TEMPLETON DEVELOPING MARKETS TRUST, 497, 1999-05-05

TEMPLETON DEVELOPING MARKETS TRUST
497, 1999-05-05

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PROSPECTUS

TEMPLETON DEVELOPING MARKETS TRUST
ADVISOR CLASS

INVESTMENT STRATEGY
GLOBAL GROWTH

MAY 1, 1999

[FRANKLIN TEMPLETON LOGO]

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

PAGE

CONTENTS

THE FUND
[BEGIN CALLOUT]
INFORMATION ABOUT THE 2 Goal and Strategies
FUND YOU SHOULD KNOW 4 Main Risks
BEFORE INVESTING 8 Performance
[END CALLOUT]
9 Fees and Expenses
10 Management
12 Distributions and Taxes
14 Financial Highlights

YOUR ACCOUNT
[BEGIN CALLOUT]
INFORMATION ABOUT 15 Qualified Investors
QUALIFIED INVESTORS, 16 Buying Shares
ACCOUNT TRANSACTIONS 17 Investor Services
AND SERVICES 19 Selling Shares
[END CALLOUT]
21 Account Policies
23 Questions

FOR MORE INFORMATION
[BEGIN CALLOUT]
WHERE TO LEARN MORE Back Cover
ABOUT THE FUND
[END CALLOUT]

PAGE

THE FUND

[INSERT GRAPHIC OF BULLEYE AND ARROWS] GOAL AND STRATEGIES

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

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

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

[BEGIN CALLOUT]
The fund invests primarily in developing or emerging market companies' common
stocks.
[END CALL OUT]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

/bullet/ Political and social uncertainty (for example, regional conflicts and
risk of war)
/bullet/ Currency exchange rate volatility
/bullet/ Pervasiveness of corruption and crime
/bullet/ Delays in settling portfolio transactions
/bullet/ Risk of loss arising out of systems of share registration and custody
/bullet/ Markets that are comparatively smaller and less liquid than developed
markets. While short-term volatility in these markets can be
disconcerting, declines of more than 50% are not unusual.
/bullet/ Less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the
United States.
/bullet/ Currency and capital controls

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

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

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

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

[BEGIN CALLOUT]
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal.
[END CALLOUT]

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

ILLIQUID SECURITIES The fund may invest up to 10% of its total assets in
restricted securities and securities with a limited trading market. Such a
market can result from political or economic conditions affecting previously
established securities markets, particularly in emerging market countries.

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

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

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

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

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

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

[INSERT GRAPHIC OF BULL AND A BEAR] PERFORMANCE

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

ADVISOR CLASS ANNUAL TOTAL RETURNS/1/, /2/

[INSERT BAR GRAPH]

-9.75% 74.49% -8.58% 0.36% 22.51% -9.18% -18.47%
92 93 94 95 96 97 98
YEAR

[BEGIN CALLOUT]
BEST QUARTER:
Q4 `98
24.16%

WORST QUARTER:
Q4 '97
- -24.81%
[END CALLOUT]

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

<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR 5 YEARS (10/17/91)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Templeton Developing Markets Trust - Advisor Class/2/ -18.47% -3.61% 3.88%
MSCI Emerging Markets Free Index/3/ -25.34% -9.27% 4.13%
IFC Investable Composite Index/4/ -22.01% -10.14% 3.07%
</TABLE>

1. As of March 31, 1999, the fund's year-to-date return was 8.75%.

2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.

3. Source: Standard & Poor's(R) Micropal. This unmanaged index measures the
performance of securities located in 25 emerging market countries such as
Brazil, China, Korea and Poland. It includes reinvested dividends. One cannot
invest directly in an index, nor is an index representative of the fund's
portfolio.

4. Source: Standard & Poor's(R) Micropal. This unmanaged index measures the
performance of emerging market stocks. The index tracks approximately 2000
stocks in countries such as Brazil, Mexico, China and South Korea. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.

[INSERT GRAPHIC OF PERCENTAGE SIGN] FEES AND EXPENSES

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

ADVISOR CLASS
- -------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None
Exchange fee None

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS
- -------------------------------------------------------------------------------
Management fees 1.25%
Distribution and service (12b-1) fees None
Other expenses 0.53%
--------
Total annual fund operating expenses 1.78%
========
EXAMPLE

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

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

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
$181 $560 $964 $2,095

[INSERT GRAPHIC OF BRIEFCASE] MANAGEMENT

Templeton Asset Management Ltd. - Hong Kong branch (Asset Management Hong Kong),
Two Exchange Square, Hong Kong, is the fund's investment manager. Together,
Asset Management Hong Kong and its affiliates manage over $211 billion in
assets.

