FRANKLIN TEMPLETON INTERNATIONAL TRUST, 497, 1996-03-07

FRANKLIN TEMPLETON INTERNATIONAL TRUST
497, 1996-03-07

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TEMPLETON PACIFIC
GROWTH FUND

Franklin Templeton International Trust

PROSPECTUS March 1, 1996

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

The Templeton Pacific Growth Fund (the "Fund") is a diversified series of
Franklin Templeton International Trust (the "Trust"), an open-end management
investment company. Prior to February 1, 1996, the Fund and the Trust had been
named the Franklin Pacific Growth Fund and the Franklin International Trust,
respectively. Effective that day, the Fund's name was changed to Templeton
Pacific Growth Fund and the Trust's name was changed to Franklin Templeton
International Trust. The investment policies of the Fund were not affected by
these changes.

The Fund seeks long-term growth of capital. Under normal market conditions, the
Fund invests at least 65% of its total assets in equity securities that trade on
markets in the Pacific Rim and are issued by companies (i) domiciled in the
Pacific Rim or (ii) that derive at least 50% of their revenues or pre-tax income
from activities in the Pacific Rim. The Fund may invest in domestic and foreign
securities as described under "How Does the Fund Invest Its Assets?"

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

An SAI concerning the Trust, dated March 1, 1996, 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 you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Fund or from Distributors, at the address or telephone number shown above.

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.

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

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

CONTENTS PAGE

Expense Table........................................... 2

Financial Highlights -
How Has the Fund Performed?............................ 3

What Is the Templeton Pacific
Growth Fund?........................................... 4

How Does the Fund Invest Its Assets?.................... 4

What Are the Fund's Potential Risks?.................... 9

How You Participate in the Results
of the Fund's Activities............................... 11

Who Manages the Fund?................................... 12

What Distributions Might
I Receive from the Fund?............................... 14

How Taxation Affects You and the Fund................... 15

How Do I Buy Shares?.................................... 16

What Programs and Privileges Are
Available to Me as a Shareholder?...................... 22

What If My Investment Outlook Changes? -
Exchange Privilege..................................... 24

How Do I Sell Shares?................................... 26

Telephone Transactions.................................. 30

How Are Fund Shares Valued?............................. 31

How Do I Get More Information
About My Investment?................................... 31

How Does the Fund Measure Performance?.................. 32

General Information..................................... 33

Registering Your Account................................ 34

Important Notice Regarding
Taxpayer IRS Certifications............................ 34

Useful Terms and Definitions............................ 35

EXPENSE TABLE

The purpose of this table is to assist you in understanding the various costs
and expenses that you 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 for the fiscal year ended October 31, 1995.

Shareholder Transaction Expenses

Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................ 4.50%
Deferred Sales Charge............................................... NONE+
Exchange Fee (per transaction)...................................... $5.00*

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

*$5.00 fee imposed only on Market Timers as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.

Annual Fund Operating Expenses

(as a percentage of average net assets)

Management Fees..................................................... 1.00%
Rule 12b-1 Fees..................................................... 0.19%**

Other Expenses:
Custodian Fees............................................. 0.12%
Shareholder Servicing costs................................ 0.12%
Other...................................................... 0.29%
Total Other Expenses................................................ 0.53%
Total Fund Operating Expenses....................................... 1.72%

**The maximum amount of Rule 12b-1 fees allowed pursuant to the Fund's
distribution plan is 0.25%. See "Who Manages the Fund? - Plan of Distribution."
Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.

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

EXAMPLE

As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.

One Year Three Years Five Years Ten Years

$62* $97 $134 $239

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

This example is based on the aggregate annual operating expenses 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 you as a result of your investment in the Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but the Fund's actual return may be more or less than 5%.

FINANCIAL HIGHLIGHTS - HOW HAS THE FUND PERFORMED?

Set forth below is a table containing the financial highlights for a share of
the Fund. The information for each of the four fiscal years in the period ended
October 31, 1995, and for the period from September 20, 1991 (effective date of
registration) to October 31, 1991, has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial statements in
the Trust's Annual Report to Shareholders dated October 31, 1995. See "Reports
to Shareholders" under "General Information" in this Prospectus.
<TABLE>
<CAPTION>

Per Share Operating Performance** Ratios/Supplemental Data

_____________________________________________________ ___________________________

Net Net
Asset Realized & Total Distri- Distri- Net Ratio of
Value Net Unrealized From butions butions Asset Net Assets Net Investment
Year at Begin- Invest- Gain Invest- From Net From Total Value at End Expenses Income Portfolio
Ended ning ment (Loss) on ment Investment Capital Distri- At End Total of Year to Average to Averag Turnover
Oct.31 of Year Income Securities Operations Income Gains butions of Year Return++(in 000's) Net Assets Net Asset Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991+ $10.01 $.06 $ - $ .060 $ - $ - $ - $10.07 .60% $ 1,165 -%*** 5.01%* -%
1992 10.07 .14 .836 .976 (.146) - (.146) 10.90 9.77 5,724 .29*** 1.80 2.96
1993 10.90 .19 3.825 4.015 (.193) (.282) (.475) 14.44 38.46 22,619 .50*** 2.03 47.52
1994 14.44 .21 1.008 1.218 (.198) (.060) (.258) 15.40 8.46 58,241 1.22*** 1.54 9.16
1995 15.40 .15 (1.013) (.863) (.156) (.271) (.427) 14.11 (5.54) 50,247 .72 1.04 36.21
</TABLE>

+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 front-end sales charge, assumes
reinvestment of dividends and capital gains, if any, at net asset value, and is
not annualized.

*Annualized.

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

***During the periods indicated, Advisers agreed in advance to waive a portion
of its management fees. Had such action not been taken, the ratios of expenses
to average net assets would have been as follows:

Ratio of expenses to
average net assets
------------

1991+........................................ 2.50%*

1992......................................... 2.50

1993......................................... 2.31

1994......................................... 1.72

WHAT IS THE TEMPLETON PACIFIC GROWTH FUND?

The Fund is a diversified series of the trust, an open-end management investment
company commonly called a "mutual fund." The Trust was organized as a Delaware
business trust on March 22, 1991, and registered with the SEC under the 1940
Act. Shares of the Fund may be considered Class I shares, as described under
"Useful Terms and Definitions," for redemption, exchange and other purposes.

HOW DOES THE FUND INVEST ITS ASSETS?

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

TYPES OF SECURITIES THE FUND MAY PURCHASE

Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities that trade on markets in the Pacific Rim and are
issued by companies (i) domiciled in the Pacific Rim or (ii) that derive at
least 50% of their revenues or pre-tax income from activities in the Pacific
Rim.

For purposes of this policy, the countries in the Pacific Rim are Australia,
China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan,
Philippines, Singapore, South Korea and Thailand. It is currently expected that
under normal conditions at least 65% of the Fund's total assets will be invested
in securities of foreign issuers in at least three of the countries listed
herein.

The Fund may invest up to 35% of its assets in the securities of issuers
domiciled outside of the Pacific Rim. These investments may include securities
of issuers (i) in countries that are not located in the Pacific Rim but are
linked by tradition, economic markets, cultural similarities, or geography to
countries in the Pacific Rim; and (ii) 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-advisor 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.

Under normal market conditions, the Fund's assets are substantially invested in
equity securities consisting of common and preferred stock, bonds or preferred
stock convertible into common stock, warrants and securities representing
certain underlying international securities such as American Depositary Receipts
or "ADRs" ("Equity Securities"). The Fund may, from time to time, hold
significant cash positions until suitable investment opportunities are
available, consistent with its policy on short-term investments.

Up to 35% of the Fund's total assets may be invested in investment grade bonds,
fixed-income debt securities, and synthetic 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 unrated but determined to be of comparable
quality. The Fund may seek capital appreciation by investing in these debt
securities. Appreciation in the value of these investments may result from
changes in relative foreign currency exchange rates, interest rates or
improvement in the creditworthiness of an issuer. The receipt of income from
these debt securities is incidental to the Fund's investment objective of
long-term growth of capital. Debt obligations in which the Fund may invest
include U.S. and foreign government securities and corporate debt securities,
including Samurai and Yankee bonds, Eurobonds and depository receipts. The
issuers of these debt securities may or may not be domiciled in the Pacific Rim.

Fixed-income debt securities rated 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 SAI.

In the event the rating on an issue held in the Fund's portfolio is lowered by a
rating service, the 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.

Currency Hedging Transactions. In order to hedge against currency exchange rate
risks, the Fund may enter into forward currency exchange contracts, 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.

Securities Warrants. The Fund may invest up to 10% of its net assets in
warrants, including 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 the 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.

Convertible Securities. The Fund may invest in convertible securities. A
convertible security is generally a debt obligation or a preferred stock that
may be converted within a specified period of time into a certain amount of
common stock of the same or a different issuer. A convertible security may also
be subject to redemption by the issuer but only after a specified date and under
circumstances established at the time the security is issued. Convertible
securities provide a fixed-income stream and the opportunity, through their
conversion feature, to participate in the capital appreciation resulting from a
market price advance in the convertible security's underlying common stock.
Though the Fund intends to invest in liquid convertible securities there can be
no assurance that this will always be achieved. For more information on
convertible securities, including liquidity issues, please see the SAI.

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 principle characteristics of a true
convertible security, i.e., fixed income and the right to acquire the underlying
equity security. This combination is achieved by investing in nonconvertible
fixed-income securities and in warrants, or stock or stock index call options
that grant the holder the right to purchase a specified quantity of securities
within a specified period of time at a specified price or to receive cash in the
case of stock index options. Synthetic convertible securities are not considered
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
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 Managers normally
expect to create synthetic convertibles whose two components represent one
issuer, the character of a synthetic convertible allows the Fund to combine
components representing distinct issuers, or to combine a fixed-income security
with a call option on a stock index, when the Managers determine that such a
combination would better promote the Fund's investment objective. In addition,
the component parts of a synthetic convertible security may be purchased
simultaneously or separately; and the holder of a synthetic convertible faces
the risk that the price of the stock, or the level of the market index
underlying the convertibility component will decline.

OTHER POLICIES OF THE FUND

Loans of Portfolio Securities. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 331/3% 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 bank collateral with an initial market value of at least 102%
of the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. 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 may engage
in security loan arrangements with the primary objective of increasing the
Fund's income either through investing the cash collateral in short-term
interest bearing obligations or by receiving a loan premium from the borrower.
Under the securities loan agreement, the Fund continues to be entitled to all
dividends or interest on any loaned securities. As with any extension of credit,
there are risks of delay in recovery and loss of rights in the collateral should
the borrower of the security fail financially.

