin has been ranked number one in service quality by
Dalbar for five of the past six years.

SHAREHOLDERS OF 5% OR MORE

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.

With respect to the Pacific Fund, as of December 7, 1993, the officers and
trustees, as a group, owned less than 1% of the total outstanding shares of the
Fund's 1,979,795.810 outstanding shares. With respect to the International Fund,
as of December 7, 1993, the officers and trustees owned less than 1% of the
Fund's 1,787,038.062 outstanding shares.

OWNERSHIP AND AUTHORITY DISPUTES

In the event of disputes involving multiple claims of ownership or authority to
control a shareholder's account, each Fund has the right (but has no obligation)
to (a) freeze the account and require the written agreement of all persons
deemed by either 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.

<PAGE>

APPENDIX
- --------------------------------------------------------------------------------

DESCRIPTION OF MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS:

"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 as in Aaa securities, 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.

DESCRIPTION OF STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS:

"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 a 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.

FRANKLIN INTERNATIONAL TRUST
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Trustees
of Franklin International Trust:

We have audited the accompanying statements of assets and liabilities of the
funds comprising Franklin International Trust, including each Fund's statement
of investments in securities and net assets, as of October 31, 1993, and the
related statements of operations for the year then ended, the stat ements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights included under the caption "Financial Highlights" for
the periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits 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 statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held by
the custodian as of October 31, 1993, and confirmation by correspondence with
brokers as to securities purchased but not received at the date, or other
auditing procedures where confirmations from brokers were not received. 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 audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
funds comprising Franklin International Trust as of October 31, 1993, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for the periods indicated thereon in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND
San Francisco, California
November 30, 1993

<PAGE>
FRANKLIN INTERNATIONAL TRUST

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1993
<TABLE>
<CAPTION>

SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN PACIFIC GROWTH FUND (NOTE 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS 79.2%
AUSTRALIA 14.6%
AUS 97,400 Australian Gas and Light Co. ........................... $ 289,292
AUS 126,000 Australia & New Zealand Banking Group, Ltd. ............ 364,169
AUS 28,000 Brambles Industries, Ltd. .............................. 241,661
AUS 101,600 Comalco, Ltd. .......................................... 250,345
AUS 146,300 Gio Australia Holdings, Ltd. ........................... 311,772
AUS 125,500 Leighton Holdings, Ltd. ................................ 192,227
AUS 21,600 National Australia Bank, Ltd. .......................... 182,109
AUS 257,000 National Foods, Ltd. ................................... 316,627
AUS 102,540 Pacific Dunlop, Ltd. ................................... 357,822
AUS 245,600 Pioneer International, Ltd. ............................ 426,068
AUS 126,400 Westpac Banking Corp. .................................. 381,318
----------
3,313,410
----------
HONG KONG 27.5%
HK 296,000 CNT Group, Ltd ......................................... 42,899
HK 241,000 Cathay Pacific Airways, Ltd ............................ 392,935
HK 94,000 Cheung Kong Holdings, Ltd. ............................. 443,970
HK 193,000 Dairy Farm International Holdings ...................... 373,363
HK 821,000 Fountain Set Holdings .................................. 137,046
HK 479,000 Gold Peak Industries (Holding) Develops, Ltd. .......... 227,785
HK 496,000 Grand Hotel Holdings, Ltd .............................. 206,988
HK 1,190,000 Great Wall Electronics International, Ltd .............. 220,199
HK 34,600 (a)Great Wall Electronics International, Ltd, warrants .... 1,231
HK 33,273 HSBC Holdings Corp ..................................... 385,343
HK 208,000 Hang Lung Development Co., Ltd. ........................ 401,035
HK 783,200 Hon Kwok Land Investment Co., Ltd ...................... 321,773
HK 84,000 Hong Kong & China Gas Co., Ltd. ........................ 204,348
HK 71,500 Hong Kong Electric Holdings, Ltd. ...................... 231,302
HK 86,000 Hutchinson Whampoa, Ltd. ............................... 323,835
HK 41,600 Jardine Matheson Holdings, Ltd. ........................ 398,344
HK 101,000 Jardine Strategic Holdings, Ltd. ....................... 418,219
HK 596,000 Lai Sun Development Co., Ltd. .......................... 127,252
HK 632,000 (a)Maanshan Iron and Steel Co., Ltd. ...................... 185,642
HK 122,000 New World Development Co., Ltd. ........................ 423,085
HK 180,000 Shun Tak Holdings, Ltd. ................................ 214,286
HK 344,000 South China Morning Post, Ltd. ......................... 206,987
HK 197,000 Winsor Industrial Corp., Ltd. .......................... 321,195
----------
6,209,062
----------
INDONESIA 7.2%
IND 91,000 Panin Bank ............................................. 108,253
IND 84,000 P.T. Bali Bank ......................................... 287,788
IND 20,000 (a)P.T. Barito Pacific Timber ............................. 109,443
IND 124,000 P.T. Evershine Textile ................................. 300,921
IND 14,000 P.T. Hadtex Indosyntex ................................. 16,155
IND 38,000 (a)P.T. Indah Kiat Pulp & Paper ........................... 35,712
IND 12,000 P.T. Indorama Synthetics ............................... 38,257
IND 74,000 (a)P.T. Inti Indorayon Utama .............................. 164,617
IND 98,000 P.T. Japfa Comfeed Indonesia ........................... 144,560
IND 93,000 P.T. Pabrik Kertas Tjiwi Kim ........................... 159,311
IND 99,000 P.T. Panin Bank ........................................ 155,457
IND 70,000 Toko Gunung Agung ...................................... 100,758
----------
1,621,232
----------
</TABLE>