The fund's lead portfolio manager is:

DR. J. MARK MOBIUS, MANAGING DIRECTOR OF TEMPLETON ASSET MANAGEMENT LTD
Dr. Mobius has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.

The following individuals have secondary portfolio management responsibilities:

TOM WU, DIRECTOR OF TEMPLETON ASSET MANAGEMENT LTD
Mr. Wu has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.

H. ALLAN LAM, PORTFOLIO MANAGER OF TEMPLETON ASSET MANAGEMENT LTD
Mr. Lam has been a manager of the fund since 1991. He joined the Franklin
Templeton Group in 1987.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended December 31, 1998, the fund paid
1.25% of its average daily net assets to the manager.

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

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

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

[INSERT GRAPHIC OF DOLLAR SIGNS AND STOCKS OF COINS] DISTRIBUTIONS AND TAXES

INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least annually representing substantially all of its net investment income and
any net realized capital gains. The amount of this distribution will vary and
there is no guarantee the fund will pay dividends.

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

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

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

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

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

Fund distributions and gains from the sale or exchange of your shares generally
will be subject to state and local income tax. Any foreign taxes the fund pays
on its investments may be passed through to you as a foreign tax credit.
Non-U.S. investors may be subject to U.S. withholding and estate tax. You should
consult your tax advisor about the federal, state, local or foreign tax
consequences of your investment in the fund.

[INSERT GRAPHIC OF A DOLLAR BILL] FINANCIAL HIGHLIGHTS

This table presents the financial performance for Advisor Class since its
inception. This information has been audited by McGladrey & Pullen, LLP.

Year ended December 31,
ADVISOR CLASS 1998 1997/1/
- --------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 12.93 15.43
-----------------
Net investment income (loss) .23 .17
Net realized and unrealized gains (losses) (2.60) (1.63)
-------------------
Total from investment operations (2.37) (1.46)
-------------------
Less distributions from net investment income (.23) (.20)
Less distributions from net realized gains (.05) (.53)
------------------
In excess of net realized gains -- (.31)
------------------
Total distributions (.28) (1.04)
------------------
Net asset value, end of year 10.28 12.93
==================
Total return (%)/2/ (18.47) (9.36)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 115,494 98,101
Ratios to average net assets: (%)
Expenses 1.78 1.69/3/
Net investment income 1.82 1.04/3/
Portfolio turnover rate (%) 37.51 30.06
</TABLE>

1. For the period January 2, 1997 (commencement of operations) to December 31,
1997. Based on average weighted shares outstanding.

2. Total return is not annualized.

3. Annualized.

YOUR ACCOUNT

[INSERT GRAPHIC OF PENCIL MARKING AN 'X'] QUALIFIED INVESTORS

The following investors may qualify to buy Advisor Class shares of the fund.

/bullet/ Qualified registered investment advisors or certified financial
planners with clients invested in any series of Franklin Mutual Series
Fund Inc. on October 31, 1996, or who buy through a broker-dealer or
service agent who has an agreement with Franklin Templeton
Distributors, Inc. (Distributors). Minimum investments: $1,000 initial
and $50 additional.

/bullet/ Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients
participating in comprehensive fee programs. Minimum investments:
$250,000 initial ($100,000 initial for an individual client) and $50
additional.

/bullet/ Officers, trustees, directors and full-time employees of Franklin
Templeton and their immediate family members. Minimum investments:
$100 initial ($50 for accounts with an automatic investment plan) and
$50 additional.

/bullet/ Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.

/bullet/ Accounts managed by the Franklin Templeton Group. Minimum investments:
No initial minimum and $50 additional.

/bullet/ The Franklin Templeton Profit Sharing 401(k) Plan. Minimum
investments: No initial or additional minimums.

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

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. To save time, you can sign up now for services
you may want on your account by completing the appropriate sections of the
application (see the next page).

BUYING SHARES
---------------------------- ----------------------------------- ---------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C> <C> <C>
- -------------------------- ---------------------------- ----------------------------------- ---------------------------------------
[INSERT GRAPHIC OF] THROUGH YOUR INVESTMENT Contact your investment Contact your investment representative
HANDSHAKE] REPRESENTATIVE representative
- -------------------------- ---------------------------- ----------------------------------- ---------------------------------------
[INSERT GRAPHIC OF BY MAIL Make your check payable to Make your check payable to Templeton
ENVELOPE] Templeton Developing Markets Developing Markets Trust. Include your
Trust. account number on the check.

Mail the check and your signed Fill out the deposit slip from your
application to Investor Services. account statement. If you do not have a
slip, include a note with your name,
the fund name, and your account number.