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, at the time of purchase, in illiquid securities (securities that cannot
be disposed of within seven days in the normal course of business at
approximately the amount at which the Fund has valued the securities). 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,
over-the-counter options ("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.

Short-Term Investments. Occasionally, pending investment of proceeds from new
sales of Fund shares, to honor redemptions, 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 uncertain market
or economic conditions, or while awaiting attractive investment opportunities,
the Fund may establish a temporary defensive position by investing in high
quality money-market instruments if the Managers anticipate 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. 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.
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 unrated, determined by Advisers or TICI to be of comparable
quality. It is impossible to predict when or for how long the Fund would employ
defensive strategies.

Repurchase Agreements. 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 financial
institutions such as broker-dealers and banks which are deemed creditworthy by
Advisers. A repurchase agreement is deemed to be a loan by the Fund under the
1940 Act. The U.S. government security subject to resale (the collateral) will
be held on behalf of the Fund by a custodian approved by the Board and will be
held pursuant to a written agreement.

OPTIONS

The Fund may purchase put and call options and write covered put and call
options on securities and securities indices that are traded on U.S. or foreign
exchanges or over-the-counter. The Fund will not purchase puts, calls,
straddles, spreads or any combinations thereof if the value of its aggregate
investment in these securities will exceed 5% of its total assets.

Writing Put and Call Options on Securities. The Fund may write covered 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.

Purchasing Put and Call Options on Securities. The Fund may purchase put options
on 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. The Fund may also purchase call options on securities it intends to
purchase in order to limit the risk of a substantial increase in the market
price of the security. The Fund may also purchase call options on securities
held in its portfolio on which it has written call options.

Options on Stock Indices. The Fund may purchase and write covered 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,
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.

Forward Conversions. The Fund may engage in forward conversion transactions
whereby the Fund will write call options on securities it's purchased and
purchase put options on those securities. By purchasing puts, the Fund protects
the underlying security from depreciation in value. By writing calls on the same
security, the Fund receives premiums that 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.

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 AND OPTIONS ON FUTURES

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 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. 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. For additional information on Futures
Transactions, see "How Do the Funds Invest Their Assets?" in the SAI.

Financial Futures Contracts. Financial futures contracts are 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.

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 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.

Options on Stock Index Futures Contracts. Call and put options on stock index
futures are similar to options on securities except, 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.

Other Restrictions. 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 about the policies discussed herein, please
see "How Do the Funds Invest Their Assets?" and "Investment Restrictions" in the
SAI.

WHAT ARE THE FUND'S POTENTIAL RISKS?

Foreign Securities. Foreign securities involve certain risks that you should
consider carefully. 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). Foreign 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
foreign 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 foreign securities.

In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers that 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 foreign debt obligation, it may be
more difficult for the Fund to obtain or to enforce a judgment against the
issuer of the security.

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. You should
consider the greater risk of this 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.

Some of the countries in which the Fund invests may not permit direct
investment. Investments in these 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 5% of its
assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.

Foreign Currencies. If a security is denominated in foreign currency, the value
of the security 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. These 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 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
currency required to be converted into U.S. dollars in order to pay expenses in
U.S. dollars will be greater.

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 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 TICI 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.

Options, Futures, and Forwards. The purchase and sale of futures contracts and
options thereon, as well as the purchase and writing of options on securities,
securities indices and currencies, involve risks different from those involved
with direct investments in securities or currencies. 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
investments in securities and currencies 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. For additional information see "How Do the Funds Invest Their
Assets?" and "What Are the Funds' Potential Risks?" in the SAI.

Transactions in options, futures, options on futures and forward contracts
are generally considered "derivative securities."

HOW YOU 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
you own will increase. If the securities owned by the Fund decrease in value,
the value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.

In addition to the factors which affect the value of individual securities, as
described in the preceding sections, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity and bond markets.

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
increases and decreases in worldwide stock markets and currency valuations and
these may reoccur unpredictably in the future.

To the extent the Fund's investments consist of debt securities, changes in the
prevailing rates of interest in any of the countries in which the Fund is
invested will likely affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. In addition, changes in currency valuations will impact the price
of Fund shares. History reflects both increases and decreases in interest rates
in individual countries and throughout the world, and in currency valuations,
and these may reoccur unpredictably in the future.

WHO MANAGES THE FUND?

The Board 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.

Advisers 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 and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its subsidiaries. Advisers acts as investment manager or administrator
to 36 U.S. registered investment companies (118 separate series) with aggregate
assets of over $80 billion.

Until December 31, 1992, the Manager received portfolio advice and management
assistance from BZWIM. Since January 1, 1993, TICI has served as the sub-advisor
under a contract with Advisers providing services similar to those provided by
BZWIM with no increase in fees to shareholders.

TICI is an indirect subsidiary of Templeton Worldwide, Inc., which, operating
through its subsidiaries, is a major investment management organization with
approximately $53.5 billion of assets currently under management and a long
history of global investing.

The team responsible for the day-to-day management of the Fund's portfolio
is: William T. Howard, Jr. since 1993, Mark Beveridge since 1994, and Gary
Clemons since 1993.

William T. Howard, Jr. Vice President of TICI

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 in 1993, Mr. Howard
was the international portfolio manager for the State of Tennessee
Consolidated Retirement System.

Mark R. Beveridge Vice President of TICI

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.

Gary Clemons Portfolio Manager of TICI

Mr. Clemons 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. Clemons was a research analyst for Structured Asset Management.
He joined Templeton in 1990.

Pursuant to a management agreement, Advisers supervises and implements the
Fund's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. Advisers performs
similar services for other funds and there may be times when the actions taken
with respect to the Fund's portfolio will differ from those taken by Advisers on
behalf of other funds. Neither Advisers (including its affiliates) nor its
officers, directors or employees nor the officers and trustees of the Trust are
prohibited from investing in securities held by the Fund or other funds which
are managed or administered by Advisers to the extent such transactions comply
with the Trust's Code of Ethics. Please see "Investment Advisory and Other
Services" and "General Information" in the SAI for further information on
securities transactions and a summary of the Trust's Code of Ethics.

Pursuant to the sub-advisory agreement between Advisers and TICI, and subject to
the overall policies, control, direction and review of the Board 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. TICI is entitled to receive from Advisers
a sub-advisory fee equal to approximately 50% of the fees paid by the Fund to
Advisers (subject to certain adjustments). The sub-advisory fees paid by
Advisers have no effect on the fees payable by the Fund to Advisers.

The Business Manager provides certain administrative services and facilities for
the Fund, including payment of officers' salaries, preparation and maintenance
of books and records, preparation of tax and financial reports, and monitoring
compliance with regulatory requirements. The Business Manager is employed
through subcontracts by the Managers of the Fund. The Business Manager receives
a monthly fee equivalent on an annual basis to 0.15% of the combined average
daily net assets of the Fund, reduced to 0.135% of such assets in excess of $200
million, to 0.10% of such assets in excess of $700 million, and to 0.075% of
such assets in excess of $1.2 billion. These fees are not separate expenses of
the Fund but are paid by Advisers from the management fees received under the
management agreement with the Fund.

During the fiscal year ended October 31, 1995, management fees totaling 1% of
the average net assets of the Fund were paid to Advisers. The management fee is
higher than the management fees paid by most mutual funds, although the Board
believes it to be comparable to fees paid by many international funds having
similar investment objectives and policies.

Among the responsibilities of the Managers under their respective agreements is
the selection of brokers and dealers through whom transactions in the Fund's
portfolio securities for which each is responsible are effected. The Managers
try 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 Managers will
consider the furnishing of quotations and of other market services, research,
statistical and other data for the Managers and their affiliates, as well as the
sale of shares of the Fund, as factors in selecting a broker. Further
information is included under "How Do the Funds Purchase Securities For Their
Portfolios?" in the SAI.

Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services, in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.

During the fiscal year ended October 31, 1995, expenses borne by the Fund,
including fees paid to Advisers and Investor Services, totaled 1.72% of the
average net assets of the Fund.

PLAN OF DISTRIBUTION

A plan of distribution has been approved and adopted for the Fund (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 Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates.

The maximum amount which the Fund may reimburse to Distributors or others for
such distribution expenses is 0.25% per annum of its average daily net assets,
payable on a quarterly basis. All expenses of distribution 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, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plan are included in the maximum operating
expenses which may be borne by the Fund. For more information, please see "The
Funds' Underwriter" in the SAI.

What Distributions Might I Receive from the Fund?

You may receive two types of distributions from the Fund:

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

2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any 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 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 without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends
semiannually in June and December, for shareholders of record on the first
business day preceding the 15th 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. Fund shares are quoted
ex-dividend on the first business day following the record date (generally the
15th day of the month or prior business day depending on 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, Fund shares must have been acquired prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you 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 your investment, it may be taxable as
dividend income or capital gain.

DISTRIBUTION OPTIONS

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

1. Purchase additional shares of the Fund - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.

2. Purchase shares of other Franklin Templeton Funds - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.

3. Receive distributions in cash - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"

To select one of these options, please complete sections 6 and 7 of the
Shareholder Application included with this Prospectus or tell your investment
representative which option you prefer. If no option is selected, dividend and
capital gain distributions will be automatically reinvested in the Fund. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the record date
for the Fund to process the new option.

HOW TAXATION AFFECTS YOU AND THE FUND

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

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

Foreign securities that 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 investments. 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 you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.

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

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

For corporate shareholders, it is anticipated that only a small portion of the
Fund's dividends during the current fiscal year will qualify for the corporate
dividends-received deduction because of the Fund's policy of investing in
foreign equity securities and non-equity 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 you of the source of your dividends and distributions at
the time they are paid, and will promptly after the close of each calendar year
advise you of the tax status for federal income tax purposes of such dividends
and distributions.

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

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

The Fund's investment in options, futures and forward contracts, foreign
securities and currencies and in multiple combinations of these securities are
subject to many complex and special tax rules. More information on the tax
treatment of these securities is included under "Additional Information
Regarding Taxation" in the SAI.

HOW DO I BUY SHARES?

You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. These minimums may be
waived when shares are purchased by retirement plans. To open your account,
contact your investment representative or complete and sign the enclosed
Shareholder Application and return it to the Fund with your check.

PURCHASE PRICE OF FUND SHARES

You may buy shares at the public offering price unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.

QUANTITY DISCOUNTS IN SALES CHARGES

The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.