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

<PAGE>
FRANKLIN INTERNATIONAL TRUST

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1993 (CONT.)
<TABLE>
<CAPTION>

SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN PACIFIC GROWTH FUND (NOTE 1)
- ----------------------- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS (CONT.)
JAPAN 6.2%
JPN 53,000 Hitachi, Ltd. .................................................................... $ 421,260
JPN 36,000 Matsushita Electric Industrial Co. ............................................... 488,530
JPN 11,000 Sony Corp ........................................................................ 499,608
-----------
1,409,398
-----------
MALAYSIA 5.0%
MLN 50,000 Commerce Asset Holdings .......................................................... 155,486
MLN 47,000 Malaysian International .......................................................... 136,965
MLN 79,000 Oriental Holdings BHD ............................................................ 305,926
MLN 120,000 Public Finance ................................................................... 181,185
MLN 160,000 Sime Darby BHD ................................................................... 353,608
-----------
1,133,170
-----------
PHILIPPINES 5.1%
PLP 8,800 Philippine Long Distance Telephone Co. ........................................... 559,309
US 2,080 Philippine Long Distance Telephone, Co., ADR ..................................... 132,340
PLP 35,230 Philippine National Bank ......................................................... 471,559
-----------
1,163,208
-----------
SINGAPORE 8.3%
SNG 85,000 City Developments, Ltd. .......................................................... 375,158
SNG 6,000 (a)City Developments, Ltd., warrants ................................................ 15,284
US 10,000 GP Batteries International Co., ADR .............................................. 65,000
SNG 87,250 Overseas Union Bank, Ltd. ........................................................ 440,101
SNG 244,000 Parkway Holdings, Ltd ............................................................ 413,846
SNG 35,500 Singapore Airlines, Ltd .......................................................... 277,554
SNG 34,700 Singapore Bus Service ............................................................ 284,425
-----------
1,871,368
-----------
THAILAND 4.7%
TLD 4,000 Ayudhya Insurance ................................................................ 41,989
TLD 70,500 Charoen Pokphand Feedmill ........................................................ 467,403
TLD 43,000 MDX Public Co., Ltd. ............................................................. 305,446
TLD 22,700 Oriental Hotel Public Co., Ltd. .................................................. 103,019
TLD 37,140 Thai Farmers Bank Public Co., Ltd. ............................................... 146,567
-----------
1,064,424
-----------
UNITED STATES .6%
US 6,000 (a)Hansol Paper Co., Ltd. ........................................................... 129,000
-----------
TOTAL COMMON STOCKS AND WARRANTS (Cost $14,023,243) ......................... 17,914,272
-----------
FACE
AMOUNT
------
BONDS .7%
US 6,000 Dairy Farm International Holdings, cvt. pfd., 6.50%, 09/09/49 8,460
US 13,000 Jardine Strategic Holdings, Ltd., cvt. pfd., 7.50%, 09/09/49 ..................... 18,436
SWT 150,000 P.T. Indorama Synthetics, cvt., 4.50%, 12/31/97 .................................. 117,425
-----------
TOTAL BONDS (Cost $147,200) ................................................. 144,321
-----------
TOTAL INVESTMENTS BEFORE REPURHASE AGREEMENTS (COST $14,170,443) ............ 18,058,593
-----------
RECEIVABLES FROM REPURCHASE AGREEMENTS 16.8%
3,875,000(b) Daiwa Securities of America, Inc., 2.95%, 11/01/93 (Maturity Value $3,805,935)
Collateral: U.S. Treasury Notes, 5.00%, 06/30/92 (Cost $3,805,000) .............. 3,805,000
-----------
TOTAL INVESTMENTS (COST $17,975,443) 96.7% ................................. 21,863,593
OTHER ASSETS AND LIABILITIES, NET 3.3% ..................................... 755,412
-----------
NET ASSETS 100.0% .......................................................... $22,619,005
===========
</TABLE>

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

<PAGE>
FRANKLIN INTERNATIONAL TRUST

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1993 (CONT.)
<TABLE>
<CAPTION>

VALUE
FRANKLIN PACIFIC GROWTH FUND (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
At October 31, 1993, the net unrealized appreciation based on the cost of
investments for income tax purposes of $17,979,467 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost .................................................... $3,959,901
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value .................................................... (75,775)
----------
Net unrealized appreciation .......................................................... $3,884,126
==========
</TABLE>

CURRENCY LEGEND:
AUS - Australia
HK - Hong Kong
IND - Indonesia
JPN - Japan
MLN - Malaysia
PLP - Philippines
SNG - Singapore
SWT - Switzerland
TLD - Thailand
US - United States

* Securities traded in currency of country indicated.
(a) Non-income producing.
(b) Face amount for repurchase agreements is for the underlying collateral.