Mail the check and deposit slip or
note to Investor Services.
- -------------------------- ---------------------------- ----------------------------------- ---------------------------------------
[INSERT GRAPHIC OF BY WIRE Call to receive a wire control Call to receive a wire control number
THREE LIGHNING BOLTS] 1-800/632-2301 number and wire instructions. and wire instructions.
(or 1-650/312-2000
collect) Wire the funds and mail your To make a same day wire investment,
signed application to Investor please call us by 1:00 p.m. pacific
Services. Please include the wire time and make sure your wire arrives by
control number or your new 3:00 p.m.
account number on the application.

To make a same day wire
investment, please call
us by 1:00 p.m. pacific
time and make sure your
wire arrives by 3:00
p.m.

- -------------------------- ---------------------------- ----------------------------------- ---------------------------------------
[INSERT GRAPHIC OF TWO BY EXCHANGE Call Shareholder Services at the Call Shareholder Services at the number
ARROWS POINTING IN number below, or send signed below, or send signed written
OPPOSITE DIRECTIONS] written instructions. (Please see instructions. (Please see page 18 for
page 18 for information on information on exchanges.)
exchanges.)
- -------------------------- ---------------------------- ----------------------------------- ---------------------------------------
</TABLE>

FRANKLIN TEMPLETON INVESTOR SERVICES, P.O. BOX 33030,
ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

[INSERT GRAPHIC OF PERONS WITH A HEADSET] INVESTOR SERVICES

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account in the same share class of the fund or in Advisor Class or
Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial sales
charges and contingent deferred sales charges (CDSCs) will not apply if you
reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.

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

TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.

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

As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.

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

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

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

Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
22).

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

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.

[INSERT GRAPHIC OF A CERTIFICATE] SELLING SHARES

You can sell your shares at any time.

SELLING SHARES IN WRITING Requests to sell $100,000 or less can generally be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:

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

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

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

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

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

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

SELLING SHARES
----------------------------- --------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
<S> <C> <C>
- ------------------------- ----------------------------- --------------------------------------------------------------------
[INSERT GRAPHIC OF THROUGH YOUR INVESTMENT Contact your investment representative
HANDS SHAKING] REPRESENTATIVE
- ------------------------- ----------------------------- ---------------------------------------------------------------------------
[INSERT GRAPHIC OF
ENVELOPE] BY MAIL Send written instructions and endorsed share certificates (if you
hold share certificates) to Investor Services. Corporate, partnership
or trust accounts may need to send additional documents.

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

A check will be mailed to the name(s) and address on the account, or
otherwise according to your written instructions.
- ------------------------- ----------------------------- ---------------------------------------------------------------------------
[INSERT GRAPHIC OF
TELEPHONE] BY PHONE As long as your transaction is for $100,000 or less, you do not hold share
certificates and you have not changed your address by phone within the last
1-800/632-2301 15 days, you can sell your shares by phone.

A check will be mailed to the name(s) and address on the account. Written
instructions,with a signature guarantee, are required to send the check to
another address or to make it payable to another person.
- ------------------------- ----------------------------- ---------------------------------------------------------------------------
[INSERT GRAPHIC OF THREE
LIGHTNING BOLDS] BY WIRE You can call or write to have redemption proceeds of $1,000 or more wired
to a bank or escrow account. See the policies above for selling shares by
mail or phone.

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

Requests received in proper form by 1:00 p.m. pacific time will be wired
the next business day.

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[INSERT GRAPHIC OF TWO
ARROWS POINTING IN BY EXCHANGE Obtain a current prospectus for the fund you are considering.
OPPOSITE DIRECTIONS]
Call Shareholder Services at the number below, or send signed written
instructions. See the policies above for selling shares by mail or phone.

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

[INSERT GRAPHIC OF PAPER AND PEN] ACCOUNT POLICIES

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

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

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

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee accounts) because you sell some of your shares, we may mail you a
notice asking you to bring the account back up to its applicable minimum
investment amount. If you choose not to do so within 30 days, we may close your
account and mail the proceeds to the address of record.

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

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

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

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

MARKET TIMERS The fund does not allow investments by market timers. You will be
considered a market timer if you have (i) requested an exchange out of the fund
within two weeks of an earlier exchange request, or (ii) exchanged shares out of
the fund more than twice in a calendar quarter, or (iii) exchanged shares equal
to at least $5 million, or more than 1% of the fund's net assets, or (iv)
otherwise seem to follow a timing pattern. Shares under common ownership or
control are combined for these limits.

ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:

/bullet/ The fund may refuse any order to buy shares, including any purchase
under the exchange privilege.

/bullet/ At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.

/bullet/ The fund may modify or discontinue the exchange privilege on 60 days'
notice.

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

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

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

/bullet/ To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to the fund promptly.

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

[INSERT GRAPHIC OF QUESTION MARK] QUESTIONS

If you have any questions about the fund or your account, you can write to us at
P.O. Box 33030, St. Petersburg, FL 33733-8030. You can also call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.

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

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