Total Sales Charge
As a Percentage of
Amount Allowed to
Size of Transaction Net Amount Dealer as a Percentage
at Offering Price Offering Price Invested of Offering Price*
- ------------------------------------------------------------------------------

Under $100,000..................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000.... 3.75% 3.90% 3.25%
$250,000 but less than $500,000.... 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000.. 2.25% 2.30% 2.00%
$1,000,000 or more................. None** None None***
- ------------------------------------------------------------------------------

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times allow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended.

**A contingent deferred sales charge of 1% may be imposed on certain
redemptions of all or a part of an investment of $1 million or more. See "How
Do I Sell Shares? - Contingent Deferred Sales Charge."

***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may pay to securities dealers out of its own
resources.

Rights of Accumulation. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.

Letter of Intent. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.

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

o You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.

o You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem any
or all of these reserved shares to pay any unpaid sales charge if you do not
fulfill the terms of the Letter.

o We will include the reserved shares in the total shares you own as reflected
on your periodic statements.

o You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.

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

o Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."

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

Group Purchases. If you are a member of a qualified group, you may purchase Fund
shares at the reduced sales charge applicable to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase. For example, if group
members previously invested and still hold $80,000 of Fund shares and invest
$25,000, the sales charge will be 3.75%.

We define a qualified group as 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.

In addition, a qualified group must have more than 10 members and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.

If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.

PURCHASES AT NET ASSET VALUE

You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:

(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. You may reinvest Class II distributions in either Class I or Class II
shares, but Class I distributions may only be invested in Class I shares under
this privilege. For more information, see "Distribution Options" under "What
Distributions Might I Receive from the Fund?" or call Shareholder Services at
1-800/632-2301;

(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;

(iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. The distribution must be
returned to the Fund within 365 days of the distribution date; or

(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of the Fund.

You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money within 365 days of the redemption date. You may reinvest up to the
total amount of the redemption proceeds under this privilege. If a different
class of shares is purchased, the full front-end sales charge must be paid at
the time of purchase of the new shares. While you will receive credit for any
contingent deferred sales charge paid on the shares redeemed, a new contingency
period will begin. Shares that were no longer subject to a contingent deferred
sales charge will be reinvested at net asset value and will not be subject to a
new contingent deferred sales charge. Shares exchanged into other Franklin
Templeton Funds are not considered "redeemed" for this privilege (see "What If
My Investment Outlook Changes? - Exchange Privilege").

If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.

If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.

A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.

Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you or
your account is included in one of the categories below, none of the shares of
the Fund you purchase will be subject to front-end or contingent deferred sales
charges:

(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;

(ii) accounts managed by the Franklin Templeton Group;

(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;

(iv) registered securities dealers and their affiliates, for their investment
accounts only;

(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;

(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);

(vii) 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").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
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 Advisers on arbitrage rebate calculations.
If you are a securities dealer who has executed a dealer agreement with
Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;

(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;

(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Funds over a 13-month period. We will accept orders for
such accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order;

(x) group annuity separate accounts offered to retirement plans;

(xi) trustees or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of $1 million or
more, without regard to where such assets are currently invested; or

(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements for Designated Retirement Plans and those described under "Group
Purchases," above.

IF YOU QUALIFY TO BUY SHARES AT NET ASSET VALUE AS DISCUSSED IN THIS SECTION,
PLEASE SPECIFY IN WRITING THE PRIVILEGE THAT APPLIES TO YOUR PURCHASE AND
INCLUDE THAT WRITTEN STATEMENT WITH YOUR PURCHASE ORDER. WE WILL NOT BE
RESPONSIBLE FOR PURCHASES THAT ARE NOT MADE AT NET ASSET VALUE IF THIS WRITTEN
STATEMENT IS NOT INCLUDED WITH YOUR ORDER.

If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.

HOW DO I BUY SHARES IN CONNECTION WITH TAX-DEFERRED RETIREMENT PLANS?

Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.

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

Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from Trust Company retirement plans.

Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.

GENERAL

The Fund continuously offers it shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.

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

Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 1% on sales of $1 million
but less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25%
on sales of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. These breakpoints are reset every 12 months for purposes of
additional purchases.

Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by any of the entities described in paragraphs (ix), (xi) or
(xii) under "Purchases at Net Asset Value" above. These payments may not be made
to securities dealers or others in connection with the sale of Fund shares if
the payments might be used to offset administration or recordkeeping costs for
retirement plans or circumstances suggest that plan sponsors or administrators
might use or otherwise allow the use of Rule 12b-1 fees to offset such costs.
Please see "How Do I Buy and Sell Shares?" in the SAI for the breakpoints
applicable to these purchases.

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

For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Fund who are affiliated with Distributors. See "Officers
and Trustees."

WHAT PROGRAMS AND PRIVILEGES ARE AVAILABLE TO ME AS A SHAREHOLDER?

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR 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 "REGISTERING YOUR
ACCOUNT" IN THIS PROSPECTUS).

SHARE CERTIFICATES

Shares from 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 you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or by your securities dealer.

CONFIRMATIONS

A confirmation statement will be sent to you semiannually to reflect the
dividends reinvested during the period and after each other transaction which
affects your account. This statement will also show the total number of shares
you own, including the number of shares in "plan balance" for your account.

AUTOMATIC INVESTMENT PLAN

The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to purchase additional shares. If
you are interested in this program, please refer to the Automatic Investment
Plan Application at the back of this Prospectus for the requirements of the
program or contact your investment representative. Of course, the market value
of the Fund's shares may fluctuate and a systematic investment plan such as this
will not assure a profit or protect against a loss. You may terminate the
program at any time by notifying Investor Services by mail or by phone.

SYSTEMATIC WITHDRAWAL PLAN

The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.

If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:

1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.

2. Receive payments in cash - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.

There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.

Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you.

Redemptions under a Systematic Withdrawal Plan are considered a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than your actual yield or income, part of the payment may be a return of your
investment.

While a Systematic Withdrawal Plan is in effect, shares must be held either in
plan balance or, where share certificates are outstanding, deposited with the
Fund. You should ordinarily not make additional investments in the Fund of less
than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"

You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.

ELECTRONIC FUND TRANSFERS

You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.

INSTITUTIONAL ACCOUNTS

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

What If My Investment Outlook Changes? - Exchange Privilege

The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of other Franklin Templeton Funds which are eligible for
sale in your state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.

No exchanges between different classes of shares will be allowed. Shareholders
may choose to redeem shares of the Fund and purchase Class II shares of another
Franklin Templeton Fund but such purchase will be subject to that fund's Class
II front-end and contingent deferred sales charges. Although there are no
exchanges between different classes of shares, Class II shareholders of a
Franklin Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.

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.

Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.

You may exchange shares in any of the following ways:

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.

BY TELEPHONE

You or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. If you do not wish this
privilege extended to a particular account, you should notify the Fund or
Investor Services.

The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "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, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.

THROUGH SECURITIES DEALERS

As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your 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 value of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in the Fund for at least six months
prior to executing the exchange.

The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.

If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares, you 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 under "Additional Information Regarding Taxation" in the SAI.

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

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

RETIREMENT PLAN ACCOUNTS

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

MARKET TIMERS

Market Timers will be charged a $5.00 administrative service fee for 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
Market Timers.

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Market Timer group or
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of the Fund per calendar
quarter, or (iii) exchanges 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 by Market Timers, will be aggregated
for purposes of the exchange limits.

The Fund also reserves the right to refuse the purchase side of an exchange
request by any Market Timer, person, or group if, in Advisers' judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange 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, as indicated in "How Do I Buy Shares?" reserve the
right to refuse any order for the purchase of shares.

HOW DO I SELL SHARES?

You may liquidate your shares at any time and receive from the Fund the value of
the shares. You may sell (redeem) shares in any of the following ways:

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. You will then receive from the Fund the
value of the shares sold based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the Exchange (generally 1:00
p.m. Pacific time) each day that the Exchange is open for trading. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.

TO BE CONSIDERED IN PROPER FORM, SIGNATURES 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 owners of the account;

(3) the proceeds (in any amount) are to be sent to any address other than the
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.

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

Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your 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
officers of the corporation and (2) a corporate resolution.

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

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

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

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

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

BY TELEPHONE

If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts." You may obtain
additional information about telephone redemptions 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. You, however, bear
the risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."

If your account has a completed Agreement on file, redemptions of uncertificated
shares or shares which have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record.

Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities, that qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.

THROUGH SECURITIES DEALERS

The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of your 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 your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances.

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

The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? - Purchases at
Net Asset Value;" exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually). For example, if an account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge.

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

Unless otherwise specified, requests for redemptions of 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.

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. 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
you invested, depending on fluctuations in the market value of securities owned
by the Fund.

RETIREMENT PLAN ACCOUNTS

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

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

OTHER INFORMATION

Distribution or redemption checks sent to you 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 caused by your failure to cash such
checks.

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

For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.

TELEPHONE TRANSACTIONS

By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates (to be sent to the address of record only), and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you 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 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 you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.

RESTRICTED ACCOUNTS

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

To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.

GENERAL

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

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

HOW ARE FUND SHARES VALUED?

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

The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.

HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?

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

From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753, you may obtain account information,
current price and, if available, yield or other performance information specific
to the Fund or any Franklin Templeton Fund. In addition, you may process an
exchange, within the same class, into an identically registered Franklin account
and request duplicate confirmation or year-end statements and deposit slips.

The Fund code, which will be needed to access system information, is 190. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.

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

Hours of Operation (Pacific time)
Department Name Telephone No (Monday through Friday)

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

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

HOW DOES THE FUND MEASURE PERFORMANCE?

Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return and current distribution rate. They may occasionally cite
statistics to reflect the Fund's 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 for one-, five- and ten-year periods, or portion thereof,
to the extent applicable, through the end of the most recent calendar quarter,
assuming reinvestment of all distributions. The Fund may also furnish total
return quotations for other periods or based on investments at various sales
charge levels or at net asset value. For such purposes, total return equals the
total of all income and capital gain paid to shareholders, assuming reinvestment
of all distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.

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

Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI), is not indicative
of the dividends or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders of the Fund are
reflected in the current distribution rate, which may be quoted to you. 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 total return, current yield, or distribution rate 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. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page of this Prospectus.

Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.

ORGANIZATION AND VOTING RIGHTS

The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest of $.01
par value, which may be issued in any number of series and classes. Shares
issued will be fully paid and non-assessable and will have no preemptive,
conversion, or sinking rights. Shares of each series have equal and exclusive
rights as to dividends and distributions as declared by such series and the net
assets of such series upon liquidation or dissolution. Additional series or
classes may be added in the future by the Board.

Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all 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.