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

<PAGE>
FRANKLIN INTERNATIONAL TRUST

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1993
<TABLE>
<CAPTION>

SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN PACIFIC GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS 87.6%
AUSTRALIA 8.3%
AUS 64,400 Australia & New Zealand Banking Group, Ltd. ..... $ 186,131
AUS 8,000 Brambles Industries, Ltd. ....................... 69,046
AUS 83,000 Comalco, Ltd. ................................... 204,514
AUS 77,000 Gio Australia Holdings, Ltd. .................... 164,091
AUS 65,600 Leighton Holdings, Ltd. ......................... 100,479
AUS 146,000 National Foods, Ltd. ............................ 179,874
AUS 48,950 Pacific Dunlop, Ltd. ............................ 170,815
AUS 160,300 Pioneer International, Ltd. ..................... 278,089
AUS 79,500 Westpac Banking Corp. ........................... 239,833
----------
1,592,872
----------
AUSTRIA .8%
AST 1,300 EVN-Energie Versorgung, Ag ...................... 142,981
----------
BELGIUM 1.0%
BEL 700 Arbed, SA ....................................... 73,915
BEL 340 Solvay, SA ...................................... 127,152
----------
201,067
----------
CANADA 4.6%
CAN 7,600 Bank of Montreal ................................ 154,553
CAN 10,000 Canadian Imperial Bank of Commerce .............. 239,302
CAN 9,100 London Insurance Group, Inc. .................... 177,311
CAN 9,300 National Bank of Canada ......................... 74,770
CAN 15,300 Toronto-Dominion Bank ........................... 243,124
----------
889,060
----------
FRANCE 4.9%
US 500 Banque Nationale de Paris, ADR .................. 24,630
FR 1,805 Compagnie de Saint Gobain ....................... 172,783
FR 1,800 (a)ECCO, SA ........................................ 165,560
FR 830 (a)Labinal, SA ..................................... 97,547
FR 1,100 Societe Generale de Paris ....................... 130,590
FR 2,370 (a)Societe Nationale Elf Aquitaine ................. 185,450
FR 2,800 Total, SA ....................................... 156,764
----------
933,324
----------
GERMANY 3.0%
GER 500 BASF, Ag ........................................ 82,165
GER 900 Bayer, Ag ....................................... 171,357
GER 236 Bayerische Motoren Werke, Ag .................... 88,544
GER 310 Bayerische Vereinsbank, Ag ...................... 97,447
GER 265 Deutsche Bank, Ag ............................... 133,757
----------
573,270
----------
HONG KONG 11.8%
HK 300,000 CNT Group, Ltd. ................................. 43,478
HK 93,000 Cathay Pacific Airways, Ltd. .................... 151,630
HK 42,000 Cheung Kong Holdings, Ltd. ...................... 198,370
HK 88,000 Hang Lung Development Co., Ltd. ................. 169,669
HK 40,000 Henderson Land Development ...................... 164,337
HK 54,000 Hong Kong & China Gas Co., Ltd. ................. 131,366
HK 50,000 Hong Kong Land Holdings, Ltd. ................... 133,929
HK 110,000 Hong Kong Telecommunications, Ltd. .............. 237,707
HK 45,000 Hutchison Whampoa, Ltd. ......................... 169,449
HK 19,200 Jardine Matheson Holdings, Ltd. ................. 183,851
</TABLE>

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

<PAGE>

FRANKLIN INTERNATIONAL TRUST

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1993 (CONT.)

<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN INTERNATIONAL EQUITY FUND (NOTE 1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS (CONT.)
HONG KONG (CONT.)
HK 45,000 Jardine Strategic Holdings, Ltd....................................... $ 186,335
HK 61,000 New World Development Co., Ltd........................................ 211,541
HK 20,000 Sun Hung Kai Properties, Ltd.......................................... 137,164
HK 128,000 Sun Tak Holdings, Ltd................................................. 152,381
----------
2,271,207
----------

ITALY 4.0%
ITY 71,100 Autostrade-Concessioni e Construzioni................................. 73,195
ITY 35,000 Banca Commerciale Italiana............................................ 84,460
ITY 23,300 Banco di Sardegna S.p.A............................................... 171,925
ITY 19,140 (a)Cartiere Burgo S.p.A.................................................. 107,508
ITY 39,000 Danieli & C. Officine Meccaniche S.p.A................................ 133,591
ITY 44,600 Sasib S.p.A........................................................... 142,370
ITY 20,000 Unicem S.p.A.......................................................... 56,231
----------
769,280
----------

JAPAN 3.4%
JPN 29,000 Hitachi, Ltd.......................................................... 230,501
JPN 15,000 Matsushita Electric Industrial Co..................................... 203,554
JPN 5,000 Sony Corp............................................................. 227,094
----------
661,149
----------