The Trust does not intend to hold annual shareholder meetings. The Trust may,
however, hold a special shareholders' meeting of a series 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 the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Fund. Shareholders will 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.

REDEMPTIONS BY THE FUND

The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50, but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. For more information, see
"How Do I Buy and Sell Shares?" in the SAI.

REGISTERING YOUR ACCOUNT

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

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

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

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

Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your 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 your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers 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 your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.

The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you 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 Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.

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

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS

Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are 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 you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a certified TIN within 60
days after opening the account.

USEFUL TERMS AND DEFINITIONS

1940 Act - Investment Company Act of 1940, as amended.

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

Board - The Board of Trustees of the Trust.

Business Manager - Templeton Global Investors, Inc., Broward Financial Centre,
Suite 2100, Fort Lauderdale, Florida 33394.

BZWIM - Barclays de Zoete Wedd Investment Management Inc.

Class I and Class II - "Classes" of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the trustees. Certain funds in the
Franklin Templeton Funds currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Fund's sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Fund may be
considered Class I shares for redemption, exchange and other purposes.

Code - Internal Revenue Code of 1986, as amended.

Designated Retirement Plans - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Funds over a 13 month period. Distributors
determines the qualifications for Designated Retirement Plans.

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

Exchange - New York Stock Exchange.

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

Franklin Templeton Funds - the Franklin Funds and the Templeton Funds.

Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.

Investor Services - Franklin/Templeton Investor Services, Inc.

Letter - Letter of Intent.

Managers - Franklin Advisers, Inc., the Fund's investment manager and Templeton
Investment Counsel, Inc., the Fund's sub-advisor.

Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.

Net asset value (NAV) - the value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding. When you buy, sell or exchange shares, we will use
the NAV per share next calculated after we receive your request in proper form.

Non-Designated Retirement Plans - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.

Offering price - The public offering price is equal to the net asset value plus
the 4.50% sales charge.

Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.

Resources - Franklin Resources, Inc.

SAI - Statement of Additional Information.

SEC - Securities and Exchange Commission.

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

Sub-advisor - Templeton Investment Counsel, Inc., the Fund's sub-advisor.

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

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

TICI - Templeton Investment Counsel, Inc., the Fund's sub-advisor.

Trust Company - Franklin Templeton Trust Company.

U.S. - United States.

FRANKLIN
INTERNATIONAL
EQUITY FUND

Franklin Templeton International Trust

PROSPECTUS March 1, 1996

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

The Franklin International Equity Fund (the "Fund") is a diversified series of
Franklin Templeton International Trust (the "Trust"), an open-end management
investment company. Prior to February 1, 1996 the Trust was named the Franklin
International Trust. Effective that day, the Trust's name was changed to
Franklin Templeton International Trust.

The Fund seeks long-term growth of capital. Under normal market conditions, the
Fund invests at least 65% of its total assets in an internationally mixed
portfolio of equity securities that trade on markets in countries other than the
U.S. and are issued by companies domiciled in countries other than the U.S. or
that derive at least 50% of their revenues or pre-tax income from activities
outside of the U.S. The Fund may invest in domestic and foreign securities as
described under "How Does the Fund Invest Its Assets?"

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

Contents Page

Expense Table............................................ 2

Financial Highlights -
How Has the Fund Performed?............................. 4

What Is the Franklin International
Equity Fund?............................................ 4

How Does the Fund Invest Its Assets?..................... 4

What Are the Fund's Potential Risks?..................... 10

How You Participate in the Results
of the Fund's Activities................................ 11

Who Manages the Fund?.................................... 12

What Distributions Might
I Receive from the Fund?................................ 14

How Taxation Affects You and the Fund.................... 16

How Do I Buy Shares?..................................... 17

What Programs and Privileges
Are Available to Me as a Shareholder?................... 22

What If My Investment Outlook Changes? -
Exchange Privilege...................................... 24

How Do I Sell Shares?.................................... 26

Telephone Transactions................................... 30

How Are Fund Shares Valued?.............................. 31

How Do I Get More Information
About My Investment?.................................... 31

How Does the Fund
Measure Performance?.................................... 32

General Information...................................... 33

Registering Your Account................................. 34

Important Notice Regarding
Taxpayer IRS Certifications............................. 35

Useful Terms and Definitions
in this Prospectus...................................... 35

Expense Table

Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)..... 4.50%
Deferred Sales Charge.................... NONE+
Exchange Fee (per transaction)........... $5.00*

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

*$5.00 fee imposed only on Market Timers as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.

Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees........................................ 1.00%
Rule 12b-1 Fees........................................ 0.22%**
Other Expenses:
Shareholder Servicing Costs.............. 0.10%
Custodian Fees........................... 0.09%
Other.................................... 0.22%
Total Other Expenses................................... 0.41%
Total Fund Operating Expenses.......................... 1.63%

Example

As required by SEC regulations, the following example illustrates the expenses
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.

One Year Three Years Five Years Ten Years

$61* $94 $130 $230

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

Financial Highlights - How Has the Fund Performed?

Set forth below is a table containing the financial highlights for a share of
the Fund. The information for each of the four fiscal years in the period ended
October 31, 1995 and for the period from September 20, 1991 (effective date of
registration) to October 31, 1991 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial statements in
the Trust's Annual Report to Shareholders dated October 31, 1995. See the
"Reports to Shareholders" under "General Information" in this Prospectus.

<TABLE>
<CAPTION>
Per Share Operating Performance* Ratios/Supplemental Data
-------------------------------------------------------- --------------------------
Distri- Distri- Ratio of Net
Net Asset Net Net Realized butions butions Net Asset Net Assets Ratio of Investment
Year Value at Invest-& Unrealized Total From From Net From Total Value at End Expenses Income Portfolio
Ended Beginning ment Gains (Loss) Investment InvestmentCapital Distri- at End Total of Year to Average to Average Turnover
Oct. 31 of Year Income on SecuritiesOperations Income Gains butions of Year Return++ (in 000's)Net Assets Net Assets Rate

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

**During the periods indicated, the Advisers agreed in advance to waive a
portion of its management fees. Had such action not been taken, the ratios of
expenses to average net assets would have been as follows:

***Annualized

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

Ratio of expenses to
average net assets
------------
1991+....................................... 2.50%***
1992........................................ 2.50
1993........................................ 2.27
1994........................................ 1.76

What Is the Franklin
International Equity Fund?

The Fund is a diversified series of the Trust, an open-end management investment
company commonly called a "mutual fund." The Trust was organized as a Delaware
business trust on March 22, 1991 and registered with the SEC under the 1940 Act.

Shares of the Fund may be considered Class I shares, as described under "Useful
Terms and Definitions," for redemption, exchange and other purposes.

How Does the Fund Invest Its Assets?

Types of Securities the Fund May Purchase.

Under normal market conditions, the Fund invests at least 65% of its total
assets in a diverse international portfolio of equity securities that 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
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.

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. The Fund may invest in the
securities of issuers in, but not limited to, the following countries:
Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile,
Colombia, Denmark, Finland, France, Germany, Greece, Hong Kong, India,
Indonesia, Italy, Japan, South Korea, Luxembourg, Malaysia, Mexico, the
Netherlands, New Zealand, Norway, Peru, the Philippines, Portugal, Russia,
Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, and the United
Kingdom. It is currently expected that under normal conditions at least 65% of
the Fund's total assets will be invested in securities of foreign issuers in at
least three of the countries listed herein.

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

Up to 35% of the Fund's assets may be invested in bonds, fixed-income debt
securities and synthetic securities, as discussed below, 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. The Fund may invest up to 5% of its portfolio in
non-investment grade bonds issued by both U.S. and foreign issuers, commonly
known as "junk bonds," which entail default and other risks greater than those
associated with higher rated securities. An Appendix discussing these ratings is
included in the SAI.

The Fund may seek capital appreciation by investing in these debt securities.
Appreciation in the value of these investments may result from changes in
relative foreign currency exchange rates, interest rates or improvement in the
creditworthiness of an issuer. The receipt of income from these 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 depositary
receipts.

Fixed-income debt securities rated 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.

Other Policies of the Fund

Illiquid Investments. The Fund reserves the right to invest up to 10% of its net
assets, at the time of purchase, in illiquid securities (securities that cannot
be disposed of within seven days in the normal course of business at
approximately the amount at which the Fund has valued the securities). 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,
over-the-counter 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.

Short-Term Investments. Occasionally, pending investment of proceeds from new
sales of Fund shares, to honor redemptions, 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 uncertain market
or economic conditions, or while awaiting attractive investment opportunities,
the Fund may establish a temporary defensive position by investing in high
quality money-market instruments if the Managers anticipate 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. 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.
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 unrated, determined by Advisers or TICI to be of comparable
quality. It is impossible to predict when or for how long the Fund would employ
defensive Strategies.

Options

Purchasing Put and Call Options on Securities. The Fund may also purchase put
options on 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. The Fund may purchase call options on securities it intends to
purchase in order to limit the risk of a substantial increase in the market
price of the security. The Fund may also purchase call options on securities
held in its portfolio on which it has written call options.

Futures and Options on Futures

What Are the Fund's Potential Risks?

Foreign Securities. Foreign securities involve certain risks that you should
consider carefully. 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). Foreign 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
foreign 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 foreign securities.

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. You should
consider the greater risk of this policy versus the safety that may come with an
investment that involves a wider range of geographic localities and countries.
Accordingly, you should compare the Fund with other investment vehicles before
making an investment decision.

Options, Futures and Forwards. The purchase and sale of futures contracts and
options thereon, as well as the purchase and writing of options on securities,
securities indices and currencies, involve risks different from those involved
with direct investments in securities or currencies. 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
investments in securities or currencies 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. For additional information see "How Do the Funds Invest Their
Assets?" and "What Are the Funds' Potential Risks?" in the SAI.

Transactions in options, futures, options on futures and forward contracts are
generally considered "derivative securities."

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

To the extent of the Fund's investments consist of debt securities, changes in
the prevailing rates of interest in any of the countries in which the Fund is
invested will likely affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. In addition, changes in currency valuations will impact the price
of Fund shares. History reflects both increases and decreases in interest rates
in individual countries and throughout the world, and in currency valuations,
and these may reoccur unpredictably in the future.

Who Manages the Fund?

The Board 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.

TICI is an indirect subsidiary of Templeton Worldwide, Inc., which, operating
through its subsidiaries, is a major investment management organization with
approximately $50.9 billion of assets currently under management and a long
history of global investing.

The team responsible for the day-to-day management of the Fund's portfolio is:
Marc S. Joseph since 1993, Mark R. Beveridge since 1994, and Gary Clemons since
1993.

Marc S. Joseph
Vice President of TICI

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 joined Templeton
in September 1993.

Mark R. Beveridge
Vice President of TICI

Mr. Beveridge is a Chartered Financial Analyst and holds a Bachelor of Business
Administration degree in finance from the University of Miami. He has been with
Templeton since 1985. He is a member of several securities industry-related
associations.

Gary Clemons
Portfolio Manager of TICI

Mr. Clemons 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. He joined the Templeton Organization in 1990, as a research analyst for
Structured Asset Management, a subsidiary of Templeton International.

Until December 31, 1992, the Manager received portfolio advice and management
assistance from BZWIM. Since January 1, 1993, TICI serves as the sub-advisor
under a contract with Advisers providing services similar to those provided by
BZWIMwith no increase in fees to shareholders.

Pursuant to a management agreement, Advisers supervises and implements the
Fund's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. Advisers performs
similar services for other funds and there may be times when the actions taken
with respect to the Fund's portfolio will differ from those taken by Advisers on
behalf of other funds. Neither Advisers (including its affiliates) nor its
officers, directors or employees nor the officers and trustees of the Fund are
prohibited from investing in securities held by the Fund or other funds which
are managed or administered by Advisers to the extent such transactions comply
with the Trust's Code of Ethics. Please see "Investment Advisory and Other
Services" and "General Information" in the SAI for further information on
securities transactions and a summary of the Trust's Code of Ethics.

TICI is entitled to receive from Advisers a sub-advisory fee equal to
approximately 50% of the fees paid by the Fund to Advisers (subject to certain
adjustments). The sub-advisory fees paid by Advisers have no effect on the fees
payable by the Fund to Advisers.

The Business Manager provides certain administrative facilities and services for
certain of the Fund, including payment of officers' salaries, preparation and
maintenance of books and records, preparation of tax and financial reports, and
monitoring compliance with regulatory requirements. The Business Manager is
employed through subcontracts by the Managers of the Fund. The Business Manager
receives a monthly fee equivalent on an annual basis to 0.15% of the combined
average daily net assets of the Fund, reduced to 0.135% of such assets in excess
of $200 million, to 0.10% of such assets in excess of $700 million, and to
0.075% of such assets in excess of $1.2 billion. These fees are not separate
expenses of the Fund but are paid by Advisers from the management fees received
under the management agreement with the Fund.

During the fiscal year ended October 31, 1995, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.63% of the
average net assets of the Fund.

Plan of Distribution

What Distributions Might
I Receive from the Fund?

You may receive two types of distributions from the Fund:

Distribution Date

Although subject to change by the Board, without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends
semiannually in June and December, for shareholders of record on the first
business day preceding the 15th of these months, payable on or about the last
business day of such months.

Distribution Options

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

How Taxation Affects You and the Fund

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

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

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

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

How Do I Buy Shares?

Purchase Price of Fund Shares

You may buy shares at the public offering price, unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.

Quantity Discounts in Sales Charges

The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.
<TABLE>
<CAPTION>

Total Sales Charge
As a Percentage of
Amount Allowed to
Net Amount Dealer as a Percentage
Size of Transaction at Offering Price Offering Price Invested of Offering Price*
<S> <C> <C> <C>
Under $100,000......................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000........ 3.75% 3.90% 3.25%
$250,000 but less than $500,000........ 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000...... 2.25% 2.30% 2.00%
$1,000,000 or more..................... None** None None***
</TABLE>

**A contingent deferred sales charge of 1% may be imposed on certain redemptions
of all or a part of an investment of $1 million or more. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge."

***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.

By completing the Letter of Intent section of the Shareholder Application, you
acknowledge and agree to the following:

o You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.

o We will include the reserved shares in the total shares you own as reflected
on your periodic statements.

o You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.

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

o Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."

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

We define a qualified group as 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.

Purchases at Net Asset Value

You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:

(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if it is returned within 365 days of its payment date. You may
reinvest Class II distributions in either Class I or Class II shares, but Class
I distributions may only be invested in Class I shares under this privilege. For
more information, see "Distribution Options" under "What Distributions Might I
Receive from the Fund?" or call Shareholder Services at 1-800/632-2301;

(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of the Fund.

If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.

(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;

(ii) accounts managed by the Franklin Templeton Group;

(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;

(iv) registered securities dealers and their affiliates, for their investment
accounts only;

(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;

(x) group annuity separate accounts offered to retirement plans;

If you qualify to buy shares at net asset value as discussed in this section,
please specify in writing the privilege that applies to your purchase and
include that written statement with your purchase order. We will not be
responsible for purchases that are not made at net asset value if this written
statement is not included with your order.

If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.

How Do I Buy Shares in Connection with
Tax-Deferred Retirement Plans?

General

The Fund continuously offers it shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.

What Programs and Privileges
Are Available to Me as a Shareholder?

Certain of the programs and privileges described in this section may not be
available directly from the Fund if your 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 "Registering Your
Account" in this Prospectus).

Share Certificates

Confirmations

Automatic Investment Plan

Systematic Withdrawal Plan

1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.

Electronic Fund Transfers

Institutional Accounts

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

What If My Investment Outlook Changes? - Exchange Privilege

You may exchange shares in any of the following ways:

By Mail

By Telephone

You, or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. If you do not wish this
privilege extended to a particular account, you should notify the Fund or
Investor Services.

Through Securities Dealers

Additional Information Regarding Exchanges

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

Retirement Plan Accounts

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

Market Timers

Market Timers will be charged a $5.00 administrative service fee for 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
Market Timers.

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Market Timer, group or
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of the Fund per calendar
quarter, or (iii) exchanges 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 by Market Timers, will be aggregated
for purposes of the exchange limits.

The Fund and Distributors, as indicated under "How Do I Buy Shares?", reserve
the right to refuse any order for the purchase of shares.

How Do I Sell Shares?

You may liquidate your shares at any time and receive from the Fund the value of
the shares. You may sell shares in any of the following ways:

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. You will then receive from the Fund the
value of the shares sold based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the Exchange (generally 1:00
p.m. Pacific time) each day that the Exchange is open for trading. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.

To be considered in proper form, signatures 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 owners of the account;

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

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

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
officers of the corporation and (2) a corporate resolution.

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 you within seven days after receipt
of the request in proper form.

By Telephone

Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities that qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.

Through Securities Dealers

Contingent Deferred Sales Charge

The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? Purchases at Net
Asset Value;" exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually). For example, if an account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge.

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

Unless otherwise specified, requests for redemptions of 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.

Additional Information Regarding Redemptions

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 you invested, depending on
fluctuations in the market value of securities owned by the Fund.

Retirement Plan Accounts

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

Other Information

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

For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.

Telephone Transactions

By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates (to be sent to the address of record only) and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you will be able to redeem shares of the Fund.

Verification Procedures

Restricted Accounts

Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any redemption, distribution or
dividend payment changes. 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.

General

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

How Are Fund Shares Valued?

How Do I Get More Information
About My Investment?

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

The Fund code, which will be needed to access system information, is 191. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.

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

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

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

How Does the Fund Measure Performance?

Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's 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 for one-, five- and ten-year periods, or portion thereof,
to the extent applicable, through the end of the most recent calendar quarter,
assuming reinvestment of all distributions. The Fund may also furnish total
return quotations for other periods, or based on investments at various sales
charge levels or at net asset value. For such purposes, total return equals the
total of all income and capital gain paid to shareholders, assuming reinvestment
of all distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.

Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI), is not indicative
of the dividends or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders of the Fund are
reflected in the current distribution rate, which may be quoted to you. 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 total return, current yield, or distribution rate may be in any
future period.

General Information

Reports to Shareholders

Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.

Organization and Voting Rights

The Trust does not intend to hold annual shareholders meetings. The Trust may,
however, hold a special shareholders' meeting of a series 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 the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Fund. Shareholders will 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.

Redemptions by the Fund

Registering Your Account

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."

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

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 you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a certified TIN within 60
days after opening the account.

Useful Terms and Definitions
in this Prospectus

1940 Act - Investment Company Act of 1940, as amended.

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

Board - The Board of Trustees of the Trust.

Business Manager - Templeton Global Investors, Inc., Broward Financial Centre,
Suite 2100, Fort Lauderdale, Florida 33394 - The Fund's Busness Manager.

BZWIM - Barclays de Zoete Wedd Investment Management Inc.

Code - Internal Revenue Code of 1986, as amended.

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

Exchange - New York Stock Exchange.

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

Franklin Templeton Funds - the Franklin Funds and the Templeton Funds.

Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.

Investor Services - Franklin/Templeton Investor Services, Inc.

Letter - Letter of Intent.

Managers - Franklin Advisers, Inc., the Fund's investment manager and Templeton
Investment Counsel, Inc., the Fund's sub-advisor.

Non-Designated Retirement Plans - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.

Offering price - The public offering price is equal to the net asset value per
share plus the 4.50% sales charge.

Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.

Resources - Franklin Resources, Inc.

SAI - Statement of Additional Information.

SEC - Securities and Exchange Commission.

Sub-advisor - Templeton Investment Counsel, Inc., the Fund's sub-advisor.

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

TICI - Templeton Investment Counsel, Inc., the Fund's sub-advisor.

Trust Company - Franklin Templeton Trust Company.

U.S. - United States.

FRANKLIN TEMPLETON
INTERNATIONAL TRUST

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

Contents Page

How Do the Funds Invest Their Assets? 2

What Are the Funds' Potential Risks? 12

Investment Restrictions........... 15

Officers and Trustees............. 16

Investment Advisory and Other Service 19

How Do the Funds Purchase
Securities For Their Portfolios?. 21

How Do I Buy and Sell Shares?..... 22

How Are Fund Shares Valued?....... 25

Additional Information Regarding Taxation 26

The Funds' Underwriter............ 29

General Information............... 30

Financial Statements.............. 34

Appendix.......................... 34

Franklin Templeton 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 Templeton Pacific
Growth Fund (the "Pacific Fund" and together, the "Funds"). Each Fund's
investment objective is to seek long-term growth of capital.

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

This Statement of Additional Information ("SAI") is not a prospectus. It
contains information in addition to and in more detail than set forth in each
Fund's Prospectus. This SAI 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.

How Do the Funds Invest Their Assets?

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, 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 its 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-advisor, 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.

Currency Transactions. In order to hedge against currency exchange rate risks,
each 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).

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' manager or sub-advisor determines 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 investment manager or Sub-adviser 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 managers 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 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.