MALAYSIA .7%
MLN 15,000 Telekom, Malaysia..................................................... 126,736
----------

MEXICO 5.3%
MEX 110,000 (a)Aerovias de Mexico.................................................... 59,821
MEX 14,100 (a)Desc Sociedad de Fomento Industrial................................... 67,433
MEX 14,600 Grupo Embotelladoras de Mexico........................................ 210,173
MEX 10,000 Grupo Financiero Banamex.............................................. 60,301
MEX 90,000 Grupo Industrial Maseca, SA........................................... 95,010
MEX 4,000 Grupo Televisa SA de C.V.............................................. 108,125
MEX 6,700 Kimberly-Clark de Mexico, SA.......................................... 102,879
US 3,900 Telefonos de Mexico, ADR.............................................. 213,525
MEX 18,000 Vitro, SA............................................................. 104,223
----------
1,021,490
----------

NETHERLANDS 8.0%
NTH 4,400 ABN Amro Holdings, NV................................................. 167,846
NTH 1,280 Akzo, NV.............................................................. 121,934
NTH 3,000 (a)DSM, NV............................................................... 162,735
NTH 6,300 Internationale Nederlanden Groep, NV.................................. 275,135
NTH 2,800 Koninklijke Bijenkorf Beheer.......................................... 144,448
NTH 9,380 Koninklijke KNP, NV................................................... 200,338
NTH 4,800 Koninklijke Pakhoed, NV............................................... 118,075
NTH 6,300 Oce-Van Der Grinten, NV............................................... 190,787
NTH 6,900 (a)Philips Electronics, NV............................................... 143,338
----------
1,524,636
----------

NEW ZEALAND .6%
NWZ 50,000 New Zealand Telecommunications........................................ 123,343
----------

PHILIPPINES 1.2%
PLP 2,800 Philippine Long Distance Telephone Co................................. 177,962
PLP 3,190 Philippine National Bank.............................................. 42,699
----------
220,661
----------
</TABLE>

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

<PAGE>

FRANKLIN INTERNATIONAL TRUST

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1993 (CONT.)

<TABLE>
<CAPTION>
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN INTERNATIONAL EQUITY FUND (NOTE 1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS (CONT.)
SINGAPORE 2.4%
SNG 54,000 City Developments, Ltd................................................ $ 238,335
SNG 5,400 (a)City Developments, Ltd., warrants..................................... 13,755
SNG 25,000 Overseas Union Bank, Ltd.............................................. 126,103
SNG 36,000 Sime Darby Berhad..................................................... 80,353
----------
458,546
----------

SPAIN 7.5%
SP 6,350 Banco Bilbao Vizcaya, SA.............................................. 163,360
SP 1,100 Banco de Andalucia.................................................... 135,964
SP 2,430 Banco Intercontinental Espana......................................... 213,145
SP 1,450 Banco Popular Espanol................................................. 188,511
SP 36,600 Compania Sevillana de Electricidad.................................... 160,517
SP 2,800 (a)Cristaleria Espanol, SA............................................... 99,553
SP 47,300 Iberdrola, SA......................................................... 313,102
SP 3,000 Repsol................................................................ 90,134
SP 4,000 Unipapel, SA.......................................................... 84,736
----------
1,449,022
----------

SWEDEN 5.2%
SWD 10,150 Astra AB, Class A..................................................... 223,288
SWD 13,100 Esselte AB............................................................ 158,582
SWD 12,100 Marieberg Tidnings AB................................................. 194,806
SWD 8,400 (a)SKF AB................................................................ 130,076
SWD 3,300 Stora Kopparbergs..................................................... 1,148,842
SWD 10,950 (a)Svenska Handelsbanke, Inc., Class A................................... 150,723
----------
1,006,317
----------

SWITZERLAND 4.2%
SWT 320 BBC Brown Boveri, Ag.................................................. 216,385
SWT 68 CS Holdings........................................................... 155,797
SWT 50 Nestle, Ag............................................................ 40,053
SWT 507 (a)Schweiz Rueckversicherungs............................................ 255,245
SWT 120 Societe Generale de Surveillance Holdings, SA......................... 145,769
----------
813,249
----------
UNITED KINGDOM 10.3%
UK 109,000 Albert Fisher Group, Plc.............................................. 121,574
UK 20,000 BICC, Ag, Plc......................................................... 121,648
UK 35,000 British Airways, Plc.................................................. 196,749
UK 15,800 Cable & Wireless...................................................... 117,602
UK 8,000 Glaxo Holdings, Plc................................................... 81,139
UK 33,300 Govett & Co., Plc..................................................... 168,374
UK 42,000 Hillsdown Holdings, Plc............................................... 103,059
UK 13,988 Hong Kong Shanghai Bank............................................... 158,929
UK 17,100 Kwik Save Group, Plc.................................................. 163,262
UK 60,000 Medeva, Plc........................................................... 102,613
UK 18,400 National Westminster Bank, Plc........................................ 151,867
UK 79,000 (a)Queens Moat Houses, Plc............................................... 28,196
UK 18,000 Scottish Power, Plc., 50P............................................. 111,357
UK 8,400 Standard Chartered, Plc............................................... 132,041
UK 49,000 Taylor Woodrow, Plc................................................... 89,630
UK 17,300 Thames Water, Plc..................................................... 138,929
----------
1,986,969
----------
</TABLE>