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. A Fund may enter into currency futures contracts traded on
regulated commodity exchanges, including non-U.S. exchanges.

A 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.

Each Fund may enter into forward currency exchange contracts and currency
futures contracts in several circumstances. For example, when a 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
a 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-advisor 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 a Fund's portfolio securities
denominated in such 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 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 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 manager or sub-advisor anticipates 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 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. A 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.

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. Foreign currency options to be written or
purchased by a Fund will be traded on U.S. or foreign exchanges or
over-the-counter. A 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.

Options on Securities and Securities Indices

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

A call option written by a 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 a 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 a 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 of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled 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.

A 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; a 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 a Fund so desires. 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.

Purchasing Put Options. Each Fund may purchase put options on 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 each Fund to protect the unrealized gain in an appreciated
security in its portfolio without actually selling the security. In addition, a
Fund will continue to receive interest or dividend income on the security. Each
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.

Purchasing Call Options. Each 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. Each Fund may also purchase call options on
securities held in its portfolio 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.

Options on Stock Indices. Each Fund may 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.

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.

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.

There can be no assurance that a continuous, liquid secondary market will exist
for any particular option at any specific time. Consequently, a 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 a 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 Funds understand 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 Funds and their advisors disagree with this position.
Nevertheless, pending a change in the staff's position, the Funds will treat OTC
options as subject to each Fund's limitation on illiquid securities. (See
"Illiquid Investments.")

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.

Forward Conversions. In a forward conversion, a Fund will purchase securities
and write call options and purchase put options on such securities. All options
written by a Fund will be covered. By purchasing puts, a Fund protects the
underlying security from depreciation in value. By selling or writing calls on
the same security, a 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. A 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, a
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 a Fund's total return if the conversion is
terminated prior to the expiration date of the options. In such event, a 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.

Spread and Straddle Transactions. Each 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 a Fund will be covered. Each 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 a Fund
in connection with these transactions may, under certain circumstances, involve
a limited degree of investment leverage, each 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 options transactions. A Fund's ability to engage in
spread or straddle transactions may be further limited by state securities laws.

Futures Transactions

Each 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. A Fund
may enter into such Futures Transactions on domestic exchanges and, to the
extent such transactions have been approved by the CFTC for sale to customers in
the U.S., on foreign exchanges. Each Fund will not engage in Futures
Transactions for speculation but only as a hedge against changes resulting from
market conditions such as changes in interest rates, currency exchange rates, or
securities which it intends to purchase. Each Fund will not enter into any
Futures Transactions if, immediately thereafter, more than 20% of a Fund's net
assets would be represented by futures contracts or options thereon. In
addition, each Fund will not engage in any Futures Transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on a Fund's futures
positions and premiums paid for options on its futures contracts would exceed 5%
of the market value of a Fund's total assets.

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

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
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 the 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.

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 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.

Financial Futures Contracts. Financial futures are 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.

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.

Each 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 a 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 a 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 a 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 a 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.

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

Hedging Strategies With Futures. Hedging by use of futures contracts seeks to
establish with more certainty, than would otherwise be possible, 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' advisors, 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' advisors 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 their strategies for hedging their securities.
The need to hedge against such risks will depend on the extent of
diversification of a Fund's common stock portfolio and the sensitivity of such
investments to factors influencing the stock market as a whole.

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 Investment Company Act of 1940, as
amended ("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 of 1986, as amended (the "Code") for maintaining its
qualification as a regulated investment company for federal income tax purposes.
(See "How Taxation Affects You and the Fund" 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.

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' advisors 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

Convertible Securities. As with a straight fixed-income security, a convertible
security tends to increase in market value when interest rates decline and
decrease in value when interest rates rise. Like a common stock, the value of a
convertible security also tends to increase as the market value of the
underlying stock rises, and it tends to decrease as the market value of the
underlying stock declines. Because its value can be influenced by both interest
rate and market movements, a convertible security is not as sensitive to
interest rates as a similar fixed-income security, nor is it as sensitive to
changes in share price as its underlying stock.

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

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

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

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

Similarly, there may be enhanced convertible debt obligations issued by the
operating company whose common stock is to be acquired in the event the security
is converted or by a different issuer, such as an investment bank. These
securities may be identified by names such as ELKS (Equity Linked Securities) or
similar names. Typically they share most of the salient characteristics of an
enhanced convertible preferred stock but will be ranked as senior or
subordinated debt in the issuer's corporate structure according to the terms of
the debt indenture. There may be additional types of convertible securities not
specifically referred to herein which may be similar to those described above in
which a Fund may invest, consistent with its objectives and policies.

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

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 a 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 a 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 to repurchase agreements may have maturity dates in excess of one year
from the effective date of the repurchase agreements. 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.

Illiquid Investments. 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. The Board of Trustees of the Trust (the "Board") 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 liquid to the extent the Fund's managers, as the
case may be, determine 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 reviews any determination by the
managers to treat a restricted security as liquid on a quarterly basis,
including the managers' 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 managers and the Board
will take into account the following factors: (i) the frequency of trades and
quotes for the security; (ii) the number of dealers willing to 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.

What Are the Funds' Potential Risks?
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Foreign Securities. 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, you 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.

Options and Futures. Each 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 a Fund's futures positions and portfolio positions
will be impossible to achieve. Accordingly, successful use by a Fund of options
on stock indices, financial and currency futures contracts and related options,
and currency options will be subject to the Funds' advisors' ability to predict
correctly movements in the direction of the securities and currency markets
generally or of a particular segment. If the Funds' advisors are not successful
in employing such instruments in managing a Fund's investments, the Fund's
performance will be worse than if it did not employ such strategies. In
addition, a 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, a Fund's loss is potentially unlimited and may
exceed the amount of the premium received.

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 a Fund's ability to effectively hedge its securities or
foreign currency exposure. A Fund will enter into options or futures positions
only if its sub-advisor 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, a 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 a Fund writes
an OTC option, it generally can close out that option prior to its expiration
only by entering into a closing purchase transaction with the dealer to which
the Fund originally wrote it. If a 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 a 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, a 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 a 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 ability to terminate OTC 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 OTC
options and all assets used to cover written OTC 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.

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;
(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.

High Yielding, Fixed-Income Securities. The International Fund may invest up to
5% of its assets in fixed income securities which are below investment grade or
are unrated but deemed to be of equivalent quality. Because of the International
Fund's policy of investing in higher yielding, higher risk securities, an
investment in the International Fund is accompanied by a higher degree of risk
than is present with an investment in higher rated, lower yielding securities.
Accordingly, an investment in the International Fund should not be considered a
complete investment program and should be carefully evaluated for its
appropriateness in light of your overall investment needs and goals. If you are
on a fixed income or retired, you should also consider the increased risk of
loss to principal which is present with an investment in higher risk securities
such as those in which the International Fund invests.

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

Issuers of high yielding, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with acquiring the securities of such issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may experience financial stress.
During these periods, such issuers may not have sufficient cash flow to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific developments affecting
the issuer, the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer may be significantly greater for the holders of high
yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.

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

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

The International Fund is authorized to acquire high yielding, fixed-income
securities that are sold without registration under the federal securities laws
and therefore carry restrictions on resale. While many high yielding securities
have been sold with registration rights, covenants and penalty provisions for
delayed registration, if the International Fund is required to sell such
restricted securities before the securities have been registered, it may be
deemed an underwriter of such securities under the 1933 Act, which entails
special responsibilities and liabilities. The International Fund may incur
special costs in disposing of such securities; however, this Fund will generally
incur no costs when the issuer is responsible for registering the securities.

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

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

Investment Restrictions
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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 outstanding voting securities. Under the 1940 Act, a "vote of a majority
of the outstanding voting securities" of such Fund means the affirmative vote of
the lesser of (i) more than 50% of the outstanding shares of the Fund or (ii)
67% or more of the shares of such Fund present at a shareholder meeting if more
than 50% of the outstanding shares of such Fund are represented at the meeting
in person or by proxy. Each Fund may 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 usually
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 advisor 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 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 and except as either Fund may participate in
a joint repurchase agreement account with other funds in the Franklin Templeton
Funds. 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 may 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.

Officers and Trustees
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The Board 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 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 Principal Occupations
Name, Age and Address with the Trust During Past Five Years
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Frank H. Abbott, III (74) Trustee
1045 Sansome St.
San Francisco, CA 94111

President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------

Harris J. Ashton (63) Trustee
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045

President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 56 of the investment companies in the Franklin
Templeton Group of Funds.
- --------------------------------------------------------------------------------

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

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

S. Joseph Fortunato (63) Trustee
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945

Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 58 of the investment companies in the Franklin Templeton Group of Funds.
- -------------------------------------------------------------------------------

David W. Garbellano (81) Trustee
111 New Montgomery St., #402
San Francisco, CA 94105

Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
- -------------------------------------------------------------------------------

*Charles B. Johnson (63)
Chairman of the Board and Trustee
777 Mariners Island Blvd.
San Mateo, CA 94404

President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; 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 57 of the investment companies in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------

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

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

Frank W. T. LaHaye (66) Trustee
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014

General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
- -------------------------------------------------------------------------------

Gordon S. Macklin (67) Trustee
8212 Burning Tree Road
Bethesda, MD 20817

Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner, as the case may
be, of 53 of the investment companies in the Franklin Templeton Group of Funds;
and formerly held the following positions: Chairman, Hambrecht and Quist Group;
Director, H & Q Healthcare Investors; and President, National Association of
Securities Dealers, Inc.
- -------------------------------------------------------------------------------

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

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

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

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

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

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

Charles E. Johnson (39) Vice President
777 Mariners Island Blvd.
San Mateo CA 94404

Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
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 26 of the investment companies in the Franklin Templeton Group of Funds.
- -------------------------------------------------------------------------------

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

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

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

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

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

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

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

Number of
Total Fees Boards in the
Received from the Franklin Templeton
Franklin Templeton Group of Funds on
Name Group of Funds* Which Each Serves**
- --------------------------------------------------------------------------

Frank H. Abbott, III........... $162,420 31

Harris J. Ashton............... 327,925 56

S. Joseph Fortunato............ 344,745 58

David W. Garbellano............ 146,100 30

Frank W.T. LaHaye.............. 143,200 26

Gordon S. Macklin.............. 321,525 53

*For the calendar year ended December 31, 1995.

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

Nonaffiliated trustees are reimbursed for expenses incurred in connection with
attending board meetings, paid pro rata by each fund in the Franklin Templeton
Group of Funds for which they serve as director, trustee or managing general
partner. No officer or trustee received any other compensation directly from the
Fund. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. ("Resources") may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries.

As of December 7, 1995, the officers and trustees, as a group, owned of record
and beneficially approximately 2,231 shares of the Pacific Fund and 2,531 shares
of the International Fund, or less than 1% of the total outstanding shares of
the respective Funds. Many of the trustees also own shares in various of the
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E.
Johnson.

Investment Advisory and Other Services
- -------------------------------------------------------------------------------

The investment manager of each Fund is Franklin Advisers, Inc. ("Advisers").
Advisers is a wholly-owned subsidiary of Resources, a publicly owned holding
company whose shares are listed on the New York Stock Exchange (the "Exchange").
Resources owns several other subsidiaries that are involved in investment
management and shareholder services. 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. ("TICI" or
"Sub-advisor") became each Fund's sub-advisor. The Sub-advisor is an indirect
wholly-owned subsidiary of Resources. Advisers and the Sub-advisor may
collectively be referred to as the "Managers".

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 Managers supervise and implement each Fund's investment
policies and provide certain administrative services and facilities which are
necessary to conduct each Fund's business. The Sub-advisor, subject to the
overall review by the Manager and the Board, 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 Managers.

Under the terms of the management agreement, Advisers provides office space and
office furnishings, facilities and equipment required for managing the business
affairs of each Fund; maintains all internal bookkeeping, clerical, secretarial
and administrative personnel and services; and provides certain telephone and
other mechanical services. Advisers is covered by fidelity insurance on its
officers, directors and employees for the protection of the Trust. Please see
the Statement of Operations in the financial statements included in the Trust's
Annual Report to Shareholders dated October 31, 1995.

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

Pursuant to the management agreement, each Fund is obligated to pay Advisers a
monthly fee equal to an annual rate of 1% 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 Advisers 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.

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.

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 each Fund as prescribed by any state in which a Fund's
shares are offered for sale. The most stringent current limit requires Advisers
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
2.5% of the first $30 million of average net assets of each Fund, 2.0% of the
next $70 million of average net assets of each Fund and 1.5% of average net
assets of each Fund in excess of $100 million. Expense reductions have not been
necessary based on state requirements.

Under certain circumstances, Advisers will agree with the Board in advance to
waive all or a portion of its management fees. This action may be terminated by
Advisers at any time. For the Pacific Fund, Advisers agreed to waive management
fees of $93,822 and $241,698 for the fiscal years ended October 31, 1993 and
1994, respectively. After this waiver, no management fees were actually charged
to the Fund for the fiscal year ended October 31, 1993, and management fees of
$241,445 were actually charged to the Fund for the fiscal year ended October 31,
1994. Management fees for the fiscal year ended, October 31, 1995 were $526,350.
For the International Fund, Advisers agreed to waive management fees of $108,434
and $234,022 for the fiscal years ended October 31, 1993 and 1994, respectively.
After this waiver, no management fees were actually charged to the Fund for the
fiscal year ended October 31, 1993, and management fees of $206,039 were
actually charged to the Fund for the fiscal year ended October 31, 1994.
Management fees for the fiscal year ended, October 31, 1995 were $517,232.

The management agreement is in effect until April 30, 1996. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Board or by a vote of
the holders of a majority of a Fund's outstanding voting securities, and in
either event by a majority vote of the trustees who are not parties to the
management agreement or interested persons of any such party (other than as
trustees of the Trust), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of a Fund's outstanding voting
securities, or by Advisers on 60 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.

Templeton Global Investors, Inc. ("Business Manager"), Broward Financial Centre,
Suite 2100, Fort Lauderdale, Florida 33394, provides certain administrative
facilities and services for Funds. The services are provided on behalf of the
Funds under the terms of an agreement between Advisers and the Business Manager.

Franklin/Templeton Investor Services, Inc. ("Investor Services"), 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.

Bank of New York, Mutual Funds Division, 90 Washington Street, New York, New
York, 10286, acts as custodian of the securities and other assets of the Fund.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian for cash received in connection with the
purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle, Delaware
19720, acts as custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.

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

How Do the Funds Purchase
Securities For Their Portfolios?
- -------------------------------------------------------------------------------

Under the current Agreements, the selection of brokers and dealers to execute
transactions in each Fund's portfolio is made by Advisers or the Sub-advisor, as
the case may be, in accordance with criteria set forth in the Agreements and any
directions which the Board may give.

When placing a portfolio transaction, the Managers attempt to obtain the best
net price and execution of the transaction. On portfolio transactions done on a
securities exchange, the amount of commission paid by each Fund is negotiated
between Advisers or the Sub-advisor and the broker executing the transaction.
Advisers or the Sub-advisor seeks to obtain the lowest commission rate available
from brokers that are felt to be capable of efficient execution of the
transactions. The determination and evaluation of the reasonableness of the
brokerage commissions paid in connection with portfolio transactions are based
to a large degree on the professional opinions of the persons responsible for
the placement and review of such transactions. These opinions are formed on the
basis of, among other things, the experience of these individuals in the
securities industry and information available to them concerning the level of
commissions being paid by other institutional investors of comparable size.
Advisers or the Sub-advisor will ordinarily place orders for the purchase and
sale of over-the-counter securities on a principal rather than agency basis with
a principal market maker unless, in the opinion of the Managers, a better price
and execution can otherwise be obtained. Purchases of portfolio securities from
underwriters will include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread between the bid
and ask price. 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 interest, Advisers or the Sub-advisor may place portfolio transactions with
brokers who provide the types of services described below, even if it means a
Fund will have to pay a higher commission than if no weight were given to the
broker's furnishing of these services. This will be done only if, in the opinion
of Advisers or the Sub-advisor, the amount of any additional commission is
reasonable in relation to the value of the services. Higher commissions will be
paid only when the brokerage and research services received are bona fide and
produce a direct benefit to a Fund or assist its advisers in carrying out their
responsibilities to a Fund, or when it is otherwise in the best interest of a
Fund to do so, whether or not such services may also be useful to the Managers
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-advisor 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 Managers 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 Managers from dealers effecting transactions
in portfolio securities. The allocation of transactions in order to obtain
additional research services permits the Managers to supplement its own research
and analysis activities and to receive the views and information of individuals
and research staff of other securities firms. As long as it is lawful and
appropriate to do so, Advisers, Sub-advisor 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 will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.

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

During the past three fiscal years ended October 31, the Pacific Fund paid
brokerage commissions totaling $102,203, $176,925, and $193,647 respectively,
and the International Fund paid brokerage commissions totaling $57,590,
$147,306, and $48,199 respectively.

As of October 31, 1995, the Funds did not own securities of their regular
broker-dealers.

How Do I Buy and Sell Shares?
- -------------------------------------------------------------------------------

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

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

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

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

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

Under agreements with certain banks in Taiwan, Republic of China, 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 one of its affiliates, to help defray expenses
of maintaining a service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.

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

Sales
Size of Purchase - U.S. dollars Charge
- -------------------------------------------------------------------------------

Up to $100,000.................. 3%
$100,000 to $1,000,000.......... 2%
Over $1,000,000................. 1%

Purchases and Redemptions through Securities Dealers

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

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

Other Payments to Securities Dealers

As discussed in each Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust departments of
banks, certain designated retirement plans (excluding IRA and IRA Rollovers),
certain non-designated plans, and certain retirement plans of organizations with
collective retirement plan assets of $1 million or more, as described below.
Distributors may make these payments in the form of contingent advance payments,
which may be recovered from the securities dealer or set off against other
payments due to the securities dealer in the event shares are redeemed within 12
months of the calendar month of purchase. Other conditions may apply. All terms
and conditions may be imposed by an agreement between Distributors, or one of
its affiliates, and the securities dealer.

Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to securities dealers who initiate and are responsible for
purchases made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers): 1% on sales of $1 million but less than $2
million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more;
and for purchases made at net asset value by certain 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 $1 million or more, either Distributors or
one of its affiliates, out of its own resources, may pay up to 1% of the amount
invested.

Letter of Intent

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

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

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

Redemptions in Kind

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 the 90-day period. This commitment is irrevocable
without the prior approval of the SEC. In the case of redemption requests in
excess of these amounts, the trustees reserve the right to make payments in
whole or in part in securities or other assets of a Fund 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, you may incur brokerage fees in converting the
securities to cash. Either Fund does not intend to redeem illiquid securities in
kind. Should it happen, however, you may not be able to recover your investment
in a timely manner and you may incur brokerage costs in selling the securities.

Redemptions by Each Fund

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

Reinvestment Date

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

Reports to Shareholders

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

Special Services

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

Investor Services may pay certain financial institutions that maintain omnibus
accounts with each Fund on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such 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. These financial institutions may also charge a fee for
their services directly to their clients.

How Are Fund Shares Valued?
- -------------------------------------------------------------------------------

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

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

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

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the Exchange on each day on which the Exchange is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every Exchange business day. Furthermore, trading takes
place in various foreign markets on days that are not business days for the
Exchange and on which a Fund's net asset value is not calculated. Each Fund
calculates net asset value per share, and therefore effects sales and
redemptions of its shares, as of the scheduled close of the Exchange each day
that the Exchange is open for trading. This calculation does not take place
contemporaneously with the determination of the prices of many of the portfolio
securities used in the calculation and, if events occur which materially affect
the values of these foreign securities, they will be valued at fair value as
determined by management and approved in good faith by the Board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of Fund shares is determined as of such times.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the scheduled close of the Exchange
which will not be reflected in the computation of a Fund's net asset value. If
events materially affecting the values of these securities occur during such
period, then the securities will be valued at their fair value as determined in
good faith by the Board.

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

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 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 shareholders. In such case, the Fund will be subject to federal
and possibly state corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxable to the extent of the Fund's
available earnings and profits.

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

The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to 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 you until the following January, will be
treated for tax purposes as if paid by each Fund and received by the you 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 received, subject to the rules described below. If
such shares are a capital asset in the hands of the shareholder, gain or loss
will be capital gain or loss and will be long-term for federal income tax
purposes if the shares have been held for more than one year.

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

All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of 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.