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

<PAGE>
FRANKLIN INTERNATIONAL TRUST

STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1993 (CONT.)
<TABLE>
<CAPTION>

SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN INTERNATIONAL EQUITY FUND (NOTE 1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS (CONT.)
UNITED STATES .4%
US 2,000 ACE, Ltd............................................................................ 65,000
-----------
TOTAL COMMON STOCKS & WARRANTS (COST $14,198,656)................................ 16,830,179
-----------
PREFERRED STOCK
NETHERLANDS
NTH 216 ABN Amro Holding, NV (Cost $7,457).................................................. 8,240
-----------
FACE
AMOUNT
----------
CONVERTIBLE BOND .1%
US $ 10,000 Jardine Strategic, cvt., 7.50%, 09/09/49 (Cost $10,200)............................. 14,181
-----------
TOTAL COMMON STOCKS & WARRANTS, PREFERRED STOCKS & CONVERTIBLE BONDS
(COST $14,216,313).............................................................. 16,852,600
-----------
RECEIVABLES FROM REPURCHASE AGREEMENTS 8.6%
US 1,650,000(b) Daiwa Securities of America, Inc., 2.95%, 11/01/93 (Maturity Value $1,655,407)
Collateral: U.S. Treasury Notes, 5.00%, 06/30/94 (Cost $1,655,000)................. 1,655,000
-----------
TOTAL INVESTMENTS (COST $15,871,313) 96.3%....................................... 18,507,600
OTHER ASSETS AND LIABILITIES, NET 3.7%........................................... 709,479
-----------
NET ASSETS 100.0%................................................................ $19,217,079
===========
At October 31, 1993, the net unrealized appreciation based on the cost of
investments for income tax purposes of $15,871,313 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.................................................... $ 2,934,352
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value.................................................... (298,065)
-----------
Net unrealized appreciation....................................................... $ 2,636,287
===========
</TABLE>

COUNTRY LEGEND:

AUS - Australia
AST - Austria
BEL - Belgium
CAN - Canada
FRN - France
GER - Germany
HK - Hong Kong
ITY - Italy
JPN - Japan
MEX - Mexico
MLN - Malaysia
NTH - Netherlands
NWZ - New Zealand
PLP - Philippines
SNG - Singapore
SP - Spain
SWD - Sweden
SWT - Switzerland
UK - United Kingdom
US - United States

* Securities traded in currency of country indicated.
(a) Non-income producing.
(b) Face amount for repurchase agreements is for the underlying collateral.

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

<PAGE>
FRANKLIN INTERNATIONAL TRUST
FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1993

Franklin Franklin
Pacific International
Growth Fund Equity Fund
----------- -------------
<S> <C> <C>
Assets:
Investments:
At identified cost............................................................................ $14,170,443 $14,216,313
=========== ===========
At value...................................................................................... 18,058,593 16,852,600
Receivables from repurchase agreements at value and cost....................................... 3,805,000 1,655,000
Cash........................................................................................... 159,766 52,785
Foreign currencies (Cost $580,141 and $747,748, respectively).................................. 578,813 743,156
Receivables:
Dividends and interest........................................................................ 51,560 46,323
Capital shares sold........................................................................... 151,982 38,850
From affiliates............................................................................... 29,953 32,172
Unamortized organization costs (Note 4)........................................................ 18,757 18,757
----------- -----------
Total assets............................................................................... 22,854,424 19,439,643
Liabilities: ----------- -----------
Payables:
Investment securities purchased............................................................... 186,607 161,935
Capital shares repurchased.................................................................... - 3,375
Shareholder servicing costs................................................................... 1,100 1,240
Accrued expenses and other liabilities......................................................... 47,712 56,014
----------- -----------
Total liabilities.......................................................................... 235,419 222,564
----------- -----------
Net assets, at value............................................................................ $22,619,005 $19,217,079
=========== ===========
Net assets consist of:
Undistributed net investment income............................................................ $ 81,099 $ 80,945
Net unrealized appreciation on investments..................................................... 3,888,150 2,636,287
Net unrealized depreciation on translation of assets and liabilities in foreign currencies..... (944) (960)
Accumulated net realized gain (loss)........................................................... 122,709 (203,390)
Capital shares................................................................................. 15,665 15,654
Additional paid-in capital..................................................................... 18,512,326 16,688,543
----------- -----------
Net assets, at value............................................................................ $22,619,005 $19,217,079
=========== ===========
Shares outstanding.............................................................................. 1,566,521 1,565,424
=========== ===========
Net asset value per share....................................................................... $14.44 $12.28
=========== ===========
Representative computation of Franklin Pacific Growth Fund
net asset value and offering price per share:
Net asset value and redemption price per share
($22,619,005 divided by 1,566,521).......................................................... $14.44
===========
Maximum offering price (100/95.5 of $14.44)*.................................................. $15.12
===========
</TABLE>

*On sales of $100,000 or more, the offering price is reduced as stated in the
section of the Prospectus entitled "How to Buy Shares of the Fund".