Each Fund's investment in options (including but not limited to written and
purchased put and call options, options on stock indices, forward conversions,
OTC options, the use of options in spread and straddle transactions, options on
foreign currencies or on futures contracts on such foreign currencies, and
options on financial, interest rate and stock index futures contracts), futures
and forward contracts (including but not limited to financial, interest rate and
stock index futures contracts, and forward currency exchange contracts and other
currency hedging devices), and foreign securities and currencies (including the
above options, and forwards and futures contracts on such currencies), and
certain other securities transactions involving actual or deemed short sales,
spreads, straddles or foreign currency gains or losses are subject to many
complex and special tax rules. For example, OTC options on debt securities and
equity options, including options on stock and on narrow-based stock 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, futures and forward contracts entered
into by the Fund is generally governed by Section 1256 of the Code. These
"Section 1256" positions generally include listed options on debt securities,
options on broad-based stock 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 mark-to-market positions at fiscal year end (except
certain foreign currency gain or loss covered by Section 988 of the Code) will
generally be treated as 60% long-term capital gain or loss and 40% short-term
capital gain or loss. The effect of Section 1256 mark-to-market rules may be to
accelerate income or to convert what otherwise would have been long-term capital
gains into short-term capital gains or short-term capital losses into long-term
capital losses within either Fund. The acceleration of income on Section 1256
positions may require each Fund to recognize 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 both the amount, character and timing of
income distributed to shareholders by either Fund.

When either Fund holds an option or contract which substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities and conversion of
short-term capital losses into long-term capital losses. 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 its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income").

This requirement may limit either Fund's ability to engage in options,
straddles, hedging transactions and forward or futures contracts 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 you.

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. 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, constitute
qualifying income for purposes of the 90% limitation.

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

Currency speculation or the use of currency forward contracts or other currency
instruments for non-hedging purposes may generate gains deemed to be not
directly related to each Fund's principal 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 realization 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 U.S. federal
income taxation on a portion of any "excess distribution" it receives from the
PFIC or any gain it derives from the disposition of such shares, even if such
income is distributed as a taxable dividend by the Fund to its U.S.
shareholders. A Fund may also be subject to additional interest charges in
respect of deferred taxes arising from such distributions or gains. Any federal
income tax paid by 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."

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

Income received by the Funds from sources within foreign countries may be
subject to withholding and other income or similar taxes imposed by such
countries. If more than 50% of the value of each Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, each
Fund will be eligible and intends to elect to "pass through" to each Fund's
shareholders the amount of foreign taxes paid by such Fund. Pursuant to this
election, you will be required to include in gross income (in addition to
taxable dividends actually received) your pro rata share of the foreign taxes
paid by the Fund, and will be entitled either to deduct (as an itemized
deduction) your pro rata share of foreign income and similar taxes in computing
your taxable income or to use it as a foreign tax credit against your U. S.
Federal income tax liability, subject to limitations. No deduction for foreign
taxes may be claimed by you if you do not itemize deductions, but such a
shareholder may be eligible to claim the foreign tax credit (see below). You
will be notified within 60 days after the close of a Fund's taxable year whether
the foreign taxes paid by such Fund will "pass through" for that year.

Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed your U.S. tax attributable to your foreign source taxable income. For
this purpose, if the pass-through election is made, the source of such Fund's
income flows through to its shareholders. With respect to each Fund, gains from
the sale of securities will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign
currency-denominated debt securities, receivables and payables, will be treated
as ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit), including the foreign source passive income
passed through by the Fund. You may be unable to claim a credit for the full
amount of your proportionate share of the foreign taxes paid by a Fund. Foreign
taxes may not be deducted in computing alternative minimum taxable income and
the foreign tax credit can be used to offset only 90% of the alternative minimum
tax (as computed under the Code for purposes of this limitation) imposed on
corporations and individuals. If a Fund is not eligible to make the election to
"pass through" to its shareholders its foreign taxes, the foreign income taxes
it pays generally will reduce investment company taxable income and the
distributions by such Fund will be treated as U.S. source income.

The Funds' Underwriter
- -------------------------------------------------------------------------------

Pursuant to an underwriting agreement in effect until April 30, 1996,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Funds. The underwriting agreement will continue in effect for
successive annual periods provided that its continuance is specifically approved
at least annually by a vote of the Board or by a vote of the holders of a
majority of each Fund's outstanding voting securities, and in either event by a
majority vote of the trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as trustees of the Trust),
cast in person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be terminated by
either party on 90-days' written notice.

Distributors pays the expenses of the distribution of 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.

In connection with the offering of the Pacific Fund's shares, aggregate
underwriting commissions for the fiscal years ended October 31, 1993, 1994, and
1995 were $214,144, $824,060 and $255,959 respectively. After allowances to
dealers, Distributors retained $27,047, $101,327 and $28,742 respectively. For
the International Fund's shares, aggregate underwriting commissions for the same
fiscal periods were $170,962, $597,708 and $222,274 respectively. After
allowances to dealers, Distributors retained $25,157, $77,152 and $25,127
respectively. Distributors may be entitled to reimbursement under each Fund's
distribution plan, as discussed below. Except as noted, Distributors received no
other compensation from the Funds for acting as underwriter.

Distribution Plan

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

Pursuant to the Plans, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum as stated above) for 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, expenses
of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Funds, Distributors or its affiliates.

In addition to the payments to which Distributors or others are entitled under
the Plans, the Plans also provide that to the extent the Funds, Advisers, TICI
or Distributors or other parties on behalf of the Funds, Advisers, TICI or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of shares of a Fund within
the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed
to have been made pursuant to the Plans.

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

The terms and provisions of the Plans relating to required reports, term, and
approval are consistent with Rule 12b-1. 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 will not be
entitled to participate in the Plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing such services, you would be
permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In such an event, changes in the
services provided might occur and you might no longer be able to avail yourself
of any automatic investment or other services then being provided by the bank.
It is not expected that you would suffer any adverse financial consequences as a
result of any of these changes.

The Plans have been approved in accordance with the provisions of Rule 12b-1.
The Plans are effective through April 30, 1996, and renewable annually by a vote
of the Board, including a majority vote of the trustees who are non-interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the 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 related agreement may be
terminated at any time, without penalty, by vote of a majority of the
non-interested trustees on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with Advisers or the
underwriting agreement with Distributors, or by vote of a majority of 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 related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of such Fund's outstanding shares, and all material amendments to the Plans or
any related agreements shall be approved by a vote of the non-interested
trustees, cast in person at a meeting called for the purpose of voting on any
such amendment.

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

For the fiscal year ended October 31, 1995, the Pacific Fund and the
International Fund paid $101,772 and $113,904, respectively to underwriters
pursuant to the Plans.

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 and may
occasionally cite statistics to reflect its volatility or risk. Performance
quotations by investment companies are subject to rules adopted by the SEC.
These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total return
quotations used by 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 front-end sales
charge is deducted from the initial $1,000 purchase order, and income dividends
and capital gains are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each one-, five- and ten-year
period and the deduction of all applicable charges and fees. If a change is made
on the sales charge structure, historical performance information will be
restated to reflect the maximum front-end sales charge currently in effect.

In considering the quotations of total return by the Funds, you should remember
that the maximum front-end sales charge reflected in each quotation is a one
time fee (charged on all direct purchases), which will have its greatest impact
during the early stages of your investment in either Fund. This charge will
affect actual performance less the longer you retain your investment in the
Fund. Each Fund's average annual compounded rates of return for the indicated
periods ended on October 31, 1995 were as follows:

Average Annual
Total Returns
- -------------------------------------------------------------------------------

One-Year Period Since
Period Inception
Ending (9/20/91 to
Fund Name 10/31/95 10/31/95)
- -------------------------------------------------------------------------------

Public Offering Price

Pacific Fund.......... -9.75% 10.30%
International Fund.... -2.82% 9.40%

Net Asset Value

Pacific Fund.......... -5.48% 11.53%
International Fund.... 1.75% 10.63%

The figures based on each Fund's public offering price were calculated according
to the SEC formula:
n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-, five-,
or ten-year periods (or fractional portion thereof)

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

Average Annual
Total Returns

One-Year Period Since
Period Inception
Ending (9/20/91 to
Fund Name 10/31/95 10/31/95)
- -------------------------------------------------------------------------------

Public Offering Price

Pacific Fund.......... -9.75% 49.73%
International Fund.... -2.82% 44.77%

Net Asset Value

Pacific Fund.......... -5.48% 56.76%
International Fund.... 1.75% 51.56%

Current Yield

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

30 Day
Fund Name Yields
- -------------------------------------------------------------------------------

Pacific Growth.................. 3.80%
International Equity............ 2.78%

These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd

where:

a = dividends and interest earned during the period

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

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

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

Current Distribution Rate

Current yield, which is calculated according to a formula prescribed by the SEC,
is not indicative of the amounts which were or will be paid to 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 a 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.

Fiscal Year-End
Distribution Rates
- -------------------------------------------------------------------------------

Public
Offering Net Asset
Fund Name Price Value
- -------------------------------------------------------------------------------

Pacific Fund............. 1.05% 1.10%
International Fund....... 1.37% 1.44%

Volatility

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

Other Performance Quotations

For investors who are permitted to purchase shares of 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 elsewhere in this SAI 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 (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 Advisers,
Sub-advisor and underwriter of both the Franklin Group of Funds and Templeton
Group of Funds.

Comparisons

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

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

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

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

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

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

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

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

h) 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,
Datastream 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.

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.

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

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

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

Other Features and Benefits

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

Miscellaneous Information

The Funds are members of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1948, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 47 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $135
billion in assets under management for more than 3.9 million U.S. based mutual
fund shareholder and other accounts. The Franklin Group of Funds and the
Templeton Group of Funds offers to the public 114 U.S. based mutual funds. A
Fund may identify itself by its NASDAQ symbol or CUSIP number.

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

As of December 7, 1995, the only shareholder known to hold beneficially or of
record more than 5% of the Pacific Fund's outstanding shares was Franklin
Resources, Inc., 777 Mariners Island Blvd., San Mateo, CA 94404, which held
324,110.978 shares of record or 9.2%. 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.

Employees of Resources or its subsidiaries who are access persons under the 1940
Act are permitted to engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed within 24
hours after clearance; (ii) copies of all brokerage confirmations must be sent
to a compliance officer and, within 10 days after the end of each calendar
quarter, a report of all securities transactions must be provided to the
compliance officer; and (iii) access persons involved in preparing and making
investment decisions must, in addition to (i) and (ii) above, file annual
reports of their securities holdings each January and inform the compliance
officer (or other designated personnel) if they own a security that is being
considered for a fund or other client transaction or if they are recommending a
security in which they have an ownership interest for purchase or sale by a fund
or other client.

Ownership and Authority Disputes

In the event of disputes involving multiple claims of ownership or authority to
control your 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.

Financial Statements
- -------------------------------------------------------------------------------

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

Appendix
- -------------------------------------------------------------------------------

Description of Corporate Bond Ratings

Moody's

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

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

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

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

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

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

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

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

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

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

S&P

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

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

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

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

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

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