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

<PAGE>
FRANKLIN INTERNATIONAL TRUST
FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1993

<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
PACIFIC INTERNATIONAL
GROWTH FUND EQUITY FUND
----------- -------------
<S> <C> <C>
Investment income:
Interest (Note 1) ............................................................. $ 39,387 $ 77,733
Dividends, net of foreign taxes withheld of $13,794 and $44,945, respectively.. 212,242 243,365
Realized foreign currency gain (loss), net (Note 1) ........................... (14,322) 191,058
---------- ----------
Total income ................................................................ 237,307 512,156
---------- ----------
Expenses:
Shareholder servicing costs (Note 8) .......................................... 6,241 10,055
Distribution fees (Note 8) .................................................... 23,351 26,475
Reports to shareholders ....................................................... 11,194 14,810
Custodian fees ................................................................ 20,147 20,462
Professional fees ............................................................. 16,599 19,438
Registration & filing fees .................................................... 38,804 33,929
Amortization of organization cost (Note 4) .................................... 6,489 6,489
Other ......................................................................... 295 6,699
Payments from Manager (Note 8) ................................................ (76,497) (84,376)
---------- ----------
Total expenses .............................................................. 46,623 53,981
---------- ----------
Net investment income ...................................................... 190,684 458,175
---------- ----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) ...................................................... 122,709 (139,848)
Net unrealized appreciation (depreciation) on:
Investments .................................................................. 3,811,661 2,933,934
Translation of assets and liabilities in foreign currencies .................. (465) (155,373)
---------- ----------
Net realized and unrealized gain on investments ................................ 3,933,905 2,638,713
---------- ----------
Net increase in net assets resulting from operations ........................... $4,124,589 $3,096,888
========== ==========
</TABLE>

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

<PAGE>

FRANKLIN INTERNATIONAL TRUST
FINANCIAL STATEMENTS (CONT.)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1993 AND 1992

<TABLE>
<CAPTION>
FRANKLIN PACIFIC FRANKLIN INTERNATIONAL
GROWTH FUND EQUITY FUND
-------------------------- --------------------------
1993 1992 1993 1992
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................... $ 190,684 $ 62,551 $ 458,175 $ 100,077
Net realized gain (loss) on investments ......................... 122,709 151,395 (139,848) (63,542)
Net unrealized appreciation (depreciation) on investments ....... 3,811,661 76,489 2,933,934 (297,647)
Net unrealized appreciation (depreciation) on translation of
assets and liabilities denominated in foreign currencies ....... (465) (479) (155,373) 154,413
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................................... 4,124,589 289,956 3,096,888 (106,699)
Distributions to shareholders:
From undistributed net investment income ........................ (139,768) (39,625) (407,731) (77,064)
From net realized capital gains ................................. (151,395) -- -- --
Increase in net assets from capital
share transactions (Note 5) ..................................... 13,061,561 4,308,762 9,583,991 5,842,135
----------- ----------- ----------- -----------
Net increase in net assets .................................. 16,894,987 4,559,093 12,273,148 5,658,372
Net assets:
Beginning of year ................................................ 5,724,018 1,164,925 6,943,931 1,285,559
----------- ----------- ----------- -----------
End of year ...................................................... $22,619,005 $ 5,724,018 $19,217,079 $ 6,943,931
=========== =========== =========== ===========
Undistributed net investment income included in net assets:
Beginning of year ................................................ $ 30,183 $ 7,257 $ 30,501 $ 7,488
=========== =========== =========== ===========
End of year ...................................................... $ 81,099 $ 30,183 $ 80,945 $ 30,501
=========== =========== =========== ===========
</TABLE>

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

<PAGE>
FRANKLIN INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Franklin International Trust (the Trust) is an open-end management investment
company (mutual fund) registered under the Investment Company Act of 1940, as
amended. The Trust currently has two separate diversified Funds (the Funds) in
operation, consisting of the Franklin Pacific Growth Fund (the Pacific Fund)
and the Franklin International Equity Fund (the International Fund). Each of the
Funds issues a separate series of the Trust's shares and maintains a totally
separate investment portfolio.

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

A. SECURITY VALUATIONS: Portfolio securities listed on a U.S. 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, at the mean between the most recent quoted bid
and asked prices. Other securities for which market quotations are readily
available are valued at current market values, obtained from a pricing service,
which are 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 securities. Portfolio
securities which are traded both in the over-the-counter market and on a
securities exchange are valued according to the broadest and most representative
market as determined by the Manager. Short-term securities and similar
investments with remaining maturities of 60 days or less are valued at amortized
cost, which approximates value.

Securities denominated in foreign currencies and traded on foreign exchanges or
in foreign markets are valued in a similar manner and translated into U.S.
dollars at current market quotations of their respective currency denomination
against U.S. dollars last quoted by a major bank or, if no such quotation is
available, at the rate of exchange determined in accordance with policies
established by the Board of Trustees.

The fair values of securities restricted as to resale, or other securities for
which market quotations are not readily available, if any, are determined
following procedures approved by the Board of Trustees.

B. INCOME TAXES: It is the Trust's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no income
tax provision is required. Each Fund is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.

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 for
both financial statement and income tax purposes.

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. Bond discount and premium are
amortized as required by the Internal Revenue Code.

Distributions from undistributed net investment income and net realized capital
gains from security transactions, to the extent they exceed available capital
loss carryovers, are generally made during each year to avoid the 4% excise tax
imposed on regulated investment companies by the Internal Revenue Code.

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

F. FOREIGN CURRENCY TRANSLATION: The accounting records of the Trust are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, and income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income and expense amounts recorded and collected or paid
are recognized as adjustments to investment income when reported by the
custodian bank.

2. FORWARD FOREIGN CURRENCY CONTRACTS:

A forward currency contract which is individually negotiated and privately
traded by currency traders and their customers is an obligation to purchase or
sell a specific currency for an agreed-upon price at a future date.

<PAGE>
FRANKLIN INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)

2. FORWARD FOREIGN CURRENCY CONTRACTS (CONT.)

The Trust may enter into forward contracts with the goal of minimizing the risk
to the Trust from adverse changes in the relationship between currencies or to
enhance income. The Trust may also enter into a forward contract in relation to
a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of that security.

To limit potential risks in connection with forward contracts, the Funds will
set aside or segregate in its custodian bank sufficient cash, cash equivalents
or readily marketable debt securities equal to the amount of foreign currency
purchased under forward contracts, or the Funds will cover any commitments to
deliver currency under these contracts by acquiring a sufficient amount of the
underlying currency. The segregated account is marked to market on a daily
basis. The Funds could be exposed to risk if counterparties to the contracts are
unable to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.

At October 31, 1993, the Trust had no outstanding foreign currency forward
contracts.

3. REPURCHASE AGREEMENTS:

The Trust may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board and/or member banks of the
Federal Reserve System. In a repurchase agreement, the Funds purchase a U.S.
government security from a dealer or bank subject to an agreement to resell it
at a mutually agreed upon price and date. Such a transaction is accounted for as
a loan by the Funds to the seller, collateralized by the underlying security.
The transaction requires the initial collateralization of the seller's
obligation by U.S. government securities with market value, including accrued
interest, of at least 102% of the dollar amount invested by the Funds, with the
value of the underlying security marked to market daily to maintain coverage of
at least 100%. The collateral is delivered to the Funds' custodian and held
until resold to the dealer or bank. At October 31, 1993, all outstanding
repurchase agreements held by the Funds had been entered into on October 29,
1993.

4. UNAMORTIZED ORGANIZATION COSTS

The organization costs of each Fund are amortized on a straight-line basis over
a period of five years from September 20, 1991 (the effective date of
registration under the Securities Act of 1933). In the event Franklin Resources,
Inc. (which was the sole shareholder prior to September 20, 1991) redeems its
shares within the five-year period, the pro rata share of the then-unamortized
deferred organization costs will be deducted from the redemption price paid to
Franklin Resources, Inc. New investors purchasing shares of the Funds subsequent
to that date bear such costs during the amortization period only as such
charges are accrued daily against investment income. Organization costs for the
Pacific Fund and the International Fund amounted to $32,447 each.

5. TRUST SHARES

At October 31, 1993, there were an unlimited number of shares of beneficial
interest authorized with a par value of $0.01 per share. Transactions in each of
the Fund's shares for the years ended October 31, 1993 and 1992 were as follows:

FRANKLIN PACIFIC FRANKLIN INTERNATIONAL
GROWTH FUND EQUITY FUND
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1993
Shares sold ............................................ 492,991 $ 6,036,865 308,150 $ 3,352,168
Shares issued in reinvestment of distributions ......... 25,762 277,029 34,587 363,060
Shares redeemed ........................................ (43,005) (513,973) (56,865) (611,058)
Changes from exercise of exchange privilege:
Shares sold ........................................... 845,277 10,586,263 1,086,855 12,018,568
Shares redeemed ....................................... (279,602) (3,324,623) (500,321) (5,538,747)
--------- ----------- --------- -----------
Net increase ........................................... 1,041,423 $13,061,561 872,406 $ 9,583,991
========= =========== ========= ===========
</TABLE>

<PAGE>
FRANKLIN INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)

5. TRUST SHARES (CONT.)

FRANKLIN PACIFIC FRANKLIN INTERNATIONAL
GROWTH FUND EQUITY FUND
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
1992
Shares sold ............................................ 143,221 $ 1,494,386 314,165 $ 3,247,450
Shares issued in reinvestment of distributions ......... 3,573 38,081 6,879 71,742
Shares redeemed ........................................ (31,830) (338,279) (21,385) (221,822)
Changes from exercise of exchange privilege:
Shares sold ........................................... 519,876 5,567,827 416,261 4,295,595
Shares redeemed ....................................... (225,428) (2,453,253) (150,570) (1,550,830)
-------- ----------- -------- -----------
Net increase ........................................... 409,412 $ 4,308,762 565,350 $ 5,842,135
======== =========== ======== ===========
</TABLE>

6. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

At October 31, 1993, for tax purposes, the Funds had accumulated net realized
gains or capital loss carryovers as follows:

FRANKLIN PACIFIC FRANKLIN INTERNATIONAL
GROWTH FUND EQUITY FUND
----------------- ----------------------
<S> <C> <C>
Accumulated net realized gains $126,733 $ _
======== ========
Capital loss carryovers

Expiring in: 2000 ..................... _ $ 63,542
2001 ..................... _ 139,848
-------- --------
$ _ $203,390
======== ========
</TABLE>

For income tax purposes, the aggregate cost of securities is higher (and
unrealized appreciation is lower) than for financial reporting purposes at
October 31, 1993 by $4,024 in the Pacific Growth Fund.

7. PURCHASES AND SALES OF SECURITIES

Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended October 31, 1993, were as follows:

FRANKLIN PACIFIC FRANKLIN INTERNATIONAL
GROWTH FUND EQUITY FUND
---------------- ----------------------
<S> <C> <C>
Purchases .................. $12,827,865 $12,800,296
=========== ===========
Sales ...................... $ 3,873,316 $ 4,700,153
=========== ===========
</TABLE>

8. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Franklin Advisers, Inc. ("Manager"), under the terms of a management agreement,
provides investment advice, office space and facilities to each Fund and
receives fees computed monthly on the average daily net assets of each Fund at
an annualized rate of 1% of the first $100 million of net assets; 9/10 of 1% of
net assets in excess of $100 million up to and including $250 million; 8/10 of
1% of net assets in excess of $250 million up to and including $500 million; and
3/4 of 1% of net assets

<PAGE>

FRANKLIN INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONT.)

8. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)

in excess of $500 million. Under a subadvisory agreement effective January 1,
1993, Templeton Investment Counsel, Inc. ("TICI" or the "Subadviser"), an
indirect subsidiary of Templeton Worldwide, Inc., which is a direct,
wholly-owned subsidiary of Franklin Resources, Inc. ("Resources") receives
from the Manager a fee equal to an annual rate of 1/2 of 1% of the value of
each Fund's net assets up to and including $100 million; 2/5 of 1% of net
assets in excess of $100 million up to and including $250 million; 3/10 of 1%
of net assets in excess of $250 million up to and including $500 million; and
1/4 of 1% of net assets in excess of $500 million. Prior to January 1, 1993,
Barclays de Zoete Wedd Investment Management Inc., a subsidiary of Barclays de
Zoete Wedd U.S. Holdings Inc., which itself is an indirect wholly owned
subsidiary of Barclays Bank PLC, served as the subadviser under a contract
with the Manager providing services to the shareholders with the same fee
structure as Templeton Investment Counsel, Inc. Fees to which the manager is
entitled by contract aggregated $93,882 and $108,434 for the Pacific Fund and
the International Equity Fund, respectively, for the year ended October 31,
1993. The terms of these agreements provide that aggregate annual expenses of
the Funds 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 Funds' shares are registered. The Funds' expenses did not
exceed these limitations; however, for the year ended October 31, 1993,
Franklin Advisers, Inc. did not impose management fees for the Pacific Fund and
the International Fund and bore other expenses as reflected in the Statements
of Operations.

In its capacity as underwriter for the shares of the Trust, Franklin/Templeton
Distributors, Inc. receives commissions on sales of the Trust's shares.
Commissions received by Franklin/Templeton Distributors, Inc. and the amounts
which were subsequently paid to other dealers for the year ended October 31,
1993 were as follows:

FRANKLIN PACIFIC FRANKLIN INTERNATIONAL
GROWTH FUND EQUITY FUND
---------------- ----------------------
<S> <C> <C>
Total commissions received ................... $214,144 $170,962
======== ========
Paid to other dealers ........................ $187,097 $145,805
======== ========
</TABLE>

Commissions are deducted from the gross proceeds received from the sale of the
shares of the Trust, and as such are not expenses of the Funds.

Under the terms of a Distribution Agreement pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the Funds will reimburse Franklin/Templeton
Distributors, Inc., in an amount up to 0.25% per annum which covered costs
incurred in the furnishing of promotion, offering and marketing of the Funds'
shares. Fees incurred by the Pacific Fund and International Fund under the
agreement aggregated $23,351 and $26,475, respectively, for the year ended
October 31, 1993.

Pursuant to a shareholder service agreement with Franklin/Templeton Investor
Services, Inc., the Funds pay costs on a per shareholder account basis. Costs
incurred for the year ended October 31, 1993 aggregated $16,296, of which
$16,028 was paid to Franklin/Templeton Investor Services, Inc.

Certain officers and trustees of the Trust are also officers and/or directors of
Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., Templeton
Worldwide, Inc. and Franklin/Templeton Investor Services, Inc., all wholly-owned
subsidiaries of Franklin Resources, Inc.

9. FINANCIAL HIGHLIGHTS

Selected data for each share of beneficial interest outstanding throughout each
period are set forth in the Prospectus under the caption "Financial Highlights."